Each holder of total consolidated debt and a percentage of long-term debtthe Existing Notes who wishes to total capital (which includes our long-term debt, minority interests and stockholders’ equity) of approximately 26%. That amount includes approximately $370 million aggregate principal amount of secured indebtedness under industrial revenue and similar bonds, including $86 million principal amount of industrial revenue bonds assumed by Nucor Steel Decatur, LLCexchange Existing Notes for New Notes in our Trico Steel acquisition. As of September 28, 2002, our subsidiaries had no indebtedness, other than that $86 million of assumed industrial revenue bond indebtedness. The notes will rank junior to any existing and future secured indebtedness incurred by us andthe exchange offer will be structurally subordinatedrequired to make certain representations, including that:
any future indebtedness incurredNew Notes to be received by and to somethe holder of Existing Notes in the exchange offer will be acquired in the ordinary course of the liabilitiesholder’s business;
at the time of our subsidiaries. The notes dothe commencement of the exchange offer, the holder is not limit ourparticipating, and has no arrangement or our subsidiaries’ abilityunderstanding with any person to incur unsecured debt. On October 4, 2002, we entered intoparticipate, in a new $425 million unsecured revolving credit facility, which replaced our old credit facilitiesdistribution (within the meaning of the Securities Act) of the New Notes in violation of the provisions of the Securities Act;
the holder is not an “affiliate” (as defined in Rule 405 under the Securities Act) of Nucor;
if the holder is not a broker-dealer, that provided for up to $248 millionit is not engaged in, revolving loans. We may incur additional debt in the future, including under that facility. Our debt could have several important effects on our future operations, including, among others:
| Ÿ
| an increased portion of our cash flow from operations will be dedicated to the payment of principal and interest on the debt and will not be available for other purposes; |
| Ÿ
| covenants in existing debt arrangements and covenants relating to any debt we may incur in the future may require us to meet financial tests and impose restrictions that could limit our flexibility in planning for and reacting to changes in our business, including possible acquisition opportunities; |
| Ÿ
| the terms of the notes will limit our ability to incur secured indebtedness, enter into sale and leaseback transactions and merge or otherwise consolidate with another entity; |
| Ÿ
| our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes may be limited; and |
| Ÿ
| our vulnerability to adverse economic and industry conditions could increase as a result of potentially decreased cash flow available under those conditions to meet our debt servicing obligations. |
An active trading market may not develop for the notes, and you may not be able to resell your notes.
There is currently no public market for the notes. We dodoes not intend to list the notes on any securities exchange or to arrange for the notes to be quoted on any trading market. The liquidityengage in, a distribution of the trading marketNew Notes; and
if the holder is a broker-dealer (a “Participating Broker-Dealer”) that will receive New Notes for its own account in the notes, and the market price quotedexchange for the notes, may be adversely affected by changes in the overall market for debt securities and by changes in our financial performance or in the prospects for companies in our industry generally. As a result, you cannot be certainExisting Notes that an active trading market for the notes will develop or be sustained. If an active trading market for the notes fails to develop or to be sustained, you may not be able to sell your notes at a particular time or at favorable prices.
Risks Related to Our Business
Our industry is cyclical and prolonged economic declines could have a material adverse effect on our business.
Demand for most of our products is cyclical and sensitive to general economic conditions. Our business supports cyclical industries such as the construction, energy, appliance and automotive industries. As a result, downturns in the United States economy or any of these industries could materially adversely affect our results of operations and cash flows. Because steel producers generally have high fixed costs, reduced volumes result in operating inefficiencies. Over the five-year period ended December 31, 2001, our annual net income has varied from a high of $311 million in 2000 to a low of $113 million in 2001. Future economic downturns or a prolonged stagnant economy could materially adversely affect our business, results of operations, financial condition and cash flows.
Imports of steel may negatively affect our business.
We believe that steel imports into the United States involve widespread dumping and subsidy abuses and that the remedies provided by United States law to private litigants are insufficient to correct these problems. Imports of steel involving dumping and subsidy abuses depress domestic price levels and have had an adverse effect upon our revenue and income. The trade remedies announced by President Bush on March 5, 2002, under Section 201 of the Trade Act of 1974, impose increased tariffs on imports of certain steel products and are intended to provide some protection against imports from certain countries. The duties were imposed for a three-year period and are to be progressively reduced as required by the World Trade Organization. The duties range from 30% ad valorem to 8% ad valorem in the first year; 24% to 7% in the second year; and 18% to 6% in the third year. There are products and countries not covered by these increased tariffs, and more exemptions may be made in the future. The Bush administration recently has exempted from the higher tariffs a total of 727 steel products, a majority of which are made by European Union and Japanese producers. It is not presently clear whether the trade remedies enacted by the Bush administration will provide a meaningful benefit to our company in the form of protection against steel imports from some countries at substantially reduced prices. In addition, the Bush administration has announced its intention to review the impact of the tariffs prior to their scheduled expiration, and the European Union and certain countries have indicated their intent to challenge these new tariffs before the World Trade Organization. The elimination or modification of the tariffsacquired as a result of this action, and the existing exemptions from, scheduled reductions in and expiration of the increased tariffs, if not replacedmarket-making activities or reinstated, could have a material adverse effect on our business.
Separately, the U.S. Commerce Department concluded that 20 countries were dumping cold-rolled steel in the U.S. market and referred the matter to the International Trade Commission to determine if this dumping had injured American steel producers. Recently, the International Trade Commission determined that the domestic steel industry has not been significantly injured by the alleged dumping of cold-rolled steel from producers in Japan, India, Australia, Sweden and Thailand and has declined to impose duties that could have significantly increased the price of imported cold-rolled steel. The International Trade Commission in
November ruled against United States steel producers when it determined that imports from numerous other countries had not materially injured the domestic steel industry. Although more of these dumping cases may undergo government review, since the implementation of the tariffs in March 2002, the International Trade Commission generally has ruled against the U.S. steel industry.
Overcapacity in the steel industry may negatively affect our business, results of operations and cash flows.
There is an increasing excess of global steel-making capacity over global consumption of steel products. This has caused our shipment and production levels to vary from year to year and quarter to quarter, affecting our business, results of operations and cash flows. Many factors can influence these results, including demand in the domestic market, international currency conversion rates and domestic and international government actions. To the extent global steel-making capacity continues to exceed global consumption, there may be continued downward pressure on steel prices, which could materially adversely affect our business, results of operations, financial condition and cash flows.
Energy resources and raw materials markets are subject to conditions that create uncertainty in the prices and availability of energy resources we rely upon.
Our steel mills consume large amounts of electricity and natural gas. Energy costs are among our largest operating expenses, second only to raw materials. We rely upon third parties for our supply of energy resources consumed in the manufacture of our products. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Disruptions in the supply of our energy resources could temporarily impair our ability to manufacture our products for our customers. Increases in our energy costs could materially adversely affect our business, results of operations, financial condition and cash flows.
We rely to a substantial extent on outside vendors to supply us with raw materials that are critical to the manufacture of our products. We acquire our primary raw material, steel scrap, from numerous sources throughout the country. Purchase prices and availability of these critical raw materials are subject to volatility. At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basistrading activities, then such holder will deliver, or, on price and other terms acceptable to us.
If our suppliers increase the price of our critical raw materials, we may not have alternative sources of supply. In addition, to the extent that we have quoted pricespermitted by applicable law, make available to our customers and accepted customer orders for our products prior to purchasing necessary raw materials, we may be unable to raisepurchasers, a prospectus meeting the price of our products to cover all or partrequirements of the increased costSecurities Act in connection with any resale of such New Notes.
The Commission has taken the raw materials. If we are unableposition that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to obtain adequate and timely deliveries of our required raw materials, we may be unable to timely manufacture sufficient quantities of our products. This could cause us to lose sales, incur additional costs, delay new product introductions and suffer harm to our reputation.
Difficultiesthe New Notes by using the prospectus contained in integrating the acquisition of the Birmingham Steel assets may result in our not achieving the anticipated benefits of the acquisition and could adversely affect our operating results.
Historically, we have not grown our business significantly through acquisitions. The acquisition of Birmingham Steel presents challenges that will be relatively new to us.effective exchange offer registration statement. We will face challenges in consolidating functions, procedures, operations and product lines in a timely and efficient manner and in retaining key personnel associated with the acquisition. The failure to successfully meet these challenges could adversely affect our operating results.
These challenges will result principally because of the following differences between us and Birmingham Steel:
| Ÿ
| we have a more decentralized organizational structure than did Birmingham Steel; |
| Ÿ
| we maintain different operating systems and software on different computer hardware than did Birmingham Steel; and |
| Ÿ
| we have different employment and compensation arrangements for employees than did Birmingham Steel. |
The effort to integrate these operations will be complex and will require significant attention from our management, which may divert their attention from other important areas of our business.
We plan to continue to implement acquisition strategies that involve a number of inherent risks.
We plan to seek attractive opportunities to acquire businesses and enter into joint ventures and make other investments that are complementary to our existing strengths. Acquisitions, joint venturesallow Participating Broker-Dealers and other investments involve various inherent risks, such as assessing accurately the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition or other transaction candidates, the potential loss of key personnel of an acquired business, and unanticipated changes in business and economic conditions affecting an acquisition or other transaction. In addition, we may be unable to realize, or to do so withinpersons, if any, particular time frame, the cost reductions, cash flow increases or other synergies expected to result from our acquisitions, joint ventures and other investments. Realization of the anticipated benefits of acquisitions or joint ventures could take longer than expected, and implementation difficulties, market factors and deteriorations in domestic or global economic conditions could alter the anticipated benefits. Our business, results of operations, financial condition and cash flows could be materially and adversely affected if we fail or are unable to meet these challenges and risks associated with our making acquisitions, entering into joint ventures and making other investments.
Some of our competitors in and emerging from bankruptcy have lowered their operating costs, which could negatively affect our competitive position.
According to a recent report from the American Iron and Steel Institute, or AISI, since 1998 more than 30 domestic steel companies have sought protection under Chapter 11 of the United States Bankruptcy Code. Many of these companies have continued to operate. Some have reduced prices to maintain volumes and cash flows and obtained concessions from their labor unions and suppliers. In some cases, they have even expanded and modernized while in bankruptcy. Upon emergence from bankruptcy, these companies, or new entities that purchase their facilities through the bankruptcy process, may be relieved of certain environmental, retiree and other obligations. As a result, they may be able to operate with lower costs, a primary competitive factor in the steel industry, which could negatively affect our competitive position.
Competition from other materials may materially adversely affect our business.
In many applications, steel competes with other materials, such as aluminum, cement, composites, glass, plastic and wood. Increased use of these materials in substitution for steel products could materially adversely affect prices and demand for our steel products.
Environmental compliance and remediation could result in substantially increased costs and materially adversely impact our competitive position.
Our operations are subject to numerous federal, state and local laws and regulations relating to protection of the environment. These laws are evolving and becoming increasingly stringent. Compliance with these laws and regulations is an important part of our operations. At present, we are not aware of any new or proposed regulations that could substantially increase our currently projected operating requirements and costs. We have agreed to a comprehensive consent decree with the United States Environmental Protection Agency (referred to as the “EPA”) and certain states that relates to a broad array of alleged past environmental violations at eight of our steel manufacturing mills and six of our Vulcraft facilities. Under the terms of the consent decree, we are testing new air pollution control technology and are required to evaluate and improve, as appropriate, our water pollution control systems. We have further agreed, as part of the consent decree, to evaluate the affected steel mill sites for contamination and then remediate as necessary. To date, this process has not produced any findings that would likely result in unexpected significant remediation costs. We paid a $9 million penalty in July 2001 and have agreed to spend another $4 million in supplemental environmental projects under the consent decree. Our accrued environmental reserves at September 28, 2002, including those projected to comply with the consent decree, were $75.6 million. We believe our competitors are subject to similar environmental laws and regulations. The specific impact on each competitor may vary, however, depending upon a number of factors, includingprospectus delivery requirements to use the age and location of operating facilities, production processes (such as a mini-mill versus an integrated producer) andprospectus contained in the specific products and services it provides. To the extent that competitors, particularly foreign steel producers and manufacturers of competitive products, are not required to incur equivalent costs, our competitive position could be materially adversely impacted.
Our operations are subject to business interruptions and casualty losses.
The steel-making business is subject to numerous inherent risks, particularly unplanned events such as explosions, fires, other accidents, inclement weather and transportation interruptions. While our insurance coverage could offset losses relating to some of those types of events, our results of operations and cash flows could be adversely impacted to the extent any such losses are not covered by our insurance.
Our business requires substantial debt service, acquisition costs, capital investment and maintenance expenditures that we could have difficulty in meeting.
As of September 28, 2002, we would have approximately $895 million of long-term debt, consisting of approximately $545 million of debt existing as of September 28, 2002, and after giving pro forma effect to the initial sale of the old notes as if it had been completed on September 28, 2002. On that debt, we expect interest payments of between $40 million and $60 million annually, depending on interest rates applicable to our variable rate industrial revenue and similar bonds. We made a payment of approximately $615 millioneffective exchange offer registration statement in connection with
our acquisitionthe resale of
substantially all ofsuch New Notes, subject to limitations set forth in the
assets and assumption of obligations under acquired contracts and under some environmental permits of Birmingham Steel, which occurred on December 9, 2002. We used some ofRegistration Rights Agreement.If (i) for any reason the net proceeds of the offering of the old notes, along with working capital, to fund the Birmingham Steel acquisition.Our operations are capital intensive. For the five-year period ended December 31, 2001, our total capital expenditures were approximately $1.9 billion, and, including our Trico Steel acquisition, we plan capital expenditures of approximately $260 million in 2002. Our business also requires substantial expenditures for routine maintenance. Although we expect requirements for our business needs, including the funding of capital expenditures, debt service for financings and any contingencies to be financed by internally generated funds or from borrowings under our new $425 million unsecured revolving credit facility, we cannot assure you that this will be the case.
This exchange offer is intended to satisfy our obligations undernot completed within 365 days after the exchange and registration rights agreement we executed when we issued the old notes. We will not receive any cash proceeds from this exchange offer. In exchange for old notes that you tender pursuant to this exchange offer, you will receive new notes in like principal amount. Thefirst issuance of the new notes under thisExisting Notes or (ii) following such date the Company receives a written request (a “Shelf Request”) from certain parties, including any holder of Existing Notes that participates in the exchange offer will not result in any change in our outstanding debt.
We used some of the net proceeds from the initial sale of the old notes, along with working capital, to fund our acquisition of the assets of Birmingham Steel Corporation. We completed the Birmingham Steel acquisition on December 9, 2002. For additional information regarding this acquisition, see “Business—Strategic Acquisitions”.
The following table sets forth our cash and short-term investments and capitalization at September 28, 2002 on (i) a historical basis and (ii) a pro forma as adjusted basis to reflect the initial sale of the old notes and receipt of net proceeds of approximately $347 million after deducting the initial purchasers’ discount and offering expenses, as if that transaction had occurred on September 28, 2002. This table is presented on a consolidated basis and should be read in conjunction with our historical consolidated financial statements and related notes included elsewhere in this prospectus. See also “Use of Proceeds” and “Description of Material Indebtedness”.
| | | September 28, 2002
| |
| | | Actual
| | | Pro Forma As Adjusted
| |
| | | (Unaudited) | |
| Cash and short-term investments | | $ | 523,007,447 | | | $ | 870,007,447 | |
| | |
|
|
| |
|
|
|
| Long-term debt (including current maturities): | | | | | | | | |
| Revolving credit facilities (1) | | | — | | | | — | |
| Industrial revenue bonds, fixed rate, 5.75% to 8.00%, due from 2003 to 2023 (2) | | $ | 77,250,000 | | | $ | 77,250,000 | |
| Industrial revenue bonds, 1.73% to 2.475%, variable, due from 2014 to 2033 | | | 292,300,000 | | | | 292,300,000 | |
| Notes, 6%, due in 2009 | | | 175,000,000 | | | | 175,000,000 | |
| Notes, 4.875%, due in 2012 (3) | | | — | | | | 350,000,000 | |
| | |
|
|
| |
|
|
|
| Total indebtedness | | | 544,550,000 | | | | 894,550,000 | |
| | |
|
|
| |
|
|
|
| Minority interests (4) | | | 206,537,710 | | | | 206,537,710 | |
| | |
|
|
| |
|
|
|
| Stockholders’ equity: | | | | | | | | |
| Common stock | | | 36,269,946 | | | | 36,269,946 | |
| Additional paid-in capital | | | 97,382,265 | | | | 97,382,265 | |
| Retained earnings | | | 2,613,544,755 | | | | 2,613,544,755 | |
| Treasury stock | | | (454,355,795 | ) | | | (454,355,795 | ) |
| | |
|
|
| |
|
|
|
| | | | 2,292,841,171 | | | | 2,292,841,171 | |
| | |
|
|
| |
|
|
|
| Total capital | | $ | 3,043,928,881 | | | $ | 3,393,928,881 | |
| | |
|
|
| |
|
|
|
| Percentage of indebtedness to total capital | | | 17.9 | % | | | 26.4 | % |
| | |
|
|
| |
|
|
|
(1) | On October 4, 2002, we entered into a new revolving credit facility that replaced our old $248 million credit facilities and provides for up to $425 million in unsecured revolving loans. As of the date of this prospectus, we have not drawn upon any of the credit available under our new credit facility. |
(2) | It is contemplated that, in early 2003, approximately $45 million aggregate principal amount of the fixed rate industrial revenue bonds will be redeemed and reissued in the form of new variable rate industrial |
| revenue bonds in like principal amount. In addition, $16 million of the aggregate principal amount included in this table under “Long-term debt (including current maturities)” was called for redemption in late November 2002, and as a result will be reflected as current debt for the period ending December 31, 2002. See the section below entitled “Description of Material Indebtedness—Industrial Revenue Bonds”. |
(3) | Does not include original issue discount on the old notes. |
(4) | The inclusion of our minority interests in total capital has the effect of increasing our total capital, which in turn, decreases our percentage of indebtedness to total capital. Our minority interests represent the 49% interest in Nucor-Yamato Steel Company that we do not own. |
RATIO OF EARNINGS TO FIXED CHARGESThe following table sets forth our ratios of earning to fixed charges for the periods indicated.
| | Years Ended December 31
| | Nine Months Ended September 28,
2002
|
| | 1997
| | 1998
| | 1999
| | 2000
| | 2001
| |
Ratio of Earnings to Fixed Charges | | 53.16x | | 41.42x | | 20.14x | | 23.07x | | 9.19x | | 13.42x |
For purposes of these calculations, “earnings” consist of earnings before federal income taxes, state income taxes, minority interests, losses from equity investments and fixed charges, less minority interests in pre-tax income of subsidiaries that have not incurred fixed charges. “Fixed charges” consist of interest expense.
The following table sets forth our calculation of ratio of earnings to fixed charges for the periods indicated.
| | | Years Ended December 31,
| | | Nine Months Ended September 28, 2002
| |
| | | 1997
| | | 1998
| | | 1999
| | | 2000
| | | 2001
| | |
| | | (In thousands, except ratios) | |
Earnings, as defined above: | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings before federal income taxes | | $ | 460,182 | | | $ | 415,309 | | | $ | 379,189 | | | $ | 478,308 | | | $ | 173,861 | | | $ | 181,989 | |
| Plus: state income taxes (i) | | | 23,927 | | | | 23,748 | | | | 13,446 | | | | 16,910 | | | | 5,508 | | | | (1,827 | ) |
| Plus: minority interests (ii) | | | 90,517 | | | | 91,641 | | | | 85,783 | | | | 151,461 | | | | 103,069 | | | | 66,224 | |
| Plus: losses from equity investments | | | — | | | | — | | | | — | | | | 235 | | | | 740 | | | | 2,573 | |
| Plus: fixed charges (interest expense) | | | 9,282 | | | | 10,863 | | | | 20,516 | | | | 22,449 | | | | 22,002 | | | | 14,712 | |
| Less: minority interests in subsidiaries that have not incurred fixed charges (ii) | | | (90,517 | ) | | | (91,641 | ) | | | (85,783 | ) | | | (151,461 | ) | | | (103,069 | ) | | | (66,224 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| | | $ | 493,391 | | | $ | 449,920 | | | $ | 413,151 | | | $ | 517,902 | | | $ | 202,111 | | | $ | 197,447 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Fixed charges, as defined above: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | $ | 9,282 | | | $ | 10,863 | | | $ | 20,516 | | | $ | 22,449 | | | $ | 22,002 | | | $ | 14,712 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Ratio of earnings to fixed charges | | | 53.16 | % | | | 41.42 | % | | | 20.14 | % | | | 23.07 | % | | | 9.19 | % | | | 13.42 | % |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
(i) | For purposes of this table, state income taxes include certain state franchise taxes. |
(ii) | For purposes of this table, minority interests reflect the amounts broken out as a separate line item in the Income Statement Data portion of the Selected Historical Consolidated Financial Data set forth below. |
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATAWe have derived the historical consolidated financial data included in the table below for, and as of the end of, each of the fiscal years in the five-year period ended December 31, 2001 from our audited consolidated financial statements. We have derived the historical financial data as of and for the nine months ended September 29, 2001 and September 28, 2002 from our unaudited condensed consolidated financial statements. The other data have been derived from our audited and unaudited condensed consolidated financial statements and internal records, as applicable, for the respective dates and periods indicated. In the opinion of our management, the unaudited consolidated financial data presented below provides all adjustments necessary for a fair presentation of the results of operations for the periods specified. The results, however, are not necessarily indicative of the results that may be expected for the full fiscal year. You should read the following information in conjunction with our consolidated financial statements along with the notes thereto, which are included elsewhere in this prospectus, and the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
| | | Year Ended December 31,
| | | For the Nine Months Ended
| |
| | | 1997
| | | 1998
| | | 1999
| | | 2000
| | | 2001
| | | September 29, 2001
| | | September 28, 2002
| |
| | | (In thousands, except per share amounts, ratios and per ton amounts) | |
Income Statement Data(1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 4,184,498 | | | $ | 4,151,232 | | | $ | 4,009,346 | | | $ | 4,586,146 | | | $ | 4,139,249 | | | $ | 3,159,680 | | | $ | 3,335,483 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| Costs, expenses and other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of products sold | | | 3,488,424 | | | | 3,500,142 | | | | 3,394,696 | | | | 3,774,017 | | | | 3,717,234 | | | | 2,828,002 | | | | 2,982,440 | |
| Marketing, administrative and other expenses | | | 145,410 | | | | 147,973 | | | | 154,773 | | | | 183,176 | | | | 138,560 | | | | 121,795 | | | | 126,154 | |
| Interest expense (income), net | | | (35 | ) | | | (3,832 | ) | | | (5,095 | ) | | | (816 | ) | | | 6,525 | | | | 4,378 | | | | 8,576 | |
| Minority interests | | | 90,517 | | | | 91,641 | | | | 85,783 | | | | 151,461 | | | | 103,069 | | | | 72,510 | | | | 66,224 | |
| Other income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (29,900 | )(2) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| | | | 3,724,316 | | | | 3,735,924 | | | | 3,630,157 | | | | 4,107,838 | | | | 3,965,388 | | | | 3,026,685 | | | | 3,153,494 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| Earnings before federal income taxes | | | 460,182 | | | | 415,308 | | | | 379,189 | | | | 478,308 | | | | 173,861 | (3) | | | 132,995 | | | | 181,989 | |
| Federal income taxes | | | 165,700 | | | | 151,600 | | | | 134,600 | | | | 167,400 | | | | 60,900 | | | | 46,500 | | | | 62,800 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| Net earnings | | $ | 294,482 | | | $ | 263,708 | | | $ | 244,589 | | | $ | 310,908 | | | $ | 112,961 | | | $ | 86,495 | | | $ | 119,189 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| Net earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | 3.35 | | | $ | 3.00 | | | $ | 2.80 | | | $ | 3.80 | | | $ | 1.45 | | | $ | 1.11 | | | $ | 1.53 | |
| Diluted | | | 3.35 | | | | 3.00 | | | | 2.80 | | | | 3.80 | | | | 1.45 | | | | 1.11 | | | | 1.52 | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and short-term investments | | $ | 283,381 | | | $ | 308,696 | | | $ | 572,185 | | | $ | 490,576 | | | $ | 462,349 | | | $ | 471,141 | | | $ | 523,007 | |
| Total assets | | $ | 2,984,383 | | | $ | 3,215,626 | | | $ | 3,718,928 | | | $ | 3,710,868 | | | $ | 3,759,348 | | | $ | 3,811,878 | | | $ | 4,020,489 | |
| Long-term debt due within one year | | $ | 250 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Long-term debt due after one year | | $ | 167,950 | | | $ | 215,450 | | | $ | 390,450 | | | $ | 460,450 | | | $ | 460,450 | | | $ | 460,450 | | | $ | 544,550 | |
| Stockholders’ equity | | $ | 1,876,426 | | | $ | 2,072,552 | | | $ | 2,262,248 | | | $ | 2,130,952 | | | $ | 2,201,460 | | | $ | 2,186,205 | | | $ | 2,292,841 | |
Other Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation | | $ | 218,764 | | | $ | 264,039 | | | $ | 256,637 | | | $ | 259,365 | | | $ | 289,063 | | | $ | 219,621 | | | $ | 228,186 | |
| Capital expenditures | | $ | 306,749 | | | $ | 502,910 | | | $ | 374,718 | | | $ | 415,405 | | | $ | 261,146 | | | $ | 194,822 | | | $ | 141,767 | |
| Dividends declared per share | | $ | .40 | | | $ | .48 | | | $ | .52 | | | $ | .60 | | | $ | .68 | | | $ | .51 | | | $ | .57 | |
| Cash flows provided by operating activities | | $ | 577,326 | | | $ | 641,899 | | | $ | 604,834 | | | $ | 820,755 | | | $ | 495,115 | | | $ | 413,597 | | | $ | 412,223 | |
| Cash flows used in investing activities | | $ | (305,979 | ) | | $ | (499,985 | ) | | $ | (374,276 | ) | | $ | (410,276 | ) | | $ | (360,400 | ) | | $ | (294,078 | ) | | $ | (178,286 | ) |
| Cash flows provided by (used in) financing activities | | $ | (92,367 | ) | | $ | (116,599 | ) | | $ | 32,930 | | | $ | (492,087 | ) | | $ | (162,944 | ) | | $ | (138,954 | ) | | $ | (173,279 | ) |
| EBITDA (4) | | $ | 702,838 | | | $ | 699,263 | | | $ | 644,177 | | | $ | 753,767 | | | $ | 474,957 | | | $ | 358,432 | | | $ | 416,924 | |
| EBITDA interest coverage (4)(5) | | | 76x | | | | 70x | | | | 31x | | | | 34x | | | | 22x | | | | 21x | | | | 28x | |
| Total debt to capital (6) | | | 7.2 | % | | | 8.4 | % | | | 13.4 | % | | | 15.9 | % | | | 15.6 | % | | | 15.8 | % | | | 17.9 | % |
| Total debt to EBITDA (4)(7) | | | .2x | | | | .3x | | | | .6x | | | | .6x | | | | 1x | | | | N/A | | | | N/A | |
Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tons sold to outside customers | | | 9,786 | | | | 9,612 | | | | 10,176 | | | | 11,189 | | | | 12,237 | | | | 9,273 | | | | 9,947 | |
| Composite sales price per ton (8) | | $ | 428 | | | $ | 432 | | | $ | 394 | | | $ | 410 | | | $ | 338 | | | $ | 341 | | | $ | 335 | |
(1) | Certain amounts for prior years have been reclassified to conform to the 2002 presentation. |
(2) | In the second quarter of 2002, we received $29.9 million related to a graphite electrodes anti-trust settlement. |
(3) | In November 2001, we sold Nucor Iron Carbide, Inc. in Trinidad, resulting in a pre-tax gain of $20.2 million, affecting primarily marketing, administrative and other expenses. |
(4) | “EBITDA” is defined as earnings before federal income taxes plus depreciation, interest expense (income), net and state income taxes. EBITDA does not represent, and should not be considered as, an alternative to net income or cash flows from operating activities, each as determined in accordance with generally accepted accounting principles in the United States (“GAAP”). Moreover, EBITDA does not necessarily indicate whether cash flow will be sufficient for items such as working capital, debt service or capital expenditures, or to react to changes in our industry or to the economy in general. We believe that EBITDA and ratios based on EBITDA are measures commonly used to evaluate a company’s performance and its performance relative to its financial obligations. Because EBITDA is not calculated by all companies in the same fashion, the EBITDA measures presented by us may not be comparable to similarly titled measures reported by other companies. Therefore, in evaluating EBITDA data, investors should consider, among other factors: the non-GAAP nature of EBITDA data; the GAAP financial statement amounts; actual cash flows and results of operations; the actual availability of funds for debt service, capital expenditures and working capital; and the comparability of our EBITDA data to similarly titled measures reported by other companies. |
The following table sets forth the reconciliation from earnings before federal income taxes to EBITDA:
| | | Year Ended December 31,
| | For the Nine Months Ended
| |
| | | 1997
| | | 1998
| | | 1999
| | | 2000
| | | 2001
| | September 29, 2001
| | September 28, 2002
| |
| | | (in thousands) | |
| Earnings before federal income taxes | | $ | 460,182 | | | $ | 415,308 | | | $ | 379,189 | | | $ | 478,308 | | | $ | 173,861 | | $ | 132,995 | | $ | 181,989 | |
| Depreciation | | | 218,764 | | | | 264,039 | | | | 256,637 | | | | 259,365 | | | | 289,063 | | | 219,621 | | | 228,186 | |
| Interest expense (income), net | | | (35 | ) | | | (3,832 | ) | | | (5,095 | ) | | | (816 | ) | | | 6,525 | | | 4,378 | | | 8,576 | |
| State income taxes (i) | | | 23,927 | | | | 23,748 | | | | 13,446 | | | | 16,910 | | | | 5,508 | | | 1,438 | | | (1,827 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
|
| EBITDA | | $ | 702,838 | | | $ | 699,263 | | | $ | 644,177 | | | $ | 753,767 | | | $ | 474,957 | | $ | 358,432 | | $ | 416,924 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
|
| (i) State | income taxes include certain state franchise taxes. |
(5) | EBITDA interest coverage is EBITDA divided by gross interest expense. This ratio should not be construed as an alternative to fixed charge coverage ratio as determined by applicable SEC regulations, as presented in “Ratio of Earnings to Fixed Charges”. |
(6) | Total debt to capital is debt divided by total capital. For this calculation, “total capital” consists of long-term debt due after one year, minority interests and stockholders’ equity. We believe that this ratio is commonly used to evaluate a company’s financial condition. |
(7) | Total debt to EBITDA is total debt divided by EBITDA. We believe this ratio is commonly used to evaluate a company’s ability to pay its debt. |
(8) | Composite sales price per ton is net sales divided by total tons sold to outside customers. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
Operations
Our business is the manufacture and sale of steel products. We operate steel mini-mills that manufacture steel by melting scrap steel in electric arc furnaces. As opposed to integrated steel producers that utilize iron ore in their steel manufacturing facilities, we are not required to make the substantial investment in facilities necessary to produce steel from iron ore. Instead, we obtain our raw materials, primarily scrap steel, on the open market.
Nine Months Ended September 28, 2002 Compared to Nine Months Ended September 29, 2001
Net sales
Net sales for the first nine months of 2002 increased 6% from the first nine months of 2001. Average sales price per ton decreased 2% from $341 in the first nine months of 2001 to $335 in the first nine months of 2002, while total tons shipped to outside customers increased 7%. We established new nine-month tonnage records for steel production, total steel shipments and steel shipments to outside customers in 2002. In the first nine months of 2002, steel production was 10.0 million tons, compared with 9.3 million tons produced in the first nine months of 2001. Total steel shipments were 10.0 million tons in the first nine months of 2002, compared with 9.3 million tons in last year’s first nine months. Steel shipments to outside customers were 9.1 million tons, compared with 8.3 million tons in the year earlier nine months. Steel joist production during the first nine months of 2002 was 343,000 tons, compared with 404,000 tons a year earlier. Steel deck sales were 235,000 tons, compared with 260,000 tons in last year’s first nine months. Cold finished steel sales were 169,000 tons, compared with 161,000 tons in the first nine months of 2001.
Cost of products sold
The major component of cost of products sold is raw material costs. The average price of raw materials increased approximately 4% from the first nine months of 2001 to the first nine months of 2002. The average scrap and scrap substitute cost per ton used increased from $102 in the first nine months of 2001 to $107 in the first nine months of 2002.
State income taxes (benefit) of $(1.8) million for the first nine months of 2002 have been recorded in cost of products sold ($1.4 million for the first nine months of 2001).
For the first nine months of 2002, pre-operating, start-up and acquisition costs decreased to $54.3 million, compared with $67.0 million in the first nine months of 2001. In 2002, these costs primarily related to the start-up of the Castrip facility in Crawfordsville, Indiana; the new Vulcraft facility in Chemung, New York; and the start-up of Nucor Steel Decatur, LLC. In the third quarter of 2002, we incurred approximately $10 million of costs associated with the accelerated start-up of Nucor Steel Decatur. In 2001, pre-operating, start-up and acquisition costs primarily related to the start-up of the new plate mill in Hertford County, North Carolina and the new Vulcraft facility in Chemung, New York.
During the first nine months of 2002, we revised estimates for environmental reserves as additional information was obtained. Environmental reserves included in deferred credits and other liabilities decreased by $24.3 million during the first nine months of 2002.
Gross margin
Gross margins were approximately 11% for the first nine months of 2002, compared with approximately 10% for the first nine months of 2001.
Marketing, administrative and other expenses
The major components of marketing, administrative and other expenses are freight and profit sharing costs. Unit freight costs decreased approximately 2% from the first nine months of 2001 to the first nine months of 2002. Profit sharing costs increased 37% from the first nine months of 2001 to the first nine months of 2002. Profit sharing costs are based on and generally fluctuate with pre-tax earnings.
Interest expense (income), net
Interest expense, net of interest income, increased from the first nine months of 2001 to the first nine months of 2002, due primarily to increased debt and decreased average interest rates on short-term investments.
Minority interests
Minority interests represent the income attributable to the minority partners of our less than 100% owned joint venture, Nucor-Yamato Steel Company.
Federal income taxes
Federal income taxes were at a rate of approximately 34.5% for the first nine months of 2002, and approximately 35% for the first nine months of 2001.
Net earnings
Net earnings increased during the first nine months of 2002 compared with the first nine months of 2001 due to increased sales volume, increased margins and decreased pre-operating, start-up and acquisition costs. In addition, the increase in net earnings during the first nine months of 2002 compared to 2001 was attributable to increased other income related to the receipt during the second quarter of $29.9 million in connection with a graphite electrodes anti-trust settlement.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net sales
Net sales for 2001 decreased 10% to $4.1 billion, compared with $4.6 billion in 2000. The decrease was primarily due to an 18% decrease in composite sales price per ton from $410 in 2000 to $338 in 2001. Increased imports and the downturn in the U.S. economy unfavorably affected sales prices. The record year of sales experienced in 2000 was primarily due to the performance in the first half of the year. In the second half of 2000, demand decreased and import levels increased significantly—a trend that continued in 2001.
The decrease in net sales in 2001 was mitigated to some extent by increased volume. We established new annual tonnage records for total steel shipments and steel shipments to outside customers in 2001. Total steel shipments were 12.1 million tons in 2001, compared with 11.0 million tons in 2000. Steel sales to outside customers were 11.0 million tons in 2001, compared with 9.8 million tons in 2000. Steel joist production for 2001 was 532,000 tons, compared with 613,000 tons in 2000. Steel deck sales were 344,000 tons in 2001,
versus 353,000 tons in 2000. Cold-finish steel sales were 203,000 tons in 2001 compared with 250,000 tons in 2000.
Cost of products sold
The major component of cost of products sold is raw material costs. The average price of raw materials decreased by 13% from 2000 to 2001. The average scrap and scrap substitute cost per ton used was $101 in 2001 and $120 in 2000. By the fourth quarter of 2001, the average scrap cost per ton used had decreased to $99. State income taxes of $5.5 million in 2001 and $15.2 million in 2000 also are included in cost of products sold.
Gross margin
Gross margin decreased to 8% in 2001 from 14% in 2000. In addition to the net sales and cost of products sold factors discussed above, gross margins were affected by pre-operating and start-up costs at several of our facilities. Pre-operating and start-up costs of new facilities increased to $97.8 million in 2001, compared with $50.9 million in 2000. In 2001, these costs primarily related to the start-up of the new plate mill in Hertford County, North Carolina and the new Vulcraft facility in Chemung, New York.
Marketing, administrative and other expenses
The major components of marketing, administrative and other expenses are freight and profit-sharing costs. Unit freight costs increased less than 5% from 2000 to 2001. Profit-sharing costs decreased by 73% from 2000 to 2001. Profit-sharing costs are based upon and fluctuate with pre-tax earnings. In 2000, profit-sharing costs included over $6.3 million for an extraordinary bonus paid to employees for the achievement of record earnings during the year. Every employee except for senior officers received $800. In 2001, marketing, administrative and other expenses were reduced by a gain on the sale of Nucor Iron Carbide, Inc., whose operations accounted for a small percentage of our sales.
Interest expense (income), net
Interest expense, net of interest income, increased in 2001 as a result of increased average long-term debt and decreased average interest rates on short-term investments.
Minority interests
Minority interests represent the income attributable to the minority partners of our less than 100% owned subsidiaries, primarily our joint venture, Nucor-Yamato Steel Company.
Federal income taxes
Federal income taxes were at a rate of 35.0% for 2001 and 2000.
Net earnings
The decrease in 2001 net earnings resulted primarily from decreased margins and increased start-up costs of new facilities, partially offset by decreased profit-sharing costs and decreased federal income taxes. Our net earnings were also favorably affected in the fourth quarter of 2001 by a pre-tax gain of $20.2 million related to the sale of Nucor Iron Carbide, Inc. ($11.9 million after tax and profit-sharing, or $.15 per share). The increase in 2000 net earnings resulted primarily from increased margins and increased volume. Net earnings were 5% of average equity in 2001, compared with 14% in 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales
Net sales increased by 14% from 1999 to 2000, with more than 55% of the increase due to increased volume, with additional benefit derived from increased sales prices per ton ($394 in 1999 to $410 in 2000). 2000 was a record year for sales, primarily due to the performance in the first half of the year. In the second half of 2000, demand decreased and import levels increased significantly. During 1999 and 2000, imports of steel increased significantly, much of it at reduced prices that we believe reflected dumping. The effects of these imports decreased during the latter part of 1999, but increased during 2000.
Total steel shipments were 11.0 million tons in 2000, compared with 10.1 million tons in 1999. Steel sales to outside customers were 9.8 million tons in 2000 compared with 8.7 million tons in 1999. Steel joist production for 2000 was 613,000 tons, compared with 616,000 tons in 1999. Steel deck sales were 353,000 tons in 2000, compared with 375,000 tons in 1999. Cold finish steel sales were 250,000 tons in 2000, compared with 243,000 tons in 1999.
Cost of products sold
The major component of cost of products sold is raw material costs. The average price of raw materials increased by less than 10% in 2000. The average scrap and scrap substitute cost per ton used was $120 in 2000 and $111 in 1999. By the end of the fourth quarter of 2000, the average scrap cost per ton used had decreased to $109. State income taxes of $15.2 million in 2000 and $11.7 million in 1999 also are included in cost of products sold.
Gross margin
Gross margin increased from 13% in 1999 to 14% in 2000 due to the net sales and cost of products sold factors discussed above.
Marketing, administrative and other expenses
The major components of marketing, administrative and other expenses are freight and profit-sharing costs. Unit freight costs increased less than 5% from 1999 to 2000. Profit-sharing costs increased by 46% from 1999 to 2000. Profit-sharing costs are based upon and fluctuate with pre-tax earnings. In 2000, profit-sharing costs included over $6.3 million for an extraordinary bonus paid to employees for the achievement of record earnings during the year. Every employee, except for senior officers, received $800.
Interest expense (income), net
Interest income, net of interest expense, decreased in 2000 as a result of increased average long-term debt and decreased average short-term investments.
Minority interests
Minority interests represent the income attributable to the minority partners of our less than 100% owned subsidiaries, primarily our joint venture, Nucor-Yamato Steel Company.
Federal income taxes
Federal income taxes were at a rate of 35.0% for 2000 and 35.5% for 1999.
Net earnings
The increase in 2000 net earnings resulted primarily from increased margins and increased volume. Net earnings were 14% of average equity in 2000, compared with 11% in 1999.
Liquidity and Capital Resources
Liquidity
The ratio of our current assets to current liabilities, or current ratio, was 2.4 at the end of the first nine months of 2002, and 2.8 at year-end 2001. The percentage of long-term debt to total capital (which includes our long-term debt, minority interests and stockholders’ equity) was 18% at the end of the first nine months of 2002, and 16% at year-end 2001.
Capital expenditures decreased 27% from the first nine months of 2001 to the first nine months of 2002. In addition, during the first quarter of 2001, we purchased substantially all of the assets of Auburn Steel Company, Inc.’s steel bar facility for approximately $115 million in cash. During the third quarter of 2002, our wholly owned subsidiary, Nucor Steel Decatur, LLC, purchased substantially all of the assets of Trico Steel Company, LLC for a purchase price of $117.7 million. The purchase price included the assumption of $86 million in principal amount of industrial revenue bonds. The acquisitions were not material to the consolidated financial statements and did not result in material goodwill or other intangible assets. Including the Trico Steel acquisition, capital expenditures are projected to be approximately $260 million for all of 2002.
In 2001, working capital increased 8% from $821.5 million to $889.5 million, due primarily to decreased accrued profit-sharing costs. Our current ratio was 2.8 in 2001 and 2.5 in 2000. During 2000, we negotiated an agreement with the Environmental Protection Agency. We paid a $9.0 million penalty in July 2001 and agreed to spend another $4.0 million in Supplemental Environmental Projects under the agreement. We do not anticipate that the cost of complying with the terms of this decree will materially impact our liquidity.
We have a simple capital structure with no significant off-balance sheet financing arrangements or relationships with unconsolidated special purpose entities. We sometimes use natural gas purchase contracts to partially manage our exposure to price risk of natural gas which we use during the manufacturing process. Our use of these contracts is immaterial for all periods presented.
In late November 2002, we called for redemption $16 million aggregate principal amount of our outstanding fixed rate industrial revenue bond indebtedness. We expect to redeem these bonds in early 2003.
Operating activities
Cash provided by operating activities decreased to $495.1 million in 2001, compared with $820.8 million in 2000. Gross margins deteriorated in 2001 due to lower average selling prices and increased start-up costs of new facilities. Additionally, in 2001, changes in operating assets and liabilities (exclusive of acquisitions and dispositions) used cash of $724,000, compared with changes in operating assets and liabilities providing cash of $79.8 million in 2000.
Investing activities
Cash used in investing activities decreased to $360.4 million in 2001, compared with $410.3 million in 2000. Capital expenditures for new facilities and expansion of existing facilities decreased to $261.1 million in 2001, compared with $415.4 million in 2000.
During 2001, we sold Nucor Iron Carbide, Inc. and sold the assets of the Nucor Bearing Products facility. Both of these operations accounted for a small percentage of our net sales. Total proceeds from these two sales as well as the sale of other equipment at existing facilities were $22.7 million in 2001. Also in 2001, we purchased substantially all of the assets of Auburn Steel Company, Inc.’s steel bar facility in Auburn, New York for approximately $115 million and acquired ITEC Steel, Inc. for approximately $7 million (excluding liabilities assumed).
Financing activities
Cash used in financing activities was $162.9 million in 2001, compared with $492.1 million in 2000. No additional long-term debt was incurred in 2001. Net long-term debt borrowings were $70.0 million in 2000. The acquisitions of the bar mill in Auburn, New York and of ITEC Steel, Inc. in 2001 were funded by our existing cash and short-term investments. The percentage of long-term debt to total capital (which includes our long-term debt, minority interests and stockholders’ equity) was 16% in 2001 and 2000.
Our directors have approved the purchase of up to 15.0 million shares of our common stock. We did not repurchase any shares of our common stock during 2001 or the first nine months of 2002. Since the inception of the stock repurchase program in 1998, we have repurchased a total of approximately 10.8 million shares at a cost of approximately $445 million.
Capital resources
One of our primary financial objectives is to maintain a strong balance sheet. Funds provided from our operations, credit facility, and new borrowings are expected to be adequate to meet future capital expenditure and working capital requirements for existing operations for at least the next 24 months. On October 1, 2002, we issued the old notes consisting of $350 million of 4.875% notes due in 2012. The notes are our senior unsecured obligations and rank equally with all of our unsecured and unsubordinated debt outstanding from time to time. We believe we have the ability to borrow significant additional funds to finance future acquisition opportunities, while maintaining a conservative debt to capital ratio.
On October 4, 2002, we entered into a new revolving unsecured credit facility that provides up to $425 million in revolving loans. This credit facility consists of (i) a $125 million 364-day revolver with an option to permit us to convert amounts outstanding under this facility to a one-year term loan, and (ii) a $300 million five-year multi-currency revolver, a portion of which is available for the issuance of letters of credit and foreign currency borrowings. The new revolving credit facility replaces our previous credit facilities that provided for up to $248 million in revolving loans. Borrowings under the new credit facility bear interest at a base rate or LIBOR plus an applicable spread to be determined by reference to our senior unsecured debt ratings by Standard & Poor’s Ratings Services and Moody’s Investors Service. The new credit facility includes customary financial and other covenants, including a limit on the ratio of funded debt to total capitalization of 50% and a limit on our ability to pledge our or our subsidiaries’ assets. We had no amounts outstanding under this new credit facility as of the date of this prospectus.
Our 2002 joint venture with Rio Tinto Group to construct a commercial scale HIsmelt mill in Western Australia requires us, based on budget calculations, to fund approximately $7 million for this project in 2002 and approximately $48 million thereafter.
On December 9, 2002, we completed our acquisition transaction with Birmingham Steel Corporation for a cash purchase price of approximately $615 million, acquiring substantially all of its assets and assuming obligations under acquired contracts and under some environmental permits. We funded the acquisition with some of the net proceeds from the offering of the old notes, along with working capital.
We are subject to environmental laws and regulations established by federal, state and local authorities and make provisions for the estimated costs related to compliance. The ultimate impact of complying with these laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision. These environmental laws and regulations, particularly the Clean Air Act, could result in substantially increased capital, operating and compliance costs. We are also subject to a consent decree with the EPA and certain states effective in July 2001 in order to resolve alleged environmental non-compliance at eight steel mills and six Vulcraft facilities and to provide an achievable schedule for bringing those facilities into full compliance with environmental laws. The consent decree also provides a framework for resolving a number of uncertainties regarding applicable environmental requirements under state and federal laws and regulations. We do not anticipate that the cost of complying with the terms of this decree will materially impact our liquidity. Of the undiscounted total amount of approximately $75.6 million in accrued environmental reserves at September 28, 2002, including costs projected to comply with the consent decree, approximately $47.2 million was classified in accrued expenses and other current liabilities and approximately $28.4 million was classified in deferred credits and other liabilities.
Contractual Obligations and Other Commercial Commitments
The following table sets forth our contractual obligations and other commercial commitments as of October 31, 2002, not including related interest expense, if any, for the periods presented.
| | | Payments Due By Period
|
Contractual Obligations
| | Total
| | Less than 1 year
| | 1-3 years
| | 4-5 years
| | After 5 years
|
| Long-term debt (1) | | $ | 894,550,000 | | $ | 16,000,000 | | | — | | $ | 1,250,000 | | $ | 877,300,000 |
| Operating leases | | | 4,072,516 | | | 1,057,156 | | | 2,123,035 | | | 892,325 | | | — |
| Unconditional purchase obligations (2) | | | 48,249,888 | | | 48,249,888 | | | — | | | — | | | — |
| Other long-term obligations (3) | | | 50,847,000 | | | 31,364,000 | | | 19,483,000 | | | — | | | — |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Total contractual cash
obligations | | $ | 997,719,404 | | $ | 96,671,044 | | $ | 21,606,035 | | $ | 2,142,325 | | $ | 877,300,000 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
|
| | | Amount of Commitment Expiration Per Period
|
Other Commercial Commitments
| | Total Amounts Committed
| | Less than 1 year
| | 1-3 years
| | 4-5 years
| | After 5 years
|
| Guarantees (4) | | $ | 3,500,000 | | $ | 3,500,000 | | | — | | | — | | | — |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
(1) | Long-term debt as stated above includes the additional debt issued in the form of the old notes to finance in part our acquisition of substantially all of the assets of Birmingham Steel Corporation. |
(2) | Purchase obligations on operating machinery and equipment. |
(3) | Our share of estimated costs to construct and start-up the joint venture HIsmelt mill in Western Australia. |
(4) | Financial guarantees on environmental remediation. |
The year 2001 was one of the most difficult business environments that the steel industry has experienced in decades. Our earnings in 2002 will be adversely impacted by the general state of the economy, specifically as it affects the construction industry, partially offset by the effect of the March 2002 tariffs.
Much of the information in this section contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You should read “Special Note of Caution Regarding Forward-Looking Statements” in the front of this prospectus for a more complete description of what constitutes a forward-looking statement, the protections and qualifications relating to those statements, and a discussion of the risks and uncertainties that could cause actual results to vary materially. Those risks and uncertainties are explained in more detail in “Risk Factors”.
Outlook
On October 17, 2002, in response to questions posed on our live internet conference call relating to our third quarter earnings release (the transcript of which was subsequently posted on our website), we stated, based on preliminary information, that our fourth quarter earnings could be between $0.45 to $0.50 per share. We currently expect to make our customary fourth quarter earnings announcement based on more complete, updated information on or about February 6, 2003.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end, and the reported amount of revenues and expenses during the year. On an ongoing basis, we evaluate our estimates, including those related to the valuation allowances for receivables, the carrying value of property, plant and equipment and environmental obligations. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accordingly, actual costs could differ materially from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Asset Impairments
We evaluate the impairment of our property, plant and equipment on an individual asset basis or by logical groupings of assets. Asset impairments are recognized whenever changes in circumstances indicate that the carrying amount of those productive assets exceeds their aggregate projected undiscounted cash flows.
Environmental Remediation
We are subject to environmental laws and regulations established by federal, state and local authorities, and make provision for the estimated costs related to compliance. Undiscounted remediation liabilities are accrued based on estimates of known environmental exposures. The accruals are reviewed periodically and, as investigations and remediation proceed, adjustments are made as we believe are necessary. The accruals are not reduced by possible recoveries from insurance carriers or other third parties, and do not reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites after an assessment is made of the likelihood that such parties will fulfill their obligations at such sites. Our measurement of environmental liabilities is based on currently available facts, present laws and regulations, and current technology.
Recently Issued Accounting Standards
In June 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses issues relating to the recognition, measurement and reporting of costs associated with exit and disposal activities, including restructuring activities, and nullifies the guidance in Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We believe that the adoption of SFAS No. 146who does not currently havereceive freely transferable New Notes in exchange for tendered Existing Notes, the Company will use its commercially reasonable efforts to cause to become effective a material impact on our results of operations, financial condition and cash flows.
The United States steel industry is cyclical and is affected by a number of factors, including general economic conditions, market demand for steel products, availability and costs of electricity, natural gas, raw materials and equipment and parts, and United States and foreign trade policies affecting steel imports or exports. In 2001, United States steel makers produced 99.3 million tons of steel and operated at an average production capacity of 79.2%, based on data compiled by the American Iron and Steel Institute, or AISI. This is compared to production of 112.2 million tons at 86.1% average production capacity in 2000 and 107.4 million tons at 83.8% average production capacity in 1999, as reported by AISI. Average revenue per ton declined from $345 for 2000 to $315 for 2001, based on AISI data.
Steel is sold principally to the automotive, construction, steel product fabrication, container/packaging, oil and gas, electrical, machinery and appliance industries. In some of these industries, such as the automotive and construction industries, steel competes with other substitute materials such as plastic, glass, composite and ceramic materials.
We estimate that foreign steel accounted for approximately 23.3%, 25.8% and 25.2% of the United States market in 2001, 2000 and 1999, respectively, based on AISI data. These levels of foreign imports reflect the glut of global steel production capacity compared to global steel consumption during this period. We estimate that global annual production capacity for steel was approximately one billion tons in 2001, based on data compiled by the Boston Consulting Group, while only approximately 847 million tons of steel were purchased worldwide in 2001, based on a report by the International Iron and Steel Institute. Increasing steel imports sold at prices lower than domestic prices have adversely affected the United States steel industry. As the largest and most open steel market in the world, the United States has become a primary targetshelf registration statement providing for the sale of excess steel production, which we believe is often at illegal dumping prices.
On March 5, 2002, President Bush imposed a series of tariffs relating to imported steel that apply over a three-year period and are intended to giveall the domestic steel industry an opportunity to strengthen its competitive position through restructuring and consolidation. Tariffs have been increased on imports of certain flat steel, hot-rolled bar, cold-finished bar, rebar, certain welded tubular products, carbon and alloy fittings, stainless steel bar, stainless steel rod, tin mill products and stainless steel wire. A tariff rate quota was applied to steel slabs. The tariffs gradually decline in years two and three and expire at the end of the third year. The tariffs range from 30% ad valorem to 8% ad valorem in the first year; 24% to 7% in the second year; and 18% to 6% in the third year. There are products and countries not covered by these tariffs, in addition to numerous foreign steel manufacturers that have received exemptions from these tariffs. According to published reports, the exemptions are now estimated to cover approximately 5.4 million of the original 13.1 million tons of imported steel products that were coveredExisting Notes by the tariffs. The majority of the most recent exemptions were granted to products made by European Unionholders thereof; provided that (1) such holder has delivered a completed and Japanese producers. To date, the United States Department of Commerce has granted 727 exemptions which, according to the AISI, is the reason the tariffs have not yet effectively reduced steel imports. According to the AISI, there are some early indications that the President’s program is beginning to work, including improved operating performance, new stock offerings, increased consolidation activitysigned notice and partial price restoration for some flat-rolled steel products; however, some analysts attribute these developments toquestionnaire and provided such other factorsinformation regarding such as diminished domestic supply, higher domestic demand, the lower value of the United States dollar and recent successful antidumping cases. For the first nine months of 2002, steel imports were 23.9 million tons versus 22.1 million tons in the first nine months of 2001, according to the AISI. The Bush administration has announced its intention to review the impact of these tariffs and determine whether they should be ended prior to their scheduled expiration.
Earlier this year, the U.S. Commerce Department concluded that 20 countries were dumping cold-rolled steel in the U.S. market, and referred the matter to the International Trade Commission to determine if this dumping injured American steel producers. Recently, the International Trade Commission determined that the domestic steel industry has not been significantly injured by the alleged dumping of cold-rolled steel from
producers in Japan, India, Australia, Sweden and Thailand, and has declined to impose duties that could have significantly increased the price of imported cold-rolled steel. The International Trade Commission in November ruled against United States steel producers when it determined that imports from numerous other countries had not materially injured the domestic steel industry. Although more of these dumping cases may undergo government review, since the implementation of the tariffs in March 2002, the International Trade Commission generally has ruled against the U.S. steel industry.
As a result of the general economic slowdownholder and the effectsproposed disposition by such holder of increasing steel imports,such Existing Notes and other documentation necessary to effectuate the proposed disposition as well as other factors, a number of significant United States steel makers entered bankruptcythe Company may from time to time reasonably request in 2001writing, and, 2002. These companies include Trico Steelif necessary, the shelf registration statement has been amended to reflect such information, and (2) the Company LLC, Republic Steel Corporation, Bethlehem Steel Corporation, National Steel Corporation, Geneva Steel Company and Birmingham Steel Corporation. The operations of some of these companies have ceased, which may reduce United States supply, on at least a temporary basis. Because the shutdown of some of these facilities may onlywill be temporary, however,under no obligation to file any such shelf registration statement before it is not possibleobligated to predict whether the bankruptcies will have a long-term effect on the reduction of United States steel manufacturing capacity.
Reflecting reduction in supply as a result of these bankruptcies and the impact of the tariffs announced in March 2002, prices for some United States steel products have increased recently. Our composite sales price per ton has increased from $316 per ton in the first quarter of 2002 to $355 per ton in the third quarter of 2002. The strength of the United States steel industry will depend principally on the timing and duration of an economic recovery and the implementation of a longer term solution to prevent illegal dumping in the United States market by foreign steel producers.
The United States steel industry is composed of two major sectors: integrated steel and mini-mills. Integrated steel facilities use blast furnaces to make molten steel from iron ore and coke, which is a refined carbon product produced by firing coal in large coke ovens at the facility.
Non-integrated mills (often referred to as mini-mills), like the ones we own, melt scrap steel using electric arc furnaces, a less capital-intensive process which makes them more efficient than integrated steel mills. Because mini-mills are smaller than integrated steel mills, mini-mill steel manufacturers like us can build and operate their mills in multiple locations to be nearer to their customers. Mini-mills have accounted for an increasing amount of United States steel production. In 1998, mini-mill steel production totaled 45.1% of United States steel production, compared to 47.4% in 2001, according to the Steel Industry Monitor. We believe that this trend will continue.
The following is a summary description of our business. You should read the information provided in our periodic reports that are filed with the SEC and incorporated by reference in this prospectus for more information about us and our operations. See “Where You Can Find More Information”.
Overview
We are the largest steel producer in the United States. Additionally, we are the nation’s largest recycler, using steel scrap as our primary material in producing our steel products. We had sales of over $4.1 billion and recycled over 10 million tons of scrap steel in 2001. We produce and sell steel in the following forms:
| Ÿ
| steel bars, beams, sheet and plates, |
| Ÿ
| steel joists and joist girders, |
| Ÿ
| cold-finished (or rolled) steel, |
| Ÿ
| metal building systems, and |
| Ÿ
| light gauge steel framing. |
We manufacture our steel principally from steel scrap, utilizing electric arc furnaces, continuous casting and automated rolling mills. We process some of our manufactured steel to produce cold-rolled or cold-finished steel, steel joists and joist girders, and steel fasteners. We further process our cold-rolled steel to produce steel deck.
Our products are primarily carbon steel, which is steel containing iron, carbon and other alloys. A variety of alloys are used to achieve distinct properties to meet specific applications.
In 2001, approximately 90% of our hot- and cold-rolled steel production was sold to non-affiliated customers in the United States; the remainder was used by us in the manufacture of other steel products as described above. We market our steel products in the United States principally through our in-house sales force. We believe the primary competitive factors in selling steel products are price and service. We face considerable competition from numerous domestic manufacturers and foreign imports, often at prices that we believe involve “dumping” in the case of foreign imports.
We have operations in 14 states and as of December 15, 2002 had approximately 10,000 employees. None of our employees are represented by labor unions.
Our backlog of orders was approximately 2.8 million tons at September 28, 2002 and approximately 2.1 million tons at September 29, 2001. We expect current backlog to be filled within one year.
On December 9, 2002, we acquired substantially all of the assets of Birmingham Steel Corporation. A significant portion of the information in this section regarding our business takes into account that acquisition.
Business Strengths
Largest Steel Producer in United States
We are the largest steel producer in the United States. In 2001, our mills produced approximately 12.3 million tons of steel, representing approximately 12% of U.S. steel produced. Our 2001 production represented a 9% increase from the 11.3 million tons we produced in 2000. Our annual production capacity has grown from 120,000 tons in 1970 to almost 14 million tons in 2001 and over 18 million tons as of December 15, 2002, including our recent acquisitions. For the first nine months of 2002, our mills produced 10 million tons, or approximately 14.5% of steel production in the United States in that period. Our first nine months 2002 production represented a 7.7% increase from the 9.3 million tons we produced in the first nine months of 2001.
Low-Cost Producer
We believe that our manufacturing costs are among the lowest in the steel industry. The most significant component of our operating costs is scrap steel. Our mills melt scrap steel using electric arc furnaces and then process the steel through continuous casting systems. These operations are highly automated, and we believe that we require fewer employees per ton of production capacity than many of the facilities of our competitors. In addition, due to the efficiency of our mills, we limited our energy costs in 2001 to 10% of sales.
Modern, Efficient Mills
We believe that our steel mills are among the most modern and efficient in the world, utilizing current and efficient technology. We were among the early companies to build and operate mini-mills, starting in 1969. Our older facilities have been updated in many cases in an effort to maximize the efficiencies afforded by the latest technological advances. We believe our mini-mills are more labor, capital and energy efficient than integrated steel mills, which produce steel with blast furnaces from iron ore, a more basic raw material. Additionally, we believe that the variety and scale of our operations generally enable company-wide synergies and efficiencies not achievable by our smaller mini-mill competitors. In 2001, our capital expenditures to maintain, improve and expand our facilities were approximately $120 million, or 3% of our sales, and $166 million, or 4% of our sales, in 2000.
Commitment to Innovation
We pride ourselves on being at the technical forefront of the steel industry. We believe we were the first steel company to commercialize thin-slab casting and among the first in the United States to adopt “near net shape beam blank casting” (structural steel). We emphasize the development of new disruptive and leapfrog technologies that can give us a competitive advantage. Some of those technologies include:
Castrip. Strip-casting produces ultra-thin gauge hot-rolled steel with the ability to serve many cold-rolled applications. A Castrip mill produces a thinner sheet of steel in the casting process and is less capital intensive than existing sheet mills. The expected working space requirements for the Castrip process are less than the requirements for sheet steel produced using a thin-slab or a conventional-slab caster. The first Castrip facility is operational and is being tested for economic viability at our Crawfordsville, Indiana steel mill. We are now producing prime, saleable coils at the new Crawfordsville facility that uses the Castrip technology. Our team in Crawfordsville has also successfully broadened the product capability of the Castrip technology to include both electrical and stainless steels. While we are still in the testing stage and there can be no assurance as to its ultimate success, we continue to make significant progress towards achieving full commercialization of the Castrip process. In addition to our Castrip facility, we have entered into a joint venture with Broken Hill Proprietary Corporation and
Ishikawajima-Harima Heavy Industries to sell the Castrip technology to other steel manufacturers. We hold the exclusive rights to use this technology in the United States and Brazil.
HIsmelt. HIsmelt is a technology in development to convert iron ore to liquid metal thus eliminating the need for a blast furnace, sinter/pellet plants and coke ovens. This technology also may provide an economic alternative for blast furnaces and coke ovens that are no longer operational. We entered into a joint venture in 2002 with the Rio Tinto Group, the leading iron ore supplier in Australia, Mitsubishi Corp. and Chinese steel maker Shougang Corp. to develop the HIsmelt technology and for the construction of a commercial scale HIsmelt mill at Rio Tinto’s existing HIsmelt pilot site in Kwinana, Western Australia. We have the right to use this technology in any of our facilities.
Experienced Management Team
The members of our senior management team have an average of approximately 15 years in management positions with our company.
Commitment to our Employees
We have a simple, streamlined organizational structure to allow our employees to make quick decisions and to be innovative. Our organization is highly decentralized, with most day-to-day operating decisions made by one of our division general managers and their staff. The organizational structure at a typical division is made up of only three management layers over our hourly employees: supervisors/professionals, department managers, and a general manager. All of our employees participate in one of our four incentive compensation plans, which award compensation for meeting and exceeding selected operational goals. Because of their productivity, we believe that employees working at our mills are, on average, among the highest paid in the steel industry. None of our employees are represented by labor unions, and we believe our annual employee turnover is low relative to our industry. Additionally, we believe that we take an egalitarian approach to providing benefits to our employees-that is, upper levels of management generally do not enjoy better insurance programs, vacation schedules, holidays, or other traditional perquisites such as company cars, corporate jets, executive dining rooms or executive parking places. Due to our structure and employee practices, we have been able to attract and retain highly talented, motivated, productive employees, committed to making our company a leader in the steel industry.
Commitment to our Customers through Product Quality and Service
We are committed to providing our customers with uncompromising quality products. We strive to maintain the most modern equipment at our facilities and to adopt new and innovative production technologies, all with the objective of producing products of the highest quality as efficiently as possible. All of our operating facilities have earned quality system certifications. Most are ISO 9000 certified, a few are also QS 9000 certified and many have other special certifications unique to the industry. Most of these certifications are the result of implementing quality systems that are compliant with recognized international standards and passing an audit by an independent registrar. In addition to product quality, we have a strong commitment to serving our customers’ needs. We subscribe to the principle that our real business is a commitment to each and every customer on each and every order.
Growth Strategies
Optimize Existing Facilities
We are committed to continually improving our production efficiencies and lowering our operating costs per ton of steel produced. We also regularly improve the quality of our products, allowing improved pricing. We budgeted approximately $125 million in 2002 on capital improvements to our existing machinery
and equipment, including the adoption of new or enhanced production technologies. We spent approximately $99 million in 2001 and $108 million in 2000 on these capital improvements. We plan to continue seeking opportunities to optimize the capabilities of our production machinery and equipment. For example, we plan to spend an additional $200 million on capital improvements to several of our bar mills over the next three years. These projects include a modernization of the rolling mill at our Nebraska mill, a new melt shop at our Texas mill, and a new reheat furnace and finishing end at our South Carolina mill.
Continue Greenfield Growth
Historically, we have grown our operations primarily by building new facilities, or “greenfield expansion”, and through expansion at our existing facilities.
In the second half of 2001, we began operations at the Vulcraft facility in Chemung, New York (Vulcraft of New York, Inc.). This facility produces steel joists, joist girders and steel deck. In late 2000, we completed construction of a steel plate mill in Hertford County, North Carolina, which has annual production capacity of 1.2 million tons. During 1999, we completed construction and started operation of a steel beam mill in Berkeley County, South Carolina, which has annual production capacity of 600,000 tons per year.
Additionally, we seek opportunities to increase our production capabilities by expanding at our existing operating locations. During 2001, we finished building and began operating a cold-rolling facility at our sheet mill in Berkeley County, South Carolina. This is our second cold-rolling facility at this mill, increasing its annual capacity of cold-rolled steel to 1.5 million tons from 750,000 tons. During 2000, we finished building and began operating a second caster at our sheet mill in Berkeley County, South Carolina. This additional caster increased our annual capacity of hot-rolled steel at this mill to 2.4 million tons from 1.5million tons.
Continue Acquisitions
The recent economic downturn has significantly affected the steel industry, and a number of our competitors’ operations are for sale, many being offered for sale in bankruptcy proceedings. We believe that the number of facilities for sale, coupled with the limited number of potential buyers, is producing attractive pricing for existing facilities. We have been and plan to continue identifying economically attractive opportunities to purchase operating assets to increase our production capacity. We seek to make purchases when, in addition to boosting our annual production capacity, we can improve the acquired facilities by implementing our management philosophy and commitment to employees, undertaking capital improvement projects, and bringing our technologies and production knowledge to those operations.
Strategic Acquisitions
As part of our overall strategy to emerge from economic down-cycles stronger than we entered them, we have pursued and continue to pursue acquisitions that are both strategically important and attractively valued. We take a cautious and disciplined approach to acquisitions and are interested in acquiring assets only if they will help us build profitable market share and are priced attractively. A primary goal of our business development team and corporate-level transition/integration team leaders is to integrate our acquired assets as smoothly as possible.
Birmingham Steel Corporation
On December 9, we completed our acquisition of substantially all of Birmingham Steel Corporation’s assets for approximately $615 million in cash. We used some of the net proceeds from the offering of the old notes, along with working capital, to complete that acquisition. As required by the acquisition agreement,
Birmingham Steel filed for Chapter 11 bankruptcy pursuant to a prearranged plan. We, Birmingham Steel, and Birmingham Steel’s secured creditors agreed on the pre-arranged plan. The United States Bankruptcy Court in Delaware confirmed the plan of reorganization and approved the acquisition. The Anti-Trust Division of the United States Department of Justice granted early termination of the Hart-Scott-Rodino waiting period, allowing the transaction to proceed under the antitrust laws. Assets included in the purchase are Birmingham Steel’s four operating mills in Birmingham, Alabama; Kankakee, Illinois; Seattle, Washington; and Jackson, Mississippi. These mills have an estimated combined annual capacity of approximately two million tons. We intend to continue to operate these facilities in much the same manner as they were operated prior to the acquisition. These plants are similar to the ones we have operated and approach our other plants in terms of operating efficiency. In addition, employees at these facilities are not represented by unions. We believe that these plants’ compatibility, as well as the similar management philosophies, will help to facilitate the integration process for the acquisition.
In connection with the acquisition, we also acquired the corporate office of Birmingham Steel located in Birmingham, Alabama; its mill in Memphis, Tennessee, which is currently not operating; the assets of Port Everglades Steel Corporation; the assets of the Klean Steel Division; Birmingham Steel’s ownership of Richmond Steel Recycling Limited; and approximately $120 million accounts receivable and inventory related to the acquired assets.
Wholly owned subsidiaries of ours have assumed obligations of Birmingham Steel under acquired contracts, which include certain supply and service contracts, utilities agreements, property and equipment leases and other ordinary course operating contracts, and under certain environmental permits.
Trico Steel Company, LLC
In January 2002, the United States Bankruptcy Court in Delaware approved the purchase by one of our wholly owned subsidiaries of substantially all of the assets of Trico Steel Company, LLC. We completed the purchase on July 22, 2002 for a purchase price of $117.7 million. In connection with the acquisition we assumed $86 million in principal amount of industrial revenue bonds. Located in Decatur, Alabama, the Trico sheet steel facility originally began operations in 1997. We anticipate that following completion of scheduled capital improvements, its annual capacity will be approximately 1.9 million tons, which will increase our total capacity for sheet production by approximately 30%. Our management team is in place and has begun training employees at this facility. Equipment modifications to increase the capacity of this facility and the quality of its product were started immediately after receiving the required regulatory permits. We believe that these assets will support our strategy to build market share in the flat-rolled steel market and broaden our sheet product portfolio to include higher quality grades.
In the third quarter of 2002, we incurred costs associated with the accelerated start-up of Nucor Steel Decatur, LLC, which successfully produced its first heat and cast its first slabs the week of September 16—less than 60 days after the acquisition. The facility is now regularly producing and shipping hot-rolled steel coils and pickled and oiled product for outside customers.
Auburn Steel Company, Inc.
In March 2001, we acquired substantially all of the assets of Auburn Steel Company, Inc.’s merchant steel bar facility in Auburn, New York for a purchase price of approximately $115 million. The facility began operations in 1974 and has an annual capacity of 430,000 tons of merchant bar quality steel shapes. As one of our lowest capital cost bar mills, the acquisition of the Auburn facility has been accretive to our earnings. The facility achieved record production and shipments in 2001, which we believe was partially due to the implementation of our incentive pay system at this facility.
Our Operating Facilities
Our Bar Mills, Sheet Mills, Structural Mills and Plate Mill
We operate 16 scrap-based steel mills. These mills melt scrap metal to produce steel, as compared to integrated steel mills, which make steel by processing iron ore and other raw materials in blast furnaces.
Bar Mills. We operate nine bar mills, which are located in Darlington, South Carolina; Norfolk, Nebraska; Jewett, Texas; Plymouth, Utah; Auburn, New York; Birmingham, Alabama; Kankakee, Illinois; Seattle, Washington; and Jackson, Mississippi. We produce carbon and alloy steel bars, angles and light structural shapes at these bar mills. These products have wide usage, including in the manufacturing of automotive and farm equipment, metal buildings, furniture and recreational equipment. Total production capacity of our nine bar mills is approximately 5.8 million tons per year.
We constructed four of these mills between 1969 and 1981. The mill in Auburn, New York, was acquired in March 2001 and the mills in Birmingham, Alabama; Kankakee, Illinois; Seattle, Washington; and Jackson, Mississippi were acquired on December 9, 2002. Over the years, we have completed extensive capital projects to keep our facilities modernized. As announced in February 2002, we plan to spend an additional $200 million on capital improvements to these mills over the next three years. These projects include a modernization of the rolling mill at our Nebraska mill, a new melt shop at our Texas mill, and a new reheat furnace and finishing end at our South Carolina mill. Our average construction cost for building these four mills was approximately $186 per ton of their annual steel-making capacity in 2001.
In 2001, we acquired substantially all of the assets of Auburn Steel Company, Inc.’s bar mill in Auburn, New York. Our capital cost at this mill is approximately $186 per ton of steel-making capacity in 2001. This mill is an important addition to our group of bar mills, as it gives us a presence in the market for merchant bars in the Northeast and fits well strategically with our new Vulcraft facility in New York, which we describe below.
Our capital cost for the four bar mills we acquired from Birmingham Steel is approximately $237 per ton of steel-making capacity. These mills broaden our presence geographically and complement our bar product growth strategy.
Sheet Mills. We operate four sheet mills, which are located in Crawfordsville, Indiana; Hickman, Arkansas; Berkeley County, South Carolina; and Decatur, Alabama. We produce flat-rolled steel at these mills, which is used in the manufacture of appliances, pipes and tubes and in the construction industry. Total annual capacity of our sheet mills is in excess of eight million tons per year.
We constructed each of these sheet mills between 1989 and 1996 other than the Decatur, Alabama facility, which we acquired from Trico Steel in the third quarter of 2002. These sheet mills utilize thin-slab casters to produce hot-rolled sheet, a portion of which we further process through cold rolling and galvanizing. Our average construction cost for these mills is approximately $301 per ton of their annual steel-making capacity in 2001.
In July 2002, one of our subsidiaries purchased substantially all of the assets of Trico Steel. Located in Decatur, Alabama, the Trico sheet steel facility originally began operations in 1997. We anticipate that following completion of scheduled capital improvements, its annual capacity will be approximately 1.9 million tons, which will increase our total capacity for sheet production by approximately 30%. We estimate making capital expenditures of approximately $70 million for improvements in 2002. The Decatur facility is now regularly producing and shipping hot-rolled steel coils and pickled and oiled product for outside customers.
During 2001, we finished building and began operating a cold-rolling facility at our sheet mill in Berkeley County, South Carolina. This is our second cold-rolling facility at this mill, increasing its annual capacity of cold-rolled steel to 1.5 million tons from 750,000 tons.
During 2000, we finished building and began operating a second caster at our sheet mill in Berkeley County, South Carolina. This additional caster increased our annual capacity of hot-band steel at this mill to 2.4 million tons from 1.5million tons.
Structural Mills. We operate two steel structural mills which are located in Blytheville, Arkansas and Berkeley County, South Carolina. We produce wide-flange steel beams, pilings and heavy structural steel products at these mills for sale to steel fabricators and distributors to be used in buildings, bridges and other construction applications. Both of these mills use a special casting method that produces a beam blank closer in shape to that of a finished beam than traditional methods. Combined annual capacity of these two mills is approximately 3.2 million tons.
In 1999, we finished building and began operating our structural beam mill in Berkeley County, South Carolina. In 1988, we and Yamato Kogyo, one of Japan’s major producers of wide-flange beams, completed construction of a structural beam mill in Blytheville, Arkansas. We own a 51% interest in Nucor-Yamato Steel Company, which owns and operates this mill. Our average construction cost for these two mills is approximately $270 per ton of annual steel-making capacity in 2001, which we believe is lower than the average construction cost of production capacity at integrated steel mills producing these same products.
Plate Mill. We operate one steel plate mill in Hertford County, North Carolina. It produces steel plate used in our customers’ production of rail cars, ships, barges and refinery tanks. We finished building and began operating this mill in October 2000. This mill’s new, efficient production technology and our strong customer service focus has enabled us to successfully enter the market for steel plate. We will seek an increasing share of this market over the next several years. This mill has annual production capacity of 1.2 million tons and we produced approximately 522,000 tons in 2001.
Operation of Our Steel Manufacturing Mills
All of our steel manufacturing mills process scrap steel to produce our steel products, rather than melting iron ore with blast furnaces, as do integrated mills. We melt steel scrap in electric arc furnaces and pour it into continuous casting systems, producing billets and slabs. Highly sophisticated rolling mills convert the billets and slabs into angles, rounds, channels, flats, sheet, beams, plate and other products.
We produced a record 12.3 million tons of steel in 2001, a 9% increase from 11.3 million tons in 2000. Our annual production capacity has grown from 120,000 tons in 1970 to over 18 million tons in 2002, taking into account our recent acquisitions.
Scrap and scrap substitutes are the most significant element in our total cost of producing steel. The average cost of our steel scrap decreased to $101 per ton used in 2001 from $120 per ton used in 2000. Despite increased mini-mill production in recent years, the rise in availability and use of scrap substitutes helps to keep scrap costs from increasing significantly.
Steel mills consume large amounts of electricity and gas. However, because of the efficiency of our steel mills, we have limited our average energy costs to approximately 10% of our sales in at least the last three fiscal years. We believe that this is lower than the energy costs of integrated steel companies producing comparable products.
Markets for Our Manufactured Steel
We sold approximately 90% of our 2001 hot- and cold-rolled steel production to non-affiliated U.S. customers, and used the balance as the raw material for our fabrication operations. Steel sales to our customers in 2001 were a record 11.0 million tons, 13% higher than the 9.8 million tons in 2000.
We sell steel products produced by our bar mills and sheet mills primarily to manufacturers and steel service centers and the steel products of our structural and plate mills primarily to fabricators, manufacturers and steel service centers.
We use a simple, highly competitive pricing system that is less complicated than the traditional pricing structure used by many companies in the steel industry. For the bar and structural mills, we charge all customers in a region the same published price. For the more highly engineered steel produced by our sheet and plate mills, however, prices we charge vary due to the additional costs of accommodating customized and specialized products ordered by our customers.
Our Vulcraft Group
Our Vulcraft group is the nation’s largest producer of steel joists, joist girders and steel deck used in non-residential building construction. Steel joists, joist girders and steel decking are used extensively as part of the roof and floor support systems in buildings, including retail stores, shopping centers, warehouses, schools, churches, hospitals and, to a lesser extent, multi-story buildings and apartments. Building support systems using joists, joist girders and steel deck are frequently more economical than other systems. We sell these products to general contractors and steel fabricators across the United States. Steel fabricators design complex, highly-specialized load-bearing products and structures for use in the construction industry. Substantially all production is to order and minimal unsold inventories of finished products are maintained. All sales contracts are firm fixed-price contracts and are usually bid against other suppliers.
Sales of steel joists, joist girders and steel deck are significantly dependent on the non-residential building construction market. The decreased level of construction over the past two years has unfavorably impacted the number of non-residential buildings supplied by the Vulcraft group. Continued weakness in non-residential building construction would negatively affect the sales of steel joists, joist girders and steel deck and the earnings of Vulcraft.
Steel Joists and Joist Girders. Our facilities located in Florence, South Carolina; Norfolk, Nebraska; Fort Payne, Alabama; Grapeland, Texas; St. Joe, Indiana; Brigham City, Utah; and Chemung, New York produce steel joists and joist girders. We sell these products through a bidding process. In 2001, our Vulcraft group submitted bids on an estimated 80% to 90% of the domestic buildings being constructed using steel joists and joist girders as part of their support systems and supplied an estimated 40% of total domestic sales of steel joists and joist girders. In 2001, our Vulcraft facilities produced 532,000 tons of steel joists and joist girders, a decrease of 13% from the 613,000 tons we produced in 2000 and a decrease of 14% from the 616,000 tons we produced in 1999. These facilities currently have an annual production capacity of 685,000 tons. In 2001, our Vulcraft group obtained approximately 92% of its steel requirements for joists and joist girders from our bar mills.
Steel Deck. Our Vulcraft facilities in Florence, South Carolina; Norfolk, Nebraska; Fort Payne, Alabama; Grapeland, Texas; St. Joe, Indiana; and Chemung, New York produce steel deck. Steel deck is used in what we believe is the majority of buildings being constructed with steel joists and joist girders, so that we are often able to bid on steel deck when bidding on steel joists and joist girders. In 2001, our Vulcraft group supplied an estimated 30% of total domestic sales of steel deck. In 2001, our Vulcraft facilities produced 344,000 tons of steel deck, a decrease of 3% from the 353,000 tons we produced in 2000 and a decrease of 8% from the 375,000 tons we produced in 1999. These facilities currently have an annual production capacity of
400,000 tons. In 2001, our Vulcraft group obtained approximately 89% of its steel requirements for steel deck production from our sheet mills.
In 2000, we began construction on a Vulcraft facility in Chemung, New York. We began operations at this facility in the second half of 2001. This facility produces steel joists, joist girders and steel deck. The majority of the raw materials for this facility are supplied by our steel manufacturing mills in Auburn, New York and Crawfordsville, Indiana. Through the Chemung Vulcraft facility we have expanded our geographic market of our Vulcraft group into the Northeast.
Our Cold Finish Group
Our cold finish group produces cold-drawn and turned, ground and polished steel bars, in round, hexagon, flat and square shapes. These products are purchased by customers in various industries, including automotive, farm machinery, hydraulic, appliance, electric motor and service centers. Examples of these products include anchor bolts in basketball hoops and farm machinery, hydraulic cylinders, and shafting for air conditioner compressors, ceiling fan motors, garage door openers, electric motors and lawn mowers.
This group has facilities in Norfolk, Nebraska; Darlington, South Carolina; and Brigham City, Utah. We believe all three facilities to be among the most modern in the world, and they use in-line electronic testing to ensure outstanding quality. Our cold finish group obtains most of its steel requirements from our bar mills. In 2001, sales of cold-finished steel products were 203,000 tons, a decrease of 19% from 250,000 tons in 2000 and a decrease of 16% from 243,000 tons in 1999. The total capacity of these three facilities is approximately 350,000 tons per year. Based on our review of the AISI Annual Statistical Report published in July 2002, we estimate the total annual cold-finished steel product market for the years 1997 through 2000 to be more than 1.8 million tons. Our cold finish group anticipates opportunities for increases in sales and earnings during the next several years since we currently have less than 15% of the market.
Our Fastener Division
Our fastener division is located in St. Joe, Indiana and produces standard steel hexhead cap screws, hex bolts, socket head cap screws and structural bolts. Fasteners are used in a broad range of markets, including automotive, machine tools, farm implements, construction and military applications.
This operation is highly automated and we believe has fewer employees than comparable facilities of our competitors, enabling us to maintain highly competitive pricing in a domestic market currently dominated by foreign suppliers. The total capacity of this facility is approximately 75,000 tons, which we estimate to be approximately 20% of the total market for these products. This facility obtains much of its steel requirements from our bar mills.
Our Building Systems Group
Our building systems group manufactures metal buildings and steel framing systems for commercial, industrial, residential and municipal construction markets. It can customize complete metal buildings, ranging in size from approximately 500 square feet to more than one million square feet and can integrate other materials into these buildings such as glass, wood and masonry. This group sells its products through a builder distribution network that enables quick, customized solutions for building owners. Buildings that use our products include distribution centers, automobile dealerships, retail centers, schools, warehouses and manufacturing facilities.
Our building systems group operates at three facilities located in Waterloo, Indiana; Swansea, South Carolina; and Terrell, Texas. This group obtains a significant portion of its steel requirements from our bar
and sheet mills. Building systems sales in 2001 were approximately 65,000 tons, a decrease of 17% from the 78,500 tons we sold in 2000 and a decrease of 2% from 66,000 tons in 1999. This group currently has annual capacity of approximately 145,000 tons.
Nucon Steel Group
Our Nucon Steel group manufactures load-bearing light gauge steel framing systems for commercial, industrial and residential construction markets. We began this group with our acquisition of ITEC Steel, Inc., and its wholly owned subsidiary, Steel Truss and Frame Corp, in November 2001. These acquired facilities are located in Dallas, Georgia and Denton, Texas. Nucon Steel specializes in light gauge steel framing systems for the commercial and residential construction markets. As a leader in the emerging load-bearing light gauge steel framing industry, Nucon Steel provides us with an entry into this growing market. We plan to broaden Nucon Steel’s opportunities through geographic expansion and the introduction of new products.
Facilities
Our principal operating facilities are as follows:
Location
| | Approximate square footage of facilities
| | Principal Products
|
Blytheville-Hickman, Arkansas | | 3,520,000 | | Steel shapes, flat-rolled steel |
Norfolk-Stanton, Nebraska | | 2,390,000 | | Steel shapes, joists, deck |
Brigham City-Plymouth, Utah | | 1,920,000 | | Steel shapes, joists |
Darlington-Florence, South Carolina | | 1,660,000 | | Steel shapes, joists, deck |
Grapeland-Jewett-Terell, Texas | | 1,510,000 | | Steel shapes, joists, deck |
Crawfordsville, Indiana | | 1,790,000 | | Flat-rolled steel |
Berkeley, South Carolina | | 1,900,000 | | Flat-rolled steel, steel shapes |
Auburn-Chemung, New York | | 950,000 | | Steel shapes, joists, deck |
Hertford County, North Carolina | | 1,000,000 | | Steel plate |
Decatur-Birmingham-Fort Payne, Alabama | | 1,431,000 | | Flat-rolled steel, steel shapes, joists, deck |
Seattle, Washington | | 736,000 | | Steel shapes |
Kankakee, Illinois | | 400,000 | | Steel shapes |
Jackson, Mississippi | | 323,000 | | Steel shapes |
We have additional operating facilities in St. Joe and Waterloo, Indiana; Terrell, Texas; Dallas, Georgia; and Swansea, South Carolina, all of which are engaged in the manufacture of steel products. The average utilization rate of all of our operating facilities was approximately 88% of production capacity for the first nine months of 2002 (prior to the acquisition of substantially all the assets of Birmingham Steel Corporation in December 2002), and approximately 87% of production capacity for the year ended December 31, 2001. Our average utilization rate may fluctuate considerably based on general economic and industry conditions. In connection with the Birmingham acquisition, we acquired a steel mill in Memphis, Tennessee that we are not currently operating, as well as a distribution center in Fort Lauderdale, Florida.
Environmental Matters
In late 2000, we agreed to a comprehensive consent decree with the EPA and several states that relates to a broad array of alleged past environmental violations at eight of our steel manufacturing mills and six of our Vulcraft facilities. In the course of negotiating the consent decree, we and the EPA actively attempted to identify and resolve every item of potential non-compliance under applicable environmental laws. The consent decree was approved and entered as a court order in July 2001. We paid the agreed upon $9 million
civil penalty in July 2001 and have agreed to spend another $4 million in performing supplemental environmental projects under the consent decree. We believe that entering into the consent decree has resolved all significant past liability arising under applicable environmental laws for past events occurring at those facilities. Pursuant to the consent decree, we agreed to investigate and clean up certain areas suspected of contamination, to make substantial investments in operating and environmental equipment over an eight-year period, and to install continuous emissions monitoring systems at each of our mills. The consent decree also involves implementation of a schedule for investigating releases of contaminants and performing environmental cleanups at our mills, and of best management practices for water pollution and waste materials handling. In addition, under the consent decree we agreed to test various pilot technologies intended to reduce nitrogen oxide emissions from a variety of facility sources, including certain air pollution control technologies on our electric arc furnaces and reheat furnaces and at our Vulcraft facilities, and to implement them if successful. We are working with the EPA to test these pilot technologies and implement appropriate methods to reduce these emissions, and are deemed to be in compliance with applicable standards so long as we are proceeding with the testing of these experimental technologies pursuant to the consent decree. We believe that we will have an industry leadership position in developing pilot technologies to satisfy increasingly stringent pollution control standards. In addition, we have found that certain of our pollution control efforts have contributed to identifying and implementing changes in our operations that have enhanced our manufacturing efficiency.
In 2000, we appointed an environmental general manager charged with the task of making our company a leader in environmental issues in our industry. As part of this effort, we have installed an environmental management system at each of our steel mills, with a separate environmental manager at each mill reporting directly to the general manager of the facility and to the environmental general manager at our corporate offices.
OUR EMPLOYEES, OFFICERS AND DIRECTORSOur Employees
Our success comes from our approximately 10,000 employees. We have a simple, streamlined organizational structure to allow our employees to innovate and make quick decisions. Our management structure is highly decentralized, with most day-to-day operating decisions made by the division general managers and their staff. The organizational structure at a typical division is made up of only three management layers in addition to our hourly employees:
We believe it is important for all of our employees to work together as a team. For example, the general managers at our facilities hold dinners at least annually with every employee in groups of 25 to 100. These meetings are designed to give employees a chance to discuss issues related to scheduling, equipment, organization and production in a “New England town meeting” format.
Employee relations at our company are based on four clear-cut principles:
| Ÿ
| Management is obligated to manage our company in a way so that employees will have the opportunity to earn according to their productivity; |
| Ÿ
| Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow. Since we started in the steel industry in 1968, we have never laid off any of our employees due to a slow down in our business; |
| Ÿ
| Employees have the right to be treated fairly and must believe that they will be; and |
| Ÿ
| Employees must have an avenue of appeal when they believe they are being treated unfairly. |
By implementing these four basic principles within a simple organizational structure, we have been able to attract and retain highly talented, productive and loyal employees. We believe that our annual employee turnover is low, relative to our industry. None of our employees are represented by labor unions, and there have been no recent efforts by unions to seek to represent our employees. We believe that we have an excellent relationship with our employees, and that this relationship is critical to our continuing success.
Performance-Based Compensation
We provide employees with a performance-related compensation system that rewards goal-oriented individuals. Because of their productivity, we believe that employees working at our mills are on average among the highest paid in the steel industry. All of our employees participate in one of four basic compensation plans, each featuring incentives related to meeting specific goals and targets. In addition, all of our employees up to, but not including vice presidents, participate in our profit-sharing plan.
Production Incentive Plan. Our hourly employees and supervisors are paid weekly bonuses based on the productivity of their work group. The rate is calculated based on the capabilities of the equipment employed, and no bonus is paid if the equipment is not operating. In general, the production incentive bonus can average from 80 to 150 percent of an employee’s base pay.
Department Manager Incentive Plan. Department managers earn annual incentive bonuses based primarily on their respective division’s return on assets. These bonuses can be as much as 109 percent of a department manager’s base pay.
Professional and Clerical Bonus Plan. This bonus is paid to employees that are not on the production or department manager plan and is based primarily on the division’s return on assets.
Senior Officers Incentive Plan. Our senior officers do not participate in our profit-sharing plan or in any pension plan. Their base salaries are set lower than what we believe executives receive in comparable companies. The remainder of their compensation is based on our profitability, payable to senior officers partly in cash and partly in stock.
In addition to these established bonus plans, we have periodically issued an extraordinary bonus to all employees, except officers, in years of particularly strong performance. For example, in 2000, we paid an $800 extraordinary bonus to each employee, other than our senior officers.
Egalitarian Benefits
We take a more egalitarian approach to providing benefits to our employees. That is, the upper levels of management generally do not enjoy better insurance programs, vacation schedules, or holidays. In fact, certain benefits such as our profit-sharing, scholarship program, employee stock purchase plan, extraordinary bonus, and service awards program are not available to our senior officers. Senior officers do not enjoy perquisites we believe are common at other companies of our size, such as company cars, corporate jets, executive dining rooms, or executive parking places.
Our Board of Directors and Executive Officers
The following table sets forth information for the persons who are members of our board of directors or are our executive officers. The term of office for each executive officer expires after the completion of their three-year term or on the earlier of the appointment and qualification of a successor or that officer’s death, resignation, retirement, removal or disqualification.
Name
| | Age
| | Position
|
Peter C. Browning | | 61 | | Non-executive Chairman |
Clayton C. Daley, Jr. | | 50 | | Director |
Daniel R. DiMicco | | 51 | | Vice-Chairman, President and Chief Executive Officer |
Harvey B. Gantt | | 59 | | Director |
Victoria F. Haynes | | 55 | | Director |
James D. Hlavacek | | 58 | | Director |
Raymond J. Milchovich | | 53 | | Director |
Terry S. Lisenby | | 51 | | Chief Financial Officer, Treasurer and Executive Vice President |
John J. Ferriola | | 50 | | Executive Vice President |
Hamilton Lott, Jr. | | 53 | | Executive Vice President |
D. Michael Parrish | | 50 | | Executive Vice President |
Joseph A. Rutkowski | | 47 | | Executive Vice President |
Peter C. Browning—Mr. Browning has been a director of our company since 1999, and his term expires at the 2005 annual meeting. Since March 2002, Mr. Browning has been the Dean of the McColl Graduate School of Business located in Charlotte, North Carolina. From 1998 to 2000, Mr. Browning was the President and Chief Executive Officer, and from 1995 to 1998, the President and Chief Operating Officer, of Sonoco Products Company. Mr. Browning is also a director of Wachovia Corporation, EnPro Industries, Inc., Lowe’s Companies, Inc., The Phoenix Companies, Inc., Sykes Enterprises, Inc. and Acuity Brands, Inc.
Clayton C. Daley, Jr.—Mr. Daley has been a director of our company since 2001 and his term expires at the 2003 annual meeting. Mr. Daley has been the Chief Financial Officer of The Procter & Gamble Company since 1998. He also served The Proctor & Gamble Company from 1994 to 1998 as Vice President and Treasurer.
Daniel R. DiMicco—Mr. DiMicco has been a director of our company since 2000 and was elected as Vice Chairman in June 2001. Mr. DiMicco’s term as director expires at the 2004 annual meeting. Mr. DiMicco has served as our President and Chief Executive Officer since September 2000. Mr. DiMicco previously served as our Executive Vice President from 1999 to 2000 and Vice President from 1992 to 1999.
Harvey B. Gantt—Mr. Gantt has been a director of our company since 1999 and his term expires at the 2003 annual meeting. Mr. Gantt has been a Principal Partner of Gantt Huberman Architects, an architectural firm, since 1971. In 1983, Mr. Gantt was elected Mayor of Charlotte, North Carolina, and he served for two terms.
Victoria F. Haynes—Ms. Haynes has been a director of our company since 1999 and her term expires at the 2005 annual meeting. Ms. Haynes has been the President and Chief Executive Officer of the Research Triangle Institute since 1999. From 1992 to 1999, Ms. Haynes was the Vice President and Chief Technical Officer of The BF Goodrich Company. Ms. Haynes is also a director of The Lubrizol Corporation.
James D. Hlavacek—Mr. Hlavacek has been a director of our company since 1996. Mr. Hlavacek is the founder and managing director of Market Driven Management and since 1976, is chairman and Chief Executive Officer of the parent company, The Corporate Development Institute, Inc., a global management development and consulting corporation. Mr. Hlavacek’s term as director expires at the 2004 annual meeting.
Raymond J. Milchovich—Mr. Milchovich joined our board of directors in September 2002 and his term expires at the 2004 annual meeting. Mr. Milchovich has been the Chairman, President and Chief Executive Officer of Foster Wheeler Ltd. since late 2001. From 1980 to 2001, Mr. Milchovich held several positions at Kaiser Aluminum & Chemical Corporation. He served as Chairman, President and Chief Executive Officer of Kaiser Aluminum in 2001, President and Chief Executive Officer from 1999 to 2001, and President and Chief Operating Officer from 1997 to 1999.
Terry S. Lisenby—Mr. Lisenby has been Chief Financial Officer, Treasurer and Executive Vice President since January 2000. Mr. Lisenby previously served as our Vice President and Corporate Controller from 1991 to 1999. Mr. Lisenby began his career with us as Corporate Controller in 1985.
John J. Ferriola—Mr. Ferriola has been an Executive Vice President of our company since January 2002 and a Vice President from 1996 to 2001. He was General Manager of Nucor Steel, Crawfordsville, Indiana from 1998 to 2001; General Manager of Nucor Steel, Norfolk, Nebraska from 1995 to 1998; General Manager of Vulcraft, Grapeland, Texas in 1995; and Manager of Maintenance and Engineering at Nucor Steel, Jewett, Texas from 1992 to 1995.
Hamilton Lott, Jr.—Mr. Lott has been an Executive Vice President of our company since September 1999 and a Vice President from 1988 to 1999. He was General Manager of Vulcraft, Florence, South Carolina from 1993 to 1999; General Manager Vulcraft, Grapeland, Texas from 1987 to 1993; Sales Manager of Vulcraft, St. Joe, Indiana from January 1987 to May 1987 and Engineering Manager there from 1982 to 1986. Mr. Lott began his career with Nucor as Design Engineer at Vulcraft, Florence, South Carolina in 1975.
D. Michael Parrish—Mr. Parrish has been an Executive Vice President of our company since November 1998 and a Vice President from 1990 to 1998. He was General Manager of Nucor Steel, Hickman, Arkansas from 1995 to 1998; General Manager of Nucor Steel, Jewett, Texas from 1991 to 1995; General Manager of Vulcraft, Brigham City, Utah from 1989 to 1991; Production Manager of Vulcraft, Fort Payne, Alabama from
1986 to 1989; Engineering Manager of Vulcraft, Brigham City, Utah from 1981 to 1986; and Engineer at Vulcraft, Saint Joe, Indiana from 1975 to 1981.
Joseph A. Rutkowski—Mr. Rutkowski has been an Executive Vice President of our company since November 1998 and a Vice President from 1993 to 1998. He was General Manager of Nucor Steel, Hertford, North Carolina, from August 1998 to November 1998; General Manager of Nucor Steel, Darlington, South Carolina from 1992 to 1998; Manager of Melting and Casting of Nucor Steel, Plymouth, Utah from 1991 to 1992; and Manager of Nucor Cold Finish, Norfolk, Nebraska from 1989 to 1991.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe following tables give information concerning the beneficial ownership of our common stock by all directors and senior officers (including all directors and officers as a group), as well as the identity of the owners of more than five percent of our outstanding common stock. The named senior officers include the chief executive officer and our other four highest-compensated senior officers whose cash compensation exceeded $100,000 for 2001. “Beneficial ownership” is determined in accordance with the rules of the SEC.
| | | Common Stock Beneficially Owned as of October 31, 2002
| |
| | | Sole Voting and Investment Power
| | Shared Voting and Investment Power
| | Shares Subject to Options
| | Number of Shares
| | Percent Owned
| |
Beneficial Owner
| | | | | |
State Farm Mutual Automobile Insurance Company (1) | | 7,103,634 | | — | | — | | 7,103,634 | | 9.09 | % |
| Peter C. Browning | | 1,455 | | — | | 2,423 | | 3,878 | | — | |
| Clayton C. Daley, Jr. | | 500 | | — | | 757 | | 1,257 | | — | |
| Daniel R. DiMicco | | 26,116 | | — | | 31,803 | | 57,919 | | 0.07 | % |
| Harvey B. Gantt | | 800 | | — | | 1,615 | | 2,415 | | — | |
| Victoria F. Haynes | | 767 | | — | | 1,615 | | 2,382 | | — | |
| James D. Hlavacek | | 1,100 | | 200 | | 1,615 | | 2,915 | | — | |
| Terry S. Lisenby | | 19,596 | | — | | 14,854 | | 34,450 | | 0.04 | % |
| Hamilton Lott, Jr. | | 19,352 | | — | | 23,776 | | 43,128 | | 0.06 | % |
| Raymond J. Milchovich | | — | | — | | — | | — | | — | |
| D. Michael Parrish | | 24,233 | | — | | 24,568 | | 48,801 | | 0.06 | % |
| Joseph A. Rutkowski | | 21,598 | | 170 | | 21,803 | | 43,571 | | 0.06 | % |
All directors and senior officers as a group (31 persons) | | 431,379 | | 20,945 | | 411,481 | | 863,805 | | 1.10% | |
(1) | Based on a Schedule 13G/A filed with the SEC on February 7, 2002. |
The following table sets forth our consolidated indebtedness as of September 28, 2002 on (i) a historical basis, and (ii) on a pro forma as adjusted basis to reflect the initial sale of the old notes, as if that transaction had occurred on September 28, 2002.
| | | September 28, 2002
|
| | | Actual
| | Pro forma as adjusted
|
| Long-term debt (including current maturities): | | | | | | |
| Industrial revenue bonds, 1.73% to 2.475%, variable, due from 2014 to 2033 | | $ | 292,300,000 | | $ | 292,300,000 |
| Industrial revenue bonds, 5.75% to 8%, fixed, due from 2003 to 2023 (1) | | | 77,250,000 | | | 77,250,000 |
| Notes, 6%, due in 2009 | | | 175,000,000 | | | 175,000,000 |
| Notes, 4.875%, due in 2012 (2) | | | — | | | 350,000,000 |
| Revolving credit facilities (3) | | | — | | | — |
| | |
|
| |
|
|
| Total indebtedness | | $ | 544,550,000 | | $ | 894,550,000 |
| | |
|
| |
|
|
(1) | It is contemplated that, in early 2003, approximately $45 million aggregate principal amount of the fixed rate industrial revenue bonds will be redeemed and reissued in the form of new variable rate industrial revenue bonds in like principal amount. In addition, $16 million of the aggregate principal amount included in this table under “Long-term debt (including current maturities)” was called for redemption in late November 2002, and as a result will be reflected as current debt for the period ending December 31, 2002. See the section below entitled “Description of Material Indebtedness—Industrial Revenue Bonds”. |
(2) | Does not include original issue discount on the old notes. |
(3) | On October 4, 2002, we entered into a new revolving credit facility which replaced our old $248 million credit facilities and provides for up to $425 million in revolving loans. No borrowings were outstanding under our old credit facilities as of the date they were replaced, and no borrowings were outstanding under our new credit facility as of the date of this prospectus. |
DESCRIPTION OF MATERIAL INDEBTEDNESSNew Revolving Credit Facility
On October 4, 2002, we entered into an unsecured revolving credit facility that provides for up to $425 million in revolving loans. Wachovia Securities, Inc. and Banc of America Securities LLC, initial purchasers of the old notes, served as co-lead arrangers and joint book managers for this new facility. Wachovia Bank, National Association, an affiliate of Wachovia Securities, Inc. acts as administrative agent for the credit facility. This credit facility consists of (i) a $125 million 364-day revolver with an option to permit us to convert amounts outstanding under this facility to a one-year term loan, and (ii) a $300 million five-year multi-currency revolver, a portion of which is available for the issuance of letters of credit and foreign currency borrowings. Borrowings under this credit facility bear interest at a base rate or LIBOR plus an applicable spread to be determined by reference to our senior unsecured debt ratings by Standard & Poor’s Ratings Services and Moody’s Investors Service. This credit facility includes customary financial and other covenants, including a limit on the ratio of funded debt to total capitalization of 50% and a limit on our ability to pledge our and our subsidiaries’ assets. The credit facility also contains customary events of default.
Our new credit facility replaced our old credit facilities, which included a group of banks and provided for an aggregate of up to $248 million of unsecured revolving loans that were scheduled to expire from 2003 through 2007. No borrowings were outstanding under our old credit facilities as of the date they were replaced, and no borrowings were outstanding under our new credit facility as of the date of this prospectus.
Industrial Revenue Bonds
We are the ultimate borrower of funds from various outstanding tax incentive financing and pollution control, industrial revenue, private activity or similar bonds, which we refer to generally as “industrial revenue bonds”. The industrial revenue bonds were issued to facilitate financing of the construction of or improvements to our steel mills. Because interest on industrial revenue bonds is generally exempt from federal income taxation, use of industrial revenue bonds has allowed us to borrow money at a lower rate than if we issued ordinary corporate debt. As of September 28, 2002, the outstanding amount of our indebtedness related to industrial revenue bonds was approximately $370 million. Indebtedness under our industrial revenue bonds is secured.
We currently have outstanding numerous industrial revenue bonds with variable interest rates and fixed interest rates ranging from 5.75% to 8.00%, and with maturities through 2033. The following table summarizes the maturity schedule of our outstanding industrial revenue bonds, including industrial revenue bonds that we assumed in connection with the acquisition of substantially all of the assets of Trico Steel, which we completed on July 22, 2002 for a purchase price of $117.7 million.
Year
| | Aggregate principal amount of variable rate industrial revenue bonds maturing
| | Aggregate principal amount of fixed rate industrial revenue bonds maturing
| | Total aggregate principal amount of industrial revenue bonds maturing
|
| 2003 | | | — | | $ | 16,000,000 | | $ | 16,000,000 |
| 2004 | | | — | | | — | | | — |
| 2005 | | | — | | | — | | | — |
| 2006 | | | — | | | 1,250,000 | | | 1,250,000 |
| 2007 | | | — | | | — | | | — |
| 2008 | | | — | | | — | | | — |
| 2009 | | | — | | | 5,400,000 | | | 5,400,00 |
| 2010 | | | — | | | — | | | — |
| 2011 | | | — | | | — | | | — |
| 2012 | | | — | | | — | | | — |
| 2013 | | | — | | | — | | | — |
| 2014 | | $ | 3,300,000 | | | — | | | 3,300,000 |
| 2015 | | | — | | | — | | | — |
| 2016 | | | — | | | — | | | — |
| 2017 | | | — | | | 3,000,000 | | | 3,000,000 |
| 2018 | | | — | | | — | | | — |
| 2019 | | | — | | | — | | | — |
| 2020 | | | — | | | — | | | — |
| 2021 | | | — | | | 34,400,000 | | | 34,400,000 |
| 2022 | | | — | | | 1,000,000 | | | 1,000,000 |
| 2023 | | | — | | | 16,200,000 | | | 16,200,000 |
| 2024 | | | — | | | — | | | — |
| 2025 | | | — | | | — | | | — |
| 2026 | | | 46,500,000 | | | — | | | 46,500,000 |
| 2027 | | | 61,000,000 | | | — | | | 61,000,000 |
| 2028 | | | 46,500,000 | | | — | | | 46,500,000 |
| 2029 | | | 25,000,000 | | | — | | | 25,000,000 |
| 2030 | | | 15,000,000 | | | — | | | 15,000,000 |
| 2031 | | | 25,000,000 | | | — | | | 25,000,000 |
| 2032 | | | — | | | — | | | — |
| 2033 | | | 70,000,000 | | | — | | | 70,000,000 |
| | |
|
| |
|
| |
|
|
| Total | | $ | 292,300,000 | | $ | 77,250,000 | | $ | 369,550,000 |
| | |
|
| |
|
| |
|
|
It is currently contemplated that, in early 2003, we will redeem some of the fixed rate bonds set forth above and reissue new variable rate industrial revenue bonds in like principal amounts. In connection with the redemption and reissuance, the maturities on some of those bonds may be extended by up to 12 years, and some of those bonds may be extinguished. The amount of those bonds on which maturities are expected to be extended or which are expected to be extinguished is contemplated to be approximately 10% and 4%, respectively, of the total aggregate principal amount of industrial revenue bonds reflected above. We expect that the near-term effect of the reissuance of variable rate bonds would be to reduce the amount of interest paid on the bonds.
6% Notes Due 2009
On January 12, 1999, we issued $175 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 6% per annum, payable semi-annually in January and July of each year. The notes mature on January 1, 2009. At December 31, 2001, the aggregate outstanding principal balance under the notes was $175 million. We may prepay the notes, in whole or in part, at a redemption price equal to the greater of (i) the principal amount of the notes being prepaid or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the redemption date in accordance with the agreement governing the notes, plus, in each case, accrued and unpaid interest to the date of prepayment. The agreement governing the notes subjects us to customary financial and other covenants and contains customary events of default.
On October 24, 2002, we entered into an interest rate swap agreement that effectively converts those notes from a fixed rate obligation to a variable rate obligation. The interest rate swap agreement has a notional amount of $175 million under which we pay a variable rate of interest and receive a fixed rate of interest over the term of the agreement without the exchange of the underlying notional amounts. The variable interest rate is the six month LIBOR rate in arrears plus 1.495%.
Purpose and Effect of this Exchange Offer
The new notes to be issued in this exchange offer will be exchanged for the old notes that we issued on October 1, 2002. At that time, we issued $350 million of 4.875% notes due 2012. We issued the old notes in reliance upon an exemption from the registration requirements of the Securities Act. Concurrently, the initial purchasers of the old notes resold the old notes to investors believed to be “qualified institutional buyers” in reliance upon the exemption from registration provided by Rule 144A under the Securities Act and to non-U.S. persons in offshore transactions in reliance upon the exemption provided by Rule 903 or 904 under Regulation S of the Securities Act.
In connection with the issuance of the old notes, we entered into an exchange and registration rights agreement with the initial purchasers pursuant to which we agreed:
| Ÿ
| to file with the SEC, on or prior to December 30, 2002, a registration statement under the Securities Act relating to the issuance of the new notes in an exchange offer and, upon the effectiveness of the registration statement, offer to you the opportunity to exchange your old notes for a like principal amount of registered notes that will be issued without a restrictive legend and, except as set forth below, generally may be reoffered and resold by you without registration under the Securities Act; |
| Ÿ
| to use our reasonable best efforts to cause that registration statement to become effective under the Securities Act not later than March 30, 2003; and |
| Ÿ
| to issue and exchange the new notes for all old notes validly tendered and not validly withdrawn prior to the expiration of the exchange offer. |
We have filed a copy of the exchange and registration rights agreement as an exhibit to the registration statement of which this prospectus is a part.
Based on interpretations by the staff of the SEC, as set forth in no-action letters issued The Company agreed to third parties, we believe that the new notes issued pursuant to this exchange offer may be offered for resale, resold or otherwise transferred by a holder under United States federal securities laws without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that:
| Ÿ
| the holder is acquiring the new notes in the ordinary course of business for investment purposes; |
| Ÿ
| the holder is not engaged in, does not intend to engage in and has no arrangement or understanding with any person to participate in the distribution of the new notes (within the meaning of the Securities Act); |
| Ÿ
| the holder is not a broker-dealer who purchased the old notes directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act; and |
| Ÿ
| the holder is not an “affiliate” of ours as defined in Rule 405 under the Securities Act. |
If you wish to participate in this exchange offer, you must represent to us in the letter of transmittal or through the DTC’s Automated Tender Offer Program, or ATOP, that the conditions above have been met. However, we do not intend to request the SEC to consider, and the SEC has not considered, this exchange offer in the context of a no-action letter, and we cannot assure you that the staff of the SEC would make a similar determination with respect to this exchange offer. Therefore, if you transfer any new note delivered to you in this exchange offer without
delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your new notes from such requirements, you may incur liability under the Securities Act. We do not assume this liability or indemnify you against this liability, but we do not believe this liability would exist if the above conditions are met.
If any holder is an affiliate of ours, or is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the new notes to be acquired pursuant to the exchange offer, that holder:
| Ÿ
| will not be able to rely on the applicable interpretations of the staff of the SEC; |
| Ÿ
| will not be able to tender the old notes in this exchange offer; and |
| Ÿ
| must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the new notes unless that sale or transfer is made pursuant to an exemption from those requirements. |
Each broker-dealer that receives new notes foruse its own account in exchange for old notes, where the old notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. See “Plan of Distribution”.
Except as described above, this prospectus may not be used for an offer to resell, a resale or other transfer of new notes.
This exchange offer is not being made to, nor will we accept tenders for exchange from, holders of old notes in any jurisdiction in which the exchange offer or the acceptance of it would not be in compliance with the securities or blue sky laws of that jurisdiction.
If you (i) will not, under applicable law, receive freely tradeable registered notes in the exchange offer, (ii) are not eligible to participate in the exchange offer, (iii) may not sell the registered notes to the public without delivering a prospectus and this prospectus is not appropriate or available for such resales, or (iv) are a broker-dealer that holds old notes that are a part of an unsold allotment from the original sale of the old notes, you can elect, by indicating on the letter of transmittal and providing certain additional necessary information, to have your old notes registered in a “shelf” registration statement on an appropriate form pursuant to Rule 415 under the Securities Act. If we are obligated to file a shelf registration statement, we will be requiredcommercially reasonable efforts to keep the shelf registration statement continuously effective until the earliest of (a) two years from the effective time of that registration statement or (b) the date on which all the notes registeredExisting Notes covered thereby cease to be registrable securities under the Registration Rights Agreement. The Company also agreed to use its commercially reasonable efforts to supplement or amend the shelf registration statement, are disposed in accordance with the related prospectus and any related free writing prospectus, if required, and to use its commercially reasonable efforts to cause any such amendment to become effective, if required, and such shelf registration statement. Other thanstatement, prospectus or free writing prospectus, as set forth in this paragraph, you will not have the rightcase may be, to require us to register your old notes under the Securities Act. See “ —Procedures for Tendering” below.
become usable as soon as thereafter practicable.We will, in the event that a shelf registration statement is filed, among other things, provide to each holder for whom thewhose Existing Notes are registered under such shelf registration statement was filed copies of the prospectus whichthat is a part of thesuch shelf registration statement, notify each of those holderssuch holder and its counsel when, theamong other things, such shelf registration statement has become effective and take certain other actions as are required to permit unrestricted resales of the notes.Existing Notes. A holder selling notesthat sells Existing Notes pursuant to thea shelf registration statement generally wouldfor the Existing Notes will be (i) required to make certain representations to us (as described more fully in the Registration Rights Agreement), (ii) required to be named as a selling security holder of the Existing Notes in the related prospectus
