Third Quarter 2009
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 OctoberApril 3, 20092010
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes x No ¨
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 definitionthe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
314,813,390315,125,260 shares of common stock were outstanding at OctoberApril 3, 2009.2010.
Form 10-Q
OctoberApril 3, 20092010
INDEX
Page | ||||||
Part I | Financial Information | |||||
Item 1 | Financial Statements (unaudited) | |||||
Condensed Consolidated Statements of Earnings - Three Months (13 Weeks) Ended April 3, 2010 and | 3 | |||||
Condensed Consolidated Balance Sheets - | 4 | |||||
Condensed Consolidated Statements of Cash Flows - | 5 | |||||
6 | ||||||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3 | 22 | |||||
Item 4 | 22 | |||||
Part II | Other Information | |||||
Item 1A | 23 | |||||
Item | ||||||
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
Nucor Corporation Condensed Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | |||||||||||||||||||
Oct. 3, 2009 | Sept. 27, 2008 | Oct. 3, 2009 | Sept. 27, 2008 | April 3, 2010 | April 4, 2009 | ||||||||||||||||
Net sales | $ | 3,120,005 | $ | 7,447,520 | $ | 8,252,352 | $ | 19,512,388 | $ | 3,654,842 | $ | 2,654,319 | |||||||||
Costs, expenses and other: | |||||||||||||||||||||
Cost of products sold | 3,000,851 | 5,990,407 | 8,319,079 | 15,941,654 | 3,442,047 | 2,778,324 | |||||||||||||||
Marketing, administrative and other expenses | 105,913 | 215,755 | 338,214 | 605,641 | 92,594 | 87,379 | |||||||||||||||
Equity in losses of unconsolidated affiliates | 18,377 | 37,997 | |||||||||||||||||||
Interest expense, net | 34,725 | 23,030 | 99,047 | 68,109 | 37,788 | 32,365 | |||||||||||||||
3,141,489 | 6,229,192 | 8,756,340 | 16,615,404 | 3,590,806 | 2,936,065 | ||||||||||||||||
Earnings (loss) before income taxes and noncontrolling interests | (21,484 | ) | 1,218,328 | (503,988 | ) | 2,896,984 | 64,036 | (281,746 | ) | ||||||||||||
Provision for (benefit from) income taxes | (16,173 | ) | 407,525 | (180,383 | ) | 915,966 | 22,842 | (91,221 | ) | ||||||||||||
Net earnings (loss) | (5,311 | ) | 810,803 | (323,605 | ) | 1,981,018 | 41,194 | (190,525 | ) | ||||||||||||
Earnings attributable to noncontrolling interests | 24,227 | 76,213 | 28,915 | 255,920 | |||||||||||||||||
Earnings (loss) attributable to noncontrolling interests | 10,230 | (880 | ) | ||||||||||||||||||
Net earnings (loss) attributable to Nucor stockholders | $ | (29,538 | ) | $ | 734,590 | $ | (352,520 | ) | $ | 1,725,098 | $ | 30,964 | $ | (189,645 | ) | ||||||
Net earnings (loss) per share: | |||||||||||||||||||||
Basic | $ | (0.10 | ) | $ | 2.31 | $ | (1.12 | ) | $ | 5.71 | $ | 0.10 | $ | (0.60 | ) | ||||||
Diluted | $ | (0.10 | ) | $ | 2.31 | $ | (1.12 | ) | $ | 5.70 | $ | 0.10 | $ | (0.60 | ) | ||||||
Average shares outstanding: | |||||||||||||||||||||
Basic | 315,173 | 316,713 | 314,743 | 301,156 | 315,461 | 314,319 | |||||||||||||||
Diluted | 315,173 | 317,013 | 314,743 | 301,764 | 316,228 | 314,319 | |||||||||||||||
Dividends declared per share | $ | 0.35 | $ | 0.52 | $ | 1.05 | $ | 1.56 | $ | 0.36 | $ | 0.35 |
See notes to condensed consolidated financial statements.
Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
Oct. 3, 2009 | Dec. 31, 2008 | April 3, 2010 | Dec. 31, 2009 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,957,671 | $ | 2,355,130 | $ | 1,659,589 | $ | 2,016,981 | ||||||||
Short-term investments | 263,472 | — | 340,495 | 225,000 | ||||||||||||
Accounts receivable, net | 1,156,510 | 1,228,807 | 1,302,316 | 1,116,035 | ||||||||||||
Inventories | 1,310,114 | 2,408,157 | ||||||||||||||
Inventories, net | 1,624,971 | 1,312,903 | ||||||||||||||
Other current assets | 514,785 | 405,392 | 534,415 | 511,329 | ||||||||||||
Total current assets | 5,202,552 | 6,397,486 | 5,461,786 | 5,182,248 | ||||||||||||
Property, plant and equipment, net | 4,071,229 | 4,131,861 | 3,963,467 | 4,013,836 | ||||||||||||
Goodwill | 1,794,761 | 1,732,045 | 1,831,294 | 1,803,021 | ||||||||||||
Other intangible assets, net | 915,993 | 946,545 | 905,143 | 902,922 | ||||||||||||
Other assets | 685,477 | 666,506 | 641,012 | 669,877 | ||||||||||||
Total assets | $ | 12,670,012 | $ | 13,874,443 | $ | 12,802,702 | $ | 12,571,904 | ||||||||
LIABILITIES | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Short-term debt | $ | 3,428 | $ | 8,622 | $ | 9,075 | $ | 1,748 | ||||||||
Long-term debt due within one year | — | 180,400 | 6,000 | 6,000 | ||||||||||||
Accounts payable | 749,246 | 534,161 | 941,458 | 707,038 | ||||||||||||
Federal income taxes payable | — | 199,044 | ||||||||||||||
Salaries, wages and related accruals | 207,912 | 580,090 | 186,885 | 154,997 | ||||||||||||
Accrued expenses and other current liabilities | 351,965 | 351,875 | 397,738 | 357,274 | ||||||||||||
Total current liabilities | 1,312,551 | 1,854,192 | 1,541,156 | 1,227,057 | ||||||||||||
Long-term debt due after one year | 3,086,200 | 3,086,200 | 3,080,200 | 3,080,200 | ||||||||||||
Deferred credits and other liabilities | 687,341 | 677,370 | 672,004 | 680,358 | ||||||||||||
Total liabilities | 5,086,092 | 5,617,762 | 5,293,360 | 4,987,615 | ||||||||||||
EQUITY | ||||||||||||||||
Nucor stockholders’ equity: | ||||||||||||||||
Common stock | 149,863 | 149,628 | 149,930 | 149,877 | ||||||||||||
Additional paid-in capital | 1,665,862 | 1,629,981 | 1,688,263 | 1,675,777 | ||||||||||||
Retained earnings | 7,175,488 | 7,860,629 | 7,036,907 | 7,120,218 | ||||||||||||
Accumulated other comprehensive loss, net of income taxes | (63,295 | ) | (190,262 | ) |
| (58,608 | ) |
| (41,056 | ) | ||||||
Accumulated other comprehensive loss, | ||||||||||||||||
(1,514,465 | ) | (1,520,772 | ) | (1,510,856 | ) | (1,514,290 | ) | |||||||||
Total Nucor stockholders’ equity | 7,305,636 | 7,390,526 | ||||||||||||||
7,413,453 | 7,929,204 | |||||||||||||||
Noncontrolling interests | 170,467 | 327,477 | 203,706 | 193,763 | ||||||||||||
Total equity | 7,583,920 | 8,256,681 | 7,509,342 | 7,584,289 | ||||||||||||
Total liabilities and equity | $ | 12,670,012 | $ | 13,874,443 | $ | 12,802,702 | $ | 12,571,904 | ||||||||
See notes to condensed consolidated financial statements.
Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | |||||||||||||||
Oct. 3, 2009 | Sept. 27, 2008 | April 3, 2010 | April 4, 2009 | |||||||||||||
Operating activities: | Operating activities: |
| ||||||||||||||
Net earnings (loss) | $ | (323,605 | ) | $ | 1,981,018 | $ | 41,194 | $ | (190,525 | ) | ||||||
Adjustments: | Adjustments: |
| ||||||||||||||
Depreciation | 367,966 | 354,291 | 127,883 | 119,699 | ||||||||||||
Amortization | 54,138 | 51,056 | 18,221 | 18,142 | ||||||||||||
Stock-based compensation | 43,460 | 38,428 | 10,396 | 10,225 | ||||||||||||
Deferred income taxes | 51,104 | (111,536 | ) | 2,443 | (51,693 | ) | ||||||||||
Equity in losses of unconsolidated affiliates | 18,377 | 37,997 | ||||||||||||||
Changes in assets and liabilities (exclusive of acquisitions): | ||||||||||||||||
Accounts receivable | 92,210 | (437,792 | ) | (179,297 | ) | 292,398 | ||||||||||
Inventories | 1,113,104 | (1,083,823 | ) | (303,001 | ) | 522,744 | ||||||||||
Accounts payable | 212,291 | 199,364 | 232,877 | (127,657 | ) | |||||||||||
Federal income taxes | (381,153 | ) | 163,514 | 17,566 | (204,553 | ) | ||||||||||
Salaries, wages and related accruals | (366,261 | ) | 165,016 | 35,747 | (404,173 | ) | ||||||||||
Other | 94,689 | 2,714 | (25,443 | ) | (8,462 | ) | ||||||||||
Cash provided by operating activities | 957,943 | 1,322,250 | ||||||||||||||
Cash provided by (used in) operating activities | (3,037 | ) | 14,142 | |||||||||||||
Investing activities: | Investing activities: |
| ||||||||||||||
Capital expenditures | (316,024 | ) | (806,152 | ) | (54,216 | ) | (125,966 | ) | ||||||||
Investment in and advances to affiliates | (60,295 | ) | (704,945 | ) | (80,461 | ) | (8,468 | ) | ||||||||
Repayment of advances to affiliates | 48,884 | — | ||||||||||||||
Disposition of plant and equipment | 10,486 | 8,676 | 3,046 | 2,234 | ||||||||||||
Acquisitions (net of cash acquired) | (24,714 | ) | (1,827,165 | ) | (55,694 | ) | — | |||||||||
Purchases of investments | (261,389 | ) | (234,461 | ) | (240,495 | ) | — | |||||||||
Proceeds from the sale of investments | — | 392,055 | 125,000 | — | ||||||||||||
Proceeds from currency derivative contracts | — | 1,441,863 | ||||||||||||||
Settlement of currency derivative contracts | — | (1,424,291 | ) | |||||||||||||
Cash used in investing activities | (651,936 | ) | (3,154,420 | ) | (253,936 | ) | (132,200 | ) | ||||||||
Financing activities: | Financing activities: |
| ||||||||||||||
Net change in short-term debt | (5,222 | ) | (143,480 | ) | ||||||||||||
Proceeds from the issuance of long-term debt | — | 989,715 | ||||||||||||||
Net change in short-term debt (exclusive of acquisitions) | 7,312 | (2,320 | ) | |||||||||||||
Repayment of long-term debt | (180,400 | ) | — | — | (175,000 | ) | ||||||||||
Bond issuance costs | — | (6,938 | ) | |||||||||||||
Issuance of common stock | 3,556 | 1,995,921 | 1,462 | 1,028 | ||||||||||||
Excess tax benefits from stock-based compensation | (3,200 | ) | 10,600 | 500 | (700 | ) | ||||||||||
Distributions to noncontrolling interests | (186,104 | ) | (252,569 | ) | (294 | ) | (49,339 | ) | ||||||||
Cash dividends | (332,096 | ) | (493,002 | ) | (114,193 | ) | (110,514 | ) | ||||||||
Acquisition of treasury stock | — | (7,684 | ) | |||||||||||||
Cash provided by (used in) financing activities | (703,466 | ) | 2,092,563 | |||||||||||||
Cash used in financing activities | (105,213 | ) | (336,845 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents | (397,459 | ) | 260,393 | |||||||||||||
Effect of exchange rate changes on cash | 4,794 | (148 | ) | |||||||||||||
Decrease in cash and cash equivalents | (357,392 | ) | (455,051 | ) | ||||||||||||
Cash and cash equivalents - beginning of year | 2,355,130 | 1,393,943 | 2,016,981 | 2,355,130 | ||||||||||||
Cash and cash equivalents - end of nine months | $ | 1,957,671 | $ | 1,654,336 | ||||||||||||
Cash and cash equivalents - end of three months | $ | 1,659,589 | $ | 1,900,079 | ||||||||||||
See notes to condensed consolidated financial statements.
Nucor Corporation –Notes– 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 unless otherwise noted. The information furnished has not been audited; however, the December 31, |
Recently Adopted Accounting Pronouncements - In January 2009,2010, Nucor adopted accounting guidance that amends current accounting and reporting forregarding the consolidation of variable interest entities (“VIEs”). The new guidance requires a noncontrollingqualitative approach to identifying a controlling financial interest in a subsidiaryVIE, and requires ongoing reassessments of whether an entity is a VIE and whether an entity is the deconsolidationprimary beneficiary of a subsidiary. Upon adoptionVIE. Adoption of this guidance, noncontrolling interest of $327.5 million was reclassified to equity as of December 31, 2008 andaccounting standard had no impact on Nucor’s consolidated financial statements during the corresponding earnings attributable to noncontrolling interests for the periodsthree months ended September 27, 2008 have been presented as reconciling items in the condensed consolidated statements of earnings. In January 2009, Nucor adopted accounting guidance that 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. The impact to diluted and basic earnings per share for the prior year periods due to adoption of this guidance was not significant.April 3, 2010.
In the second quarter of 2009,January 2010, Nucor adopted accounting guidance that requires disclosures aboutan entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value of financial instruments for publicly traded companies for both interimmeasurements and annual periods. This provision did not have a material impact on Nucor’s consolidated financial statements. See Note 8, “Fair Value Measurements,”describe the reasons for the relevant disclosures.
Also in the second quarter of 2009, Nucor adopted a new accounting standard that establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This accounting standard requires the disclosure of the date through which an entity has evaluated subsequent events. See Note 1, “Basis of Interim Presentation,” for the relevant disclosures. The adoptiontransfers. Adoption of this accounting standard did not have a material impact on Nucor’s consolidated financial statements.
In June 2009, the Financial Accounting Standards Board (FASB) issued guidance codifying generally accepted accounting principles in the United States (GAAP). While the guidance was not intended to change GAAP, it did change the way the Company references authoritative literature. The Company has adopted this authoritative guidance as of October 3, 2009.
Recently Issued Accounting Pronouncements - In June 2009,January 2010, the FASBFinancial Accounting Standards Board issued authoritative guidance regarding financialchanges to disclosure requirements for fair value measurements. For fair value measurements using significant unobservable inputs (Level 3), the changes require a reporting by enterprises involved with variable interest entities. This standard becomesentity to present separate information about gross purchases, sales, issuances and settlements. These changes are effective for Nucor in the first quarter of 2010. Management is currently evaluating the impactbeginning January 2011. The adoption of this standard.guidance is not expected to have an impact on the consolidated financial statements.
2. | INVENTORIES: Inventories consist of approximately |
Inventories valued using the last-in, first-out (LIFO) method of accounting represent approximately 49%47% of total inventories as of OctoberApril 3, 2009 (65%2010 (48% as of December 31, 2008)2009). If the first-in, first-out (FIFO) method of accounting had been used, inventories would have been $573.4
$480.4 million higher at OctoberApril 3, 20092010 ($923.4456.4 million higher at December 31, 2008)2009). Use of the lower of cost or market methodmethodology reduced inventories by $11.8$4.6 million at OctoberApril 3, 20092010 ($51.39.2 million at December 31, 2008)2009).
3. | PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of |
During the third quarter, $12.3 million of costs related to an ongoing project that were capitalized in the first quarter were expensed. Based upon management’s evaluation of this out-of-period adjustment, it was not considered material to either period.
4. | 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, 2008 | $ | 208,466 | $ | 755,562 | $ | 665,075 | $ | 102,942 | $ | 1,732,045 | |||||||
Purchase price adjustments of previous acquisitions | 60,000 | (19,979 | ) | — | (14,090 | ) | 25,931 | ||||||||||
Translation | — | 36,785 | — | — | 36,785 | ||||||||||||
Balance at October 3, 2009 | $ | 268,466 | $ | 772,368 | $ | 665,075 | $ | 88,852 | $ | 1,794,761 | |||||||
Steel Mills | Steel Products | Raw Materials | All Other | Total | |||||||||||
Balance at December 31, 2009 | $ | 268,466 | $ | 780,628 | $ | 665,075 | $ | 88,852 | $ | 1,803,021 | |||||
Acquisitions | — | — | 14,841 | — | 14,841 | ||||||||||
Translation | — | 13,432 | — | — | 13,432 | ||||||||||
Balance at April 3, 2010 | $ | 268,466 | $ | 794,060 | $ | 679,916 | $ | 88,852 | $ | 1,831,294 | |||||
During the second quarter of 2009, $35.3 million of the goodwill originally allocated to the steel products segment and $24.7 million of the goodwill originally allocated to the steel trading businesses included in the “all other” category for the 2008 acquisition of Ambassador Steel Corporation was reallocated to the steel mills segment, for a total of $60.0 million. The reallocation was made on the basis that expected cost synergies will benefit the steel mills.
Nucor completed its annual goodwill impairment testing during the fourth quarter of 2008. Based on the results of that evaluation, the Company2009 and concluded that there was no impairment of goodwill for any of itsour reporting units. The annual evaluation performed in 20082009 used forward-looking projections and included significant expected improvements in the future cash flows of the Company’stwo of Nucor’s reporting units. Based on an ongoing evaluation of relevant facts and circumstances, including recent performance below projected results, the Company reevaluated theunits, Buildings Group and Cold FinishSteel Trading. As a result of the global economic recession, operating results of each of these reporting units duringdeclined significantly in the secondfourth quarter of 20092008 and determined that there was no goodwill impairment at that time. Further interim testing for goodwill impairment was not deemed necessary during the third quarter. However, all reportingremained depressed throughout 2009. Nucor expects operating results of these two units will be subject to the required annual impairment test during the fourth quarter.improve when general economic conditions improve. If ourNucor’s assessment of the relevant facts and circumstances changes, economic conditions fail to improve, or actual performance in any of these reporting units falls short of projectedexpected results, noncash impairment charges may be required. Total goodwill amounts associated with the Buildings Group and Cold FinishSteel Trading reporting units as of OctoberApril 3, 20092010 were $165.3 million and $43.1$88.9 million, respectively. An impairment of goodwill may also lead Nucor to record an impairment of other intangible assets. Total finite-lived intangible assets associated with the Buildings Group and Steel Trading reporting units as of April 3, 2010 were $90.8 million and $13.4 million, respectively.
Intangible assets with estimated useful lives of five to 22 years are amortized on a straight-line or accelerated basis and are comprised of the following (in thousands):
October 3, 2009 | December 31, 2008 | |||||||||||
Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||
Customer relationships | $ | 918,279 | $ | 126,991 | $ | 897,477 | $ | 80,235 | ||||
Trademarks and trade names | 121,518 | 11,679 | 118,734 | 7,150 | ||||||||
Other | 27,869 | 13,003 | 27,869 | 10,150 | ||||||||
$ | 1,067,666 | $ | 151,673 | $ | 1,044,080 | $ | 97,535 | |||||
Customer relationships Trademarks and trade names Other April 3, 2010 December 31, 2009 Gross
Amount Accumulated
Amortization Gross
Amount Accumulated
Amortization $ 942,301 $ 158,697 $ 922,839 $ 142,886 123,117 14,737 122,136 13,159 27,869 14,710 27,869 13,877 $ 1,093,287 $ 188,144 $ 1,072,844 $ 169,922
Intangible asset amortization expense for the first quarter of 2010 and 2009 was $18.2 million and $18.1 million, and $19.0 million in the third quarter of 2009 and 2008, respectively, and $54.1 million and $51.1 million in the first nine months of 2009 and 2008, respectively. Annual amortization expense is estimated to be $71.3 million in 2009; $68.8$68.6 million in 2010; $65.8$64.3 million in 2011; $62.7$61.3 million in 2012; and $59.3$57.8 million in 2013.2013; and $55.7 million in 2014.
5. | EQUITY INVESTMENTS: The carrying value of our equity investments in domestic and foreign companies was |
Nucor’s most significant equity method investment includesIn 2008, Nucor acquired a 50% economic and voting interest in Duferdofin-NucorDuferdofin Nucor S.r.l., aan Italian steel manufacturer with three structural mills located in Italy.manufacturer. Nucor accounts for the investment in Duferdofin-NucorDuferdofin Nucor (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the partners. Duferdofin-Nucor losses attributable to Nucor included a pre-tax charge to write down inventories to the lower of cost or market of $45.8 million in the first nine months of 2009.members.
Nucor’s investment in Duferdofin-NucorDuferdofin Nucor at OctoberApril 3, 20092010 was $547.8$546.6 million ($581.9534.0 million at December 31, 2008)2009). Nucor’s 50% share of the total net assets of Duferdofin-Nucor on a historical basisDuferdofin Nucor was $42.2$83.3 million at OctoberApril 3, 2009,2010, resulting in a basis difference of $505.6$463.3 million due to the step-up to fair value of certain assets and liabilities attributable to Duferdofin-NucorDuferdofin Nucor as well as the identification of goodwill ($231.6325.2 million) and definite-livedfinite-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. Amortization expense and other purchase accounting adjustments associated with the fair value step-up was $5.9 million and $12.3 million in the first quarter of 2010 and 2009, respectively.
As
During the first quarter of October 3, 2009,2010, Duferdofin Nucor heldrepaid €35 million ($48.9 million as of the payment date) of notes receivable from Duferdofin-Nucorthat were outstanding with Nucor as of December 31, 2009. Nucor then contributed additional capital in the form of equity of €45 million ($63.7 million as of the contribution date) to the joint venture. Also, Nucor issued an additional note receivable to Duferdofin Nucor with a notional value of 35€10 million Euro ($50.9 million)13.5 million as of April 3, 2010). The notesnote receivable bearbears interest at the twelve-month Euro Interbank Offered Rate (Euribor) as of the date of the notesnote plus 1% per year. The interest rates wererate will reset on September 30, 20092010 to the Euribor twelve month rate as of that date plus 1% per year. The principal amount of 9 million Euros ($13.1 million) is due on April 30, 2011. The remaining principal amount of 26 million Euros ($37.8 million) is due on MayJanuary 31, 2011.2016. Accordingly, the notesnote receivable have beenwas classified in other assets in the condensed consolidated balance sheet.sheets as of April 3, 2010.
Nucor reviews its equity investments for impairment if and when circumstances indicate a potential loss in value of an investment which is other than a temporary decline. In the fourth quarter of 2009, the Company concluded it had a triggering event requiring assessment for impairment of its equity investment in Duferdofin Nucor due to the significant decline in the global demand for steel, which has significantly impacted the financial results of the equity investment. Based on the results of the impairment analysis, the Company determined that the estimated fair value of our investment in Duferdofin Nucor approximated the carrying value as of December 31, 2009. Nucor determines the estimated fair value of our investment in Duferdofin Nucor using a discounted cash flow model, based on a weighted-average of multiple discounted cash flow scenarios. The assumptions that most significantly affect the fair value determination include projected revenues and the discount rate. The Company will continue to monitor trends in the global demand for steel, specifically within the European and North African markets in which Duferdofin Nucor operates. It is reasonably possible that the estimates used in our valuation as of December 31, 2009 could change based on actual performance and result in a determination that there is an other than temporary impairment of our investment.
6. | CURRENT LIABILITIES: Book overdrafts, included in accounts payable in the condensed consolidated balance sheets, were |
7. | 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 are recorded as adjustments to other comprehensive income (loss), net of tax, or recognized in net earnings, as appropriate.
At OctoberApril 3, 2009,2010, natural gas swaps covering 40.528.5 million MMBTUs (extending through December 2012) and foreign currency contracts with a notional value of $25.7$4.9 million (extending through May 2010) were outstanding.
The following tables summarize information regarding Nucor’s derivative instruments (in thousands):
Fair ValueValues of Derivative Instruments
October 3, 2009 | Balance Sheet Location | Fair Value at | |||||||||||||
Balance Sheet Location | Fair Value | April 3, 2010 | Dec. 31, 2009 | ||||||||||||
Asset derivatives not designated as hedging instruments: | |||||||||||||||
Commodity contracts | Other current assets | $ | 599 | ||||||||||||
Foreign exchange contracts | Other current assets | 46 | Other current assets | $ | 19 | $ | 445 | ||||||||
Total asset derivatives not designated as hedging instruments | $ | 645 | |||||||||||||
Liability derivatives designated as hedging instruments: | |||||||||||||||
Commodity contracts | Accrued expenses and other current liabilities | $ | 13,500 | Accrued expenses and other current liabilities | $ | (18,100 | ) | $ | (23,000 | ) | |||||
Commodity contracts | Deferred credits and other liabilities | 66,200 | Deferred credits and other liabilities | (71,500 | ) | (72,900 | ) | ||||||||
Total liability derivatives designated as hedging instruments | 79,700 | (89,600 | ) | (95,900 | ) | ||||||||||
Liability derivatives not designated as hedging instruments: | |||||||||||||||
Foreign exchange contracts | Accrued expenses and other current liabilities | 1,104 | |||||||||||||
Commodity contracts | Accrued expenses and other current liabilities | (1,701 | ) | (3,665 | ) | ||||||||||
Total liability derivatives | $ | 80,804 | $ | (91,301 | ) | $ | (99,565 | ) | |||||||
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Earnings
Derivatives in Cash Flow Hedging Relationships | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Three Months (13 Weeks) Ended October 3, 2009 | Location of Gain or | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Three Months (13 Weeks) Ended October 3, 2009 | Location of Gain or Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Three Months (13 Weeks) Ended October 3, 2009 | ||||||||||
Commodity contracts | $ | (604 | ) | Cost of products sold | $ | (10,754 | ) | Cost of products sold | $ | 300 | |||||
Derivatives in Cash Flow Hedging Relationships | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Three Months (13 Weeks) Ended October 3, 2009 | Location of Gain or | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Three Months (13 Weeks) Ended October 3, 2009 | Location of Gain or Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Three Months (13 Weeks) Ended October 3, 2009 | |||||||||||
Commodity contracts | $ | (35,896 | ) | Cost of products sold | $ | (30,582 | ) | Cost of products sold | $ | (2,100 | ) | |||||
Statement of Earnings Location Flow Hedging Relationships Commodity contracts Amount of Gain or
(Loss) Recognized
in OCI on
Derivative
(Effective Portion) Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI into Earnings
(Effective Portion) Amount of Gain or
(Loss) Recognized
in Earnings on
Derivative
(Ineffective Portion) Derivatives in Cash Three Months (13 weeks) Ended Three Months (13 weeks) Ended Three Months (13 weeks) Ended April 3, 2010 April 4, 2009 April 3, 2010 April 4, 2009 April 3, 2010 April 4, 2009 Cost of products sold $ (22,648 ) $ (36,130 ) $ (6,791 ) $ (9,139 ) $ 100 $ (2,700 )
Derivatives Not Designated as Hedging Instruments
Derivatives Not Designated as Hedging Instruments | Statement of Earnings Location | Amount of Gain or (Loss) Recognized in Earnings on Derivative | |||||||||||||||||
Three Months (13 weeks) Ended | |||||||||||||||||||
Location of Gain or | Amount of Gain or (Loss) Recognized in Income on Derivative Three Months (13 weeks) Ended October 3, 2009 | Amount of Gain or (Loss) Recognized in Income on Derivative Nine Months (39 weeks) Ended October 3, 2009 | April 3, 2010 | April 4, 2009 | |||||||||||||||
Commodity contracts | Cost of products sold | $ | (1,013 | ) | $ | 1,201 | Cost of products sold | $ | 105 | $ | 1,283 | ||||||||
Foreign exchange contracts | Cost of products sold | (1,650 | ) | (2,920 | ) | Cost of products sold | 85 | (491 | ) | ||||||||||
Total | $ | (2,663 | ) | $ | (1,719 | ) | $ | 190 | $ | 792 | |||||||||
8. | FAIR VALUE MEASUREMENTS: The following table summarizes information regarding Nucor’s financial assets and financial liabilities that are measured at fair value as of |
Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||||||||
Description | Carrying Amount in Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||||
Description | Carrying Amount in Condensed Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||
Cash equivalents | $ | 1,860,159 | $ | 1,860,159 | $ | — | $ | — | $ | 1,559,830 | $ | 1,559,830 | $ | — | |||||||||||||
Short-term investments | 263,472 | 263,472 | — | — | 340,495 | 340,495 | — | ||||||||||||||||||||
Derivatives | 645 | — | 645 | ||||||||||||||||||||||||
Foreign exchange contracts | 19 | — | 19 | ||||||||||||||||||||||||
Total assets | $ | 2,124,276 | $ | 2,123,631 | $ | 645 | $ | — | $ | 1,900,344 | $ | 1,900,325 | $ | 19 | — | ||||||||||||
Liabilities: | |||||||||||||||||||||||||||
Derivatives | $ | (80,804 | ) | $ | — | $ | (80,804 | ) | $ | — | |||||||||||||||||
Commodity contracts | $ | (91,301 | ) | — | $ | (91,301 | ) | — | |||||||||||||||||||
As of December 31, 2009 | |||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||
Cash equivalents | $ | 1,907,066 | $ | 1,907,066 | $ | — | |||||||||||||||||||||
Short-term investments | 225,000 | 225,000 | — | ||||||||||||||||||||||||
Foreign exchange contracts | 445 | — | 445 | ||||||||||||||||||||||||
Total assets | $ | 2,132,511 | $ | 2,132,066 | $ | 445 | — | ||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||
Commodity contracts | $ | (99,565 | ) | — | $ | (99,565 | ) | — | |||||||||||||||||||
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.
The fair value of long-term debt, including current maturities, was approximately $3.36$3.27 billion at OctoberApril 3, 20092010 ($3.133.30 billion at December 31, 2008)2009). The fair value estimates were based on readily available market prices of our debt at OctoberApril 3, 20092010 and December 31, 2008,2009, or similar debt with the same maturities, rating and interest rates.
9. | CONTINGENCIES: Nucor |
Nucor is subject to environmental lawshas 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 regulations established by federal, state and local authorities and makes provisionother steel purchasers in the United States District Court for the estimated costs relatedNorthern District of Illinois. The cases are filed as class actions. The plaintiffs allege that from January 2005 to compliance. Of the undiscounted totalpresent, eight steel manufacturers, including Nucor, engaged in anticompetitive activities with respect to the production and sale of $38.3 million of accrued environmental costs at October 3, 2009 ($27.1 million at December 31, 2008), $19.3 million was classified in accrued expensessteel. The plaintiffs seek monetary and other current liabilities ($16.1 millionrelief. Although we believe the plaintiffs’ claims are without merit and will vigorously defend against them, we cannot at December 31, 2008) and $19.0 million was classified in deferred credits and other liabilities ($11.0 million at December 31, 2008).this time predict the outcome of this litigation or determine Nucor’s potential exposure.
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 that, individually orwhich, in the aggregate,event of an unfavorable outcome, would have a material effect on the consolidated financial statements.
10. | STOCK-BASED COMPENSATION: Stock Options – A summary of activity under Nucor’s stock option plans for the |
Shares | Weighted - Average Exercise Price | Weighted - | Aggregate Intrinsic Value | Shares | Weighted - Average Exercise Price | Weighted - Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||||
Number of shares under option: | ||||||||||||||||||||||
Outstanding at beginning of year | 1,299 | $ | 20.80 | 1,060 | $ | 21.95 | ||||||||||||||||
Exercised | (225 | ) | $ | 15.85 | $ | 6,575 | (113 | ) | $ | 12.69 | $ | 3,490 | ||||||||||
Canceled | — | — | — | — | ||||||||||||||||||
Outstanding at October 3, 2009 | 1,074 | $ | 21.84 | 1.9 Years | $ | 24,197 | ||||||||||||||||
Outstanding at April 3, 2010 | 947 | $ | 23.06 | 1.6 years | $ | 21,673 | ||||||||||||||||
Options exercisable at October 3, 2009 | 1,074 | $ | 21.84 | 1.9 Years | $ | 24,197 | ||||||||||||||||
Options exercisable at April 3, 2010 | 947 | $ | 23.06 | 1.6 years | $ | 21,673 | ||||||||||||||||
As of March 1, 2006, all outstanding options were vested; therefore, no compensation expense related to stock options was recorded in the first nine monthsquarters of 20092010 or 2008.2009. The amount of cash received fromfor the exercise of stock options totaled $2.1$1.5 million and $3.6$1.0 million in the thirdfirst quarter of 2010 and first nine months of 2009, respectively.
Restricted Stock Awards– Nucor’s Senior Officers Long-Term Incentive Plan (the “LTIP”) and 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.
A summary of Nucor’s restricted stock activity under the AIP and LTIP for the first nine monthsquarter of 20092010 is as follows (shares in thousands):
Shares | Grant Date Fair Value | Shares | Grant Date Fair Value | |||||||||
Restricted stock awards and units: | ||||||||||||
Unvested at beginning of year | 375 | $ | 61.57 | 240 | $ | 50.75 | ||||||
Granted | 256 | $ | 32.16 | 131 | $ | 44.82 | ||||||
Vested | (366 | ) | $ | 48.70 | (213 | ) | $ | 51.79 | ||||
Canceled | — | — | — | — | ||||||||
Unvested at October 3, 2009 | 265 | $ | 50.95 | |||||||||
Unvested at April 3, 2010 | 158 | $ | 44.46 | |||||||||
Shares reserved for future grants | 1,731 | 1,600 | ||||||||||
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 $1.9 million and ($1.7)$1.4 million in both the thirdfirst quarter of 20092010 and 2008, respectively, and was $5.2 million and $7.7 million in the first nine months of 2009 and 2008, respectively.2009. At OctoberApril 3, 2009,2010, unrecognized compensation expense related to unvested restricted stock was $3.6$3.2 million, which is expected to be recognized over a weighted-average period of 1.51.7 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 of the Board of Directors 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 thethese 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 reduction in retained earnings.
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 nine monthsquarter of 20092010 is as follows (shares in thousands):
Shares | Grant Date Fair Value | Shares | Grant Date Fair Value | |||||||||
Restricted stock awards and units: | ||||||||||||
Restricted stock units: | ||||||||||||
Unvested at beginning of year | 1,139 | $ | 67.67 | 1,464 | $ | 54.69 | ||||||
Granted | 1,147 | $ | 43.91 | — | — | |||||||
Vested | (765 | ) | $ | 57.66 | (44 | ) | $ | 56.66 | ||||
Canceled | (17 | ) | $ | 60.45 | (3 | ) | $ | 52.60 | ||||
Unvested at October 3, 2009 | 1,504 | $ | 54.72 | |||||||||
Unvested at April 3, 2010 | 1,417 | $ | 54.63 | |||||||||
Shares reserved for future grants | 15,878 | 15,881 | ||||||||||
Compensation expense for RSUs was $9.9 million and $9.0 million in the thirdfirst quarter of 2009 and 2008, respectively, and was $38.2 million and $30.72010 ($8.8 million in the first nine monthsquarter of 2009 and 2008, respectively.2009). As of OctoberApril 3, 2009,2010, unrecognized compensation expense related to nonvestedunvested RSUs was $61.2$43.7 million, which is expected to be recognized over a weighted-average period of 21.6 years.
11. | EMPLOYEE BENEFIT PLAN: Nucor has a Profit Sharing and Retirement Savings Plan for qualified employees. Nucor’s expense for these benefits was |
12. | INTEREST EXPENSE: The components of net interest expense are as follows (in thousands): |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Oct. 3, 2009 | Sept. 27, 2008 | Oct. 3, 2009 | Sept. 27, 2008 | April 3, 2010 | April 4, 2009 | |||||||||||||||||||
Interest expense | $ | 37,168 | $ | 36,996 | $ | 112,327 | $ | 101,068 | $ | 39,335 | $ | 39,682 | ||||||||||||
Interest income | (2,443 | ) | (13,966 | ) | (13,280 | ) | (32,959 | ) | (1,547 | ) | (7,317 | ) | ||||||||||||
Interest expense, net | $ | 34,725 | $ | 23,030 | $ | 99,047 | $ | 68,109 | $ | 37,788 | $ | 32,365 | ||||||||||||
13. | INCOME TAXES: The |
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 concluded U.S. federal income tax matters for years through 2004. The 2007 and 2008 tax years are open to examination by the IRS. The tax years 2003 through 2008 remain open to examination by other major taxing jurisdictions to which Nucor is subject.
14. | STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME: The following |
Attributable to Nucor Corporation | Attributable to Noncontrolling Interests | Total | Attributable to Nucor Corporation | Attributable to Noncontrolling Interests | Total | |||||||||||||||||||
Stockholders’ equity at December 31, 2008 | $ | 7,929,204 | $ | 327,477 | $ | 8,256,681 | ||||||||||||||||||
Stockholders’ equity at December 31, 2009 | $ | 7,390,526 | $ | 193,763 | $ | 7,584,289 | ||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net earnings (loss) | (352,520 | ) | 28,915 | (323,605 | ) | |||||||||||||||||||
Net earnings | 30,964 | 10,230 | 41,194 | |||||||||||||||||||||
Net unrealized loss on hedging derivatives, net of income taxes | (35,896 | ) | — | (35,896 | ) | (22,648 | ) | (22,648 | ) | |||||||||||||||
Reclassification adjustment for loss on settlement of hedging derivatives included in net income, net of income taxes | 30,582 | — | 30,582 | 6,791 | 6,791 | |||||||||||||||||||
Foreign currency translation gain, net of income taxes | 132,279 | 179 | 132,458 | |||||||||||||||||||||
Foreign currency translation gain (loss) | (1,694 | ) | 7 | (1,687 | ) | |||||||||||||||||||
Total comprehensive income (loss) | (225,555 | ) | 29,094 | (196,461 | ) | |||||||||||||||||||
Total comprehensive income | 13,413 | 10,237 | 23,650 | |||||||||||||||||||||
Stock options exercised | 3,556 | — | 3,556 | 1,436 | 1,436 | |||||||||||||||||||
Issuance of stock under award plans, net of forfeitures | 36,069 | — | 36,069 | 13,936 | 13,936 | |||||||||||||||||||
Amortization of unearned compensation | 2,800 | — | 2,800 | 600 | 600 | |||||||||||||||||||
Cash dividends | (332,621 | ) | — | (332,621 | ) | |||||||||||||||||||
Dividends declared | (114,275 | ) | (114,275 | ) | ||||||||||||||||||||
Distributions to noncontrolling interests | — | 186,104 | ) | (186,104 | ) | — | (294 | ) | (294 | ) | ||||||||||||||
Stockholders’ equity at October 3, 2009 | $ | 7,413,453 | $ | 170,467 | $ | 7,583,920 | ||||||||||||||||||
Stockholders’ equity at April 3, 2010 | $ | 7,305,636 | $ | 203,706 | $ | 7,509,342 | ||||||||||||||||||
Stockholders’ equity at December 31, 2008 Comprehensive income (loss): Net loss Net unrealized loss on hedging derivatives, net of income taxes Reclassification adjustment for loss on settlement of hedging derivatives included in net income, net of income taxes Foreign currency translation loss Total comprehensive loss Stock options exercised Issuance of stock under award plans, net of forfeitures Amortization of unearned compensation Dividends declared Distributions to noncontrolling interests Stockholders’ equity at April 4, 2009 Attributable to
Nucor Corporation Attributable to
Noncontrolling Interests Total $ 7,929,204 $ 327,477 $ 8,256,681 (189,645 ) (880 ) (190,525 ) (36,130 ) (36,130 ) 9,139 9,139 (31,802 ) (20 ) (31,822 ) (248,438 ) (900 ) (249,338 ) 1,053 1,053 15,455 15,455 600 600 (110,624 ) (110,624 ) — (49,339 ) (49,339 ) $ 7,587,250 $ 277,238 $ 7,864,488
The components of total comprehensive income are as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
October 3, 2009 | September 27, 2008 | October 3, 2009 | September 27, 2008 | April 3, 2010 | April 4, 2009 | |||||||||||||||||||
Net earnings (loss) | $ | (5,311 | ) | $ | 810,803 | $ | (323,605 | ) | $ | 1,981,018 | $ | 41,194 | $ | (190,525 | ) | |||||||||
Net unrealized loss on hedging derivatives, net of income taxes | (604 | ) | (106,629 | ) | (35,896 | ) | (3,833 | ) | (22,648 | ) | (36,130 | ) | ||||||||||||
Reclassification adjustment for (gain) loss on settlement of hedging derivatives included in net income, net of income taxes | 10,754 | (6,000 | ) | 30,582 | (13,066 | ) | ||||||||||||||||||
Foreign currency translation gain (loss), net of income taxes | 77,851 | (84,409 | ) | 132,458 | (83,274 | ) | ||||||||||||||||||
Reclassification adjustment for loss on settlement of hedging derivatives included in net income, net of income taxes | 6,791 | 9,139 | ||||||||||||||||||||||
Foreign currency translation loss | (1,687 | ) | (31,822 | ) | ||||||||||||||||||||
Comprehensive income (loss) | 82,690 | 613,765 | (196,461 | ) | 1,880,845 | 23,650 | (249,338 | ) | ||||||||||||||||
Comprehensive income attributable to noncontrolling interests | (24,322 | ) | (76,157 | ) | (29,094 | ) | (255,829 | ) | ||||||||||||||||
Comprehensive (income) loss attributable to noncontrolling interests | (10,237 | ) | 900 | |||||||||||||||||||||
Comprehensive income (loss) attributable to Nucor stockholders | $ | 58,368 | $ | 537,608 | $ | (225,555 | ) | $ | 1,625,016 | $ | 13,413 | $ | (248,438 | ) | ||||||||||
15. | 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 plate, and Nucor’s equity investment in |
Net interest expense, other income, profit sharing expense, stock-based compensation gains on foreign currency exchange contracts and changes in the LIFO reserve are shown under Corporate/eliminations. Corporate assets primarily include cash and cash equivalents, short-term investments, allowances to eliminate intercompany profit in inventory, fair value of natural gas hedges, deferred income tax assets, federal income taxtaxes receivable, the LIFO reserve, capitalized interest, bond issuance costs and investments in and advances to affiliates.
The company’s results by segment were as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||||||
Oct. 3, 2009 | Sept. 27, 2008 | Oct. 3, 2009 | Sept. 27, 2008 | |||||||||||||
Net sales to external customers: | ||||||||||||||||
Steel mills | $ | 2,070,202 | $ | 5,192,082 | $ | 5,155,726 | $ | 13,844,672 | ||||||||
Steel products | 681,331 | 1,238,642 | 2,089,093 | 3,243,420 | ||||||||||||
Raw materials | 289,072 | 897,539 | 803,871 | 2,059,797 | ||||||||||||
All other | 79,400 | 119,257 | 203,662 | 364,499 | ||||||||||||
$ | 3,120,005 | $ | 7,447,520 | $ | 8,252,352 | $ | 19,512,388 | |||||||||
Intercompany sales: | ||||||||||||||||
Steel mills | $ | 307,098 | $ | 689,301 | $ | 734,859 | $ | 1,752,045 | ||||||||
Steel products | 7,239 | 12,275 | 20,580 | 33,246 | ||||||||||||
Raw materials | 1,316,800 | 3,034,055 | 2,276,663 | 6,704,621 | ||||||||||||
All other | 2,015 | 2,267 | 7,357 | 4,458 | ||||||||||||
Corporate/eliminations | (1,633,152 | ) | (3,737,898 | ) | (3,039,459 | ) | (8,494,370 | ) | ||||||||
$ | — | $ | — | $ | — | $ | — | |||||||||
Earnings (loss) before income taxes and noncontrolling interests: | ||||||||||||||||
Steel mills | $ | (55,914 | ) | $ | 1,223,035 | $ | (488,215 | ) | $ | 3,062,901 | ||||||
Steel products | (19,723 | ) | 100,034 | (70,948 | ) | 250,483 | ||||||||||
Raw materials | 2,885 | 135,505 | (60,273 | ) | 267,705 | |||||||||||
All other | 1,619 | 9,052 | (11,782 | ) | 29,268 | |||||||||||
Corporate/eliminations | 49,649 | (249,298 | ) | 127,230 | (713,373 | ) | ||||||||||
$ | (21,484 | ) | $ | 1,218,328 | $ | (503,988 | ) | $ | 2,896,984 | |||||||
Three Months (13 Weeks) Ended | ||||||||||||||
April 3, 2010 | April 4, 2009 | |||||||||||||
Net sales to external customers: | ||||||||||||||
Steel mills | $ | 2,612,016 | $ | 1,656,240 | ||||||||||
Steel products | 561,035 | 713,827 | ||||||||||||
Raw materials | 396,745 | 236,931 | ||||||||||||
All other | 85,046 | 47,321 | ||||||||||||
$ | 3,654,842 | $ | 2,654,319 | |||||||||||
Intercompany sales: | ||||||||||||||
Steel mills | $ | 366,751 | $ | 220,548 | ||||||||||
Steel products | 9,076 | 6,020 | ||||||||||||
Raw materials | 1,925,983 | 567,964 | ||||||||||||
All other | 1,927 | 2,555 | ||||||||||||
Corporate/eliminations | (2,303,737 | ) | (797,087 | ) | ||||||||||
$ | — | $ | — | |||||||||||
Earnings (loss) before income taxes and noncontrolling interests: | ||||||||||||||
Steel mills | $ | 158,500 | $ | (226,875 | ) | |||||||||
Steel products | (67,696 | ) | (33,576 | ) | ||||||||||
Raw materials | 32,784 | (31,537 | ) | |||||||||||
All other | 2,738 | (10,119 | ) | |||||||||||
Corporate/eliminations | (62,290 | ) | 20,361 | |||||||||||
$ | 64,036 | $ | (281,746 | ) | ||||||||||
Oct. 3, 2009 | Dec. 31, 2008 | April 3, 2010 | Dec. 31, 2009 | |||||||||||
Segment assets: | ||||||||||||||
Steel mills | $ | 5,591,044 | $ | 6,603,944 | $ | 5,868,818 | $ | 5,446,028 | ||||||
Steel products | 2,759,094 | 3,207,318 | 2,767,063 | 2,707,678 | ||||||||||
Raw materials | 2,402,132 | 2,324,857 | 2,655,828 | 2,417,649 | ||||||||||
All other | 147,458 | 207,767 | 165,409 | 138,286 | ||||||||||
Corporate/eliminations | 1,770,284 | 1,530,557 | 1,345,584 | 1,862,263 | ||||||||||
$ | 12,670,012 | $ | 13,874,443 | $ | 12,802,702 | $ | 12,571,904 | |||||||
16. | EARNINGS PER SHARE: The computations of basic and diluted net earnings per share are as follows (in thousands, except per share amounts): |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
October 3, 2009 | September 27, 2008 | October 3, 2009 | September 27, 2008 | April 3, 2010 | April 4, 2009 | |||||||||||||||||||
Basic net earnings (loss) per share: | ||||||||||||||||||||||||
Basic net earnings (loss) | $ | (29,538 | ) | $ | 734,590 | $ | (352,520 | ) | $ | 1,725,098 | $ | 30,964 | $ | (189,645 | ) | |||||||||
Earnings (loss) allocated to participating securities | (524 | ) | (2,660 | ) | (1,436 | ) | (6,207 | ) | ||||||||||||||||
Earnings allocated to participating securities | (507 | ) | (369 | ) | ||||||||||||||||||||
Net earnings (loss) available to common stockholders | $ | (30,062 | ) | $ | 731,930 | $ | (353,956 | ) | $ | 1,718,891 | $ | 30,457 | $ | (190,014 | ) | |||||||||
Average shares outstanding | 315,173 | 316,713 | 314,743 | 301,156 | 315,461 | 314,319 | ||||||||||||||||||
Basic net earnings (loss) per share | ($ | 0.10 | ) | $ | 2.31 | ($ | 1.12 | ) | $ | 5.71 | $ | 0.10 | ($ | 0.60 | ) | |||||||||
Diluted net earnings (loss) per share: | ||||||||||||||||||||||||
Diluted net earnings (loss) | $ | (29,538 | ) | $ | 734,590 | $ | (352,520 | ) | $ | 1,725,098 | $ | 30,964 | $ | (189,645 | ) | |||||||||
Earnings (loss) allocated to participating securities | (524 | ) | (2,658 | ) | (1,436 | ) | (6,200 | ) | ||||||||||||||||
Earnings allocated to participating securities | (507 | ) | (369 | ) | ||||||||||||||||||||
Net earnings (loss) available to common stockholders | $ | (30,062 | ) | $ | 731,932 | $ | (353,956 | ) | $ | 1,718,898 | $ | 30,457 | $ | (190,014 | ) | |||||||||
Diluted average shares outstanding: | ||||||||||||||||||||||||
Basic shares outstanding | 315,173 | 316,713 | 314,743 | 301,156 | 315,461 | 314,319 | ||||||||||||||||||
Dilutive effect of stock options and other | — | 300 | — | 608 | 767 | — | ||||||||||||||||||
315,173 | 317,013 | 314,743 | 301,764 | |||||||||||||||||||||
316,228 | 314,319 | |||||||||||||||||||||||
Diluted net earnings (loss) per share | ($ | 0.10 | ) | $ | 2.31 | ($ | 1.12 | ) | $ | 5.70 | $ | 0.10 | ($ | 0.60 | ) | |||||||||
The number of shares that were not included in the diluted net earnings per share calculation because to do so would have been antidilutive was immaterial for all periods presented.
17. | SUBSEQUENT EVENTS: On April 6, 2010, a wholly owned subsidiary of Nucor acquired a 50% interest in a newly created company, NuMit LLC, for a purchase price of approximately $225.5 million. Our partner in this joint venture is Mitsui & Co. (U.S.A.), Inc. (“Mitsui”), which is a wholly owned subsidiary of Mitsui & Co., Ltd. NuMit will invest in various steel and steel related activities, both in North America and globally. Coinciding with the formation of NuMit was its first investment, Steel Technologies LLC, which owns all of the assets, operations, and business that were held by Mitsui in Steel Technologies, Inc. prior to the joint venture formation. Steel Technologies LLC operates 23 sheet processing facilities throughout the U.S., Canada, and Mexico. |
At closing, Nucor extended a $40.0 million loan and a $60.0 million line of credit (of which $54.0 million was drawn down immediately) to Steel Technologies. The note receivable bears interest at the three month London Interbank Offered Rate (LIBOR) plus 90 basis points, and it matures on October 21, 2014. The line of credit bears interest at the one month LIBOR rate plus 70 basis points, and it matures on March 31, 2011. Steel Technologies primarily used the proceeds of the loan and the line of credit to reduce its outstanding indebtedness with Mitsui.
Nucor will account for this investment using the equity method. The transaction is not expected to result in a significant amount of goodwill.
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. The words “believe,” “expect,” “project,” “will,” “should” and similar expressions are intended to identify those forward-looking statements. 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 projected 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 pig iron and scrap steel; (2) availability and cost of electricity and natural gas; (3) market demand for steel products, which, in the case of many of our products, is driven by the level of non-residential construction activity in the U.S.; (4) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (5) impairment in the recorded value of inventory, fixed assets, goodwill or other acquired intangibles;long-lived assets; (6) uncertainties surrounding the global economy, including the severe economic downturn in construction markets and excess world capacity for steel production; (7) fluctuations in currency conversion rates; (8) U.S. and foreign trade policy affecting steel imports or exports; (9) significant changes in laws or government regulations affecting environmental compliance;compliance, including legislation and regulations that result in greater regulation of greenhouse gas emissions, which could increase our energy costs and our capital expenditures and operating costs; (10) the cyclical nature of the steel industry; (11) capital investments and their impact on our performance; and (12) 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, 2008.
Critical Accounting Policy
We believe the following critical accounting policy affects our significant judgments and estimates used in the preparation of our condensed consolidated financial statements and should be read in conjunction with the critical accounting policies and estimates included in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2008 and the Forms 10-Q for the periods ended April 4, 2009 and July 4, 2009.
GoodwillGoodwill is tested annually for impairment and whenever events or circumstances change that would make it more likely than not that an impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each year. The evaluation of impairment involves comparing the current estimated fair value of each reporting unit to the recorded value, including goodwill.
Nucor uses a discounted cash flow model to determine the current estimated fair value of its reporting units. Key assumptions used to determine the fair value of each reporting unit as part of our annual testing (and any required interim testing) include: (a) expected cash flow for the five year period following the testing date (including market share, sales volumes and prices, costs to produce and estimated capital needs); (b) an estimated terminal value using a terminal year growth rate of 3.5%—4.0% depending on the growth prospects of the reporting unit; (c) a discount rate based on management’s best estimate of the after-tax weighted average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to certain scenarios based on the likelihood of occurrence. Management considers historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and all available information at the time the fair values of its reporting units are estimated.
Due to the severity and duration of operating losses within the Buildings Group and Cold Finish reporting units, Nucor concluded during the second quarter of 2009 that an interim triggering event had occurred for purposes of testing goodwill recorded at these reporting units for impairment. As a result, an evaluation of impairment was performed for each of these reporting units during the second quarter. The results of this evaluation indicated that there was no goodwill impairment. As of July 4, 2009, the estimated fair value of the Buildings Group and Cold Finish reporting units exceeded carrying value by $29.3 million and $90.8 million, respectively, and a 50 basis point increase in the discount rate would not have resulted in a goodwill impairment charge.
Goodwill amounts recorded at the Buildings Group and Cold Finish reporting units as of October 3, 2009 were $165.3 million and $43.1 million, respectively. Nucor has continued to monitor operating results within all reporting units throughout the third quarter and has determined that further interim impairment testing for goodwill is not necessary. All reporting units will be subject to the required annual impairment test during our fourth quarter. Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including expected future operating cash flows and discount rate, could decrease the estimated fair value of these and other reporting units in the future and could result in an impairment of goodwill.
Overview
Nucor and affiliates are manufacturers of steel and steel products, with operating facilities and customers primarily located in North America. Additionally, Nucor is a scrap processor and broker and is North America’s largest recycler. Nucor reports its results in three segments: steel mills, steel products and raw materials.
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, which includes The David J. Joseph Company (“DJJ”), 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.
In February 2008, NucorMarch 2010, DJJ acquired the stockassets and business of SHV North America Corporation,Ocala Recycling LLC, which owned 100%operates four scrap processing facilities in Florida, including one automobile shredder. Production at the four yards combined totals over 100,000 tons annually. DJJ operates the Ocala Recycling facilities as part of The David J. Joseph Company (“DJJ”) and related affiliates, for a purchase priceTrademark Metals Recycling LLC.
During the first quarter of approximately $1.44 billion. DJJ now operates as a wholly owned subsidiary of Nucor Corporation and is headquartered in Cincinnati, Ohio. The principal activities of DJJ, which has been2010, 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 is included in Nucor’s raw materials segment.
The average estimated utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 53%73%, 49%46% and 52%66%, respectively, compared with 45%, 45% and 44%, respectively, in the first nine monthsquarter of 2009, compared with 91%, 75% and 89%, respectively, in the first nine months of 2008.2009.
Results of Operations
Net Sales Net sales to external customers by segment for the third quarterfirst quarters of 2010 and the first nine months of 2009 and 2008 were as follows:follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | |||||||||||||||||||||||||
October 3, 2009 | September 27, 2008 | % Change | October 3, 2009 | September 27, 2008 | % Change | April 3, 2010 | April 4, 2009 | % Change | |||||||||||||||||||
Steel mills | $ | 2,070,202 | $ | 5,192,082 | -60 | % | $ | 5,155,726 | $ | 13,844,672 | -63 | % | $ | 2,612,016 | $ | 1,656,240 | 58 | % | |||||||||
Steel products | 681,331 | 1,238,642 | -45 | % | 2,089,093 | 3,243,420 | -36 | % | 561,035 | 713,827 | -21 | % | |||||||||||||||
Raw materials | 289,072 | 897,539 | -68 | % | 803,871 | 2,059,797 | -61 | % | 396,745 | 236,931 | 67 | % | |||||||||||||||
All other | 79,400 | 119,257 | -33 | % | 203,662 | 364,499 | -44 | % | 85,046 | 47,321 | 80 | % | |||||||||||||||
Net sales | $ | 3,120,005 | $ | 7,447,520 | -58 | % | $ | 8,252,352 | $ | 19,512,388 | -58 | % | $ | 3,654,842 | $ | 2,654,319 | 38 | % | |||||||||
Net sales for the thirdfirst quarter of 2009 decreased 58%2010 increased 38% from the thirdfirst quarter of 2008.2009. Average sales price per ton decreased 45%7% from $1,111$716 in the thirdfirst quarter of 20082009 to $610$665 in the thirdfirst quarter of 2009,2010, while total tons shipped to outside customers decreased 24% from the same period last year. Net sales increased 26% from the second quarter of this year due to a 24% increase in total tons shipped to outside customers, combined with a 1% increase in average sales price per ton.
Net sales for the first nine months of 2009 decreased 58% from last year’s first nine months. Average sales price per ton decreased 32% from $934 in the first nine months of 2008 to $638 in the first nine months of 2009, while total tons shipped to outside customers decreased 38% from48% over the same period last year.
In the steel mills segment, production and sales tons were as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | |||||||||||||||||||
October 3, 2009 | September 27, 2008 | % Change | October 3, 2009 | September 27, 2008 | % Change | April 3, 2010 | April 4, 2009 | % Change | |||||||||||||
Steel production | 4,433 | 5,510 | -20 | % | 10,276 | 17,384 | -41 | % | 4,712 | 2,879 | 64 | % | |||||||||
Outside steel shipments | 3,705 | 4,688 | -21 | % | 8,707 | 15,285 | -43 | % | 4,066 | 2,433 | 67 | % | |||||||||
Inside steel shipments | 607 | 750 | -19 | % | 1,412 | 2,221 | -36 | % | 640 | 375 | 71 | % | |||||||||
Total steel shipments | 4,312 | 5,438 | -21 | % | 10,119 | 17,506 | -42 | % | 4,706 | 2,808 | 68 | % | |||||||||
Net sales for the steel mills segment decreased 60% fromincreased 58% over the thirdfirst quarter of 20082009 due to the 21% decreasea 67% increase in tons sold to outside customers, combined withpartially offset by a 50%6% decrease in the average sales price per ton from $1,108$682 to $559.
The 63% decrease in sales from the first nine months of 2008 to the first nine months of 2009 in the steel mills segment was attributable to the 43% decrease in tons sold to outside customers combined with a 35% decrease in average sales price per ton from $906 to $593.$643.
Tonnage data for the steel products segment is as follows (in thousands):follows:
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 weeks) Ended | |||||||||||||||||||
October 3, 2009 | September 27, 2008 | % Change | October 3, 2009 | September 27, 2008 | % Change | April 3, 2010 | April 4, 2009 | % Change | |||||||||||||
Joist production | 69 | 119 | -42 | % | 194 | 391 | -50 | % | 59 | 60 | -2 | % | |||||||||
Deck sales | 84 | 133 | -37 | % | 232 | 388 | -40 | % | 68 | 75 | -9 | % | |||||||||
Cold finished sales | 87 | 115 | -24 | % | 243 | 394 | -38 | % | |||||||||||||
Cold finish sales | 111 | 80 | 39 | % | |||||||||||||||||
Fabricated concrete reinforcing steel sales | 280 | 258 | 9 | % | 743 | 669 | 11 | % | 194 | 208 | -7 | % |
The 45%21% decrease in the steel products segment’s sales forfrom the thirdfirst quarter of 2009 was due to a 23% decrease in shipments as well as a 29% decrease in the average sales price per ton from $1,620 to $1,158.
The 36% decrease in the steel products segment’s sales for the first nine months of the year was primarily attributable to the 26% decrease in volume combined with an 11% decrease in average sales price per ton from $1,464$1,470 to $1,299. Fabricated concrete reinforcing steel sales increased over the prior year quarter and nine months due to acquisitions made$1,131, partially offset by Harris Steel during 2008, the largest of which was Ambassador Steel Corporationa 3% increase in August of 2008.volume.
The sales for the raw materials segment decreased 68%increased 67% from the third quarter of 2008 to the thirdfirst quarter of 2009 due to declinesincreases in both volumepricing and price.volume. In the thirdfirst quarter of 2009,2010, approximately 84%88% of outside sales in the raw materials segment were from the brokerage operations of DJJ and approximately 15%12% of the outside sales were from the scrap processing facilities (78%(74% and 21%25%, respectively, in the thirdfirst quarter of 2008)2009).
The sales for the raw materials segment decreased 61% from the first nine months of 2008 to the first nine months of 2009 due to declines in both volume and price. Only seven months of DJJ’s sales were included in Nucor’s consolidated results in the first nine months of 2008. Prior to the acquisition of DJJ, Nucor had no outside sales of raw materials. In the first nine months of 2009 and 2008, approximately 77% of outside sales in the raw materials segment were from the brokerage operations of DJJ and approximately 22% of the outside sales were from the scrap processing facilities.
The “All other” category includes Nucor’sthe steel trading businesses. The period over period decreasesincrease in sales are primarilyis due to decreases in sales prices.increased volume.
Gross Margins For the thirdfirst quarter of 2009,2010, Nucor recorded gross margins of $119.2$212.8 million (4%(6%), compared to $1.46 billion (20%$(124.0) million (-5%) in the thirdfirst quarter of 2008.2009. The period-over-periodyear-over-year increases in dollar and gross margin percentage decreases were the result of decreased average sales price per ton for all products, and the 24% decrease48% increase in total shipments to outside customers. Additionally, the decreases were due tocustomers and the following factors:
In the steel mills segment, the average scrap and scrap substitute cost per ton used decreased 44%5% from $333 the thirdfirst quarter of 2008; however,2009 to $318 in the first quarter of 2010. Although the average sales price per ton decreased 6%, metal margins (the difference between the selling price of steel and the cost of scrap and scrap substitutes) also decreased. Third quarter results include a substantially greater burden thanincreased over the prior year fromquarter. In the accelerated consumptionfirst quarter of high-cost2009, the sheet mills consumed higher-cost iron units, in particular pig iron inventories, primarily at our sheet mills. These inventorieswhich were purchased prior to the collapse of both the economy and scrap/pig iron pricing in last year’sthe fourth quarter. Thequarter of 2008. As a result, gross margins in the first quarter of 2009 were decreased.
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Energy costs decreased $10 per ton from the prior year period due to higher production volumes and the positive impact on productivity.
No charges were incurred to write down inventories to the lower of cost or market in the first quarter of 2010 (a charge of approximately $60 million was incurred in the first quarter of 2009).
The decreaseincrease in our gross margin was partially offset by a LIFO creditcharge of $120.0$24.0 million in the thirdfirst quarter of 2009,2010, compared with a chargecredit of $140.0$105.0 million in last year’s thirdfirst quarter. (LIFO charges or credits 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.) The decrease
Also partially offsetting the increase in gross margin was also partially offset by an $8 per ton decrease in energy costs from the prior year period.
For the first nine months of 2009, Nucor recorded gross margins of ($66.7) million (-1%), compared to $3.57 billion (18%) in the first nine months of 2008. The period-over-period dollar and gross margin percentage decreases were the result of decreased average sales price per ton for all products and the 38% decrease in total shipments to outside customers. Additionally, the decreases were due to the following factors:
In the steel mills segment, the average scrap and scrap substitute cost per ton used decreased 29% from the first nine months of 2008; however, metal margins also decreased due primarily to the accelerated consumption of high-cost pig iron.
Energy costs increased $2 per ton over the prior year period due to decreased utilization rates across all product lines.
In the steel products segment, the average price of raw materials used increased approximately 3% from the first nine months of 2008 to the first nine months of 2009.
Pre-operatingpre-operating and start-up costs of new facilities, which increased from $74.8to $50.5 million in the first nine monthsquarter of 2008 to $111.92010 compared with $33.2 million in the first nine monthsquarter of 2009.
The decrease In 2010, these costs primarily related to the start-up of the SBQ mill in gross margin was partially offset by LIFO credit of $350.0 millionMemphis, Tennessee, and the galvanizing line in the first nine months of 2009, compared with a LIFO charge of $423.0 million in the first nine months of 2008.Decatur, Alabama.
Marketing, Administrative and Other Expenses Two major components of marketing, administrative and other expenses are freight and profit sharing costs. While totalUnit freight costs decreased 51% fromincreased approximately 3% over the prior year quarter, unit freightquarter. Profit sharing costs, decreased only 16%. Total freight costs were down 48% from the first nine months of 2008, while unit freight costs decreased 4%. Unit freight costs did not decrease the same magnitude as total freight costswhich are based upon and fluctuate with pre-tax earnings, increased over 2009 due to inefficiencies created by decreased shipments.Nucor’s increased profitability. No profit sharing costs were incurred in the first nine monthsquarter of 2009 due to Nucor reportingrecording a consolidated net loss for the period.
Nucor incurred equityEquity in Losses of Unconsolidated AffiliatesEquity method investment losses which are also included in marketing, administrative and other expenses, of $9.6 million in the third quarter of 2009 and earnings of $2.1 million in the third quarter of 2008, and incurred losses of $69.4were $18.4 million and $16.3$38.0 million in the first nine monthsquarter of 20092010 and 2008,2009, respectively. The increasedecrease in the equity method investment losses is primarily due to losses at Duferdofin-Nucor S.r.l., including, athe pre-tax charge of $33.4 million incurred in the first quarter of 2009 to write-downwrite down inventories to the lower of cost or market of $45.8 million in the first nine months of 2009.at Duferdofin Nucor acquired a 50% economic and voting interest in Duferdofin-Nucor in July 2008.
During the third quarter, $12.3 million of costs related to an ongoing project that were capitalizedS.r.l (none in the first quarter were expensed. Based upon management’s evaluation of this out-of-period adjustment, it was not considered material to either period.2010).
Interest Expense Net interest expense for the thirdfirst quarter of 2010 and first nine months of 2009 and 2008 was as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Oct. 3, 2009 | Sept. 27, 2008 | Oct. 3, 2009 | Sept. 27, 2008 | April 3, 2010 | April 4, 2009 | |||||||||||||||||||
Interest expense | $ | 37,168 | $ | 36,996 | $ | 112,327 | $ | 101,068 | $ | 39,335 | $ | 39,682 | ||||||||||||
Interest income | (2,443 | ) | (13,966 | ) | (13,280 | ) | (32,959 | ) | (1,547 | ) | (7,317 | ) | ||||||||||||
Interest expense, net | $ | 34,725 | $ | 23,030 | $ | 99,047 | $ | 68,109 | $ | 37,788 | $ | 32,365 | ||||||||||||
In the third quarter of 2009, gross interest expense remained flat when compared to the prior year.
Gross interest income decreased 83% mainly79% due to a significant decrease in the average interest rate earned on investments.
Gross interest expense increased 11% from the first nine months of 2008 to the first nine months of 2009 due to an increase in average debt outstanding of approximately 8%. Gross interest income decreased 60% mainly dueprimarily to a significant decrease in the average interest rate earned on investments.
Noncontrolling InterestsNoncontrolling interests represent the income attributable to the noncontrolling partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (“NYS”), Nucor Trading S.A., and Barker Steel Company, Inc., of which Nucor owns 51%, 75% and 90%, respectively. The decreaseincrease in noncontrolling interests is primarily attributable to the decreasedincreased earnings of NYS, which were due to the weakening ofimprovement in 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. In the first nine monthsquarter of 2009, the amount of cash distributed to noncontrolling interest holders exceeded the earnings attributableamounts allocated to noncontrolling interests based on mutual agreement of the general partners; however, the cumulative amount of the cash distributed to partners was less than the cumulative net earnings of the partnership.
Provision for Income TaxesNucor had an effective tax rate of 75.3% in the third quarter of 2009 compared with 33.4% in the third quarter of 2008. The effective tax rate35.7% in the first nine monthsquarter of 2009 was 35.8%2010, compared with 31.6%32.4% in the first nine months of 2008. Our effective tax rate for each of the periods presented has been impacted by the recast of earnings attributable to noncontrolling interests to a position after earnings before income taxes and noncontrolling interests in accordance with the amended guidance on accounting and reporting for noncontrolling interests, which we adopted on January 1,quarter 2009. The changechanges in the rate between the first nine months of 2008 and 2009 isperiods are primarily due to the changes in relative proportions of net income or loss attributable to noncontrolling interests and equity method investments to total pre-tax income and to the pre-tax loss position in 2009 and the related reduction in domestic manufacturing deduction benefits. The effective tax rate for the third quarter of 2009 is not meaningful for comparative purposes due to the low level of pre-tax loss for the period.or loss. The IRS is currently examining Nucor’s 2005 and 2006 federal income tax returns. Management believes that the companyCompany has adequately provided for any adjustments that may arise from this audit.
Net Earnings and Return on EquityNucor reported aconsolidated net consolidated lossearnings of $29.5$31.0 million, or $0.10 per diluted share, in the thirdfirst quarter of 20092010 compared to a consolidated net earningsloss of $734.6$189.6 million, or $2.31$0.60 per diluted share, in the thirdfirst quarter of 2008.2009. Net earnings (loss) attributable to Nucor stockholders as a percentage of net sales were (1%) and 10% in the third quarters of 2009 and 2008, respectively.
Nucor reported a net consolidated loss of $352.5 million, or $1.12 per diluted share,0.8% in the first nine monthsquarter of 2009, compared to net consolidated earnings of $1.73 billion, or $5.70 per diluted share,2010 and (7.1)% in the first nine monthsquarter of 2008. Net earnings (loss) attributable to Nucor stockholders as a percentage of net sales were (4%) and 9% in the first nine months of 2009 and 2008, respectively.2009. Return on average stockholders’ equity was approximately (6.1%)1.7% and 34.9%(9.5%) in the first nine monthsquarter of 2010 and 2009, and 2008, respectively.
Outlook While overall steel mill utilization increasedFirst quarter results showed significant improvement in the operating rates at our sheet and plate mills, as well as our scrap business. Overall, operating performance improved from 46% inthe beginning of the quarter to the end of the quarter, and we expect the second quarter to 69% in the thirdbe an improvement over our first quarter the increase was primarily due to the end of customer destocking. Our view remains that there has been little improvement in real demand and the uncertainty inresults. The most challenging markets for our economy is still very high. We alsoproducts continue to believe that real demandbe those associated with residential and non-residential construction, which continue to show little, if any, strength. This is inparticularly true for a long, slow recovery. The fourth quarter presents its own seasonal issues that are separate of the general economic slowdown due to the holidays and year-end plant shutdowns by some of our customers. While our fourth quarter results will benefit from a significant improvement in raw material costs, our results could be negatively impacted by the potential of lower operating volumes/rates in both sheet and bar products. Customers are currently taking advantage of shortened mill lead times adding to the difficulty of forecasting volumes for the fourth quarter.
Demand remains extremely weak for fabricated construction products. Recovery by our downstream businesses is expected to lag Nucor’s other businesses.
Nucor’s largest exposure to market risk is invia our steel mills and steel products segments. Approximately 60% of our steel and steel products segments sales are into the commercial, industrial and municipal construction markets. We expect the non-residential construction market to remain at depressed levels, resulting in decreased sales prices and volumes compared to prior years. Our largest single customer in the first nine monthsquarter of 20092010 represented approximately 5%4% of sales and consistently pays within terms. We have only a small exposure to the U.S. automotive industry. In the raw materials segment, we are exposed to price fluctuations related to the purchase of scrap steel and iron ore. Our exposure to market risk in our raw materials segment is mitigated by the fact that our steel mills use a significant portion of the products of thatthis segment.
Nucor continuesWe remain confident about our future prospects despite the current economic cycle. We are maintaining or growing our market share, while many competitors who do not have our financial strength or our highly variable and low-cost structure are forced to capitalize on the position of strength arising from our balance sheet, low-cost andshut down facilities. Our manufacturing processes are highly flexible and able to increase production capabilities, unrivaled product diversification and, most importantly, Nucor’s extremely productive and innovative work force.quickly in response to improvements in demand.
Liquidity and capital resources
Cash used by operating activities was $3.0 million in the first quarter of 2010, compared with cash provided by operating activities of $14.1 million in the first quarter of 2009. The increase in net earnings period over period was more than offset by changes in operating assets and liabilities of $(221.6) million in the current year quarter compared with $70.3 million in the prior year quarter.
The current ratio was 4.03.5 at the end of the first nine monthsquarter of 20092010 and 3.54.2 at year-end 2008.2009. Accounts receivable and inventories decreased 6%increased 17% and 46%24%, respectively, since year-end, while net sales in the third quarter decreased 25%
increased 24% from the fourth quarter of 2008. Total2009. The increases in accounts receivable have historicallyand inventories are due to higher sales prices and the increased cost of raw materials in the current year as compared to the fourth quarter of 2009, combined with increased volumes. In the first quarter of 2010, total accounts receivable turned approximately monthly with the accounts receivable for the steel products segment turning about every five weeks. In the first nine months of 2009, the sales for the steel products segment were a higher percentage of total sales, resulting in accounts receivable turnover ofand inventories turned approximately five weeks. Inventories have historically turned every five to six weeks. With decreased utilization andThese turnover rates are comparable to Nucor’s historical performance, in contrast to the accumulation of higher-cost scrap and scrap substitutes ordered at the peak market pricesslower rates experienced in 2008, inventory turnover was approximately every nine weeks in the first nine months of 2009. The current ratio was also impacted by the 33% increase in accounts payable, which is primarily attributable to the increased cost of raw materials combined with the 27% increase in steel production over last year’s fourth quarter.
Cash used in investing activities increased $121.7 million over the prior year period primarily due to the purchase of short-term investments. In addition, during the first quarter of 2010, Duferdofin Nucor repaid €35 million ($48.9 million as of the payment date) of approximately $305notes receivable that were outstanding with Nucor as of December 31, 2009. Nucor then contributed additional capital in the form of equity of €45 million ($63.7 million as of the contribution date) to the joint venture. Also, Nucor issued an additional note receivable to Duferdofin Nucor with a notional value of €10 million ($13.5 million as of April 3, 2010).
Cash used in financing activities decreased $231.6 million from the prior year period primarily due to the repayment of $175.0 million in notes that matured in January 2009. There were no debt maturities in the first quarter of 2009 for profit sharing and extraordinary bonuses related to our 2008 record performance.2010.
Nucor’s conservative financial practices have served us well in the past and are serving us well today. Our cash and cash equivalents and short-term investments position remains robust at $2.22$2.0 billion as of OctoberApril 3, 2009,2010, and our $1.3 billion revolving credit facility is undrawn and does not expire until November 2012. Nucor repaid $180.4The only long-term debt maturity over the next two years is a $6.0 million industrial development revenue bond maturing this year. Furthermore, 70% of our long-term debt matures in notes that matured in 2009,2017 and we have no other material debt maturities until 2012.beyond. We believe our financial strength is a key strategic advantage among domestic steel producers, particularly during recessionary business cycles. We carry the highest credit ratings of any metals and mining company in North America, atwith an A rating from Standard and Poor’s and A1 from Moody’s. Both ratings are with a stable outlook. The credit markets have largely remained open and receptive to companies with an investment grade credit rating throughout the economic crisis, and Nucor’s present ratings place us four and fiveseveral notches above the investment grade minimum of BBB-. Accordingly, we expect to continue to have access to the capital markets if needed.
Our credit facility includes only one financial covenant, which is a limit of 60% on the ratio of funded debt to total capitalization. In addition, the credit facility contains customary non-financial covenants,
including a limit on Nucor’s ability to pledge the Company’s assets and a limit on consolidations, mergers and sales of assets. As of OctoberApril 3, 2009,2010, our funded debt to total capital ratio was 29%, and we were in compliance with all other covenants under our credit facility. No borrowings were outstanding under the credit facility as of OctoberApril 3, 2009.2010.
In severely depressed market conditions such as we are experiencing today, we have several additional liquidity benefits. Nucor’s capital investment and maintenance practices give us the flexibility to reduce our current spending on our facilities to very low levels. Capital expenditures decreased 61%57% from $806.2$126.0 million during the first nine monthsquarter of 20082009 to $316.0$54.2 million in the first nine monthsquarter of 2009.2010. Capital expenditures for 20092010 are projected to be $400 million compared to $1 billion in 2008. Also, in the first quarter of 2009, we suspended our supplemental dividend. As a result, we expect to reduce our total dividends paid when compared to 2008 by approximately $215 million in 2009.million.
In September,February 2010, Nucor’s board of directors declared a quarterly cash dividend on Nucor’s common stock of $0.35$0.36 per share payable on November 11, 2009May 12, 2010 to stockholders of record on September 30, 2009.March 31, 2010. This dividend is Nucor’s 146148th consecutive quarterly cash dividend.
Funds provided from operations, cash and cash equivalents, short-term investments and new borrowings under existing credit facilities are expected to be adequate to meet future capital expenditure and working capital requirements for existing operations for at least the next 24 months.
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 does not believe that Nucor’s exposure to interest rate market risk has significantly changed since December 31, 2008.2009.
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 usedutilizes a raw material surcharge as a component of pricing steel to pass through the historically high cost increases of scrap steel and other raw materials. DueIn periods of stable demand for our products, our surcharge mechanism has worked effectively to reduce the currently lowernormal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand for and cost of raw materials is lower, however, the surcharge is impactingimpacts our sales prices to a lesser extent than in prior years.extent.
Through the first three quarters of 2009, our earnings have been negatively impacted from accelerated consumption of high-cost iron units purchased prior to the abrupt downturn in economic activity late last year. Since pig iron has purchase lead times of four to six months, dramatically and rapidly reduced sales volumes in the fourth quarter of 2008 and through much of 2009 resulted in the accumulation of increased tons of pig iron inventories ordered at peak market prices. As of October 3, 2009, we have completed the usage of substantially all of those high-cost iron units and expect to see significant improvement in our raw material costs in the fourth quarter as a result.
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 OctoberApril 3, 2009,2010, accumulated other comprehensive income (loss) included $71.3includes $89.9 million in unrealized net-of-tax losses 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 OctoberApril 3, 2009,2010, 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 | $ | 26,700 | $ | 66,800 | ||
Aluminum | 2,064 | 5,159 | ||||
Copper | 505 | 1,262 |
Commodity Derivative Natural gas Aluminum Copper 10% Change 25% Change $ 15,400 $ 38,600 2,015 5,037 815 2,039
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. We periodically use derivative contracts to mitigate the risk of currency fluctuations.
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.
Changes in Internal Control Over Financial Reporting– There were no changes in our internal control over financial reporting during the quarter ended OctoberApril 3, 20092010 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 6. | Exhibits |
Exhibit No. | Description of Exhibit | |
| Retirement Separation Waiver and Release Agreement of Joseph A. Rutkowski | |
12 | 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 | |
101 | Financial statements from the quarterly report on Form 10-Q of Nucor Corporation for the quarter ended |
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/ | |||||
James D. Frias | ||||||
Chief Financial Officer, Treasurer | ||||||
and Executive Vice President | ||||||
Dated: May 11, 2010 |
Dated: November 10, 2009
List of Exhibits to Form 10-Q – OctoberApril 3, 20092010
Exhibit No. | Description of Exhibit | |
| Retirement Separation Waiver and Release Agreement of Joseph A. Rutkowski | |
12 | 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 | |
101 | Financial statements from the quarterly report on Form 10-Q of Nucor Corporation for the quarter ended |
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