Table of Contents

First Quarter 2006


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 April 1, 2006

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

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

155,798,286 shares of common stock were outstanding at April 1, 2006.

 



Table of Contents

Nucor Corporation

Form 10-Q

April 1, 2006

INDEX

 

               Page
Part I    Financial Information   
   Item 1    Financial Statements   
      Condensed Consolidated Statements of Earnings - Three Months (13 Weeks) Ended April 1, 2006 and April 2, 2005    3
      Condensed Consolidated Balance Sheets - April 1, 2006 and December 31, 2005    4
      Condensed Consolidated Statements of Cash Flows - Three Months (13 Weeks) Ended April 1, 2006 and April 2, 2005    5
      Notes to Condensed Consolidated Financial Statements    6
   Item 2    Management’s Discussion and Analysis of Financial Condition and Results of Operations    12
   Item 3    Quantitative and Qualitative Disclosures About Market Risk    15
   Item 4    Controls and Procedures    15
Part II    Other Information   
   Item 1A    Risk Factors    16
   Item 2    Unregistered Sales of Equity Securities and Use of Proceeds    16
   Item 6    Exhibits    17
Signatures    17
List of Exhibits to Form 10-Q    18


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)

 

     Three Months (13 Weeks) Ended  
    

April 1,

2006

   

April 2,

2005

 

Net sales

   $ 3,545,097     $ 3,322,621  
                

Costs, expenses and other:

    

Cost of products sold

     2,768,142       2,620,628  

Marketing, administrative and other expenses

     154,100       125,429  

Interest (income) expense, net

     (5,732 )     4,133  

Minority interests

     40,326       31,165  

Other income

     —         (9,200 )
                
     2,956,836       2,772,155  
                

Earnings before income taxes

     588,261       550,466  

Provision for income taxes

     209,100       195,800  
                

Net earnings

   $ 379,161     $ 354,666  
                

Net earnings per share:

    

Basic

   $ 2.44     $ 2.22  
                

Diluted

   $ 2.42     $ 2.20  
                

Average shares outstanding:

    

Basic

     155,313       159,708  

Diluted

     156,874       161,246  

Dividends declared per share

   $ 0.70     $ 0.40  

See notes to condensed consolidated financial statements.

 

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Table of Contents

Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

 

    

April 1,

2006

   

Dec. 31,

2005

 
Assets     

Current assets:

    

Cash and cash equivalents

   $ 1,127,978     $ 980,150  

Short-term investments

     1,077,023       857,360  

Accounts receivable, net

     1,068,752       1,000,629  

Inventories

     941,223       945,054  

Other current assets

     247,139       288,360  
                

Total current assets

     4,462,115       4,071,553  

Property, plant and equipment, net

     2,829,925       2,855,717  

Other assets

     212,106       211,517  
                

Total assets

   $ 7,504,146     $ 7,138,787  
                
Liabilities and stockholders’ equity     

Current liabilities:

    

Long-term debt due within one year

   $ 1,250     $ 1,250  

Accounts payable

     592,373       501,624  

Federal income taxes payable

     155,123       —    

Salaries, wages and related accruals

     218,436       368,568  

Accrued expenses and other current liabilities

     405,147       384,257  
                

Total current liabilities

     1,372,329       1,255,699  
                

Long-term debt due after one year

     922,300       922,300  
                

Deferred credits and other liabilities

     460,368       486,910  
                

Minority interests

     184,270       194,090  
                

Stockholders’ equity:

    

Common stock

     74,337       74,120  

Additional paid-in capital

     225,030       191,850  

Retained earnings

     4,979,167       4,709,111  

Unearned compensation

     —         (3,287 )

Accumulated other comprehensive income, net of income taxes

     29,222       46,600  
                
     5,307,756       5,018,394  

Treasury stock

     (742,877 )     (738,606 )
                

Total stockholders’ equity

     4,564,879       4,279,788  
                

Total liabilities and stockholders’ equity

   $ 7,504,146     $ 7,138,787  
                

See notes to condensed consolidated financial statements.

 

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Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

     Three Months (13 Weeks) Ended  
    

April 1,

2006

   

April 2,

2005

 

Operating activities:

    

Net earnings

   $ 379,161     $ 354,666  

Adjustments:

    

Depreciation

     90,825       91,290  

Deferred income taxes

     (18,800 )     (16,200 )

Minority interests

     40,322       31,161  

Settlement of natural gas hedges

     (4,931 )     —    

Changes in (exclusive of acquisition):

    

Current assets

     (78,984 )     2,802  

Current liabilities

     163,669       137,066  

Other

     (3,871 )     (12,847 )
                

Cash provided by operating activities

     567,391       587,938  
                

Investing activities:

    

Capital expenditures

     (69,871 )     (71,259 )

Investment in affiliates

     (14,704 )     (8,176 )

Disposition of plant and equipment

     1,439       294  

Acquisition (net of cash acquired)

     —         (44,136 )

Purchases of short-term investments

     (220,308 )     —    

Proceeds from sales of short-term investments

     645       —    
                

Cash used in investing activities

     (302,799 )     (123,277 )
                

Financing activities:

    

Issuance of common stock

     38,011       25,262  

Tax benefit from stock options exercised

     6,500       —    

Distributions to minority interests

     (50,142 )     (2,181 )

Cash dividends

     (100,870 )     (64,080 )

Acquisition of treasury stock

     (10,263 )     —    
                

Cash used in financing activities

     (116,764 )     (40,999 )
                

Increase in cash and cash equivalents

     147,828       423,662  

Cash and cash equivalents - beginning of year

     980,150       779,049  
                

Cash and cash equivalents - end of three months

   $ 1,127,978     $ 1,202,711  
                

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 for 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, 2005 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, 2005.

 

2. FINANCIAL STATEMENT REVISION: Certain prior year amounts have been revised to present variable rate demand notes (“VRDN’s”) as short-term investments instead of cash equivalents. As a result, VRDN’s in the amount of $857.4 million at December 31, 2005, which had previously been included in cash and cash equivalents, are presented as short-term investments in the accompanying condensed consolidated balance sheet at December 31, 2005. There were no purchases or sales of these securities during the quarter ended April 2, 2005, therefore no revision has been presented in the condensed consolidated statement of cash flows.

VRDN’s were previously classified as cash equivalents when the period for interest rate resets were 90 days or less, based on the ability to either liquidate the short-term investments or roll them over to the next reset period. We reevaluated the presentation of these short-term investments considering the original maturity dates associated with the underlying bonds. This revision had no impact on Nucor’s net earnings, changes in stockholders’ equity, or cash flows from operating activities and financing activities. The effects of this revision to our 2005 financial statements follow. We had no VRDN’s in 2004 and 2003.

 

     Year Ended December 31, 2005  
    

As Originally

Reported

   

As

Revised

 

Cash flow from investing activities:

    

Purchases of short-term investments

   $ —       $ (919,950 )

Proceeds from sales of short- term investments

     —         62,590  

Cash used in investing activities

     (527,481 )     (1,384,841 )

Increase in cash and cash equivalents

     1,058,461       201,101  

Cash and cash equivalents at end of year

     1,837,510       980,150  

Short-term investments

     —         857,360  

Total current assets

     4,071,553       4,071,553  

 

3. FOREIGN CURRENCY TRANSLATION: The functional currency for certain joint ventures is the local currency. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in accumulated other comprehensive income. Foreign currency transaction gains and losses are included in operations in the period they occur.

 

4. CASH AND CASH EQUIVALENTS: Cash equivalents are recorded at cost plus accrued interest, which approximates market, and have original maturities of three months or less at the date of purchase. Cash and cash equivalents are maintained primarily with a few high-credit quality financial institutions.

 

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

 

5. SHORT-TERM INVESTMENTS: Short-term investments are recorded at cost plus accrued interest, which approximates market. Unrealized gains and losses on investments classified as available-for-sale are recorded as a component of accumulated other comprehensive income. Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination at each balance sheet date. The Company periodically reviews its investments for impairment and adjusts these investments to their fair value when a decline in market value is deemed to be other than temporary.

As of April 1, 2006 and December 31, 2005, short-term investments consisted entirely of VRDN’s. VRDN’s are variable bonds tied to short-term interest rates with maturities on the face of the securities in excess of 90 days. VRDN’s have interest rate resets every one, seven or 35 days. All of the VRDN’s in which Nucor invests are backed by a letter of credit issued by high-credit quality financial institutions. Nucor is able to receive the principal invested and interest accrued thereon no later than seven days after notification to the financial institution. VRDN’s trade at par value; therefore, no realized or unrealized gains or losses were incurred. Aggregate contractual maturities of the Company’s short-term investments are $17.8 million in 2009 and $1.06 billion in 2019 and thereafter.

 

6. INVENTORIES: Inventories consist of approximately 49% raw materials and supplies and 51% finished and semi-finished products at April 1, 2006 (50% and 50%, respectively, at December 31, 2005). 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 66% of total inventories as of April 1, 2006 (68% as of December 31, 2005). If the first-in, first-out (FIFO) method of accounting had been used, inventories would have been $390.9 million higher at April 1, 2006 ($381.9 million higher at December 31, 2005).

 

7. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of $3.29 billion at April 1, 2006 ($3.20 billion at December 31, 2005).

 

8. CURRENT LIABILITIES: Drafts payable, included in accounts payable in the balance sheet, was $121.6 million at April 1, 2006 ($76.3 million at December 31, 2005).

Dividends payable, included in accrued expenses and other current liabilities in the balance sheet, was $109.1 million at April 1, 2006 ($100.9 million at December 31, 2005).

 

9. STOCK-BASED COMPENSATION: Effective January 1, 2006, Nucor adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” and selected the modified prospective method. As a result, compensation expense has been recorded over the remaining vesting period for the unvested portion of previously issued awards that were outstanding at January 1, 2006. The Company uses the Black-Scholes option-pricing model to determine the fair value of all option grants. Assumptions used in the model for the prior year grants are described in Nucor’s Annual Report on Form 10-K. Expected volatilities are based on historical experience. Nucor did not grant any options during the quarter ended April 1, 2006 and does not expect to grant options to its directors, officers or employees in future periods. Nucor intends instead to award restricted stock in future periods.

 

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

Through 2005, Nucor accounted for stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, no compensation expense was recorded, other than for restricted stock grants, since the exercise price of the stock options is equal to the market price of the underlying stock on the grant date. The following presents pro forma net earnings and per share data as if a fair value based method had been used to account for stock-based compensation for the first quarter of 2005 (in thousands, except per share amounts):

 

    

Three Months

(13 Weeks) Ended

April 2, 2005

 

Net earnings - as reported

   $ 354,666  

Add: Stock-based employee compensation expense included in reported net earnings, net of income taxes

     3,150  

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of income taxes

     (5,475 )
        

Net earnings - pro forma

   $ 352,341  
        

Net earnings per share - as reported:

  

Basic

   $ 2.22  

Diluted

     2.20  

Net earnings per share - pro forma:

  

Basic

     2.21  

Diluted

     2.19  

STOCK OPTIONS: A summary of Nucor’s stock option plans for the first quarter ended April 1, 2006 is as follows (in thousands, except year and per share amounts):

 

     Shares    

Weighted

Average

Exercise

Price

  

Weighted

Average

Remaing

Contractual Life

  

Aggregate

Intrinsic

Value

Number of shares under option:

          

Outstanding at beginning of year

   2,183     $ 39.86      

Exercised

   (543 )     39.64       $ 25,951

Canceled

   (1 )     57.72      
                  

Outstanding at April 1, 2006

   1,639     $ 39.92    4.9 years    $ 106,306
                  

Options exercisable at April 1, 2006

   1,639     $ 39.92    4.9 years    $ 106,306
                  

For the quarter ended April 1, 2006, Nucor recorded $2.5 million for stock-based compensation expense related to stock option grants made in the prior year. This amount is included in marketing, administrative and other expenses.

 

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Table of Contents

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

RESTRICTED STOCK AWARDS: A summary of Nucor’s restricted stock for the first quarter of 2006 is as follows (shares in thousands):

 

     Shares    

Weighted

Average

Price

Restricted stock awards and units:

    

Unvested at beginning of year

   204     $ 54.65

Granted

   294       95.08

Vested

   (180 )     78.49

Canceled

   —         —  
            

Unvested at April 1, 2006

   318     $ 78.52
            

Shares reserved for future grants

   1,362    
        

Compensation expense for common stock and common stock units awarded under the Annual Incentive Plan and the Long-Term Incentive Plan is recorded over the performance measurement and vesting periods based on the anticipated number and market value of shares of common stock and common stock units to be awarded. Compensation expense for anticipated awards based upon Nucor’s financial performance, exclusive of amounts payable in cash, was $5.8 million and $3.5 million in the first quarter of 2006 and 2005, respectively. At April 1, 2006, unrecognized compensation expense related to unvested restricted stock was $7.7 million.

 

10. 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 $23.7 million of accrued environmental costs at April 1, 2006 ($24.0 million at December 31, 2005), $19.7 million was classified in accrued expenses and other current liabilities ($20.0 million at December 31, 2005) and $4.0 million was classified in deferred credits and other liabilities ($4.0 million at December 31, 2005).

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

 

11. EMPLOYEE BENEFIT PLAN: Nucor has a Profit Sharing and Retirement Savings Plan for qualified employees. Nucor’s expense for these benefits was $62.6 million and $57.4 million in the first quarter of 2006 and 2005, respectively.

 

12. INTEREST (INCOME) EXPENSE: The components of net interest (income) expense are as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     April 1,
2006
    April 2,
2005
 

Interest expense

   $ 9,726     $ 8,687  

Interest income

     (15,458 )     (4,554 )
                

Interest (income) expense, net

   $ (5,732 )   $ 4,133  
                

 

13. OTHER INCOME: In the first quarter of 2005, Nucor received $9.2 million in settlement of claims against third parties related to environmental matters. Nucor has made claims for reimbursement of additional amounts. No amounts have been recorded for such settlements, if any, that may be received.

 

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

 

14. COMPREHENSIVE INCOME: The components of comprehensive income are as follows (in thousands):

 

     Three Months (13 Weeks) Ended
     April 1,
2006
    April 2,
2005

Net earnings

   $ 379,161     $ 354,666

Net unrealized gain (loss) on hedging derivatives

     (25,466 )     18,377

Foreign currency translation

     8,088       —  
              

Total comprehensive income

   $ 361,783     $ 373,043
              

Comprehensive income includes net unrealized cash flow hedging gains (losses) on derivatives and foreign currency translation adjustments, both of which are presented net of tax.

 

15. 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.

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

 

     Three Months (13 Weeks) Ended  
    

April 1,

2006

   

April 2,

2005

 

Net sales to external customers:

    

Steel mills

   $ 3,149,426     $ 2,950,918  

Steel products

     395,671       371,703  
                
   $ 3,545,097     $ 3,322,621  
                

Intercompany sales:

    

Steel mills

   $ 255,398     $ 205,464  

Steel products

     5,818       3,954  

Corporate/eliminations/other

     (261,216 )     (209,418 )
                
   $ —       $ —    
                

Earnings (loss) before income taxes:

    

Steel mills

   $ 731,438     $ 658,135  

Steel products

     41,768       46,615  

Corporate/eliminations/other

     (184,945 )     (154,284 )
                
   $ 588,261     $ 550,466  
                
    

April 1,

2006

   

Dec. 31,

2005

 

Segment assets:

    

Steel mills

   $ 4,614,835     $ 4,623,462  

Steel products

     572,146       519,562  

Corporate/eliminations/other

     2,317,165       1,995,763  
                
   $ 7,504,146     $ 7,138,787  
                

 

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

 

16. INVESTMENTS AND ACQUISITIONS: In February 2005, Nucor purchased the assets of Fort Howard Steel, Inc.’s operations in Oak Creek, Wisconsin, for a cash purchase price of approximately $44.1 million. This facility produces cold finish bar products.

Nucor owns a one-half interest in Harris Steel, Inc., a wholly owned subsidiary of Harris Steel Group, Inc.. As of April 1, 2006, Nucor held a note receivable from Harris Steel, Inc. in the amount of $10.0 million. This note receivable bears interest, payable upon maturity, at a rate of LIBOR plus 100 basis points. The note was classified in Other Current Assets.

 

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

 

     Three Months (13 Weeks) Ended
     April 1,
2006
   April 2,
2005

Basic net earnings per share:

     

Basic net earnings

   $ 379,161    $ 354,666
             

Average shares outstanding

     155,313      159,708
             

Basic net earnings per share

   $ 2.44    $ 2.22
             

Diluted net earnings per share:

     

Diluted net earnings

   $ 379,161    $ 354,666
             

Diluted average shares outstanding:

     

Basic shares outstanding

     155,313      159,708

Dilutive effect of stock options and other

     1,561      1,538
             
     156,874      161,246
             

Diluted net earnings per share

   $ 2.42    $ 2.20
             

 

18. SUBSEQUENT EVENT: On May 1, 2006, Nucor’s wholly owned subsidiary, Nucor Steel Connecticut, Inc., purchased substantially all of the assets of Connecticut Steel Corporation for a cash purchase price of approximately $43.0 million, subject to post-closing adjustments. This facility produces wire rod, rebar, wire mesh fabrication and structural mesh fabrication.

 

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

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

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements included elsewhere in this report, as well as the audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2005.

Operations

Net sales for the first quarter of 2006 increased 7% to $3.55 billion, compared with $3.32 billion in the first quarter of 2005 due to an increase in total tons shipped to outside customers partially offset by a decrease in average sales price per ton. Total tons shipped to outside customers increased 12% from 5,015,000 tons in the first quarter of 2005 to 5,621,000 tons in the first quarter of 2006. Average sales price per ton decreased 5% from $663 in the first quarter of 2005 to $631 in the first quarter of 2006.

In the first quarter of 2006, Nucor established company records in the steel mills segment for steel production, total steel shipments and steel sales to outside customers. Steel production was 5,791,000 tons in the first quarter of 2006, compared with 5,108,000 tons produced in the first quarter of 2005, an increase of 13%. Total steel shipments increased 13% to 5,721,000 tons in the first quarter of 2006, compared with 5,043,000 tons in last year’s first quarter. Steel sales to outside customers increased 12% to 5,263,000 tons, compared with 4,688,000 tons in last year’s first quarter. In the steel products segment, steel joist production during the first quarter was 139,000 tons, compared with 123,000 tons in the first quarter of 2005, an increase of 13%. Steel deck sales were 85,000 tons, compared with 80,000 tons in last year’s first quarter, an increase of 6%. Cold finished steel sales increased 8% to a record 96,000 tons, compared with 89,000 tons in the first quarter of 2005. During the first quarter of 2006, the average utilization rates of all operating facilities in the steel mills and steel products segments were approximately 93% and 77%, respectively.

The major component of cost of products sold is raw material costs. In the first quarter of 2006, the average price of raw materials decreased 13% from the first quarter of 2005. The average scrap and scrap substitute cost per ton used in our steel mills segment was $237 in the first quarter of 2006, a decrease of 13% from $272 in the first quarter of 2005. Nucor incurred a charge to value inventories using the last-in, first-out (LIFO) method of accounting of $9.0 million in the first quarter of 2006, compared with a credit of $26.1 million in the first quarter of 2005. The LIFO charges (credits) for these interim periods are based on management’s estimates of both inventory prices and quantities at year-end. These estimates will likely differ from actual amounts, and such differences may be significant.

 

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

Total energy costs increased approximately $7 (21%) per ton from the first quarter of 2005 to the first quarter of 2006 and decreased approximately $4 (10%) per ton from the fourth quarter of 2005.

Pre-operating and start-up costs of new facilities increased to $6.1 million in the first quarter of 2006, compared with $3.4 million in the first quarter of 2005. For the first quarter of 2006, these costs primarily related to the HIsmelt project in Kwinana, Western Australia and the refurbishment of our direct reduced iron facility in Trinidad. In the first quarter of 2005, these costs primarily related to the dismantling of the direct reduced iron plant located in Louisiana and preparing it for relocation to Trinidad, as well as for the modernization of rolling mill #2 at the bar mill in Darlington, South Carolina.

Gross margins were approximately 22% for the first quarter of 2006 compared with approximately 21% for the first quarter of 2005.

The major components of marketing, administrative and other expenses are freight and profit sharing costs. Unit freight costs increased approximately 15% from the first quarter of 2005 to the first quarter of 2006 primarily due to higher fuel costs. Profit sharing costs, which are based upon and generally fluctuate with pre-tax earnings, increased 14% from the first quarter of 2005 to the first quarter of 2006. Profit sharing costs also fluctuate based on Nucor’s achievement of certain financial performance goals, including comparisons of Nucor’s financial performance to peers in the steel industry and to other high performing companies.

Effective January 1, 2006, Nucor adopted SFAS No. 123(R), “Share-Based Payment,” which requires companies to recognize in the statement of earnings the grant-date fair value of stock awards issued to employees and directors. Nucor adopted SFAS No. 123(R) using the modified prospective method. In accordance with the modified prospective method, our Consolidated Financial Statements for prior periods have not been restated to reflect the impact of SFAS No. 123(R). For the quarter ended April 1, 2006, Nucor recorded $2.5 million for stock-based compensation expense related to stock option grants made in prior years. This amount is included in marketing, administrative and other expenses.

Nucor earned net interest income in the first quarter of 2006 compared with net interest expense in the first quarter of 2005 due to an increase in average cash equivalents and short-term investments and an increase in average interest rates on those investments, partially offset by an increase in the average interest rate on long-term debt.

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 quarter of 2006, the amount of cash distributed to minority interest holders exceeded amounts allocated to minority interests based on mutual agreement of the general partners; however, the cumulative amount of cash distributed to partners was less than the cumulative net earnings of the partnership.

In the first quarter of 2005, Nucor received $9.2 million in settlement of claims against third parties related to environmental matters.

Nucor had an effective tax rate of 35.5% in the first quarter of 2006, compared with 35.6% in the first quarter of 2005.

 

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

Net earnings and earnings per share in the first quarter of 2006 increased 7% and 10%, respectively, to $379.2 million and $2.42 per diluted share, compared with $354.7 million and $2.20 per diluted share in 2005. Net earnings as a percentage of net sales were 10.7% in both the first quarter of 2006 and 2005. The 10% increase in earnings per share also reflects the effect of repurchasing approximately 5.7 million shares of Nucor’s common stock since the first quarter of 2005. Return on average stockholders’ equity was 34.4% and 38.9% in the first quarter of 2006 and 2005, respectively.

We expect that business conditions will remain strong through the second quarter of 2006. At this time, our sheet mill volume is completely booked through the second quarter, and more than 50% of our sheet mill volume for the third and fourth quarter is committed to annual contract customers. In addition, we expect that an additional 25% of our third and fourth quarter sheet mill volume will be committed as quarterly contracts. These contracts limit our exposure during the terms of those contracts to the volatility of prices in the spot market. Nucor continues to be well-positioned to benefit from improving non-residential construction markets, which generate demand for products manufactured by both segments of our business. In addition, Nucor continues to benefit from the breadth of our product diversity.

Liquidity and capital resources

The current ratio was 3.3 at the end of the first quarter of 2006 and 3.2 at year-end 2005. The percentage of long-term debt to total capital was 16% and 17% at the end of the first quarter of 2006 and at year-end 2005, respectively.

Capital expenditures decreased approximately 2% during the first quarter of 2006 compared with the first quarter of 2005. Capital expenditures are projected to be approximately $396.0 million for all of 2006.

In February 2006, Nucor’s Board of Directors increased the regular quarterly cash dividend on Nucor’s common stock from $0.15 per share to $0.20 per share. In addition to the $0.20 per share base dividend amount, the Board of Directors approved the payment of a supplemental dividend of $0.50 per share, for a total dividend of $0.70 per share, payable on May 11, 2006 to stockholders of record on March 31, 2006.

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

Nucor repurchased 100,000 shares of Nucor’s common stock at a cost of approximately $10.3 million under a publicly announced stock repurchase program during the first quarter of 2006 (none in the first quarter of 2005). Approximately 12.8 million shares remain authorized for repurchase.

 

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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, 2005.

Commodity Price Risk – In the ordinary course of business, Nucor is exposed to market risk for price fluctuations of raw materials and energy, principally scrap steel and natural gas. We attempt to negotiate the best prices for our raw materials and energy 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 normal time lag in passing through higher raw material costs so that we can maintain our gross margins.

Nucor also uses derivative financial instruments to hedge a portion of our exposure to price risk related to natural gas purchases used in the production process when management believes it is prudent to do so. Gains and losses from the use of these instruments are deferred in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets and recognized into cost of products sold in the same period as the underlying physical transaction. At April 1, 2006, accumulated other comprehensive income (loss) includes $21.1 million in unrealized net-of-tax gains for the fair value of these derivative instruments. A sensitivity analysis of changes in the price of hedged natural gas purchases indicates that declines of 10% and 25% in natural gas prices would reduce the fair value of our pre-tax natural gas hedge position by $15.0 million and $36.9 million, respectively. Any resulting changes in fair value would be recorded as adjustments to other comprehensive income (loss), net of tax. Because these instruments are structured and used as hedges, these hypothetical losses would be partially offset by the benefit of lower prices paid for the natural gas used in the normal production cycle.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures – As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting – There were no changes in our internal control over financial reporting during the quarter ended April 1, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in Nucor’s risk from those included in Nucor’s annual report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Our share repurchase program activity for each of the three months and the quarter ended April 1, 2006 was as follows (in thousands, except per share amounts):

 

    

Total Number

of Shares

Purchased

  

Average Price

Paid per Share

(1)

  

Total Number

of Shares

Purchased as

Part of Publicly

Announced

Plans or

Programs

(2)

  

Maximum
Number of

Shares that

May Yet Be

Purchased

Under the

Plans or

Programs

(2)

January 1, 2006 - January 28, 2006

   —      $ —      —      12,909

January 29, 2006 - February 25, 2006

   —        —      —      12,909

February 26, 2006 - April 1, 2006

   100      102.63    100    12,809
                     

For the Quarter Ended April 1, 2006

   100    $ 102.63    100    12,809
                     

(1) Includes commissions of $0.02 per share.
(2) On September 5, 2000, the Board of Directors approved a stock repurchase program under which the Company is authorized to repurchase up to 5.0 million shares of the Company’s common stock. On September 8, 2004, the Board of Directors resolved that the number of shares of common stock authorized for repurchase would increase 100% as a result of the 2-for-1 stock split on the record date of October 15, 2004. At that time, the number of remaining shares authorized for repurchase increased from 4.2 million shares to 8.5 million shares. On April 21, 2005, the Company publicly announced the reactivation of this stock repurchase program. On December 6, 2005, the Board of Directors authorized the repurchase of up to an additional 10.0 million shares of its common stock, once the current repurchase authorization is completed. This repurchase authorization does not have a scheduled expiration date.

 

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Table of Contents

Item 6. Exhibits

 

Exhibit No.  

Description of Exhibit

10      Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (1)
31      Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1   Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32      Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Indicates a management contract or compensatory plan or arrangement.

SIGNATURES

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

 

NUCOR CORPORATION
By:  

/s/ Terry S. Lisenby

  Terry S. Lisenby
  Chief Financial Officer, Treasurer
  and Executive Vice President

Dated: May 4, 2006

 

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Table of Contents

NUCOR CORPORATION

List of Exhibits to Form 10-Q – April 1, 2006

 

Exhibit No.  

Description of Exhibit

10      Form of Restricted Stock Unit Award Agreement for Non-Employee Directors
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

 

18

Form of Restricted Stock Unit Award Agreement

Exhibit 10

NUCOR CORPORATION

2005 Stock Option and Award Plan

Restricted Stock Unit Award Agreement

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Award Agreement”) is made and entered into as of the 1st day of June, 20    , by and between Nucor Corporation, a Delaware corporation (the “Company”), and the individual (the “Grantee”) identified in the accompanying Notice of Grant of Restricted Stock Units (the “Notice”).

TERMS AND CONDITIONS

1. Grant of Units. The Company hereby grants to the Grantee, subject to the restrictions and the other terms and conditions set forth in the Nucor Corporation 2005 Stock Option and Award Plan (the “Plan”) and in this Award Agreement, the number of restricted stock units (the “Units”) set forth in the Notice, each of which shall represent the right to receive, when and as provided herein, one (1) share of the Stock. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Plan.

2. Vesting of Units. The Units shall be fully and immediately vested on the Grant Date.

3. Account; Dividend Equivalent Payments. The Units shall be credited to a bookkeeping account in the name of Grantee on the books and records of the Company (the “Restricted Stock Unit Account”). The Company shall pay to the Grantee in cash, within thirty (30) days after the payment date of any cash dividend with respect to shares of Stock, a dividend equivalent payment equal to the number of Units credited to the Grantee’s Restricted Stock Unit Account as of the record date for such dividend multiplied by the per share amount of the dividend.

4. Receipt of Shares. The Company shall issue the shares of Stock represented by the Units to the Grantee, or to the Grantee’s estate in the event of Grantee’s death, as soon as administratively practicable after the termination of the Grantee’s service on the Board of Directors.

5. Limitation of Rights. The Units do not confer upon the Grantee, or the Grantee’s estate in the event of Grantee’s death, any rights as a stockholder of the Company unless and until shares of Stock are in fact issued to such person in respect of the Units.

6. Restrictions on Transfer and Pledge. No right or interest of Grantee in the Units may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or an affiliate, or shall be subject to any lien, obligation, or liability of Grantee to any other party other than the Company or an affiliate. The Units are not assignable or transferable by Grantee other than by will or the laws of descent and distribution.

7. Plan Controls. The terms contained in the Plan (including without limitation provisions regarding changes in capital structure of the Company) are incorporated into and made a part of this Award Agreement and this Award Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Award Agreement, the provisions of the Plan shall be controlling and determinative.


8. Amendment. The Company may amend or terminate this Award Agreement without the consent of Grantee; provided, however, that such amendment or termination shall not, without Grantee’s consent, reduce or diminish the value of this award determined on the date of such amendment or termination.

9. Successors. This Award Agreement shall be binding upon any successor of the Company, in accordance with the terms of this Award Agreement and the Plan.

10. Severability. If any one or more of the provisions contained in this Award Agreement are invalid, illegal or unenforceable, the other provisions of this Award Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included.

11. Notice. Notices and communications under this Award Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Company must be addressed to:

Nucor Corporation

2100 Rexford Road

Charlotte, North Carolina 28211

Attn: Corporate Secretary

or any other address designated by the Company in a written notice to Grantee. Notices to the Grantee will be directed to the address of Grantee then currently on file with the Company, or at any other address given by Grantee in a written notice to the Company.

12. Incorporation of Notice. The Notice is incorporated by reference and made a part of this Award Agreement.

13. Governing Law. This Agreement shall be construed, interpreted and governed and the legal relationships of the parties determined in accordance with the internal laws of the State of North Carolina without reference to rules relating to conflicts of law.

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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: May 4, 2006  

/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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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: May 4, 2006  

/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 April 1, 2006 of the Registrant (the “Report”), that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) 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: May 4, 2006
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 April 1, 2006 of the Registrant (the “Report”), that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) 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: May 4, 2006