Table of Contents

Third Quarter 2004

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For quarterly period ended October 2, 2004

 

Commission file number 1-4119

 


 

NUCOR CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Delaware   13-1860817

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2100 Rexford Road, Charlotte, North Carolina   28211
(Address of principal executive offices)   (Zip Code)

 

(704) 366-7000

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x.    No  ¨.

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x.    No  ¨.

 

159,090,824 shares of common stock were outstanding at October 2, 2004, as adjusted for the stock split described in Note 2 to Nucor’s condensed consolidated financial statements.

 



Table of Contents

Nucor Corporation

Form 10-Q

October 2, 2004

 

INDEX

 

        Page

Part I

 

Financial Information

   

Item 1

 

Financial Statements

   
    Condensed Consolidated Statements of Earnings - Nine Months (39 Weeks) and Three Months (13 Weeks) Ended October 2, 2004 and October 4, 2003   3
   

Condensed Consolidated Balance Sheets - October 2, 2004 and December 31, 2003

  4
    Condensed Consolidated Statements of Cash Flows - Nine Months (39 Weeks) Ended October 2, 2004 and October 4, 2003   5
   

Notes to Condensed Consolidated Financial Statements

  6

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  10

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

  13

Item 4

 

Controls and Procedures

  13

Part II

 

Other Information

   

Item 1

 

Legal Proceedings

  14

Item 6

 

Exhibits

  14

Signatures

  14

List of Exhibits to Form 10-Q

  15


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Nucor Corporation Condensed Consolidated Statements of Earnings (Unaudited)

(In thousands, except per share amounts)

 

     Nine Months (39 Weeks) Ended

    Three Months (13 Weeks) Ended

 
     Oct. 2, 2004

    Oct. 4, 2003

    Oct. 2, 2004

   Oct. 4, 2003

 

Net sales

   $ 8,287,830     $ 4,604,743     $ 3,239,592    $ 1,604,011  
    


 


 

  


Costs, expenses and other:

                               

Cost of products sold

     6,683,803       4,393,428       2,433,518      1,532,857  

Marketing, administrative and other expenses

     318,978       130,626       131,573      44,497  

Interest expense, net

     17,831       19,983       5,053      6,369  

Minority interests

     60,347       16,783       34,061      6,198  

Other income

     (1,596 )     (7,135 )     —        (4,834 )
    


 


 

  


       7,079,363       4,553,685       2,604,205      1,585,087  
    


 


 

  


Earnings before income taxes

     1,208,467       51,058       635,387      18,924  

Provision for income taxes

     428,400       8,829       220,000      2,902  
    


 


 

  


Net earnings

   $ 780,067     $ 42,229     $ 415,387    $ 16,022  
    


 


 

  


Net earnings per share:

                               

Basic

   $ 4.93     $ 0.27     $ 2.62    $ 0.10  
    


 


 

  


Diluted

   $ 4.90     $ 0.27     $ 2.59    $ 0.10  
    


 


 

  


Average shares outstanding:

                               

Basic

     158,094       156,412       158,796      156,488  

Diluted

     159,347       156,659       160,229      156,746  

Dividends declared per share

   $ 0.34     $ 0.30     $ 0.13    $ 0.10  

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

 

     Oct. 2, 2004

    Dec. 31, 2003

 

Assets

                

Current assets:

                

Cash and short-term investments

   $ 758,152     $ 350,332  

Accounts receivable

     1,048,238       572,479  

Inventories

     950,594       560,396  

Other current assets

     178,027       137,353  
    


 


Total current assets

     2,935,011       1,620,560  

Property, plant and equipment, net

     2,825,446       2,817,135  

Other assets

     124,959       54,658  
    


 


Total assets

   $ 5,885,416     $ 4,492,353  
    


 


Liabilities and stockholders’ equity

                

Current liabilities:

                

Accounts payable

   $ 565,616     $ 329,863  

Federal income taxes payable

     169,353       —    

Salaries, wages and related accruals

     293,870       91,187  

Accrued expenses and other current liabilities

     251,941       208,545  
    


 


Total current liabilities

     1,280,780       629,595  
    


 


Long-term debt due after one year

     923,550       903,550  
    


 


Deferred credits and other liabilities

     400,617       439,852  
    


 


Minority interests

     165,849       177,279  
    


 


Stockholders’ equity:

                

Common stock

     73,587       36,427  

Additional paid-in capital

     125,580       117,399  

Retained earnings

     3,367,874       2,641,708  

Unearned compensation

     (392 )     —    
    


 


       3,566,649       2,795,534  

Treasury stock

     (452,029 )     (453,457 )
    


 


Total stockholders’ equity

     3,114,620       2,342,077  
    


 


Total liabilities and stockholders’ equity

   $ 5,885,416     $ 4,492,353  
    


 


 

See notes to condensed consolidated financial statements.

 

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Table of Contents

Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

     Nine Months (39 Weeks) Ended

 
     Oct. 2, 2004

    Oct. 4, 2003

 

Operating activities:

                

Net earnings

   $ 780,067     $ 42,229  

Adjustments:

                

Depreciation

     291,805       273,903  

Gain on sale of facility and equipment

     (1,596 )     —    

Impairment of assets

     13,200       —    

Deferred income taxes

     (52,900 )     13,800  

Minority interests

     60,345       16,775  

Changes in (exclusive of acquisitions and dispositions):

                

Current assets

     (832,629 )     (64,388 )

Current liabilities

     631,457       90,768  

Other

     5,568       (5,433 )
    


 


Cash provided by operating activities

     895,317       367,654  
    


 


Investing activities:

                

Capital expenditures

     (198,007 )     (147,610 )

Investment in affiliates

     (68,550 )     (18,640 )

Disposition of plant and equipment

     2,813       354  

Acquisitions (net of cash acquired)

     (169,646 )     (34,941 )

Other investing activities

     —         (6,742 )
    


 


Cash used in investing activities

     (433,390 )     (207,579 )
    


 


Financing activities:

                

Repayment of long-term debt

     —         (16,000 )

Proceeds from long-term debt

     20,000       25,000  

Issuance of common stock

     46,769       4,533  

Distributions to minority interests

     (71,775 )     (60,737 )

Cash dividends

     (53,901 )     (46,936 )

Termination of interest rate swap agreement

     4,800       —    
    


 


Cash used in financing activities

     (54,107 )     (94,140 )
    


 


Increase in cash and short-term investments

   $ 407,820     $ 65,935  
    


 


 

See notes to condensed consolidated financial statements.

 

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Table of Contents

Nucor Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1. BASIS OF INTERIM PRESENTATION: The information furnished in Item I reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods and are of a normal and recurring nature. The information furnished has not been audited; however, the December 31, 2003 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in Nucor’s annual report for the fiscal year ended December 31, 2003. Certain amounts for the prior year have been reclassified to conform to the 2004 presentation.

 

2. STOCK SPLIT: In September 2004, Nucor’s Board of Directors approved a two-for-one stock split of common stock in the form of a stock dividend. As a result, stockholders of record received one additional share on October 15, 2004 for each share held as of the record date of September 30, 2004. The par value of Nucor’s common stock remains $.40 per share. All share and per share amounts have been restated to reflect the two-for-one stock split.

 

3. INVENTORIES: Inventories consist of approximately 49% raw materials and supplies, and 51% finished and semi-finished products, at October 2, 2004 (42% and 58%, respectively at December 31, 2003). Nucor’s manufacturing process consists of a continuous, vertically integrated process from which products are sold to customers at various stages throughout the process. Since most steel products can be classified as either finished or semi-finished products, these two categories of inventory are combined.

 

Inventories valued using the last-in, first-out (LIFO) method of accounting represent approximately 74% of total inventories as of October 2, 2004 (75% of total inventories as of December 31, 2003). If the first-in, first-out (FIFO) method of accounting had been used, inventories would have been $380.9 million higher at October 2, 2004 ($157.6 million at December 31, 2003).

 

4. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of $2,803.3 million at October 2, 2004 ($2,513.7 million at December 31, 2003).

 

5. LONG-TERM DEBT AND FINANCING ARRANGEMENTS: At July 3, 2004, Nucor had an interest rate swap agreement in the notional principal amount of $175.0 million that was accounted for as a fair value hedge. Under the agreement, Nucor paid a variable rate of interest and received a fixed rate of interest over the term of the interest rate swap agreement. The interest rate swap agreement converted Nucor’s $175.0 million 6% note payable due in 2009 from a fixed rate obligation to a variable rate obligation. The change in the fair value of this agreement was recorded in earnings as an equal offset to the change in fair value of the underlying debt obligation. Since the fair value hedge was 100% effective, there was no impact to net earnings. The variable interest rate was the six-month LIBOR rate in arrears plus 1.25%. In the third quarter of 2004, Nucor terminated this interest rate swap agreement. The $4.8 million gain on the terminated swap agreement will be amortized over the remaining life of the debt as an adjustment to interest expense.

 

In September 2004, Nucor issued $20.0 million aggregate principal amount of variable rate solid waste disposal revenue bonds, maturing in 2020. The interest rate for this issue was 1.75% at October 2, 2004.

 

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Table of Contents

Nucor Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited), continued

 

6. ACCOUNTING FOR STOCK OPTIONS: Nucor accounts for stock options granted to employees and directors using the intrinsic value method, under which no compensation expense is recorded since the exercise price of the stock options is equal to the market price of the underlying stock on the grant date. Had compensation cost for the stock options issued been determined consistent with FASB Statement No. 123, Accounting for Stock-Based Compensation, net earnings and net earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share amounts):

 

     Nine Months (39 Weeks) Ended

    Three Months (13 Weeks) Ended

 
     Oct. 2, 2004

    Oct. 4, 2003

    Oct. 2, 2004

    Oct. 4, 2003

 

Net earnings - as reported

   $ 780,067     $ 42,229     $ 415,387     $ 16,022  

Pro forma stock-based compensation cost

     (4,613 )     (5,430 )     (1,457 )     (1,946 )
    


 


 


 


Net earnings - pro forma

   $ 775,454     $ 36,799     $ 413,930     $ 14,076  
    


 


 


 


Net earnings per share - as reported:

                                

Basic

   $ 4.93     $ 0.27     $ 2.62     $ 0.10  

Diluted

   $ 4.90     $ 0.27     $ 2.59     $ 0.10  

Net earnings per share - pro forma:

                                

Basic

   $ 4.91     $ 0.24     $ 2.61     $ 0.09  

Diluted

   $ 4.87     $ 0.23     $ 2.58     $ 0.09  

 

The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience.

 

7. CONTINGENCIES: Nucor is subject to environmental laws and regulations established by federal, state and local authorities, and, accordingly, makes provision for the estimated costs of compliance. Of the undiscounted total $45.1 million of accrued environmental costs at October 2, 2004 ($54.9 million at December 31, 2003), $22.6 million was classified in accrued expenses and other current liabilities ($22.0 million at December 31, 2003) and $22.5 million was classified in deferred credits and other liabilities ($32.9 million at December 31, 2003). During the third quarter and first nine months of 2004, Nucor revised estimates as additional information was obtained, decreasing environmental reserves by $10.3 million and $9.8 million, respectively. In the third quarter and first nine months of 2003, Nucor reduced estimates for environmental reserves by $5.0 million and $8.1 million, respectively.

 

Other contingent liabilities with respect to product warranties, legal proceedings and other matters arise in the normal course of business. In the opinion of management, no such matters exist which would have a material effect on the consolidated financial statements.

 

8. EMPLOYEE BENEFIT PLAN: Nucor has a Profit Sharing and Retirement Savings Plan for qualified employees. Nucor’s expense for these benefits was $69.5 million and $132.5 million in the third quarter and first nine months of 2004, respectively, and $2.9 million and $8.2 million in the third quarter and first nine months of 2003, respectively.

 

9. OTHER INCOME: In the first quarter of 2004, Nucor realized a pre-tax gain of $1.6 million on the sale of equipment. In the third quarter and first nine months of 2003, Nucor received $4.8 million and $7.1 million, respectively, related to graphite electrodes anti-trust settlements.

 

10. SEGMENTS: Nucor reports its results in two segments, steel mills and steel products. The steel mills segment includes carbon and alloy steel in sheet, bars, structural and plate. The steel products segment includes steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems and light gauge steel framing. The segments are consistent with the way Nucor manages its business, which is primarily based upon the similarity of the types of products produced and sold by each segment.

 

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Table of Contents

Nucor Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited), continued

 

Interest expense, minority interests, other income and certain marketing, administrative and other expenses, such as changes in the LIFO reserve and environmental accruals, are shown under Corporate/eliminations/other. Corporate assets primarily include cash and short-term investments, deferred income tax assets and investment in affiliates. The company’s segment results are as follows (in thousands):

 

     Nine Months (39 Weeks) Ended

    Three Months (13 Weeks) Ended

 
     Oct. 2, 2004

    Oct. 4, 2003

    Oct. 2, 2004

    Oct. 4, 2003

 

Net sales to external customers:

                                

Steel mills

   $ 7,393,626     $ 4,002,042     $ 2,868,483     $ 1,383,860  

Steel products

     894,204       602,701       371,109       220,151  
    


 


 


 


     $ 8,287,830     $ 4,604,743     $ 3,239,592     $ 1,604,011  
    


 


 


 


Intercompany sales:

                                

Steel mills

   $ 654,076     $ 384,020     $ 254,910     $ 145,187  

Steel products

     6,140       4,208       3,037       2,114  

Corporate/eliminations/other

     (660,216 )     (388,228 )     (257,947 )     (147,301 )
    


 


 


 


     $ —       $ —       $ —       $ —    
    


 


 


 


Earnings (loss) before income taxes:

                                

Steel mills

   $ 1,563,449     $ 156,807     $ 795,434     $ 54,421  

Steel products

     93,550       (15,719 )     56,182       (3,472 )

Corporate/eliminations/other

     (448,532 )     (90,030 )     (216,229 )     (32,025 )
    


 


 


 


     $ 1,208,467     $ 51,058     $ 635,387     $ 18,924  
    


 


 


 


 

     Oct. 2, 2004

   Dec. 31, 2003

Segment assets:

             

Steel mills

   $ 4,702,970    $ 3,927,391

Steel products

     509,696      324,235

Corporate/eliminations/other

     672,750      240,727
    

  

     $ 5,885,416    $ 4,492,353
    

  

 

11. INVESTMENTS AND ACQUISITIONS: In February 2004, Nucor purchased a one-half interest in Harris Steel, Inc., a wholly owned subsidiary of Harris Steel Group, Inc., for a cash purchase price of approximately $21.0 million. In addition, Harris Steel Group may receive up to an additional $6.0 million upon the achievement of certain operating results of the venture over the next five years.

 

In July 2004, Nucor’s wholly owned subsidiary, Nucor Steel Tuscaloosa, Inc., purchased substantially all of the steelmaking assets of Corus Tuscaloosa for a price of approximately $89.4 million. The facility is a coiled plate mill that manufactures pressure vessel steel coil, discrete plate and cut-to-length plate products with an annual capacity of approximately 800,000 tons.

 

In August 2004, Nucor’s wholly owned subsidiary, Nucor Steel Decatur, LLC, purchased certain assets of Worthington Industries, Inc. cold rolling mill in Decatur, Alabama for a cash purchase price of approximately $80.3 million. The assets purchased include all of the buildings, the pickle line, four-stand tandem cold mill, temper mill and annealing furnaces adjacent to the current Nucor Steel Decatur, LLC steel plant. This 1,000,000-ton cold mill facility has 600,000 tons of annealing capacity.

 

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Table of Contents

Nucor Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited), continued

 

In March 2003, Nucor’s wholly owned subsidiary, Nucor Steel Kingman, LLC, purchased substantially all of the assets of the Kingman, Arizona steel facility of North Star Steel (“North Star”) for approximately $35.0 million. The purchase price did not include working capital and Nucor assumed no material liabilities of the North Star operation. Nucor Steel Kingman is currently not operating. After evaluating options for this facility, Nucor decided not to restart the melt shop. Accordingly, the value of this asset was reduced by $13.2 million in the second quarter of 2004, which has been reflected in cost of products sold.

 

12. EARNINGS PER SHARE: The computations of basic and diluted earnings per share are as follows (in thousands except per share amounts):

 

     Nine Months (39 Weeks) Ended

   Three Months (13 Weeks) Ended

     Oct. 2, 2004

   Oct. 4, 2003

   Oct. 2, 2004

   Oct. 4, 2003

Basic earnings per share:

                           

Basic net earnings

   $ 780,067    $ 42,229    $ 415,387    $ 16,022
    

  

  

  

Average shares outstanding

     158,094      156,412      158,796      156,488
    

  

  

  

Basic net earnings per share

   $ 4.93    $ 0.27    $ 2.62    $ 0.10
    

  

  

  

Diluted earnings per share:

                           

Diluted net earnings

   $ 780,067    $ 42,229    $ 415,387    $ 16,022
    

  

  

  

Diluted average shares outstanding:

                           

Basic shares outstanding

     158,094      156,412      158,796      156,488

Dilutive effect of stock options and other

     1,253      247      1,433      258
    

  

  

  

       159,347      156,659      160,229      156,746
    

  

  

  

Diluted net earnings per share

   $ 4.90    $ 0.27    $ 2.59    $ 0.10
    

  

  

  

 

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Certain statements made in this quarterly report are forward-looking statements that involve risks and uncertainties. These forward-looking statements reflect the Company’s best judgment based on current information, and although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the results and expectations discussed herein. Factors that might cause the Company’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: (1) the sensitivity of the results of our operations to prevailing steel prices and the changes in the supply and cost of raw materials, including scrap steel; (2) availability and cost of electricity and natural gas; (3) market demand for steel products; (4) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (5) uncertainties surrounding the global economy, including excess world capacity for steel production; (6) U.S. and foreign trade policy affecting steel imports or exports; (7) significant changes in government regulations affecting environmental compliance; (8) the cyclical nature of the domestic steel industry; (9) capital investments and their impact on our performance; (10) our safety performance; and (11) other factors described in the Company’s filings with the Securities and Exchange Commission.

 

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements included elsewhere in this report, as well as the audited financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

Operations

 

Net sales for the third quarter of 2004 increased 102% from the third quarter of 2003 primarily due to an 87% increase in average sales price per ton from $358 in the third quarter of 2003 to $668 in the third quarter of 2004 and to an 8% increase in total tons shipped to outside customers. Net sales for the first nine months of 2004 increased 80% from the first nine months of 2003. Average sales price per ton increased 61% from $352 in the first nine months of 2003 to $565 in the first nine months of 2004, while total tons shipped to outside customers increased 12%. Net sales increased due to increased demand for our products and the resulting increase in base prices, as well as the continuation of a raw material surcharge that was initiated in the first quarter of 2004 to address historically high scrap costs.

 

During the first nine months of 2004, Nucor established records in the steel mills segment for steel production, total steel shipments and steel sales to outside customers. The steel mills operated substantially at capacity in the first nine months of 2004 versus 91% in the first nine months of 2003. In the first nine months of 2004, steel production was 15,153,000 tons, compared with 13,015,000 tons produced in the first nine months of 2003. Total steel shipments were 15,018,000 tons in the first nine months of 2004, compared with 13,189,000 tons in last year’s first nine months. Steel shipments to outside customers were 13,674,000 tons in the first nine months of 2004, compared with 12,155,000 tons in the first nine months of 2003. In the steel products segment, steel joist production during the first nine months of 2004 was 396,000 tons, compared with 378,000 tons in the first nine months of 2003. Steel deck sales were 271,000 tons, compared with 266,000 tons in last year’s first nine months. Cold finished steel sales were 211,000 tons, compared with 182,000 tons in the first nine months of 2003.

 

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Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

 

The major component of cost of products sold is raw material costs. In the third quarter of 2004, the average price of raw materials increased approximately 72% from the third quarter of 2003, and increased approximately 64% in the first nine months of 2004 compared with the first nine months of 2003. The average prices of raw materials used in the steel mills segment and the steel products segment increased approximately 75% and 31%, respectively, from the third quarter of 2003 and increased approximately 69% and 17%, respectively, from the first nine months of 2003. The average scrap and scrap substitute cost per ton used in our steel mills segment was $248 in the third quarter of 2004, an increase of 81% from $137 in the third quarter of 2003, and was $225 in the first nine months of 2004, an increase of 73% from $130 in the first nine months of 2003. As a result of these rising scrap prices and because Nucor values inventories using the last-in, first-out (LIFO) method of accounting, Nucor incurred a charge (a “LIFO charge”) that had the effect of increasing cost of products sold by $124.1 million in the third quarter of 2004 (including a LIFO charge of $6.1 million for Nucor Yamato Steel Company, of which Nucor owns 51%). This compares with a LIFO charge of $26.6 million in the third quarter of 2003 (including a LIFO charge of $6.2 million for Nucor-Yamato Steel Company). In the first nine months of 2004, the LIFO charge was $223.4 million (including a LIFO charge of $25.4 million for Nucor-Yamato Steel Company). This compares with a charge of $39.5 million in the first nine months of 2003 (including a LIFO charge of $8.7 million for Nucor-Yamato Steel Company). The LIFO charges for these interim periods are based on management’s estimates of both inventory prices and quantities at year-end. These estimates will likely differ from actual amounts, and such differences may be significant.

 

Pre-operating and start-up costs of new facilities decreased to $4.5 million in the third quarter of 2004, compared with $31.3 million in the third quarter of 2003. For the first nine months of 2004, pre-operating and start-up costs decreased to $21.3 million, compared with $91.5 million in the first nine months of 2003. In 2004, these costs primarily related to the start-up of the Castrip® facility at our sheet mill in Crawfordsville, Indiana. In 2003, these costs primarily related to the start-up of the sheet mill in Decatur, Alabama (formerly Trico Steel Company, LLC) and the Castrip facility.

 

During the third quarter and first nine months of 2004, Nucor revised estimates for environmental reserves as additional information was obtained, reducing environmental reserves by $10.3 million and $9.8 million, respectively. In the third quarter and first nine months of 2003, Nucor reduced estimates for environmental reserves by $5.0 million and $8.1 million, respectively.

 

Gross margins improved to approximately 25% for the third quarter of 2004 and approximately 19% for the first nine months of 2004, compared with approximately 4% for the third quarter of 2003 and approximately 5% for the first nine months of 2003. The improvement is due to the events and trends discussed above as well as to the turnaround achieved at our sheet mill in Decatur, Alabama and the plate mill in Hertford County, North Carolina and to the acquisitions finalized in the third quarter. Although we anticipate that underlying demand will remain strong, we expect average sales prices and our gross margins to decrease slightly in the fourth quarter.

 

The major components of marketing, administrative and other expenses are freight and profit sharing costs. Unit freight costs increased approximately 5% from the third quarter of 2003 to the third quarter of 2004, and decreased approximately 1% in the first nine months of 2004 compared to the first nine months of 2003. Profit sharing costs, which are based upon and generally fluctuate with pre-tax earnings, increased approximately twentyfold from the third quarter of 2003 to the third quarter of 2004, and increased approximately twelvefold from the first nine months of 2004 compared with the first nine months of 2003.

 

Interest expense, net of interest income, decreased from the third quarter of 2003 to the third quarter of 2004, and decreased from the first nine months of 2003 to the first nine months of 2004, primarily due to an increase in short-term investments and to call premiums expensed in the first quarter of 2003 when fixed rate industrial revenue bonds were redeemed and reissued in the form of new variable rate industrial revenue bonds. There were no such call premiums incurred in the first nine months of 2004.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

 

Minority interests represent the income attributable to the minority partners of Nucor’s less than 100% owned joint venture, Nucor-Yamato Steel Company. Under the partnership agreement, the minimum amount of cash to be distributed each year to the partners of Nucor-Yamato Steel Company is the amount needed by each partner to pay applicable U.S. federal and state income taxes. In the first nine months of 2004 and 2003, the amount of cash distributed to minority interest holders exceeded amounts allocated to minority interests based on mutual agreement of the general partners; however, the cumulative amount of cash distributed to partners was less than the cumulative net earnings of the partnership.

 

In the first nine months of 2004, Nucor realized a $1.6 million gain on the sale of equipment. In the third quarter and first nine months of 2003, Nucor reported other income of $4.8 million and $7.1 million, respectively, related to graphite electrodes anti-trust settlements.

 

Nucor had an effective tax rate of 34.6% in the third quarter of 2004 compared with 15.3% in the third quarter of 2003, and had an effective tax rate of 35.4% in the first nine months of 2004 compared with 17.3% in the first nine months of 2003. The increase in the effective tax rate is primarily due to the effect of increased pre-tax earnings in 2004, partially offset by resolution of certain tax issues in the third quarter of 2004.

 

Net earnings increased during the third quarter and first nine months of 2004 compared with the third quarter and first nine months of 2003 due to increased shipments, higher average selling prices, increased margins and decreased pre-operating and start-up costs, partially offset by increased LIFO charges, increased profit-sharing costs and increased income taxes.

 

Liquidity and capital resources

 

The current ratio was 2.3 at the end of the first nine months of 2004 and 2.6 at year-end 2003. The percentage of long-term debt to total capital was 22% at the end of the first nine months of 2004 and 26% at year-end 2003. Nucor has a simple capital structure with no off-balance sheet arrangements or relationships with unconsolidated special purpose entities.

 

Capital expenditures increased approximately 34% from the first nine months of 2003 to the first nine months of 2004. Capital expenditures are projected to be approximately $230.0 million for all of 2004.

 

During the third quarter of 2004, Nucor’s wholly owned subsidiary, Nucor Steel Tuscaloosa, Inc. purchased substantially all of the steelmaking assets of Corus Tuscaloosa for a price of approximately $89.4 million. Also in the third quarter of 2004, Nucor’s wholly owned subsidiary, Nucor Steel Decatur, LLC purchased certain assets of Worthington Industries, Inc. cold rolling mill in Decatur, Alabama for a cash purchase price of approximately $80.3 million. These acquisitions were not material to the consolidated financial statements and did not result in goodwill or other intangible assets.

 

Funds provided from operations and existing credit facilities are expected to be sufficient to meet future capital expenditure and working capital requirements for existing operations for at least the next 24 months. Nucor has the financial ability to borrow additional funds to finance major acquisitions and still maintain reasonable leverage.

 

Nucor’s directors have approved the purchase of up to 30.0 million shares of Nucor common stock. There were no repurchases during the first nine months of 2004 or fiscal 2003. Since the inception of the stock repurchase program in 1998, Nucor has repurchased approximately 21.6 million shares at a cost of about $444.5 million.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

In the ordinary course of business, Nucor is exposed to a variety of market risks. We continually monitor these risks and develop appropriate strategies to manage them.

 

Interest Rate Risk Nucor manages interest rate risk by using a combination of variable-rate and fixed-rate debt. Nucor also makes use of interest rate swaps to manage net exposure to interest rate changes. Management does not believe that Nucor’s exposure to interest rate market risk has significantly changed since December 31, 2003.

 

Commodity Price Risk In the ordinary course of its business, Nucor is exposed to market risk for price fluctuations of raw materials and energy, principally scrap steel and natural gas. We attempt to negotiate the best prices for our raw materials and energy requirements and to obtain prices for our steel products that match market price movements in response to supply and demand. In the first quarter of 2004, Nucor initiated a raw material surcharge designed to pass through the historically high cost of scrap steel and other raw materials. Our surcharge mechanism has worked effectively to reduce the time lag in passing through higher raw material costs so that we can maintain our gross margins.

 

We use natural gas purchase contracts to partially manage our exposure to fluctuations in the cost of our supply of natural gas. The use of these contracts has not been significant in relation to Nucor’s overall business activity.

 

Item 4. Controls and Procedures

 

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this Form 10-Q quarterly report has been appropriately recorded, processed, summarized and reported within the period covered by this report. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level of achieving Nucor’s disclosure control objectives.

 

Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred during the quarterly period covered by this report, and has concluded that there was no change that occurred during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

See the disclosure that appears under Legal Proceedings in Item 1. of Part II of our Report on Form 10-Q for the quarter ended April 3, 2004.

 

Item 6. Exhibits

 

Exhibit No.

 

Description of Exhibit


31   Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1   Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, Nucor Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    NUCOR CORPORATION

Date: November 3, 2004

 

By:

 

/s/ Terry S. Lisenby


       

Terry S. Lisenby

       

Chief Financial Officer, Treasurer

       

and Executive Vice President

 

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Table of Contents

NUCOR CORPORATION

List of Exhibits to Form 10-Q – October 2, 2004

 

Exhibit No.

 

Description of Exhibit


31   Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1   Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

15

Section 302 CEO Certification

Exhibit 31

 

Certification of Principal Executive Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

(Section 302 of the Sarbanes-Oxley Act of 2002)

 

I, Daniel R. DiMicco, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Nucor Corporation;

 

  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 3, 2004  

/s/ Daniel R. DiMicco


    Daniel R. DiMicco
   

Vice Chairman, President and

Chief Executive Officer

Section 302 CFO Certification

Exhibit 31.1

 

Certification of Principal Financial Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

(Section 302 of the Sarbanes-Oxley Act of 2002)

 

I, Terry S. Lisenby, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Nucor Corporation;

 

  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 3, 2004  

/s/ Terry S. Lisenby


   

Terry S. Lisenby

   

Chief Financial Officer, Treasurer

and Executive Vice President

Section 906 CEO Certification

Exhibit 32

 

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

 

I, Daniel R. DiMicco, Vice Chairman, President and Chief Executive Officer (principal executive officer) of Nucor Corporation (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended October 2, 2004 of the Registrant (the “Report”), that:

 

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ Daniel R. DiMicco


Name:   Daniel R. DiMicco
Date:   November 3, 2004
Section 906 CFO Certification

Exhibit 32.1

 

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

 

I, Terry S. Lisenby, Chief Financial Officer, Treasurer and Executive Vice President (principal financial officer) of Nucor Corporation (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended October 2, 2004 of the Registrant (the “Report”), that:

 

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ Terry S. Lisenby


Name:   Terry S. Lisenby
Date:   November 3, 2004