Table of Contents

2006

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2006   Commission file number 1-4119

OR

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

 


NUCOR CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Delaware    13-1860817
(State or other jurisdiction of
incorporation or organization)
   (I.R.S. Employer Identification No.)
1915 Rexford Road, Charlotte, North Carolina    28211
(Address of principal executive offices)    (Zip Code)
Registrant’s telephone number, including area code: (704) 366-7000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

  

Name of each exchange
    on which registered    

Common stock, par value $0.40 per share    New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

 


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indication 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy or statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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. (Check one):

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

Aggregate market value of common stock held by non-affiliates was approximately $16.67 billion based upon the closing sales price of the registrant’s common stock on the last day of our most recently completed second fiscal quarter, July 1, 2006.

301,131,123 shares of common stock were outstanding at February 21, 2007.

Documents incorporated by reference include: Portions of 2006 Annual Report (Parts I, II and IV), and Notice of 2007 Annual Meeting of Stockholders and Proxy Statement (Part III) to be filed within 120 days after Nucor’s fiscal year end.

 



Table of Contents

Nucor Corporation

Table of Contents

 

          Page
PART 1     
Item 1    Business    1
Item 1A    Risk Factors    5
Item 1B    Unresolved Staff Comments    8
Item 2    Properties    9
Item 3    Legal Proceedings    9
Item 4    Submission of Matters to a Vote of Security Holders    9
Executive Officers of the Registrant    10
PART II     
Item 5    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
   11
Item 6    Selected Financial Data    12
Item 7    Management’s Discussion and Analysis of Financial Condition and Results of
Operations
   12
Item 7A    Quantitative and Qualitative Disclosures about Market Risk    12
Item 8    Financial Statements and Supplementary Data    12
Item 9    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
   12
Item 9A    Controls and Procedures    13
Item 9B    Other Information    13
PART III     
Item 10    Directors, Executive Officers and Corporate Governance    14
Item 11    Executive Compensation    14
Item 12    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
   14
Item 13    Certain Relationships and Related Transactions, and Director Independence    14
Item 14    Principal Accountant Fees and Services    14
PART IV     
Item 15    Exhibits and Financial Statement Schedules    15
Signatures    18
Index to Financial Statement Schedule    19
List of Exhibits to Form 10-K    22

 

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Table of Contents

PART I

 

Item 1. Business

Overview

Nucor Corporation was incorporated in Delaware in 1958. The business of Nucor Corporation and its subsidiaries is the manufacture and sale of steel and steel products, which accounted for all of the sales and the majority of the earnings in 2006, 2005 and 2004. The earnings in 2005 include other income of $9.2 million in settlement of claims against third parties related to environmental matters. The earnings in 2004 include other income of $1.6 million related to pre-tax gains on the sale of equipment.

Nucor is the nation’s largest recycler, using scrap steel as the primary material in producing our products. In 2006, we recycled over 21 million tons of scrap steel.

Segments

Nucor reports its results in two segments: steel mills and steel products. Net sales to external customers, intercompany sales, depreciation expense, earnings before income taxes, assets and capital expenditures by segment for each of the three years in the period ended December 31, 2006, are set forth in Note 18 of Notes to Consolidated Financial Statements of the 2006 Annual Report, which note is hereby incorporated by reference.

Principal Products Produced

Principal products from the steel mills segment are hot-rolled steel (angles, rounds, flats, channels, rebar, sheet, wide-flange beams, pilings, billets, blooms, beam blanks and plate) and cold-rolled steel. Principal products from the steel products segment are steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems and light gauge steel framing. Hot-rolled steel is manufactured principally from scrap, utilizing electric arc furnaces, continuous casting and automated rolling mills. Cold-rolled steel, cold finished steel, steel joists and joist girders, and steel fasteners are manufactured by further processing of hot-rolled steel. Steel deck is manufactured from cold-rolled steel.

Markets and Marketing

In the steel mills segment, hot-rolled and cold-rolled sheet steel are produced to customer orders. In addition, other hot-rolled and cold-rolled steel are manufactured in standard sizes and inventories are maintained. In 2006, approximately 92% of the steel mills segment production was sold to non-affiliated customers; the remainder was used internally by the steel products segment. Hot-rolled steel and cold-rolled steel are sold primarily to steel service centers, fabricators and manufacturers throughout the United States. In 2006, approximately 75% of our sheet steel sales were made to contract customers with the balance of sales made in the spot market at prevailing prices at the time of sale. These contracts permit price adjustments to reflect changes in prevailing raw material costs and typically have terms ranging from six to twelve months.

In the steel products segment, steel joists and joist girders, and steel deck are sold to general contractors and fabricators throughout the United States. Substantially all work is to order and no unsold inventories of finished products are maintained. All sales contracts are firm fixed-price contracts and are normally competitively bid against other suppliers. Cold finished steel and steel fasteners are manufactured in standard sizes and inventories are maintained. Cold finished steel and steel fasteners are sold primarily to distributors and manufacturers throughout the United States.

Products from both segments are marketed mainly through in-house sales forces. The principal competitive factors are price and service. The markets that Nucor serves are tied to capital and durable goods spending and are affected by changes in economic conditions. Considerable competition exists from numerous domestic

 

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Item 1. Business, continued

 

manufacturers and foreign imports. Unfairly traded steel imports have devastated the U.S. steel industry and its workers. We have continued the aggressive trade case work in which we have engaged over the years with our participation in the current statutory five-year sunset reviews of existing duties for coated sheet and carbon plate products. In late 2006, the International Trade Commission chose to remove the duties that were in place on many of the countries involved in dumping these products into our country. As a result, more foreign steel may continue to enter our borders with negative effects on our business. We are currently evaluating these decisions to begin our work in appeal, and we will continue to fight illegally dumped foreign steel in support of free and fair trade through the legal process. In February 2007, the United States requested World Trade Organization dispute settlement consultations with China regarding China’s provision of prohibited subsidies to its manufacturing exports. We are optimistic that this request is an important first step in strengthening and enforcing existing U.S. trade laws and represents the President’s commitment to achieving a long-term solution to illegal dumping and other unfair trade practices. There can be no assurance that such solutions will be achieved. Nucor actively supports several organizations that promote free and fair trade and that oppose currency manipulation.

Backlog

In the steel mills segment, Nucor’s backlog of orders was approximately $2.52 billion and $2.87 billion at December 31, 2006 and 2005, respectively. Nucor’s backlog of orders in the steel products segment was approximately $572.4 million and $473.7 million at December 31, 2006 and 2005, respectively. These orders are normally filled within one year.

Raw Materials

The primary raw material for the steel mills segment is ferrous scrap, which is acquired from numerous sources throughout the country. Following the escalation of scrap steel prices in 2003 and 2004, years in which prices increased 25% and 74%, respectively, Nucor successfully implemented a raw material sales price surcharge in 2004. This surcharge has helped offset the impact of significantly more volatile scrap prices and has ensured that we were able to purchase the scrap needed to fill our customers’ orders. The average scrap and scrap substitute cost per ton remained at historically high levels in 2005 and 2006, increasing 3% from $238 per ton in 2004 to $244 per ton in 2005 and increasing slightly to $246 in 2006. The primary raw material for the steel products segment is steel, which is almost entirely purchased from the steel mills segment.

The steel mills are also large consumers of electricity and natural gas. Nucor uses cash flow hedges and natural gas purchase contracts to partially manage its exposure to price risk of natural gas that is used during the manufacturing process. Historically, U.S.-based manufacturers have enjoyed competitive energy costs that have allowed competition on equal footing in what is becoming more and more a global market. In recent decades, our government has allowed a growing over-reliance on natural gas for the generation of electricity, while at the same time preventing access to some of the most promising areas for natural gas exploration. As a result, natural gas prices have increased from less than $2.00 per mmbtu in the 1990’s (NYMEX Henry-Hub pricing) to a peak of more than $15.00 per mmbtu in December 2005 and to a calendar 2007 average price currently approaching $8.00 per mmbtu. Since an increasing share of electricity is now generated using natural gas, higher natural gas prices are also increasing costs for consumers of electricity. Nucor actively supports several organizations that are promoting a more rational energy policy. We believe this is critical for not only our future business success, but also for the future of the U.S. economy. Supplies of raw materials and energy have been, and are expected to be, adequate to operate our facilities.

 

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Strategy

Nucor has historically focused on greenfield growth and on optimizing existing operations in order to keep them state-of-the-art and globally competitive. Capital expenditures are currently projected to be approximately $940 million in 2007, more than two-and-a-half times our capital expenditures in 2006. While approximately $500 million of the 2007 capital spending is allocated to our greenfield projects, the remainder is an estimate of what we will spend to maintain the productivity and efficiency of our existing facilities. In recent years, our focus has expanded to include growing profitably through acquisitions and through joint ventures that leverage new technologies.

Recent Acquisitions, Greenfield Projects and Joint Ventures

In July 2004, Nucor’s wholly owned subsidiary, Nucor Steel Tuscaloosa, Inc., purchased substantially all of the steelmaking assets of Corus Tuscaloosa for a cash 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. Although this plant had an initial annual capacity of approximately 800,000 tons, our minimal investments in this facility combined with the benefits of our incentive pay program have increased the capacity to 1,200,000 tons currently. This acquisition was immediately accretive to earnings and made significant operating contributions through 2006.

In August 2004, Nucor’s wholly owned subsidiary, Nucor Steel Decatur, LLC, purchased certain assets of Worthington Industries, Inc.’s cold rolling mill located adjacent to our steel 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. This 1,000,000-ton cold mill facility has 600,000 tons of annealing capacity and provides expanded value-added products to our customers in the Southeast.

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 finished bar product and has approximately 140,000 tons of annual capacity.

In June 2005, Nucor’s wholly owned subsidiary, Nucor Steel Marion, Inc., purchased substantially all of the assets of Marion Steel Company for a cash purchase price of approximately $110.7 million. This facility produces angles, flats, rebar, rounds and signposts. This facility has grown its capacity from 400,000 tons to 450,000 tons largely as a result of our incentive-based compensation program.

In May 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 $43.9 million. This facility produces wire rod, rebar, wire mesh and structural mesh. Located in Wallingford, Connecticut, the bar mill has an annual capacity of approximately 300,000 tons of wire rod and approximately 85,000 tons of wire mesh fabrication and structural mesh fabrication.

In November 2006, Nucor’s wholly owned subsidiary, Verco Decking, Inc., purchased substantially all of the assets of Verco Manufacturing Company, a producer of steel floor and roof decking in three locations in the western United States, for a cash purchase price of approximately $180.0 million. These facilities have an annual capacity of approximately 100,000 tons.

Nucor is also growing through “greenfield” projects using new technologies and growing globally through joint ventures.

Nucor began operations of its 100% owned Castrip® facility in Crawfordsville, Indiana, in 2002. This facility uses the breakthrough technology of strip casting, to which Nucor holds exclusive rights in the United

 

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States and Brazil. Strip casting involves the direct casting of molten steel into final shape and thickness without further hot or cold rolling, allowing lower investment and operating costs, reduced energy consumption and smaller scale plants than can be economically built with current technology. This process also reduces the overall environmental impact of producing steel by generating significantly lower emissions. In 2006, the Castrip facility in Indiana set monthly shipping records and began serving our first contract customers for Castrip products. In 2005, we selected Blytheville, Arkansas, as the location for our second Castrip production facility. The Blytheville, Arkansas, Castrip facility is under construction and is expected to begin operating in the second half of 2008. We also plan to establish at least one joint venture with a partner overseas in 2007 to utilize the Castrip technology.

Nucor established several joint ventures in the past few years, forming partnerships to grow in the light gauge steel framing industry and reinforcing steel construction market.

In March 2006, Nucor formed NEXFRAME, LP, a joint venture with Lennar Corporation. This joint venture was established to provide comprehensive light gauge steel framing solutions for residential construction markets across the nation.

In February 2004, Nucor purchased a one-half interest in Harris Steel, Inc., a wholly owned subsidiary of Harris Steel Group, Inc. (“Harris Steel”), to serve the western and northeastern United States rebar fabrication markets. In January 2007, Nucor made a cash tender offer for all of the shares of Harris Steel at Cdn$46.25 per share. The offer places an approximate value of Cdn$1.25 billion (US$1.07 billion) on the equity of Harris Steel. The acquisition, which will be Nucor’s largest to date, is expected to close in the first quarter, upon acceptance by the shareholders of Harris Steel and satisfactory resolution of regulatory approvals.

Raw Materials Projects

Nucor’s raw materials strategy includes the goal of controlling approximately 6,000,000 to 7,000,000 tons per year of high quality scrap substitutes for consumption by the steel mills.

In 2002, Nucor entered a joint venture with The Rio Tinto Group, Mitsubishi Corporation and Chinese steelmaker, Shougang Corporation, to construct a commercial HIsmelt® plant in Kwinana, Western Australia. The HIsmelt process converts iron ore fines and coal fines directly to liquid metal, eliminating the need for a blast furnace, sinter/pellet plants and coke ovens. Additionally, the HIsmelt technology offers an alternative supply of high-quality iron units as a scrap substitute. Nucor has a 25% interest in the joint venture that owns the HIsmelt commercial plant. Construction was completed and the start-up of operations began in 2005. The facility operated continuously through most of the second half of 2006. This plant has an initial annual capacity of 800,000 metric tons, which is expandable to over 1,500,000 metric tons.

In April 2003, Nucor entered a joint venture with Companhia Vale do Rio Doce (“CVRD”) to construct and operate an environmentally friendly pig iron project in northern Brazil. The project, named Ferro Gusa Carajás S.A. (“FGC”), utilizes two conventional mini-blast furnaces to produce about 380,000 metric tons of pig iron per year, using iron ore from CVRD’s Carajás mine in northern Brazil. The charcoal source is exclusively from eucalyptus trees grown in a cultivated forest of about 80,000 acres with the total project encompassing approximately 175,000 acres in northern Brazil. The cultivated forest removes more carbon dioxide from the atmosphere than the blast furnace emits. Production of pig iron began in the fourth quarter of 2005. Nucor is purchasing all of the production of the plant.

In September 2004, Nucor acquired the idled assets of a direct reduced iron (“DRI”) plant located in Louisiana and subsequently relocated these assets to Trinidad. Construction is complete and heat-up commenced in December 2006. In January 2007, Nucor announced successful ramp up to full production capacity of about

 

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Item 1. Business, continued

 

2,000,000 tons per year at Nu-Iron Unlimited. The Trinidad site benefits from a low cost supply of natural gas under a long-term contract and from favorable logistics for receipt of Brazilian iron ore and shipment of DRI to the United States.

Environmental Matters

Nucor is subject to environmental laws and regulations established by federal, state and local authorities. In December 2000, Nucor entered into a consent decree with the United States Environmental Protection Agency and certain states in order to resolve alleged environmental violations. Under the terms of this decree, Nucor is conducting tests at some of its facilities, performing corrective action where necessary, and piloting certain pollution control technologies.

Employees

Nucor has a simple, streamlined organizational structure to allow our employees to make quick decisions and to be innovative. Our organization is highly decentralized, with most day-to-day operating decisions made by our division general managers and their staff. Only 70 employees are located in our executive offices. All of Nucor’s 11,900 employees are engaged in its steel mills and steel products businesses. None of our employees are represented by labor unions.

Additional Information Incorporated by Reference

Additional information on Nucor’s business is incorporated by reference to Nucor’s 2006 Annual Report, pages 10 through 19.

Available Information

Nucor’s annual report on Form 10-K, quarterly reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports, are available on our website at www.nucor.com, as soon as reasonably practicable after Nucor files these reports electronically with, or furnishes them to, the Securities and Exchange Commission (“SEC”). Except as otherwise stated in these reports, the information contained on our website or available by hyperlink from our website is not incorporated into this Annual Report on Form 10-K or other documents we file with, or furnish to, the SEC.

 

Item 1A. Risk Factors

Many of the factors that affect our business and operations involve risk and uncertainty. The factors described below are some of the risks that could materially negatively affect our business, financial condition and results of operations.

Our industry is cyclical and prolonged economic declines could have a material adverse effect on our business.

Demand for most of our products is cyclical in nature and sensitive to general economic conditions. Our business supports cyclical industries such as the commercial construction, energy, appliance and automotive industries. As a result, downturns in the United States economy or any of these industries could materially adversely affect our results of operations and cash flows. Because steel producers generally have high fixed costs, reduced volumes result in operating inefficiencies. Over the five-year period ended December 31, 2006, our net earnings have varied from a high of $1.76 billion in 2006 to a low of $62.8 million in 2003. Future economic downturns or a prolonged stagnant economy could materially adversely affect our business, results of operations, financial condition and cash flows.

 

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Item 1A. Risk Factors, continued

 

Overcapacity in the global steel industry could increase the level of steel imports, which may negatively affect our business, results of operations and cash flows.

Global steel-making capacity exceeds global consumption of steel products. This excess capacity results in manufacturers in certain countries exporting significant amounts of steel at prices below their cost of production. These imports, which are also affected by demand in the domestic market, international currency conversion rates and domestic and international government actions, can result in downward pressure on steel prices, which could materially adversely affect our business, results of operations, financial condition and cash flows.

Overcapacity in China, the world’s largest producer and consumer of steel, has the potential to result in a further increase in imports of low-priced, unfairly traded steel to the United States. In recent years, capacity growth in China has significantly exceeded the growth in Chinese market demand. A continuation of this unbalanced growth trend or a significant decrease in China’s rate of economic expansion could result in China increasing steel exports.

The results of our operations are sensitive to volatility in steel prices and changes in the cost of raw materials, particularly scrap steel.

We rely to a substantial extent on outside vendors to supply us with raw materials that are critical to the manufacture of our products. We acquire our primary raw material, steel scrap, from numerous sources throughout the country. Although we believe that the supply of scrap is adequate to operate our facilities, purchase prices of these critical raw materials are subject to volatility and growing scrap exports to satisfy the scrap demand of global competitors. At any given time, we may be unable to obtain an adequate supply of these critical raw materials with price and other terms acceptable to us.

If our suppliers increase the prices of our critical raw materials, we may not have alternative sources of supply. In addition, to the extent that we have quoted prices to our customers and accepted customer orders for our products prior to purchasing necessary raw materials, we may be unable to raise the price of our products to cover all or part of the increased cost of the raw materials, although we have successfully used a raw material surcharge in the steel mills segment since 2004. Also, if we are unable to obtain adequate and timely deliveries of our required raw materials, we may be unable to timely manufacture sufficient quantities of our products. This could cause us to lose sales, incur additional costs, delay new product introductions and suffer harm to our reputation.

Changes in the availability and cost of electricity and natural gas are subject to volatile market conditions that could adversely affect our business.

Our steel mills are large consumers of electricity and natural gas. We rely upon third parties for our supply of energy resources consumed in the manufacture of our products. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by weather, political and economic factors beyond our control. Disruptions in the supply of our energy resources could temporarily impair our ability to manufacture our products for our customers. Increases in our energy costs could materially adversely affect our business, results of operations, financial condition and cash flows.

Our steel making processes, and the manufacturing processes of many of our customers, are energy intensive and generate carbon dioxide and other “greenhouse gasses” (GHG’s).

The U.S. House of Representatives has recently created a Select Committee on Energy Independence and Global Warming. The Speaker of the House has also asked other committees in the House that have jurisdiction over energy, environment and technology policy to report legislation on these issues by June 2007. We expect the

 

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Item 1A. Risk Factors, continued

 

legislation, when adopted, will increase our energy and other operating costs. Unless this legislation addresses GHG’s globally, these increased costs would hurt our ability to compete with foreign steel producers who would not be subject to this legislation. These increased costs could also encourage more of our customers to relocate their manufacturing facilities to foreign countries that do not restrict GHG emissions and where Nucor is not positioned to sell or distribute our products. This legislation is also likely to increase energy costs for all U.S. consumers resulting in a weaker domestic economy.

We plan to continue to implement acquisition strategies and may encounter difficulties in integrating businesses we acquire.

We plan to continue to seek attractive opportunities to acquire businesses, enter into joint ventures and make other investments that are complementary to our existing strengths. Realization of the anticipated benefits of acquisitions or other transactions will depend on our ability to integrate these transactions with our operations and to cooperate with our strategic partners. Our business, results of operations, financial condition and cash flows could be materially and adversely affected if we are unable to successfully integrate these businesses.

In addition, we may enter into joint ventures or acquisitions located outside the U.S., which may be adversely affected by foreign currency fluctuations, changes in economic conditions and changes in local government regulations and policies.

Some of our competitors who have emerged from bankruptcy have been able to significantly reduce their operating costs, which could negatively impact our competitive position.

Over the past few years, many domestic steel companies have sought protection under Chapter 11 of the United States Bankruptcy Code and have continued to operate. Some have reduced prices to maintain volumes and cash flows and obtained concessions from their labor unions and suppliers. In some cases, they have even expanded and modernized while in bankruptcy. Upon emergence from bankruptcy, these companies, or new entities that purchase their facilities through the bankruptcy process, may be relieved of certain environmental, retiree and other obligations. Additionally, some of our competitors may grow by acquiring less expensive capacity out of bankruptcy. As a result, they may be able to operate with lower costs, a primary competitive factor in the steel industry, which could negatively affect our competitive position.

Competition from other materials may materially adversely affect our business.

In many applications, steel competes with other materials, such as aluminum, cement, composites, glass, plastic and wood. Increased use of these materials in substitution for steel products could materially adversely affect prices and demand for our steel products.

Our operations are subject to business interruptions and casualty losses.

The steel-making business is subject to numerous inherent risks, particularly unplanned events such as explosions, fires, other accidents, inclement weather and transportation interruptions. While our insurance coverage could offset losses relating to some of those types of events, our results of operations and cash flows could be adversely impacted to the extent any such losses are not covered by our insurance.

Our business requires substantial capital investment and maintenance expenditures, and our capital resources may not be adequate to provide for all of our cash requirements.

Our operations are capital intensive. For the five-year period ended December 31, 2006, our total capital expenditures, excluding acquisitions, were approximately $1.41 billion. Our business also requires substantial

 

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expenditures for routine maintenance. Although we expect requirements for our business needs, including the funding of capital expenditures, debt service for financings and any contingencies to be financed by internally generated funds or from borrowings under our $700 million unsecured revolving credit facility, we cannot assure you that this will be the case. Any future significant acquisitions could require additional financing from external sources.

Environmental compliance and remediation could result in substantially increased costs and materially adversely impact our competitive position.

Our operations are subject to numerous federal, state and local laws and regulations relating to protection of the environment, and we, accordingly, make provision in our financial statements for the estimated costs of compliance. These laws are becoming increasingly stringent, resulting in inherent uncertainties in these estimates.

In 2000, we agreed to a comprehensive consent decree with the United States Environmental Protection Agency and certain states to resolve disputes about alleged past environmental violations. Under the terms of the consent decree, we are continuing to conduct tests at some of our facilities, perform corrective action where necessary and pilot various pollution control technologies. Our accrued environmental costs include the expenses we expect to incur as a result of our ongoing compliance with the terms of this consent decree.

Our competitors in the United States and in some western European and other countries with advanced industrial economies are subject to similar environmental laws and regulations. The specific impact on each competitor may vary, however, depending upon a number of factors, including the age and location of operating facilities, production processes (such as a electric-arc based versus an integrated producer) and the specific products and services it provides. To the extent that competitors, particularly foreign steel producers and manufacturers of competitive products, are not required to incur equivalent costs, our competitive position could be materially adversely impacted.

 

Item 1B. Unresolved Staff Comments

None.

 

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Item 2. Properties

Our principal operating facilities by segment are as follows:

 

Location

   Approximate
square footage
of facilities
  

Principal products

Steel mills:      

Blytheville, Arkansas

   2,210,000    Steel shapes

Berkeley County, South Carolina

   1,940,000    Flat-rolled steel, steel shapes

Crawfordsville, Indiana

   1,850,000    Flat-rolled steel

Decatur, Alabama

   1,500,000    Flat-rolled steel

Norfolk, Nebraska

   1,400,000    Steel shapes

Hickman, Arkansas

   1,390,000    Flat-rolled steel

Plymouth, Utah

   1,190,000    Steel shapes

Darlington, South Carolina

   1,170,000    Steel shapes

Jewett, Texas

   1,080,000    Steel shapes

Hertford County, North Carolina

   1,010,000    Steel plate

Seattle, Washington

   660,000    Steel shapes

Auburn, New York

   450,000    Steel shapes

Kankakee, Illinois

   400,000    Steel shapes

Marion, Ohio

   520,000    Steel shapes

Tuscaloosa, Alabama

   350,000    Steel plate

Jackson, Mississippi

   340,000    Steel shapes

Birmingham, Alabama

   280,000    Steel shapes

Wallingford, Connecticut

   240,000    Steel shapes
Steel products:      

Norfolk, Nebraska

   1,040,000    Joists, deck

Brigham City, Utah

   750,000    Joists

Grapeland, Texas

   660,000    Joists, deck

St. Joe, Indiana

   550,000    Joists, deck

Chemung, New York

   550,000    Joists, deck

Florence, South Carolina

   530,000    Joists, deck

Fort Payne, Alabama

   470,000    Joists, deck

Our steel mills segment also includes a distribution center in Pompano Beach, Florida. In the steel products segment, we have additional operating facilities in St. Joe and Waterloo, Indiana; Terrell and Denton, Texas; Swansea, South Carolina; Oak Creek, Wisconsin; Phoenix, Arizona; Antioch and Fontana, California; and Dallas, Georgia. During 2006, the average utilization rates of all operating facilities in the steel mills and steel products segments were approximately 89% and 79% of production capacity, respectively.

We also own our principal executive office in Charlotte, North Carolina.

 

Item 3. Legal Proceedings

Nucor is involved in various judicial and administrative proceedings as both plaintiff and defendant, arising in the ordinary course of business. Nucor does not believe that any such proceedings (including matters relating to contracts, torts, taxes, warranties and insurance) will have a material adverse effect on its business, operating results, financial condition or cash flows.

 

Item 4. Submission of Matters to a Vote of Security Holders

None during the quarter ended December 31, 2006.

 

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Executive Officers of the Registrant

Daniel R. DiMicco (56)—Mr. DiMicco has been a director of Nucor since 2000 and was elected Chairman in May 2006. Mr. DiMicco has served as Nucor’s President and Chief Executive Officer since September 2000 and served as Vice Chairman from June 2001 to May 2006. He was an Executive Vice President of Nucor from 1999 to 2000 and Vice President from 1992 to 1999, serving as General Manager of Nucor-Yamato Steel Company. Mr. DiMicco began his career with Nucor in 1982 at Nucor Steel, Plymouth, Utah.

Terry S. Lisenby (55)—Mr. Lisenby has been Chief Financial Officer, Treasurer and Executive Vice President since January 2000. He previously served as a Vice President and Corporate Controller of Nucor from 1991 to 1999. Mr. Lisenby began his career with Nucor as Corporate Controller in 1985.

John J. Ferriola (54)—Mr. Ferriola has been an Executive Vice President of Nucor since January 2002 and was a Vice President from 1996 to 2001. He was General Manager of Nucor Steel, Crawfordsville, Indiana from 1998 to 2001; General Manager of Nucor Steel, Norfolk, Nebraska from 1995 to 1998; General Manager of Vulcraft, Grapeland, Texas in 1995; and Manager of Maintenance and Engineering at Nucor Steel, Jewett, Texas from 1992 to 1995.

Hamilton Lott, Jr. (57)—Mr. Lott has been an Executive Vice President of Nucor since September 1999 and was a Vice President from 1988 to 1999. He was General Manager of Vulcraft, Florence, South Carolina from 1993 to 1999; General Manager of Vulcraft, Grapeland, Texas from 1987 to 1993; Sales Manager of Vulcraft, St. Joe, Indiana from January 1987 to May 1987 and Engineering Manager there from 1982 to 1986. Mr. Lott began his career with Nucor as Design Engineer at Vulcraft, Florence, South Carolina in 1975.

D. Michael Parrish (54)—Mr. Parrish has been an Executive Vice President of Nucor since November 1998 and was a Vice President from 1990 to 1998. He was General Manager of Nucor Steel, Hickman, Arkansas from 1995 to 1998; General Manager of Nucor Steel, Jewett, Texas from 1991 to 1995; General Manager of Vulcraft, Brigham City, Utah from 1989 to 1991; Production Manager of Vulcraft, Fort Payne, Alabama from 1986 to 1989; Engineering Manager of Vulcraft, Brigham City, Utah from 1981 to 1986; and Engineer at Vulcraft, St. Joe, Indiana from 1975 to 1981.

Joseph A. Rutkowski (52)—Mr. Rutkowski has been an Executive Vice President of Nucor since November 1998 and was a Vice President from 1993 to 1998. He was General Manager of Nucor Steel, Hertford County, North Carolina, from August 1998 to November 1998; General Manager of Nucor Steel, Darlington, South Carolina from 1992 to 1998; Manager of Melting and Casting of Nucor Steel, Plymouth, Utah from 1991 to 1992; and Manager of Nucor Cold Finish, Norfolk, Nebraska from 1989 to 1991.

James M. Coblin (63)—Mr. Coblin has been Vice President of Human Resources since January 2000. He previously served as Nucor’s General Manager of Human Resources from 1996 to 1999. Mr. Coblin began his career with Nucor as Manager of Personnel Service in 1986.

 

10


Table of Contents

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our share repurchase program activity for each of the three months and the quarter ended December 31, 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)

October 1, 2006 - October 28, 2006

   1,600    $ 52.77    1,600    14,118

October 29, 2006 - November 25, 2006

   —        —      —      14,118

November 26, 2006 - December 31, 2006

   —        —      —      14,118
                     

For the Quarter Ended December 31, 2006

   1,600    $ 52.77    1,600    14,118
                     

(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 September 30, 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. On May 11, 2006, the board of directors resolved that the number of shares of common stock authorized for repurchase would increase 100% as a result of a 2-for-1 stock split on the record date of May 19, 2006. At that time, the number of remaining shares authorized for repurchase increased from 12.5 million shares to 24.9 million shares.

Nucor has increased its cash dividend every year since the Company began paying dividends in 1973. In 2006, in addition to raising the base dividend by 33%, the board of directors doubled the supplemental dividend Nucor has been paying since the second quarter of 2005 to recognize Nucor’s extraordinary performance during the year. As a result, Nucor paid a total dividend of $1.88 per share in 2006 compared with $0.67 per share in 2005. In February 2007, the board of directors approved a 10% increase in Nucor’s quarterly base dividend to $0.11 per share and announced the continuation of the $0.50 per share quarterly supplemental dividend, resulting in an annualized dividend rate of $2.44 per share. The quarterly supplemental dividend of $0.50 per share represents a portion of a total supplemental dividend estimated to be $2.00 per share to be paid over the next four quarterly dividend payments. The payment of any future supplemental dividends will depend, however, upon Nucor’s earnings, cash flows and financial position during the balance of the current year, all of which could be adversely affected by many factors, including many over which the Company has little or no control. See the discussion of the factors that affect Nucor’s business and operations and involve risk and uncertainty in Item 1A. Risk Factors in this Annual Report on Form 10-K.

Additional information regarding the market for Nucor’s common stock, quarterly market price ranges, the number of stockholders and dividend payments is incorporated by reference to Nucor’s 2006 Annual Report, pages 34 and 59.

 

11


Table of Contents
Item 6. Selected Financial Data

Historical financial information is incorporated by reference to Nucor’s 2006 Annual Report, page 34.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information required by this item is incorporated by reference to Nucor’s 2006 Annual Report, page 4 (Forward-looking Statements) and pages 20 through 30.

 

Item 7A. 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. At December 31, 2006, 43% of Nucor’s long-term debt was in industrial revenue bonds that have variable interest rates that are adjusted weekly or annually. The remaining 57% of Nucor’s debt is at fixed rates. Future changes in interest rates are not expected to significantly impact earnings. Nucor also makes use of interest rate swaps to manage net exposure to interest rate changes. As of December 31, 2006, there were no such contracts outstanding. Nucor’s investment practice is to invest in securities that are highly liquid with short maturities. As a result, we do not expect changes in interest rates to have a significant impact on the value of our investment securities.

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 consolidated balance sheets and recognized into cost of products sold in the same period as the underlying physical transaction. At December 31, 2006, accumulated other comprehensive income (loss) includes $6.9 million in unrealized net-of-tax losses 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 natural gas hedge position by $12.6 million and $31.5 million, respectively. Any resulting changes in fair value would be recorded as adjustments to accumulated other comprehensive income (loss), net of tax. Because these instruments are structured and used as hedges, these hypothetical losses would be offset by the benefit of lower prices paid for the natural gas used in the normal production cycle.

 

Item 8. Financial Statements and Supplementary Data

Information required by this item is incorporated by reference to Nucor’s 2006 Annual Report, pages 36 through 55.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

12


Table of Contents
Item 9A. 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 were effective as of the evaluation date.

Changes in Internal Control Over Financial Reporting—There were no changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Report on Internal Control Over Financial Reporting—Management’s report on internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 and the attestation report thereon of PricewaterhouseCoopers LLP, an independent registered public accounting firm, are incorporated by reference to Nucor’s 2006 Annual Report, pages 36 through 37.

 

Item 9B. Other Information

None.

 

13


Table of Contents

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

The information regarding Nucor’s directors contained in the Notice of 2007 Annual Meeting of Stockholders and Proxy Statement (the “Proxy Statement”) under the heading Election of Directors and the information regarding Nucor’s directors and executive officers contained in the Proxy Statement under the heading Section 16(a) Beneficial Ownership Reporting Compliance is incorporated by reference. Pursuant to Item 401(b) of Regulation S-K, executive officers of Nucor are reported in Part I of this report. Information regarding the audit committee and the audit committee financial expert appearing under the heading Corporate Governance and Board of Directors in the Proxy Statement is incorporated by reference.

Nucor has adopted a Code of Ethics for Senior Financial Professionals (“Code of Ethics”) that applies to the Company’s Chief Executive Officer, Chief Financial Officer, Corporate Controller and other senior financial professionals, as well as Corporate Governance Principles for our Board of Directors and charters for our board committees. These documents are publicly available on our website, www.nucor.com. Copies of these documents are also available without charge upon written request to the Corporate Secretary at our principal executive offices. If we make any substantive amendments to the Code of Ethics or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website.

 

Item 11. Executive Compensation

The information required by this item is included under the headings Compensation Discussion and Analysis, Executive Compensation, Compensation Committee, Compensation Committee Report on Executive Compensation and Director Compensation in Nucor’s Proxy Statement and is incorporated herein by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by this item with respect to security ownership of certain beneficial owners and management is incorporated by reference to Nucor’s Proxy Statement under the heading Security Ownership of Management and Certain Beneficial Owners.

The information regarding the number of securities issuable under equity compensation plans and the related weighted average exercise price is incorporated by reference to the Proxy Statement under the heading Equity Compensation Plan Information.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information required by this item is incorporated by reference to Nucor’s Proxy Statement under the heading Corporate Governance and Board of Directors.

 

Item 14. Principal Accountant Fees and Services

Information about the fees in 2006 and 2005 for professional services rendered by our independent registered public accounting firm is incorporated by reference to Nucor’s Proxy Statement under the heading Fees Paid to Independent Registered Public Accounting Firm. The description of our audit committee’s policy on pre-approval of audit and permissible non-audit services of our independent registered public accounting firm is also incorporated by reference from the same section of the Proxy Statement.

 

14


Table of Contents

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

Financial Statements:

The following consolidated financial statements and the report of independent registered public accounting firm are incorporated by reference to Nucor’s 2006 Annual Report, pages 36 through 55:

 

   

Management’s Report on Internal Control Over Financial Reporting

 

   

Report of Independent Registered Public Accounting Firm

 

   

Consolidated Statements of Earnings—Years ended December 31, 2006, 2005 and 2004

 

   

Consolidated Statements of Stockholders’ Equity—Years ended December 31, 2006, 2005 and 2004

 

   

Consolidated Balance Sheets—December 31, 2006 and 2005

 

   

Consolidated Statements of Cash Flows—Years ended December 31, 2006, 2005 and 2004

 

   

Notes to Consolidated Financial Statements

Financial Statement Schedules:

The following financial statement schedule is included in this report as indicated:

 

     Page

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

   20

Schedule II—Valuation and Qualifying Accounts—Years ended December 31, 2006, 2005 and 2004

   21

All other schedules are omitted because they are not required, not applicable, or the information is furnished in the consolidated financial statements or notes.

Exhibits:

 

2*    Support Agreement, dated December 29, 2006, by and between Nucor Corporation and Harris Steel Group, Inc.
2(i)*    Lock-up Agreement, dated December 29, 2006, by and between Nucor Corporation and John Harris, David Harris, Judith Harris, Naomi Harris and Paul Kelly
3    Restated Certificate of Incorporation (incorporated by reference to Form 10-Q for quarter ended July 2, 2005)
3(i)    Certificate of amendment dated May 11, 2006 to Restated Certificate of Incorporation (incorporated by reference to Form 10-Q for quarter ended July 1, 2006)
3(ii)    By-Laws as amended December 4, 2001 (incorporated by reference to Form 10-K for year ended December 31, 2001)
4    Rights Agreement, dated as of March 8, 2001, between Nucor Corporation and American Stock Transfer & Trust Co. (incorporated by reference to Exhibit 4 to Nucor’s Form 8-K filed March 9, 2001)
4(i)    Indenture, dated as of January 12, 1999, between Nucor Corporation and The Bank of New York, as trustee (incorporated by reference to Form S-4 filed December 13, 2002)
4(ii)    Second Supplemental Indenture, dated as of October 1, 2002, between Nucor Corporation and The Bank of New York, as trustee (incorporated by reference to Form S-4 filed December 13, 2002)
4(iii)    Form of 4.875% Note due 2012 (included in Exhibit 4(ii) above) (incorporated by reference to Form S-4 filed December 13, 2002)

 

15


Table of Contents
Exhibits, continued

 

10    1997 Key Employees Incentive Stock Option Plan (incorporated by reference to Form 10-K for year ended December 31, 2000) (1)
10(i)    2003 Key Employees Incentive Stock Option Plan (as amended through Amendment 2003-1) (incorporated by reference to Form 10-Q for quarter ended October 4, 2003) (1)
10(ii)    Non-Employee Director Equity Plan (incorporated by reference to Form 10-K for year ended December 31, 2000) (1)
10(iii)    2005 Stock Option and Award Plan (incorporated by reference to Exhibit 10.1 to Nucor’s Form 8-K filed May 17, 2005) (1)
10(iv)    Form of Restricted Stock Unit Award Agreement – time-vested awards (incorporated by reference to Form 10-K for year ended December 31, 2005) (1)
10(v)    Form of Restricted Stock Unit Award Agreement – retirement-vested awards (incorporated by reference to Form 10-K for year ended December 31, 2005 (1)
10(vi)    Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated by reference to Form 10-Q for quarter ended April 1, 2006) (1)
10(vii)    Employment Agreement of Daniel R. DiMicco (incorporated by reference to Form 10-Q for quarter ended June 30, 2001) (1)
10(viii)    Employment Agreement of Terry S. Lisenby (incorporated by reference to Form 10-Q for quarter ended June 30, 2001) (1)
10(ix)    Employment Agreement of Hamilton Lott, Jr. (incorporated by reference to Form 10-Q for quarter ended June 30, 2001) (1)
10(x)    Employment Agreement of D. Michael Parrish (incorporated by reference to Form 10-Q for quarter ended June 30, 2001) (1)
10(xi)    Employment Agreement of Joseph A. Rutkowski (incorporated by reference to Form 10-Q for quarter ended June 30, 2001) (1)
10(xii)    Employment Agreement of John J. Ferriola (incorporated by reference to Form 10-K for year ended December 31, 2001) (1)
10(xiii)    Multi-Year Revolving Credit Agreement, dated as of June 17, 2005 (incorporated by reference to Exhibit 10.1 to Nucor’s Form 8-K filed June 22, 2005)
10(xiv)    Senior Officers Severance Policy as Adopted by the Board of Directors, as amended on December 10, 2002 (incorporated by reference to Form 10-K for year ended December 31, 2002) (1)
10(xv)    Senior Officers Annual Incentive Plan (incorporated by reference to Form 10-Q for the quarter ended July 5, 2003) (1)
10(xvi)    Senior Officers Long-Term Incentive Plan (incorporated by reference to Form 10-Q for the quarter ended July 5, 2003) (1)
10(xvii)    Senior Officers Long-Term Incentive Plan, Amendment No. 1 (incorporated by reference to Form 10-K for the year ended December 31, 2003) (1)
13*    2006 Annual Report (portions incorporated by reference)
21*    Subsidiaries
23*    Consent of Independent Registered Public Accounting Firm
24*    Powers of attorney

 

16


Table of Contents
Exhibits, continued

 

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(i)*    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(i)*    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

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

 

17


Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NUCOR CORPORATION
By:   /S/    DANIEL R. DIMICCO        
  Daniel R. DiMicco
Chairman, President and
Chief Executive Officer

Dated: February 27, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:

 

/S/     DANIEL R. DIMICCO        

Daniel R. DiMicco

Chairman, President and

Chief Executive Officer

   

* PETER C. BROWNING   

Peter C. Browning

Lead Director

/S/    TERRY S. LISENBY        

Terry S. Lisenby

Chief Financial Officer, Treasurer and

Executive Vice President

   

* CLAYTON C. DALEY, JR.   

Clayton C. Daley, Jr.

Director

/S/    JAMES D. FRIAS        

James D. Frias

Vice President and Corporate Controller

   

* HARVEY B. GANTT   

Harvey B. Gantt

Director

   

* VICTORIA F. HAYNES   

Victoria F. Haynes

Director

   

* JAMES D. HLAVACEK   

James D. Hlavacek

Director

   

* BERNARD L. KASRIEL   

Bernard L. Kasriel

Director

   

* RAYMOND J. MILCHOVICH   

Raymond J. Milchovich

Director

  *By:  

/s/    Terry S. Lisenby        

   

Terry S. Lisenby

Attorney-in-fact

Dated: February 27, 2007

 

18


Table of Contents

NUCOR CORPORATION

Index to Financial Statement Schedule

 

     Page

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

   20

Schedule II — Valuation and Qualifying Accounts — Years ended December 31, 2006, 2005 and 2004

   21

 

19


Table of Contents

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

To the Board of Directors and Stockholders of

Nucor Corporation

Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated February 27, 2007 appearing in the December 31, 2006 Annual Report to Stockholders of Nucor Corporation (which report, consolidated financial statements, and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Charlotte, North Carolina

February 27, 2007

 

20


Table of Contents

NUCOR CORPORATION

Financial Statement Schedule

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

 

Description

   Balance at
beginning of
year
   Additions
charged to
costs and
expenses
    Deductions    Balance at
end of year

Year ended December 31, 2006

          

LIFO Reserve

   $ 381,852    $ 5,389     $  —      $ 387,241

Year ended December 31, 2005

          

LIFO Reserve

   $ 533,484    $ (151,632 )   $ —      $ 381,852

Year ended December 31, 2004

          

LIFO Reserve

   $ 157,586    $ 375,898     $ —      $ 533,484

 

21


Table of Contents

NUCOR CORPORATION

List of Exhibits to Form 10-K—December 31, 2006

 

Exhibit No.   

Description of Exhibit

2    Support Agreement, dated December 29, 2006, by and between Nucor Corporation and Harris Steel Group, Inc.
2(i)    Lock-up Agreement, dated December 29, 2006, by and between Nucor Corporation and John Harris, David Harris, Judith Harris, Naomi Harris and Paul Kelly
13    2006 Annual Report (portions incorporated by reference)
21    Subsidiaries
23    Consent of Independent Registered Public Accounting Firm
24    Powers of attorney
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(i)    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(i)    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

 

22

Support Agreement

Exhibit 2

NUCOR CORPORATION

and

HARRIS STEEL GROUP INC.

SUPPORT AGREEMENT

December 29, 2006


TABLE OF CONTENTS

 

ARTICLE 1
INTERPRETATION
Section 1.1    Defined Terms.    1
ARTICLE 2
THE OFFER
Section 2.1    The Offer.    8
Section 2.2    Offer Documents.    10
Section 2.3    Conditions to Making the Offer.    11
Section 2.4    Company Approval of the Offer.    12
Section 2.5    Company Cooperation.    12
Section 2.6    Post Offer Covenants.    14
Section 2.7    Waiver of Standstill    14
Section 2.8    Registrar and Transfer Agent    15
Section 2.9    Information Agent and Dealer Manager    15
Section 2.10    Obligations of Nucor in respect of the Offeror    15
ARTICLE 3
COVENANTS OF THE COMPANY
Section 3.1    Ordinary Course of Business.    15
Section 3.2    Non-Solicitation and Opportunity to Match.    20
Section 3.3    Access to Information.    22
Section 3.4    Employment Arrangements.    23
ARTICLE 4
COVENANTS OF THE OFFEROR
Section 4.1    Employment Agreements.    23
Section 4.2    Regulatory Approvals.    23
Section 4.3    Officers’ and Directors’ Insurance and Indemnification.    23
Section 4.4    Accuracy of Representations and Warranties    24
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1    Representations.    24
Section 5.2    Investigation.    25
Section 5.3    Notice of Certain Matters.    25
Section 5.4    Survival of Representations and Warranties.    25
Section 5.5    Knowledge of the Company.    25

 

( i )


ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF NUCOR AND THE OFFEROR
Section 6.1    Representations.    25
Section 6.2    Survival of Representations and Warranties.    25
Section 6.3    Acknowledgement.    25
ARTICLE 7
MUTUAL COVENANTS
Section 7.1    Consultation.    26
Section 7.2    Further Assurances.    26
ARTICLE 8
TERMINATION AND REMEDIES
Section 8.1    Termination.    27
Section 8.2    Withdrawal of Offer.    28
Section 8.3    Remedies.    28
Section 8.4    Effect of Termination.    28
ARTICLE 9
MISCELLANEOUS
Section 9.1    Amendment or Waiver.    28
Section 9.2    Entire Agreement.    29
Section 9.3    Headings.    29
Section 9.4    Notices.    29
Section 9.5    Counterparts.    30
Section 9.6    Expenses.    31
Section 9.7    Assignment.    31
Section 9.8    Severability.    31
Section 9.9    Choice of Law.    31
Section 9.10    Attornment.    31

 

SCHEDULES
SCHEDULE "A"    TERMS OF THE OFFER   
SCHEDULE "B"    REPRESENTATIONS AND WARRANTIES OF THE COMPANY   
SCHEDULE "C"    REPRESENTATIONS AND WARRANTIES OF NUCOR   
SCHEDULE “D”    PROVISIONS TO BE INCLUDED IN HOLDCO AGREEMENT   

 

( ii )


SUPPORT AGREEMENT

THIS SUPPORT AGREEMENT entered into this 29th of December, 2006 between Nucor Corporation, a corporation existing under the laws of Delaware (hereinafter called “Nucor”) and Harris Steel Group Inc., a corporation existing under the laws of Ontario (hereinafter called the “Company”).

WHEREAS:

 

  (a) Nucor desires to cause a wholly-owned subsidiary to be designated by it (the “Offeror”) to acquire all of the outstanding common shares in the capital of the Company, including the shares held by the Holdcos (as such term is hereinafter defined) (the “Shares” and the holders of Shares are hereinafter called “Shareholders”) and is prepared to make an offer to acquire such Shares at a price of Cdn. $46.25 in cash, per Share.

 

  (b) The Board of Directors of the Company (“Company Board”), having received financial and legal advice and a recommendation of the special committee of independent directors (the “Special Committee”), has unanimously determined that it would be in the best interests of the Company and its shareholders to recommend acceptance of the proposed offer to Shareholders, to co-operate with Nucor and the Offeror and take all reasonable action to support the proposed offer in each case subject to the terms and conditions of this Agreement;

 

  (c) The Company Board has unanimously determined that it would be in the best interests of the Company and its shareholders to enter into this Agreement;

 

  (d) Contemporaneously herewith, Nucor has entered into a lock-up agreement (the “Lock-up Agreement”) with each of the Locked-up Subject Persons (as defined below) in respect of the proposed offer; and

 

  (e) Nucor will cause the Offeror to, subject to the terms and conditions of this Agreement, make an offer on the terms summarized in Schedule “A” to this Agreement (the “Offer”).


NOW THEREFORE IN CONSIDERATION of the mutual covenants hereinafter set out, the parties hereto hereby agree as follows:

ARTICLE 1

INTERPRETATION

Section 1.1 Defined Terms.

In this Agreement (including the recitals and the schedules), unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the respective meanings set forth below:

“Acquisition Proposal” has the meaning ascribed thereto in Section 3.2(1);

“Affiliate” means, with respect of any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise, either directly or indirectly, that results in control in fact of such Person; provided that direct or indirect ownership of shares of a corporation carrying more than 50% of the voting rights shall constitute control of that corporation notwithstanding that control in fact may be exercised by another Person or group of Persons.

“Agreement” means this support agreement and all the Schedules hereto as the same may be amended or supplemented from in accordance with Section 9.1 time to time;

“Benefit Plans” means all arrangements, agreements, programs or policies, whether funded or unfunded, relating to any employees with respect to which the Company or any of its Subsidiaries has any liability or contingent liability and relating to (i) retirement savings or pensions, including any defined benefit pension plan, defined contribution plan, group registered retirement savings plan, thrift and saving plan or supplemental pension or retirement plan; and (ii) employee welfare benefits, as defined for the purposes of Section 3.1 of ERISA and all other employee benefit plans including, without limitation, hospitalization or other medical benefits, life or other insurance, dental, disability, salary continuation, vacation, supplemental, unemployment benefits, profit sharing, mortgage assistance, or severance pay benefits;

“Business Day” means any day, other than a Saturday or Sunday, on which banks are open for business in each of Toronto, Ontario, Canada and New York, New York, United States of America;

“Canadian Pension Plan” means any “registered pension plan” as that term is defined in Subsection 248(1) of the Income Tax Act, Canada;

“Canadian Subsidiaries” means 1167183 Alberta Ltd., 217230 Ontario Limited, 532962 Ontario Limited, 2093776 Ontario Limited, Dixon Placing Inc., Epoxicote Inc., Epoxicote Rebar Inc., Harris Steel Ltd., Harris Steel Services Ltd., J Harris Transportation Services Limited, N-Force Placing Ltd., NJJ Holdings No. 1 Ltd., Northwest Reinforcing (1998) Ltd., VSL Canada Ltd., Novosteel (North America) Inc. and VSL Ltée;

“Canadian Tax Act” means the Income Tax Act (Canada) and the regulations promulgated thereunder, as the same may hereafter from time to time be amended.

“Code” means the United States Internal Revenue Code of 1986, as the same may hereafter from time to time be amended and the Treasury Regulations promulgated thereunder;

 

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“Company” has the meaning ascribed thereto in the introductory paragraph of this Agreement;

“Company Board” has the meaning ascribed thereto in the recitals;

“Compulsory Acquisition” means an acquisition by the Offeror of Shares not tendered to the Offer pursuant to Section 188 of the OBCA;

“Confidentiality Agreement” means the confidentiality and standstill agreement originally dated November 7, 2006 between the Company and Nucor as amended on December 8, 2006;

“Directors’ Circular” has the meaning ascribed thereto in Section 2.5(2);

“Effective Time” means the time that the Offeror shall have acquired ownership of and paid for the Shares pursuant to the terms of the Offer;

“Encumbrances” means pledges, liens, charges, security interests, leases, title retention agreements, mortgages, restrictions, hypothecs, easements, rights-of-way, title defects, options or adverse claims or encumbrances of any kind or character whatsoever;

“Environmental Laws” means all Laws relating to the protection of the environment (including ambient air, surface water, ground water, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation), occupational health and safety, natural resources, or the use, storage, disposal, discharge, packaging, transport, handling, containment, clean-up or other remediation or corrective action of any Hazardous Substances or Release thereof;

“Environmental Permits” has the meaning ascribed thereto in Schedule B, Section 11(a);

“Equivalent Insurance” has the meaning ascribed thereto in Section 4.3;

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended and any regulations promulgated thereunder;

“ERISA Affiliate” means each business or entity which is a member of a “controlled group of corporations,” under “common control” or an “affiliated service group” with the Company within the meaning of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with the Company under Section 414(o) of the Code, or is under “common control” with the Company, within the meaning of Section 4001(a)(14) of ERISA;

“Exchange Act” means the United States Securities Exchange Act of 1934, as amended;

“Expiry Date” has the meaning ascribed thereto in Schedule A;

“Fairness Opinion” has the meaning ascribed thereto in Section 2.4(2);

 

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“Governmental Authority” means any government, regulatory authority, governmental department, agency, commission, bureau, official, ministry, Crown corporation, court, tribunal, or other Law, rule or regulation-making entity:

 

  (i) having or purporting to have jurisdiction on behalf of any nation or any province, state or other geographic or political subdivision thereof in North America or Europe over Nucor, the Company or any of its Subsidiaries; or

 

  (ii) exercising, or entitled or purporting to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power over Nucor, the Company or any of its Subsidiaries;

“Harris Steel Entities” has the meaning ascribed thereto in Schedule B, Section 4;

“Hazardous Substances” means all pollutants, contaminants, wastes of any nature, chemicals, deleterious substances, hazardous material, solid waste, toxic or hazardous wastes or any other substance (including asbestos, asbestos containing materials, mould, microbial organisms, polychlorinated biphenyls (PCBs), radioactive materials, petroleum or substances related thereto), matter or material regulated by Environmental Laws;

“Holdco”, “Holdco Agreement”, “Holdco Alternative”, “Holdco Closing”, “Holdco Election”, Holdco Election Deadline”, “Holdco Indemnity Agreement”, “Holdco Shareholders” and “Holdco Shares” have the meanings ascribed thereto in Section 2.1(2);

“Intellectual Property” means all proprietary rights and intellectual property of any kind, including:

 

  (i) copyrights and applications therefor in any original works and all rights in any works of authorship not subject to copyright, including, without limitation, so-called “look and feel”, moral and economic rights, design elements, ordering of content, graphic user interface, ideas or concepts, software, programs or applications (in both source code and object form code), algorithms, databases and data collections, documentation, technical manuals, compilers, interpreters and tangible or intangible proprietary information or material;

 

  (ii) trade-marks, including both registered and unregistered trade-marks and service marks, designs, logos, indicia, distinguishing guises, trade dress, trade or brand names, business names, any other source or business identifiers including domain names, and all goodwill associated with the foregoing;

 

  (iii) trade secrets, confidential information and know-how, innovations, processes, technology, licences, sub-licences, formulas, reports and studies, data, research designs, research results, records and notes, prototypes, drawings, product designs and/or specifications, maskworks, net lists, schematics, invention records; and

 

  (iv)

patents and utility models and applications therefor and all provisionals, re-issuances, continuations, continuations-in-part, divisions, revisions,

 

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extensions, and re-examinations thereof and all equivalent or similar rights anywhere in the world in inventions and discoveries including invention disclosures;

“Joint Venture Entities” has the meaning ascribed thereto in Section 3.1(k);

“Laws” means applicable laws (including common law), statutes, by-laws, rules, regulations, orders, ordinances, guidelines, treaties, decrees, judgments, awards or requirements, in each case of any Governmental Authority having the force of law;

“Latest Mailing Time” has the meaning ascribed thereto in Section 2.1(1);

“LEC Agreement” has the meaning ascribed thereto in Section 3.1(c)(vii);

“Lock-up Agreement” means the lock-up agreement between Nucor and each Locked-up Subject Person dated as of the date hereof;

“Locked-up Subject Persons” means John Harris, David Harris, Judith Harris, Naomi Harris and Paul Kelly;

“Mandatory Steps” has the meaning ascribed thereto in Section 3.2(9);

“Material Adverse Effect” means any change or effect or any condition, event, occurrence, state of facts or development which is or which could reasonably be expected to be material and adverse to the condition (financial or otherwise), operations, results of operations, business, properties, assets, liabilities or capital of the Company and its Subsidiaries, on a consolidated basis; provided, however, that changes or effects relating to:

 

  (i) changes in general economic or political conditions including changes in international financial or currency exchange markets;

 

  (ii) changes in laws, rules, regulations or orders of any Governmental Authority or interpretations thereof by any Governmental Authority or changes in accounting rules,

 

  (iii) changes affecting generally the industries in which Nucor, the Offeror, the Company or any of its Subsidiaries conducts business;

 

  (iv) the announcement of the transactions contemplated by this Agreement or other communication by Nucor or the Offeror of its plans or intentions with respect to any of the businesses of the Company or any of its Subsidiaries or their respective investments;

 

  (v) the consummation of the transactions contemplated by this Agreement or any actions by Nucor, the Offeror or the Company taken pursuant to or in light of this Agreement or any actions by the Offeror;

 

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  (vi) any change in the market price or trading volume of any of the securities of Nucor, the Offeror or of the Shares; or

 

  (vii) any matter of which either Joseph Rutkowski or Hamilton Lott, on behalf of Nucor, has actual knowledge on the date hereof,

shall be deemed not to constitute a “Material Adverse Effect” and shall not be considered in determining whether a “Material Adverse Effect” has occurred, provided that in the case of any change described in paragraphs (ii) or (iii) above, such change does not primarily relate only to (or have the effect of primarily relating only to) the Company and its Subsidiaries on a consolidated basis or disproportionately adversely affect the Company and its Subsidiaries on a consolidated basis compared to other companies of similar size operating in the industry in which the Company or its Subsidiaries operate.

“Minimum Condition” has the meaning ascribed thereto in Schedule A;

“Nucor” has the meaning ascribed thereto in the introductory paragraph of this Agreement;

“OBCA” means the Business Corporations Act (Ontario), as amended from time to time;

“Occupied Property” has the meaning ascribed thereto in Schedule B, Section 11(e);

“Offer” has the meaning ascribed thereto in the recitals;

“Offer Documents” has the meaning ascribed thereto in the recitals;

“Owned Real Property” has the meaning ascribed thereto in Schedule B, Section 24;

“Party” means Nucor or the Company;

“Pension Plan” means each benefit plan (other than a “multi-employer plan” within the meaning of Sections 3(37) or 4001(a)(3) of ERISA), which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA, but excluding any Canadian Pension Plans;

“Permits” has the meaning ascribed thereto in Schedule B, Section 18;

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, governmental authority or other entity;

“Pre-Acquisition Reorganization” has the meaning ascribed thereto in Section 2.5(4);

“Proposed Agreement” has the meaning ascribed thereto in Section 3.2(6);

 

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“Public Disclosure Records” means all documents filed by the Company after January 1, 2006 on the System for Electronic Document Analysis and Retrieval (SEDAR);

“Real Property Leases” has the meaning ascribed thereto in Schedule B, Section 24;

“Release” means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, dumping, leaching or migration in the indoor or outdoor environment, including in or through the air, soil, surface water, ground water or property of a Hazardous Substance;

“Representatives” has the meaning ascribed thereto in Section 3.3;

“Returns” means all reports, estimates, declarations of estimated tax, information statements and returns required to be filed in connection with any Taxes;

“Right to Match” has the meaning ascribed thereto in Section 3.2(6);

“Securities Laws” means the OBCA, all applicable Canadian provincial and territorial securities Laws, all applicable United States federal securities Laws and the applicable “blue sky” or securities Laws of the states of the United States;

“Shareholders” has the meaning ascribed thereto in the recitals;

“Shares” has the meaning ascribed thereto in the recitals;

“Special Committee” has the meaning ascribed thereto in the recitals;

“Subsequent Acquisition Transaction” means any proposed arrangement, amalgamation, merger, reorganization, consolidation, recapitalization or other transaction involving the Company and/or its Subsidiaries and the Offeror or an Affiliate of the Offeror which, if successfully completed, will result in the Offeror owning, directly or indirectly, all of the Shares of the Company;

“Subsidiaries” means direct and indirect subsidiaries (as such term is defined in the OBCA) and those partnerships and joint ventures or other entities in which the Company has a direct or indirect interest of more than 50%;

“Superior Proposal” has the meaning ascribed thereto in Section 3.2(1);

“Take-Up Date” means the date upon which the Offeror acquires more than 50% of the outstanding Shares pursuant to the Offer;

“Taxes” means all taxes, however denominated, including any interest, penalties or other additions that may become payable in respect thereof, imposed by any federal, territorial, state, provincial, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including, but not limited to, federal income taxes and provincial income taxes), payroll and employee withholding taxes,

 

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unemployment insurance, social insurance taxes, sales and use taxes, ad valorem taxes, excise taxes, goods and services taxes, franchise taxes, gross receipts taxes, capital taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, workers’ compensation and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which the Company or any of its Subsidiaries is required to pay, withhold or collect.

ARTICLE 2

THE OFFER

Section 2.1 The Offer.

 

(1) Nucor shall promptly publicly announce its intention to cause the Offeror to make the Offer, shall create the Offeror and, subject to the terms and conditions of this Agreement, shall cause the Offeror to mail on or before 11:59 p.m. (Toronto time) on January 22, 2007 (the “Latest Mailing Time”) to the Shareholders, an offer to purchase all of the Shares at a price of Cdn. $46.25, in cash, per Share in accordance with all applicable Securities Laws and in accordance with Schedule “A”. The term “Offer” shall include any amendments to, or extensions of, the Offer made in accordance with the terms of this Agreement, including without limitation removing or waiving any condition or extending the period during which Shares may be deposited. It is understood and agreed that the Offeror may, in its sole discretion, modify any term or condition of the Offer; provided that the Offeror will not, without the prior written consent of the Company, increase the Minimum Condition, decrease the consideration per Share, change the form of consideration payable under the Offer (other than to add additional forms of consideration), decrease the number of Shares sought under the Offer, or impose additional conditions to the Offer or otherwise vary the Offer (or any terms or conditions thereof) in a manner which is adverse to the Shareholders. It is further understood and agreed that the Offeror may, in its sole discretion, waive any conditions of the Offer in whole or in part at any time and from time to time.

 

(2)

Subject to this Section 2.1(2), the Offer will permit any Person (“Holdco Shareholders”) who is resident in Canada for purposes of the Canadian Tax Act (including a partnership if all of the members of the partnership are resident in Canada) and who is the sole registered and beneficial owner, free and clear of all Encumbrances, of all of the shares of a corporation (“Holdco”) which as of the day immediately prior to the Expiry Date of the Offer: (i) is an unlimited liability corporation incorporated under the laws of Alberta on or after the date hereof or is an unlimited liability corporation existing under the laws of Alberta otherwise acceptable to the Offeror; (ii) at all times was a single purpose corporation that has had no business, no employees and has not held any assets other than Shares or other shares which comprise all of the share capital (which shall consist solely of common shares) of another unlimited liability corporation under the laws of Alberta which itself satisfies all of the criteria specified in this Section 2.1(2) and cash; (iii) as of the day immediately prior to the Expiry Date and at the time at which the Offeror takes up and pays for the Holdco Shares (as defined below) (the “Holdco Closing”), Holdco

 

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will have no obligations, liabilities (whether actual or contingent) or indebtedness to any Person save and except to the Offeror under the terms of the Holdco Agreement (as defined below); and (iv) as of the date hereof, has no material liabilities; to elect in respect of all Shares held, directly or indirectly, by such Holdco (the “Holdco Election”), by notice in writing provided to the Offeror (or the depositary under the Offer) at least fifteen (15) Business Days prior to the Expiry Date (the “Holdco Election Deadline”), to have all the issued and outstanding shares of the Holdco (“Holdco Shares”) transferred to the Offeror in exchange for the consideration which such Holdco would have been entitled to receive if the Shares held, directly or indirectly, by such Holdco had been deposited by such Holdco to the Offer and acquired directly by the Offeror pursuant to the Offer (a “Holdco Alternative”), provided that: (A) such Holdco Alternative will be completed in accordance with applicable Laws (including Securities Laws) on or prior to the Expiry Date so long as the Offeror, acting reasonably, agrees to such timing; (B) the entering into or implementation of the Holdco Alternative will not result in any delay in completing any other transaction completed by this Agreement; (C) the Holdco Shareholder will be required to pay, upon execution of the Holdco Agreement, all of the reasonable fees and expenses incurred by the Offeror and the Company in connection with the Holdco Alternative; (D) the Holdco Shareholder shall cause all income tax or other tax returns of the Holdco in respect of the last taxation year end of the Holdco ending immediately prior to the deemed taxation year end that arises from the acquisition of the Holdco Shares by the Offeror to be prepared, at the Holdco Shareholder’s cost, by a public accounting firm acceptable to the Offeror, acting reasonably, and shall provide copies thereof to the Offeror for filing by the Offeror, if not previously filed; (E) access to the books and records of Holdco shall have been provided on or before fifteen (15) Business Days prior to the Expiry Date and Nucor and its counsel shall have completed their due diligence regarding the business and affairs of Holdco to their satisfaction, acting reasonably; (F) the Holdco Shareholder shall provide the Offeror with a certified copy of the constating documents of the Holdco; (G) prior to the Holdco Election Deadline, the Holdco Shareholder and the Holdco enter into an indemnity agreement (the “Holdco Indemnity Agreement”) with the Offeror, containing the representations and warranties, terms, conditions and indemnities specified in Schedule “D” hereto and, if required by the Offeror, the Holdco Shareholder provide the Offeror with either (x) financial statements for the Holdco Shareholder for its most recently completed fiscal year that show net assets of the Holdco Shareholder that are satisfactory to the Offeror, or (y) security satisfactory to the Offeror, in respect of its indemnification obligations under the Holdco Agreement; (H) the Holdco Shareholder properly completes and duly signs a letter of acceptance and transmittal (in a form to be provided upon request from the depositary) in respect of the Holdco Shares that it holds and delivers the letter of acceptance and transmittal together with the certificates representing the Holdco Shares and the Shares held by the Holdco to the depository prior to the Expiry Date; (I) where there is more than one holder of securities of the Holdco, the Holdco Shareholder and all such other holder shall elect to use the Holdco Alternative with respect to all outstanding Holdco securities; and (J) the Holdco Shareholder agrees that the rights and obligations of the Offeror under the Holdco Agreement will terminate if the conditions to the Offer that are for the benefit of the Offeror or Nucor are not satisfied or waived prior to the Effective Time.

 

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Each Holdco Shareholder that has made the Holdco Election will be required to enter into a share purchase agreement (the “Holdco Agreement”) with the Offeror in form and substance satisfactory to the Offeror, providing for the acquisition by the Offeror of all issued and outstanding Holdco Shares and containing the representations and warranties, terms, conditions and indemnities set out in Schedule “D”, and, at the discretion of the Offeror, any other representations, warranties or covenants set forth in the form of the Lock-up Agreement, and containing the requirement for the Holdco Shareholders to arrange for the provision of a legal opinion satisfactory to Nucor and the Offeror, acting reasonably, as to the valid existence, organization and corporate authority of the Holdco and the due authorization of all matters and enforceability and non-violation of all agreements, subject to usual opinion qualifications, in connection with the purchase and sale of such Holdco Shares. Failure of any Holdco Shareholder to properly make a Holdco Election on or prior to the Holdco Election Deadline or failure of Holdco Shareholders to properly enter into a Holdco Agreement will disentitle such Holdco Shareholders to the Holdco Election.

The Company shall use commercially reasonable efforts to facilitate and support the Holdco Alternative contemplated by this Section 2.1(2), in respect of the Offer, which obligation shall survive any termination of this Agreement.

 

(3) If the mailing of the Offer is delayed by (i) an injunction or order made by a court or regulatory authority of competent jurisdiction or (ii) Nucor or the Offeror not having obtained any regulatory waiver, consent or approval which is necessary to permit the Offeror to mail the Offer (including those specified in Section 2.3) then, provided that such injunction or order is being contested or appealed or such regulatory waiver, consent or approval is being actively sought, as applicable, the Latest Mailing Time shall be extended for a period ending on the earlier of February 28, 2007 or the fifth Business Day following the date on which such injunction or order ceases to be in effect or such waiver, consent or approval is obtained, as applicable.

 

(4) Nucor agrees that, provided all of the conditions to the Offer set out in Schedule “A” shall have been satisfied or waived, Nucor shall cause the Offeror to take up and pay for all the Shares tendered under the Offer (including those tendered pursuant to the Holdco Alternative) as soon as reasonably possible and in any event not later than three (3) Business Days following the time at which it becomes entitled to take up such Shares under the Offer pursuant to applicable Laws.

Section 2.2 Offer Documents.

Nucor shall cause the Offeror to prepare the Offer, the take-over bid circular and the related letter of transmittal and notice of guaranteed delivery (collectively, the “Offer Documents”) with respect to the Offer in both English and French in compliance with applicable Securities Laws. Within the time periods required by Law, the Offeror shall file, or cause to be filed, with the appropriate Governmental Authorities the Offer Documents. The Offer Documents and all documents relating to, or necessary to complete, a Compulsory

 

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Acquisition or Subsequent Acquisition Transaction, when filed with such Governmental Authorities and when mailed to registered holders of Shares in accordance with Schedule “A” hereto, shall contain (or shall be amended in a timely manner to contain) all information which is required to be included therein in accordance with all applicable Laws in all material respects. The Company and its counsel shall be given a reasonable opportunity to review the Offer Documents and comment thereon, prior to their being mailed to Shareholders and filed with the applicable securities regulatory authorities.

Section 2.3 Conditions to Making the Offer.

The obligation of Nucor to cause the Offeror to make the Offer is conditional on the prior satisfaction of the following conditions, all of which conditions are included for the sole benefit of Nucor and any or all of which may be waived by Nucor in whole or in part in its sole discretion without prejudice to any other right it may have under this Agreement, and the foregoing conditions shall be deemed to be satisfied or waived upon the mailing of the take-over bid circular:

 

  (a) the obligations of Nucor hereunder shall not have been terminated pursuant to Section 8.1;

 

  (b) no circumstance, fact, change, event or occurrence (other than one caused by the Offeror or Nucor) shall have occurred that would render it impossible for the Minimum Condition or one or more of the other conditions to the Offer set out on Schedule “A” hereto to be satisfied;

 

  (c) the Company Board shall have unanimously recommended that Shareholders accept the Offer and shall not have withdrawn such recommendation or changed such recommendation in a manner adverse to the Offeror;

 

  (d) the Company Board shall have prepared and approved in final form, for distribution by the Company in accordance with Section 2.5(2), the Directors’ Circular, which circular shall contain a recommendation that Shareholders accept the Offer;

 

  (e) the Company shall have complied, in all material respects, with its covenants and obligations under this Agreement to the extent such covenants and obligations are to be performed on or prior to the date the Offer is made and the representations and warranties of the Company made in this Agreement shall be true and correct in all material respects at the time of the mailing of the Offer;

 

  (f) no cease trade order, injunction or other prohibition at law shall exist against the Offeror making the Offer or taking up or paying for Shares deposited under the Offer; and

 

  (g) no Material Adverse Effect shall have occurred since the date hereof.

 

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Section 2.4 Company Approval of the Offer.

 

(1) The Company represents that the Company Board, upon consultation with its legal and financial advisors and upon consideration of the Fairness Opinions, and based upon the unanimous recommendation of the Special Committee has determined unanimously that:

 

  (a) the Offer is fair to the Shareholders and is in the best interests of the Company for the Offer to be made and to support it on the terms of this Agreement;

 

  (b) the Company Board will unanimously recommend that Shareholders accept the Offer subject to Section 3.2, provided the Offer is not amended except in accordance with the terms of this Agreement; and

 

  (c) the value of any benefit that any related party of the Company who is an employee, director or consultant of the Company is entitled to receive, directly or indirectly, as a consequence of the Offer, net of any offsetting costs to such related party, to the extent it does not meet the type described in clauses (a) or (b) of the definition of “collateral benefit” under Ontario Securities Commission Rule 61-501, has been determined by the Special Committee and the Company Board based solely on the information provided to the Special Committee and the Company by or on behalf of the relevant individuals, to either be in respect of a related party as described in clause (c)(iv)(A) of the definition of “collateral benefit” under Ontario Securities Commission Rule 61-501 or to be less than the prescribed amount set out in clause (c)(iv)(B)(II) of the definition of “collateral benefit” under Ontario Securities Commission Rule 61-501.

 

(2) The Company represents that the Company Board has received an opinion (a “Fairness Opinion”) from each of GMP Securities L.P. and Canaccord Capital Corporation, the financial advisors to the Company and the Special Committee, respectively, that the consideration under the Offer is fair from a financial point of view to the Shareholders.

 

(3) The Company Board represents that each of the directors and senior officers (as defined in the Securities Act (Ontario)) of the Company other than the Locked-up Subject Persons intends to tender under the Offer all Shares of which he or she is the beneficial owner.

Section 2.5 Company Cooperation.

 

(1)

The Company shall provide Nucor, within three (3) Business Days following the execution and delivery of this Agreement, with a list (in both written and electronic form) of the registered Shareholders, together with their addresses and respective holdings of Shares. The Company shall from time to time request that its registrar and transfer agent furnish Nucor with such additional information, including updated or additional lists of Shareholders, a list of participants in book-based nominee registered shareholders such as CDS & Co. and CEDE & Co. and a non-objecting beneficial owner (NOBO) list, mailing labels and lists of securities positions and such

 

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other assistance as Nucor may reasonably request in order to be able to cause the Offeror to communicate the Offer to the Shareholders and to such other Persons as are entitled to receive the Offer under applicable Securities Laws. All such deliveries shall be in printed form and, if available, in computer-readable form.

 

(2) The Company covenants to prepare a directors’ circular relating to the Offer (the “Directors’ Circular”) in both English and French in compliance with applicable Securities Laws. The Offeror and its advisors shall be given an opportunity to review and comment on the Directors’ Circular prior to its printing, recognizing that whether or not such comments are appropriate will be determined by the Company Board, acting reasonably. The Company agrees that it will use commercially reasonable efforts to cause each of its financial advisors to provide its Fairness Opinion in the Directors’ Circular. The Company further covenants to use reasonable commercial efforts to mail the Directors’ Circular on the same date as the Offeror mails the Offer Documents to the Shareholders.

 

(3) The Company covenants to provide to Nucor, forthwith upon request, all information reasonably requested by Nucor in connection with assessing the desirability of making filings, or requesting consents or approvals from any Governmental Authority in any jurisdiction, including without limitation any stock exchange, competition law or investment review authority, or making such filings or providing any submissions or other documents to any such authority.

 

(4) The Company agrees that, upon request by Nucor, the Company shall (i) effect such reorganizations of its business, operations and assets or such other transactions as Nucor may request, acting reasonably (each a “Pre-Acquisition Reorganization”) and (ii) cooperate with Nucor, the Offeror and its advisors in order to determine the nature of the Pre-Acquisition Reorganizations that might be undertaken and the manner in which they might most effectively be undertaken; provided that the Pre-Acquisition Reorganizations are not prejudicial to the Company in any material respect and do not result in any breach by the Company of any of its covenants, representations or warranties under this Agreement. Nucor shall provide written notice to the Company of any proposed Pre-Acquisition Reorganization at least five business days prior to the Expiry Date. Upon receipt of such notice, Nucor, the Offeror and the Company shall work co-operatively and use commercially reasonable efforts to prepare prior to the Expiry Date all documentation necessary and do all such other acts and things as are necessary to give effect to such Pre-Acquisition Reorganization. The completion of any such Pre-Acquisition Reorganization shall be subject to the satisfaction of the Minimum Condition and the satisfaction or waiver by the Offeror of the other conditions to the Offer set forth in Schedule A and shall be effected immediately prior to any take-up by the Offeror of Shares tendered to the Offer. If the Offeror does not take up and pay for the Shares tendered to the Offer, Nucor or the Offeror shall reimburse the Company for all reasonable costs, Taxes and expenses, including reasonable legal fees and disbursements, incurred in connection with any proposed Pre-Acquisition Reorganization.

 

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(5) Based on representations made to the Company by Nucor, the Company acknowledges that the intention of the Offeror, after the Offeror has acquired all of the issued and outstanding share capital of the Company and any Holdco(s), is to amalgamate the Offeror or an Affiliate of the Offeror with the Company (or a successor by amalgamation to the Company) in the manner described in subsection 87(11) of the Canadian Tax Act (the amalgamated corporation being referred to in this Section 2.5(5) as “Amalco”), and then to make designations pursuant to paragraph 88(1)(d) of the Canadian Tax Act in respect of non depreciable capital property (including shares of the Subsidiaries) that will be owned by Amalco immediately after the amalgamation such that the cost to Amalco of the property will be determined in accordance with paragraph 88(1)(c) of the Canadian Tax Act, including an addition to the cost determined under paragraph 88(1)(d) of the Canadian Tax Act. The Company agrees to co-operate with Nucor and the Offeror and to take all reasonable action to achieve the Offeror’s objective in this regard provided that such co-operation does not preclude the completion of the transactions described in Section 2.1(2).

Section 2.6 Post Offer Covenants.

If the Offeror takes up and pays for Shares pursuant to the Offer, the Company agrees and Nucor agrees to cause the Offeror to use all reasonable efforts to enable the Offeror to acquire the balance of the Shares as soon as practicable after completion of the Offer by way of a Compulsory Acquisition or Subsequent Acquisition Transaction carried out for a consideration per Share of not less than the consideration per Share paid pursuant to the Offer. The Company agrees and represents that the Company Board has determined unanimously to use its and their respective reasonable efforts to enable the Offeror to elect or appoint such number of the directors of the Company as is proportionate to the Offeror’s percentage shareholdings of the Company as soon as possible and from time to time after the Take-up Date.

Section 2.7 Waiver of Standstill

Notwithstanding the terms of the Confidentiality Agreement, the Company hereby waives the standstill provisions contained in the Confidentiality Agreement and consents to the actions of Nucor and the Offeror in accordance with the terms of this Agreement (including any legally required disclosure) and the Lock-up Agreement and to the Offeror acquiring all of the outstanding Shares, including by way of purchases made by the Offeror during the course of the Offer in compliance with applicable Law and including pursuant to the Lock-up Agreement, any further lock-up agreements relating to the Offer and any Compulsory Acquisition or Subsequent Acquisition Transaction, and consents to discussions with third parties relating to the Offer and any Compulsory Acquisition or Subsequent Acquisition Transaction. The provisions of the Confidentiality Agreement shall otherwise continue to apply only as expressly provided in Section 9.2 notwithstanding the execution of this Agreement by the Parties on the announcement of the transactions contemplated hereunder.

 

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Section 2.8 Registrar and Transfer Agent

The Company agrees to permit the registrar and transfer agent for the Company to act as depositary in connection with the Offer and instruct that transfer agent to furnish to the Offeror (and such Persons as it may designate) at such times as it may request such information and provide to the Offeror (and such Persons as it may designate) such other assistance as it may request in connection with the implementation and completion of the transactions contemplated hereunder.

Section 2.9 Information Agent and Dealer Manager

The Offeror may, in its discretion, appoint an information agent and/or a dealer manager in connection with the Offer to solicit acceptances of the Offer. Any dealer manager may form a soliciting dealer group comprised of members of the Investment Dealers Association of Canada and their affiliates to solicit acceptances of the Offer in Canada and elsewhere.

Section 2.10 Obligations of Nucor in respect of the Offeror

Nucor hereby agrees with the Company to create and designate the Offeror and cause the Offeror to perform its obligations under this Agreement (subject to the terms of this Agreement). Nucor hereby unconditionally and irrevocably guarantees and covenants and agrees to be jointly and severally liable with the Offeror for the due and punctual performance of each and every obligation of the Offeror arising under this Agreement, including, without limitation, the commencement of the Offer, subject to the terms of this Agreement.

ARTICLE 3

COVENANTS OF THE COMPANY

Section 3.1 Ordinary Course of Business.

The Company covenants and agrees that, prior to the Effective Time, unless Nucor shall otherwise agree in writing or as otherwise expressly contemplated or permitted by this Agreement or as required by applicable Law:

 

  (a) the Company shall, and shall cause each of its Subsidiaries to, conduct its and their respective business only in and not take or omit to take any action except in, the usual, ordinary and regular course of business and consistent with past practice;

 

  (b) the Company shall not and the Company shall cause its Subsidiaries not to undertake any reorganization of the Company or its Subsidiaries (other than a Pre-Acquisition Reorganization pursuant to Section 2.5(4)) or enter into any transaction or series of transactions that would or could have the effect of preventing the Offeror from obtaining a full tax cost ‘bump’ pursuant to paragraph 88(1)(d) of the Canadian Tax Act in respect of the shares of the Subsidiaries and any other non-depreciable capital property owned by the Company or its Canadian Subsidiaries on the date hereof.

 

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  (c) without limitation to Section 3.1(a), the Company shall not directly or indirectly do or permit to occur any of the following, whether directly or indirectly:

 

  (i) issue, sell, pledge, lease, dispose of, grant any interest in, encumber or agree to issue, sell, pledge, lease, dispose of, grant any interest in or encumber (or permit any of its Subsidiaries to issue, sell, pledge, lease, dispose of, grant any interest in, encumber or agree to issue, sell, pledge, lease, dispose of, grant any interest in or encumber):

 

  (A) any additional shares of, or any options, warrants, calls, conversion privileges or rights of any kind to acquire any shares of, any capital stock of the Company or any of its Subsidiaries, or

 

  (B) any assets of the Company or any of its Subsidiaries except for: (a) sales of inventory in the ordinary course of business; (b) sales and other dispositions of equipment and other personal property not required in running the current business operations of the Company or any of its Subsidiaries and having an aggregate acquisition cost not in excess of Cdn.$5,000,000; (c) encumbrances of assets acquired in the ordinary course of business consisting of purchase money security interests or similar encumbrances; and (d) encumbrances incurred in connection with the renewal or replacement of the Company’s credit lines;

 

  (ii) amend or propose to amend its articles or by-laws or those of any of its Subsidiaries;

 

  (iii) split, combine or reclassify any outstanding Shares or other securities of the Company, or declare, set aside or pay any dividend (other than payment of intercorporate dividends to the Company or its Subsidiaries, the regular $0.10 per Share cash dividend, declared and payable on December 29, 2006 to Shareholders of record on December 15, 2006 or any other regularly scheduled quarterly cash dividend in an amount not in excess of $0.10 per Share) or other distribution to Shareholders payable in cash, stock, property or otherwise with respect to the Shares;

 

  (iv) redeem, purchase or offer to purchase (or permit any of its Subsidiaries to redeem, purchase or offer to purchase) any Shares or other securities of the Company or any of its Subsidiaries;

 

  (v) reorganize, amalgamate or merge the Company or any of its Subsidiaries with any other person, corporation, partnership or other business organization whatsoever;

 

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  (vi) reduce the stated capital of the Company or any of its Subsidiaries;

 

  (vii) acquire or agree to acquire (by merger, amalgamation, acquisition of shares or assets, participation in a joint venture or otherwise) any Person or acquire or agree to acquire any assets other than (i) equipment and other personal property reasonably required in running the current business operations of the Company in the ordinary course of business and having an aggregate acquisition cost not in excess of Cdn.$5,000,000; (ii) as expressly contemplated in the definitive agreement to acquire the business and assets of LEC Steel Inc. (“LEC”) of Brantford, Ontario (the “LEC Agreement”); and (iii) any other acquisition approved by Nucor;

 

  (viii) make any capital expenditure or incur any obligations or liabilities in connection therewith (i) in excess of Cdn.$5,000,000; and (ii) as expressly contemplated in the LEC Agreement;

 

  (ix) adopt a plan of liquidation or resolutions providing for the liquidation or dissolution of the Company or any of its Subsidiaries;

 

  (x) incur or commit to incur any material indebtedness for borrowed money or issue any other material debt securities or assume, guarantee, endorse or otherwise as an accommodation become responsible for, the obligations of any other Person (other than in respect of the Company and its Subsidiaries), or make any loans or advances, except in the ordinary course of business consistent with past practice;

 

  (xi) pay, discharge or satisfy any material claims, liabilities or obligations other than in the ordinary course of business consistent with past practice;

 

  (xii) authorize any release or relinquishment of any contractual right material to the Company and its Subsidiaries considered as a whole;

 

  (xiii) enter into any interest rate swaps, currency swaps or any other rate fixing agreement for a financial transaction or enter into any call arrangement of any sort of any forward sale agreement for commodities except for swaps entered into for hedging purposes in the ordinary course of business and consistent with past practice;

 

  (xiv) implement or adopt any change in its accounting principles, practices or methods, other than as may be required by generally accepted accounting principles in Canada, or make any material tax election or settle or compromise any material tax liability other than in the ordinary course of business in accordance with past practice;

 

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  (xv) make any gift, charitable contribution, political contribution or similar payment except in accordance with past practices and stated commitments; or

 

  (xvi) enter into any contract containing any provision or covenant limiting the ability of the Company or any of its Subsidiaries to (A) sell any products of or to any Person, (B) engage in any line of business or (C) compete with or obtain products form any Person, or limiting the ability of any Person to provide products or services to the Company or any of its Subsidiaries;

 

  (d) without limitation to Section 3.1(a), the Company shall not, and shall cause each of its Subsidiaries to not (otherwise than as provided in the agreements with John Harris of even date with this Agreement):

 

  (i) enter into or materially modify any employment, severance, collective bargaining or similar agreements, policies or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any of their respective senior officers or directors other than pursuant to agreements, policies, plans or arrangements in effect (without amendment) on the date hereof; or

 

  (ii) in the case of employees who are not officers or directors, take any action other than in the ordinary course of business and consistent with past practice with respect to the entering into or materially modifying any employment, severance, collective bargaining or similar agreements, policies or arrangements or with respect to the grant of any bonuses, salary increases, stock options, pension benefits, retirement allowances, deferred compensation, severance or termination pay or any other form of compensation or profit sharing or with respect to any increase of benefits payable otherwise than pursuant to agreements, policies, plans or arrangements in effect (without amendment) on the date hereof and other than in connection with the transactions provided under the LEC Agreement;

 

  (e) the Company shall use its reasonable commercial efforts to cause its current material insurance (or re-insurance) policies not to be cancelled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance and re-insurance companies of nationally recognized standing providing coverage equal to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect;

 

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  (f) the Company shall:

 

  (i) use its reasonable commercial efforts, and cause each of its Subsidiaries to use its reasonable efforts, to maintain and preserve their respective assets business operations, business organizations and goodwill, to keep available, subject to ordinary course of business considerations consistent with past practice, the services of its officers and employees as a group and to maintain satisfactory relationships with suppliers, agents, distributors, customers and others having business relationships with it or its Subsidiaries, in all material respects;

 

  (ii) not take any action, or permit any of its Subsidiaries to take any action, that would render, or that reasonably may be expected to render, any representation or warranty made by it in this Agreement untrue in any material respect; and

 

  (iii) promptly notify Nucor in writing of any Material Adverse Effect in the normal course of its or any of its Subsidiaries’ businesses or in the operation of its or any of its Subsidiaries’ businesses or in the operation of its or any of its Subsidiaries’ properties, and of any material governmental or third party complaints, orders, investigations or hearings (or communications indicating that the same are being contemplated);

 

  (g) the Company shall not settle or compromise any claim brought by any current, former or purported holder of any securities of the Company in connection with the Offer prior to the Effective Time without the prior written consent of the Offeror, not to be unreasonably withheld;

 

  (h) the Company shall not enter into or modify any contract, agreement, commitment or arrangement that involves or would reasonably be expected to involve payments outside the ordinary course of business that are in excess of Cdn.$ 5,000,000 in the aggregate over the term(s) of the contract(s);

 

  (i) the Company shall use reasonable efforts to take all actions and do or cause to be done all things necessary or advisable under all applicable Laws in order to assist Nucor and the Offeror to complete the Offer and the transactions contemplated by this Agreement, including without limitation, obtaining all requisite or advisable regulatory approvals, including without limitation, under the Investment Canada Act (Canada), the Competition Act (Canada) and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (United States);

 

  (j)

the Company and each of the Subsidiaries shall: (i) duly and timely file all Returns required to be filed by it on or after the date hereof and ensure that all such Returns are true, complete and correct in all respects; (ii) timely pay all Taxes which are due and payable; (iii) not make or rescind any expressed or deemed election relating to Taxes; (iv) not make a request for a Tax ruling or enter into a closing agreement with any taxing authorities; (v) not settle or

 

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compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes; (vi) not change in any material respect any of its methods of reporting income, deductions or accounting for income Tax purposes from those employed in the preparation of its Returns for the taxation year ending December 31, 2005, except as may be required by applicable Laws; (vii) take reasonable commercial efforts to minimize the expiration of any tax-loss carry forwards for the Company and its Subsidiaries; and (viii) co-operate with Nucor and the Offeror in respect of Tax planning activities, except activities that are prohibited by applicable Law; and

 

  (k) with respect to those corporations, partnerships, joint ventures and other entities in which the Company has a direct or indirect interest of 50% or less, but more than 20% (such entities, collectively, its “Joint Venture Entities”), the Company and its Subsidiaries will exercise or cause to be exercised all veto, approval or other powers or rights available to the Company or any of its Subsidiaries so as to cause, to the extent the Company or any of its Subsidiaries is able to do so, the Joint Venture Entities to comply with the covenants set forth in paragraphs (a) to (j), inclusive, of this Section 3.1 as if such Joint Venture Entities were Subsidiaries.

Section 3.2 Non-Solicitation and Opportunity to Match.

 

(1) Except as otherwise provided herein, on and after the date hereof, the Company shall not, directly or indirectly, through any officer, director, employee, representative or agent of the Company or any of its Subsidiaries, solicit or knowingly encourage (including by way of furnishing information or entering into any form of agreement, arrangement or understanding) the initiation of any inquiries or proposals from any other Person regarding any merger, amalgamation, reorganization, recapitalization, take-over bid, tender offer, sale of all or any portion of the assets of the Company or any Subsidiary representing more than 25% of the consolidated book value of the assets of the Company, issue or sale of more than 25% of the shares of any class (including the Shares, in the case of the Company) or similar transactions involving the Company or any Subsidiaries of the Company (any of the foregoing inquiries, proposals or transactions being referred to herein as an “Acquisition Proposal”), provided nothing contained in this Section 3.2 or in any other provision of this Agreement shall prevent the Company Board from considering, negotiating, approving and recommending to the Shareholders an unsolicited bona fide written Acquisition Proposal that does not result from a breach of this Section 3.2 and (i) for which adequate financial arrangements have been made; (ii) which is reasonably capable of completion without undue delay taking into account all legal, financial, regulatory and other aspects of such Acquisition Proposal, and (iii) which the Company Board determines in good faith (after consultation with its financial advisors, and after receiving advice of outside counsel) would, if consummated in accordance with its terms, result in a transaction more favourable to the Shareholders from a financial point of view than the transaction contemplated by this Agreement (any such Acquisition Proposal being referred to herein as a “Superior Proposal”).

 

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(2) The Company agrees not to release any third party from any confidentiality or standstill agreement to which the Company and such third party is a party or to waive any of the provisions of such agreements except pursuant to the terms of a Proposed Agreement entered into in accordance with Section 3.2(6).

 

(3) The Company shall promptly notify Nucor of any existing Acquisition Proposals or of any future Acquisition Proposal or any request for non-public information relating to the Company or any of its Subsidiaries in connection with an Acquisition Proposal or for access to the properties, books or records of the Company or any Subsidiary by any Person that informs any member of the Company Board or the board of directors of such Subsidiary that it is considering making, or has made, an Acquisition Proposal. Such notice to Nucor shall be made, from time to time, orally and confirmed in writing and shall indicate such details of the proposal, inquiry or contact known to such Person as Nucor may reasonably request including the identity of the Person making such proposal, inquiry or contact.

 

(4) If the Company Board receives a request for material non-public information from a party which proposes to the Company a bona fide Acquisition Proposal and the Company Board determines that such proposal is a Superior Proposal pursuant to Section 3.2(1), then, and only in such case, the Company may, subject to the prior execution and delivery of a confidentiality and standstill agreement containing confidentiality and standstill provisions that are no less restrictive than the confidentiality provisions set forth in the Confidentiality Agreement and which shall include “standstill” provisions for a period of at least eighteen (18) months, provide such party with access to information regarding the Company. The Company agrees to send a copy of any such confidentiality agreement to Nucor immediately upon its execution.

 

(5) Nothing contained in this Section 3.2 shall prohibit the Company Board from making any disclosure to the Shareholders prior to the Expiry Date if, in the good faith judgment of the Company Board, after consultation with outside counsel, such disclosure is necessary for the Company Board to discharge its fiduciary duties or is otherwise required under applicable Law.

 

(6)

The Company covenants that it will not enter into any agreement providing for a Superior Proposal (a “Proposed Agreement”) and the Company Board will not withdraw its recommendation that Shareholders accept the Offer or change or modify such recommendation in a manner adverse to the Offeror, without first providing Nucor with an opportunity, for a period of not less than three (3) Business Days from the date of delivery to the Offeror of a copy of the Proposed Agreement, to amend this Agreement and to cause the Offeror to amend the Offer to provide for at least equivalent financial terms to those included in the Proposed Agreement as determined by the Company Board, acting in good faith and in accordance with its fiduciary duties (the “Right to Match”). In the event Nucor does not exercise the Right to Match or the Company Board, acting in good faith and in accordance with its fiduciary duties determines that the Offeror’s revised offer under the Right to Match does not provide for at least equivalent financial terms to those included in the

 

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Proposed Agreement, the Company may enter into the Proposed Agreement provided that under no circumstances may the Company enter into any Proposed Agreement that provides for any payment of break fees, termination fees or any other form of compensation to any party in connection with such Superior Proposal in the event that the Offer (as may be amended or varied as permitted by this Agreement) or any of the other transactions contemplated hereby are completed.

In particular, the Company covenants to provide Nucor with a copy of any Proposed Agreement as executed by the party making such Acquisition Proposal, not less than three (3) Business Days prior to its proposed execution by the Company. In the event that Nucor agrees to amend this Agreement and to cause the Offeror to amend the Offer as provided above, the Company covenants not to enter into the Proposed Agreement.

 

(7) The Company shall ensure that the officers, directors and employees of the Company and its Subsidiaries and any investment bankers or other advisors or representatives retained by the Company are aware of the provisions of this section, and the Company shall be responsible for any breach of this Section 3.2 by such bankers, advisors or representatives.

 

(8) The Company acknowledges and agrees that each successive modification of any Acquisition Proposal shall constitute a new Acquisition Proposal for purposes of this Section 3.2.

 

(9)

In the event that the Company enters into a Proposed Agreement in respect of a Superior Proposal in accordance with this Section 3.2, this Agreement shall not, subject to Article 8, be terminated provided that the Company shall be permitted to do such things (“Mandatory Steps”) as are specifically required by the terms of such Superior Proposal which the board of directors of the Company determines in good faith are necessary for such third party to require as a condition to their Superior Proposal for valid business reasons and not primarily for the purpose of seeking to interfere with the successful completion by the Offeror of the Offer, and such Mandatory Steps shall not be deemed a breach of Article 2, Section 3.1, Section 7.2 or Section 8.3 of this Agreement, provided always that no such Mandatory Steps shall be permitted which require the Company not to comply with Section 2.5, Section 2.6, Section 2.8, Section 3.1(b), Section 3.1(c)(i), Section 3.1(c)(iii), Section 3.1(c)(v), Section 3.1(i) or Section 3.3 of this Agreement (except that Mandatory Steps that require the Company to do things contrary to Section 2.5(4) or Section 2.5(5) shall be permitted provided they do not occur until after the ninetieth (90th) day following the mailing of the Offer).

Section 3.3 Access to Information.

Subject to the Confidentiality Agreement, the Company shall (and shall cause each of its Subsidiaries and, to the extent reasonably possible, Joint Venture Entities to) afford officers, employees, counsel, accountants and other authorized representatives and advisors (“Representatives”) of Nucor and the Offeror reasonable access, during normal business hours from the date hereof and until the expiration or termination of this Agreement, to its

 

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books, records, files, documents, assets, properties, contracts and agreements as well as to its management personnel, and, during such period, the Company shall (and shall cause each of its Subsidiaries and, to the extent reasonably possible, Joint Venture Entities to) furnish promptly to such Representatives all information concerning its business, properties and personnel as such Representatives may reasonably request.

Section 3.4 Employment Arrangements.

Nucor acknowledges that John Harris has entered into a two-year employment contract of even date with this Agreement.

ARTICLE 4

COVENANTS OF THE OFFEROR

Section 4.1 Employment Agreements.

Nucor covenants and agrees, and after the Effective Time will cause the Company and any successor to the Company to agree, to honour and comply with the terms of those existing employment and severance agreements and policies of the Company which (other than employment agreements with non-management personnel) the Company has disclosed to Nucor in writing prior to the date hereof or otherwise entered into pursuant to the terms hereof, subject in the case of John Harris to the agreements of even date with this Agreement.

Section 4.2 Regulatory Approvals.

The Offeror shall use reasonable efforts to take all actions and do or cause to be done all things necessary or advisable under all applicable Laws in order to complete the Offer and the transactions contemplated by this Agreement, including without limitation, obtaining all requisite or advisable regulatory approvals, including without limitation, under the Investment Canada Act (Canada), the Competition Act (Canada) and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (United States). For greater certainty and notwithstanding the foregoing, the Offeror is under no obligation to take any steps or action that would, in the sole discretion of the Offeror, acting reasonably, affect the Offeror’s right to own, use or exploit any of the assets of either the Company or its Subsidiaries or any of the assets of either the Offeror or its Subsidiaries.

Section 4.3 Officers’ and Directors’ Insurance and Indemnification.

 

(1)

Nucor agrees to cause the Offeror to use reasonable efforts to secure, to the extent the Company itself has not previously secured, directors’ and officers’ insurance coverage for the Company’s current and former directors and officers on a six (6) year “trailing” (or “run-off”) basis. If a trailing policy is not available at a reasonable cost (a “reasonable cost” being not greater than the estimated cost of providing the coverage referred to in this and the next sentence), then Nucor agrees that for the entire period from the Effective Time until six (6) years after the Effective Time, to cause the Company or any successor to the Company to maintain the Company’s current directors’ and officers’ insurance policy or an equivalent policy, subject in

 

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either case to terms and conditions no less advantageous to the directors and officers of the Company than those contained in the policy in effect on the date hereof (“Equivalent Insurance”), for all current and former directors and officers of the Company, covering claims made prior to or within six (6) years after the Effective Time. Further, Nucor agrees that, after the expiration of that six (6) year period, if there is no cost in doing so, Nucor shall cause the Offeror to use reasonable commercial efforts to cause such directors and officers to be covered under the Offeror’s then existing directors’ and officers’ liability insurance policy.

 

(2) From and after the Effective Time, neither Nucor nor the Offeror shall do anything to prevent the Company from indemnifying and holding harmless and providing advancement of expenses to, all past and present directors and officers of the Company or its Subsidiaries to the extent such Persons are lawfully entitled to indemnity from the Company or its Subsidiaries or have the right to advancement of expenses by the Company or its Subsidiaries pursuant to the Company’s or Subsidiaries’ by-laws and indemnity agreements, in existence immediately prior to the Effective Time, for liabilities and obligations of the Company and for acts or omissions occurring on or prior to the Effective Time (including acts or omissions occurring in connection with the approval of this Agreement and consummation of the transactions contemplated hereby). The Offeror will not (unless it assumes such obligations and gives written notice to the beneficiaries thereof to the extent it has their addresses) wind-up or liquidate the Company or otherwise take any other action to, where doing so adversely affects the ability of the Company to satisfy its indemnity obligations referred to herein.

 

(3) The provisions of this Section 4.3 are intended to be for the benefit of, and will be enforceable by, each individual referred to therein, his or her heirs and his or her legal representatives and, for such purpose, the Company hereby confirms that it is acting as agent and trustee on their behalf. Furthermore, the provisions of this Article 4 shall survive the termination of this Agreement as a result of the occurrence of the Effective Time.

Section 4.4 Accuracy of Representations and Warranties

Nucor covenants and agrees that at all times when the Offer is outstanding, Nucor shall not, and shall cause the Offeror to not, intentionally take any action, or fail to take any action, which would reasonably be expected to result in the representations and warranties set out in Schedule “C” hereto being untrue at any time while the Offer is outstanding.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 5.1 Representations.

The Company hereby makes to Nucor those representations and warranties as set forth in Schedule “B” to this Agreement (and acknowledges that Nucor is and the Offeror will be relying upon those representations and warranties in connection with entering into this Agreement and the making of the Offer).

 

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Section 5.2 Investigation.

Any investigation by the Offeror or Nucor and their advisors shall not mitigate, diminish or affect the representations and warranties of the Company provided pursuant to this Agreement or any document or certificate given pursuant hereto. Where the provisions of Schedule “B” or elsewhere in this Agreement refer to disclosure in writing, such disclosure shall be made expressly in response to the applicable provision and shall be signed by a senior officer of the Company.

Section 5.3 Notice of Certain Matters.

Each of the Party shall promptly notify the other Party upon any of its representations or warranties contained in this Agreement becoming untrue or incorrect in any material respect and of any failure to comply in any material respect with any of its obligations under this Agreement.

Section 5.4 Survival of Representations and Warranties.

The representations and warranties of the Company contained in this Agreement shall not survive the completion of the Offer and shall, subject to Section 8.4, expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms.

Section 5.5 Knowledge of the Company.

For the purposes of this Article 5 and Schedule “B” hereto, where any representation and warranty is qualified by the expression “to the knowledge of the Company” or any similar expression, such qualification or similar expression shall mean that the matter is true or accurate, to the actual knowledge of John Harris, Douglas Deighton and Paul Kelly, after having made due enquiry with respect to the subject matter thereof.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF NUCOR AND THE OFFEROR

Section 6.1 Representations.

Nucor hereby represents and warrants to the Company as provided in Schedule “C” to this Agreement (and acknowledges that the Company is relying upon such representations and warranties in connection with the entering into of this Agreement).

Section 6.2 Survival of Representations and Warranties.

The representations and warranties of Nucor and the Offeror contained in this Agreement shall not survive the completion of the Offer and shall, subject to Section 8.4, expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms.

Section 6.3 Acknowledgement.

Nucor hereby represents and warrants that, to the actual knowledge of Joseph Rutkowski and Hamilton Lott, on behalf of Nucor, based upon the reviews by representatives

 

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of Nucor of the materials provided in the data room located at Goodmans LLP on or before December 21, 2006, they are not aware of the existence of any Material Adverse Effect at the date hereof.

ARTICLE 7

MUTUAL COVENANTS

Section 7.1 Consultation.

 

(1) Nucor and the Company agree to consult with each other in issuing any press releases or otherwise making public statements with respect to the Offer or any other Acquisition Proposal and in making any filings with any Governmental Authority or with any securities exchange with respect thereto. Each party shall use its reasonable efforts to enable the other party to review and comment on all such press releases prior to release thereof unless otherwise required by applicable Law.

 

(2) The Company shall promptly notify Nucor of any written communications of a material nature from any Governmental Authority, and provide Nucor with copies thereof.

Section 7.2 Further Assurances.

Subject to the terms and conditions herein, each Party agrees to use its respective reasonable efforts to take, or cause to be taken, all reasonable action and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations, to consummate the transactions contemplated by this Agreement and the Offer. Each of the Party will, and, in the case of the Company, will cause its Subsidiaries and will use reasonable efforts to cause its Joint Venture Entities to, use its reasonable efforts (i) to obtain all necessary waivers, consents and approval, in form and substance satisfactory to Nucor and the Offeror, from other parties to material loan agreements, leases and other contracts or agreements (including, in particular but without limitation, the agreement of any Persons as may be required pursuant to any agreement, arrangement or understanding relating to the Company’s or to its Subsidiaries’ operations), (ii) to make all necessary filings and obtain all necessary consents, approvals and authorizations as are required to be made or obtained under any federal, provincial, state or foreign law or regulations with respect to this Agreement or the Offer, (iii) to avoid, lift, rescind or appeal any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby or by the Offer, and (iv) to fulfil all conditions and satisfy all provisions of this Agreement and the Offer.

 

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ARTICLE 8

TERMINATION AND REMEDIES

Section 8.1 Termination.

This Agreement may be terminated prior to the Effective Time:

 

  (a) by mutual written consent of Nucor and the Company;

 

  (b) by the Company if Nucor or the Offeror shall not have performed in all material respects any covenant to be performed by it under this Agreement or if any representation or warranty of the Offeror shall have become untrue in any material respect;

 

  (c) by the Company if the Lock-Up Agreement is terminated;

 

  (d) by either Nucor or the Company after May 31, 2007 if the Offeror has not accepted and taken-up, or become obligated to take-up and pay for, any Shares pursuant to the Offer by such date but, in the case of the Company, otherwise than as a result of the breach by the Company of any material covenant or obligation under this Agreement or as a result of any representation or warranty of the Company in this Agreement being untrue or incorrect in any material respect; provided, however, that if the Offeror’s take up and payment for Shares deposited under the Offer is delayed by an injunction or order made by a court or regulatory authority of competent jurisdiction, then, provided that such injunction or order is being contested or appealed, this Agreement shall not be terminated by the Company pursuant to this Section 8.1(c) until the earlier of August 31, 2007 and the fifth Business Day following the date on which such injunction or order ceases to be in effect;

 

  (e) by Nucor if: (i) on or after the Latest Mailing Time, if any condition to the making of the Offer is not satisfied or waived or has become incapable of being satisfied by such date other than as a result of Nucor’s or the Offeror’s default hereunder; or (ii) at any time if the Company is in default of any material covenant or obligation under this Agreement or if any representation or warranty of the Company under this Agreement is untrue or incorrect in any material respect;

 

  (f) by Nucor, if the Minimum Condition or any other condition of the Offer has not been satisfied or waived on the expiry of the Offer, as the same may be extended from time to time by the Offeror pursuant to the terms of the Offer;

 

  (g) by Nucor at any time if the Company enters into a Proposed Agreement in respect of an Acquisition Proposal; or

 

  (h) by the Company, if the Offeror does not mail the Offer as provided in Section 2.1 otherwise than as a result of the non-satisfaction of a Condition in Section 2.1 and provided that the Company is not otherwise in material breach of this Agreement.

 

27


Notwithstanding the foregoing, Nucor shall not be permitted to terminate this Agreement pursuant to Section 8.1(f) prior to the applicable time specified in Section 8.1(c), unless Nucor has determined, acting reasonably, that such conditions will not be capable of being satisfied on or prior to such applicable date.

Section 8.2 Withdrawal of Offer.

If this Agreement is terminated as provided in Section 8.1 above, Nucor may cause the Offeror to terminate or withdraw the Offer without any liability or further obligation under this Agreement.

Section 8.3 Remedies.

 

(1) Each of Nucor and the Company acknowledges that any failure of such parties to comply with the terms and conditions of this Agreement will give rise to irreparable injury to the other Party hereto inadequately compensable in damages. Accordingly, in the event of a violation, contravention, breach or threatened breach of this Agreement by Nucor or the Company, the non-breaching Party may, in addition to any other remedy available at law, enforce the performance of this Agreement by injunction or specific performance upon application to a court of competent jurisdiction without proof of actual damage (and without the requirement of posting a bond or other security), and notwithstanding that damages may be readily quantifiable, each party agrees not to plead sufficiency of damages as a defence in any proceeding.

 

(2) The rights and remedies provided in this Agreement are cumulative and in addition to, and not in substitution for, any other rights and remedies. All such rights and remedies may be exercised from time to time, and as often and in such order as the party so exercising deems expedient.

Section 8.4 Effect of Termination.

If this Agreement is terminated in accordance with Section 8.1, no party shall have any further liability to perform its obligations hereunder provided that neither the termination of this Agreement nor anything contained in this Section 8.4 shall relieve any party from any liability for any breach by it of this Agreement, including from any inaccuracy in its representations and warranties and any non-performance by it of its covenants made herein prior to the time of such termination.

ARTICLE 9

MISCELLANEOUS

Section 9.1 Amendment or Waiver.

This Agreement may be amended, modified or superseded, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, but only by

 

28


written instrument executed by the Parties hereto; provided, however, that a Party may in its discretion waive a condition herein which is solely for its benefit without the consent of the other Party, unless otherwise expressly provided herein. No waiver of any nature, in any one or more instances, shall be deemed or construed as a further or continued waiver of any condition or any breach of any other term, representation or warranty in this Agreement.

Section 9.2 Entire Agreement.

This Agreement and the documents referred to herein constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements, arrangements or understandings with respect thereto other than the confidentiality provisions of the Confidentiality Agreement (which confidentiality provisions comprise the 1st, 2nd, 3rd, 5th, 8th, 12th, 13th, 15th and 16th paragraphs of the Confidentiality Agreement, the other provisions thereof having been superseded hereby).

Section 9.3 Headings.

The descriptive headings are for convenience of reference only and shall not control or affect the meaning or construction of any provisions of this Agreement.

Section 9.4 Notices.

 

(1) All notices, requests, demands or other communications which are required or permitted hereunder shall be communicated confidentially and in writing and given by delivering it or sending it by facsimile or other similar means of recorded communication addressed as follows:

To Nucor and the Offeror:

Joseph Rutkowski and Hamilton Lott

Nucor Corporation

1915 Rexford Road

Charlotte, NC 28211

USA

Facsimile: (704) 362-4208

with copies, which will not constitute notice, to each of:

Moore & Van Allen, PLLC

Suite 4700

100 North Tryon Street

Charlotte, North Carolina 28202-4003

U.S.A.

Attention: Ernest S. DeLaney III

Facsimile: 704-339-5819

 

29


and

Stikeman Elliott LLP

5300 Commerce Court West

199 Bay Street Toronto, Ontario

M5L 1B9

Attention: William J. Braithwaite

Facsimile: 416-947-0866

To the Company:

John Harris, Chairman and CEO

Harris Steel Group Inc.

318 Arvin Avenue

Stoney Creek, Ontario L8E 2M2

Canada

Facsimile: (905) 573-5273

with a copy, which will not constitute notice, to:

Goodmans LLP

250 Yonge Street

Suite 2400

Toronto, Ontario

M5B 2M6

Attention: Dale H. Lastman

Facsimile: (416) 979-1234

 

(2) Any such communication shall be deemed to have been validly and effectively given if personally delivered or transmitted by facsimile or similar means of recorded communication, on the date of such delivery or transmission if such date is a Business Day and such delivery was made prior to 4:00 p.m. (Toronto time) and otherwise on the next Business Day. A Party may change its address for service from time to time by notice given in accordance with the foregoing and any subsequent notice shall be sent to such party at its changed address.

Section 9.5 Counterparts.

This Agreement may be executed in any number of counterparts (including counterparts by facsimile) and each such counterpart shall be deemed to be an original instrument and all such counterparts together shall be deemed to constitute one and the same instrument.

 

30


Section 9.6 Expenses.

Except as otherwise expressly provided in this Agreement, each party will pay its own expenses in respect of the transactions contemplated by this Agreement. The Company represents and warrants that, except for GMP Securities L.P. and Canaccord Capital Corporation, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission, or to the reimbursement of any of its expenses, in connection with the Offer. The Company has provided to Nucor a correct and complete copy of all agreements between the Company and its financial advisors as are in existence at the date hereof. The Company covenants not to amend the terms of any such agreements relating to the payment of fees and expenses without the prior written approval of Nucor.

Section 9.7 Assignment.

Nucor may designate the Offeror and may otherwise assign all or any part of its rights or obligations under this Agreement to any affiliate (as such term is defined in the Securities Act (Ontario)), but no such assignment shall relieve Nucor of its obligations hereunder. This Agreement shall not otherwise be assignable by a Party without the prior written consent of the other Party.

Section 9.8 Severability.

If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties shall negotiate in good faith to modify the Agreement to preserve each Party’s anticipated benefits under the Agreement.

Section 9.9 Choice of Law.

This Agreement shall be governed by, construed and interpreted in accordance with the laws of the Province of Ontario.

Section 9.10 Attornment.

The Parties hereby irrevocably and unconditionally consent to and submit to the courts of the Province of Ontario for any actions, suits or proceedings arising out of or relating to this Agreement or the matters contemplated hereby (and agree not to commence any action, suite or proceeding relating thereto except in such courts) and further agree that service of any process, summons, notice or document by registered mail to the addresses of the Parties set forth in this Agreement shall be effective service of process for any action, suit or proceeding brought against any Party in such court. The Parties hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the matters contemplated hereby in the courts of the Province of Ontario and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding so brought has been brought in an inconvenient forum.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

31


IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed on their behalf by their officers thereunto duly authorized as of the date first written above.

 

NUCOR CORPORATION
By:   /s/ Joseph A. Rutkowski
Name:   Joseph A. Rutkowski
Title:   Executive Vice President
HARRIS STEEL GROUP INC.
By:   /s/ Douglas Deighton
Name:   Douglas Deighton
Title:   Chief Financial Officer

 

32


SCHEDULE “A“

TERMS OF THE OFFER

 

1. General Terms. The Offeror shall make the Offer to all registered holders of Shares in compliance with applicable Securities Laws.

 

2.

Expiry Date. Subject to the provisions of this Agreement, the Offer shall be open until the date which is no earlier than the 35th day following the mailing of the Offer (provided that the Offeror may extend such period of time in its sole discretion in compliance with applicable Laws).

 

3. Offer Price. The Offer shall be made in cash at a price of not less than Cdn. $46.25 per Share for all of the Shares.

 

4. Conditions of the Offer. The Offeror shall have the right to withdraw the Offer and not take up and pay for, or extend the period of time during which the Offer is open and postpone taking up and paying for, any Shares deposited under the Offer unless all of the following conditions, are satisfied or waived by the Offeror at or prior to the expiry time on or prior to the Expiry Date:

 

  (a) on the Expiry Date there shall have been validly deposited under the Offer and not withdrawn a number of Shares which constitutes at least 66 2/3% of the outstanding Shares (calculated on a fully diluted basis) (the “Minimum Condition”);

 

  (b) all government or regulatory filings, consents, clearances or approvals (including in Canada, the United States or elsewhere) which are required by law in connection with the Offer and the acquisition of Shares pursuant to the Offer or a Compulsory Acquisition or Subsequent Acquisition Transaction, including without limitation consents, clearances or approvals of any stock exchanges or other regulatory authorities, shall have been made or obtained on terms and conditions satisfactory to the Offeror in its sole judgment, acting reasonably;

 

  (c)

without limiting the scope of the condition in paragraph (b), the Commissioner of Competition shall have issued an Advance Ruling Certificate under section 102 of the Competition Act (Canada) regarding the purchase of the Shares by the Offeror or shall have issued a “no-action” letter which reserves to the Commissioner the right to challenge the purchase of the Shares by the Offeror at any time within three years after completion of such Offer but which is otherwise on terms and conditions satisfactory to the Offeror in its sole judgment, advising that the Commissioner of Competition does not at the time of such letter intend to make an application under the Competition Act (Canada) in respect of the purchase of the Shares by the Offeror; (ii) the Offeror shall be satisfied that the Minister responsible for the Investment Canada Act (Canada) has made an assessment and issued a notice to the Offeror under the Investment Canada Act (Canada) that the completion


 

of the transaction represented by the Offer is of a net benefit to Canada, on terms and conditions satisfactory to the Offeror in its sole judgment; (iii) the applicable filings and waiting periods, if any, under the Competition Act (Canada) and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (United States) shall have been made, waived, or expired or terminated, and as the case may be; (iv) any investigation by the US Department of Justice or the Federal Trade Commission in relation to the Offer shall have been concluded on terms and conditions that are satisfactory to the Offeror in its sole judgment; and (v) any applicable filings, waiting periods or consents under any other competition, merger control or similar law, rule, regulation or policy or any approval or consent of any Governmental Authority in respect of competition or merger control matters having jurisdiction, or any investigation or inquiry by any Governmental Authority, shall have been made, waived, terminated or expired or been obtained on terms and conditions satisfactory to the Offeror in its sole judgment, as the case may be1;

 

  (d) there shall not exist any prohibition at law (including without limitation any injunction or restraining order in any jurisdiction in Canada or the United States or elsewhere) against the Offeror making the Offer or taking up and paying for any of the Shares under the Offer or completing any Compulsory Acquisition or any Subsequent Acquisition Transaction;

 

  (e) no act, action, suit or proceeding shall have been threatened or taken before or by any Governmental Authority in Canada, the United States or elsewhere, whether or not having the force of law, and (ii) no law, regulation or policy shall have been proposed, enacted, promulgated or applied, in the case of either (i) or (ii):

 

  (i) to cease trade, enjoin, prohibit or impose material limitations or conditions on, or to materially increase the cost of, the purchase by or the sale to the Offeror of the Shares or the rights of the Offeror to own the Company or exercise full rights of ownership of the Shares; or

 

  (ii) which, if the Offer were consummated, would reasonably be expected in the Offeror’s sole judgment, materially adversely affect the Offeror, the Company or Nucor or their respective subsidiaries or joint ventures; or

 

  (iii) which challenges or would prevent the completion of the acquisition by the Offeror of Shares pursuant to a Compulsory Acquisition or a Subsequent Acquisition Transaction;

1

For the purposes of this paragraph (c) only, any reference to the Offer or to the acquisition or purchase of Common Shares pursuant thereto or in connection therewith shall include any acquisition of Common Shares pursuant to or in connection with a Compulsory Acquisition or a Subsequent Acquisition Transaction.

 

- 2 -


  (f) no Material Adverse Effect shall have occurred since the date of the Agreement;

 

  (g) after the date of this Agreement, there shall not have occurred any reorganization of the Company or its Subsidiaries (other than a Pre-Acquisition Reorganization pursuant to Section 2.5(4)) any transaction or series of transactions involving the Company or its Subsidiaries that would or could have the effect of preventing the Offeror from obtaining a full tax cost ‘bump’ pursuant to paragraph 88(1)(d) of the Canadian Tax Act in respect of the shares of the Subsidiaries and any other non-depreciable capital property owned by the Company or its Canadian Subsidiaries on the date hereof.

 

  (h) the Offeror shall not have become aware of any untrue statement of material fact, or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made and at the date it was made (after giving effect to all subsequent filings filed before the date of the Offer in relation to all matters covered in earlier filings), in any document filed by or on behalf of the Company, or any Subsidiary with any securities regulatory authority in any of the provinces of Canada or in the United States within the six (6) years prior to the date of this Agreement; and

 

  (i) the Company shall have complied in all material respects with its covenants and obligations under the Support Agreement to be complied with at or prior to the expiry time of the Offer and all representations and warranties of the Company under the Support Agreement shall be true and correct in all material respects at the expiry time of the Offer (except to the extent that any such representation or warranty is expressed to be given as of a specific date, in which case such representation or warranty shall be true and correct as of such date) and the Support Agreement shall not have been terminated.

The foregoing conditions shall be for the exclusive benefit of the Offeror and may be waived by the Offeror in whole or in part at any time and from time to time, both before or after the Expiry Date, without prejudice to any other rights that the Offeror may have.

 

- 3 -


SCHEDULE “B“

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

1. Organization. Each of the Company and its Subsidiaries has been duly incorporated or formed under applicable law, is validly existing under the laws of its incorporation or formation, has all necessary corporate or legal power and authority to own its properties and conduct its business as currently owned and conducted. All of the outstanding shares of capital stock and other ownership interests of the Subsidiaries and, to the knowledge of the Company, any other significant ownership interests beneficially owned by the Company are, to the extent applicable, validly issued, fully paid and non-assessable and all such shares and other ownership interests owned directly or indirectly by the Company are owned free and clear of all material liens, claims or encumbrances, and except as disclosed in writing to the Offeror prior to the date hereof, there are no outstanding options, rights, entitlements, understandings or commitments (contingent or otherwise) regarding the right to acquire any shares of capital stock or other ownership interests in any of the Subsidiaries.

 

2. Authority. The Company has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by the Company Board and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or the transactions contemplated hereby (other than the approval of the Directors’ Circular as required by Applicable Securities Laws). This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms subject to bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other Laws relating to or affecting creditors’ rights generally and to general principles of equity, and subject to the qualification that equitable remedies may only be granted in the discretion of a court of competent jurisdiction. Except as disclosed in writing to the Offeror prior to the date hereof, the execution and delivery by the Company of this Agreement and performance by it of its obligations hereunder and (subject to satisfying the conditions to the Offer specified in clause 4(b) and (c) of Schedule “A” with respect to subparagraph a(ii) below) the completion of the Offer and the transactions contemplated thereby, will not:

 

  (a) result in a violation or breach of, require any consent to be obtained under or give rise to any termination rights constitute a default under any provision of:

 

  (i) its or any Subsidiary’s certificate of incorporation, articles, by-laws or other charter documents, including any unanimous shareholder agreement or any other shareholders’ agreement with any party holding an ownership interest in any Subsidiary;

 

  (ii) any law, regulation, order, judgment or decree applicable to the Company or any of its Subsidiaries; or

 


  (iii) any contract, agreement, license, franchise or permit to which the Company or any Subsidiary is bound or is subject or is the beneficiary;

 

  (b) give rise to any right of termination or acceleration of indebtedness, or cause any indebtedness to come due before its stated maturity or cause any available credit to cease to be available; or

 

  (c) result in the imposition of any hypothec, mortgage, charge, lien encumbrance or adverse claim upon any of its assets or the assets of any Subsidiary, or restrict, hinder, impair or limit the ability of the Company or any Subsidiary to carry on the business of the Company or such Subsidiary as and where it is now being carried on;

except where any event described in clause 2(a), 2(b) or 2(c) would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

3. Consents and Approvals. No consent, approval or authorization of, or declaration or filing with, or notice to, any Governmental Authority which has not been received or made is required by the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except for (i) satisfying the conditions of the Offer specified in clause 4 of Schedule “A”, and (ii) any other consents, approvals, authorizations, filings or notices the failure to make or obtain which would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Offeror or the Company.

 

4. Capital Structure.

 

  (a) The authorized capital of the Company consists of an unlimited number of Shares. As of the date hereof, 26,924,320 Shares are issued and outstanding.

 

  (b) There are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments obligating the Company or any of its Subsidiaries to issue or sell any shares of any capital stock of the Company or any of its Subsidiaries or securities or obligations of any kind convertible into or exchangeable for any shares in the capital of the Company or any Subsidiary, nor, except as disclosed to Nucor prior to the date hereof, are there outstanding any stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the book value, income or any other attribute of the Company or any of its Subsidiaries.

 

  (c)

Except in respect of those corporations, partnerships and joint ventures disclosed in the annual information form of the Company dated March 8, 2006 (the “AIF”) and except as otherwise disclosed in writing to Nucor (collectively, the “Harris Steel Entities”), the Company does not hold, directly or indirectly, any equity interest in, or any options or rights to acquire an equity interest in, any corporation or other entity. None of the Harris Steel Entities holds, directly or indirectly, an equity interest in, or any options or

 

- 2 -


 

rights to acquire an equity interest in, any corporation or other entity other than in connection with the transactions provided under the LEC Agreement. Except as disclosed in the AIF, none of the certificates of incorporation, by-laws or other organization documents of any of the Harris Steel Entities purport to grant rights to any Person other than (i) customary rights with respect to corporate governance given to all shareholders pro rata in accordance with their holdings and (ii) customary rights of indemnification of directors and officers.

 

5. Securities Laws. The Company is a “reporting issuer” under the Securities Act (Ontario), as amended and is not in default of any material requirements of any applicable Securities Laws, and no delisting, suspension of trading in or cease trading order with respect to the Shares or any other securities of the Company is pending or, to the knowledge of the Company, threatened.

 

6. Filings/Compliance. All material documents required to be filed with the Ontario Securities Commission or other provincial securities regulators having jurisdiction (collectively, “Canadian Securities Regulators”) have been filed. Documents or information filed by the Company with the Canadian Securities Regulators under applicable Securities Laws on a non-confidential basis, including the Company’s: (a) management proxy circular dated as of April 3, 2006 in respect of the annual meeting of Shareholders held on May 18, 2006; (b) annual information form dated March 8, 2006; and (c) annual report to Shareholders and MD&A for the financial year ended December 31, 2005 and interim consolidated financial statements and MD&A for the interim period ended March 31, June 30 and September 30, 2006 (referred to collectively as the “Public Documents”), were, as of their respective dates, in compliance in all material respects with such applicable Securities Laws and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company has not filed any confidential material change report or other confidential report with any Canadian Securities Regulators or other Governmental Authority which at the date hereof remains confidential. Neither the Company nor any of its Subsidiaries is required to file any statements, reports, proxies or other filings with the United States Securities and Exchange Commission pursuant to the Exchange Act except to the extent heretofore filed.

 

7. Absence of Certain Changes. Since December 31, 2005, and except as has been disclosed in the Public Documents, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course, and there has not been any Material Adverse Effect.

 

8.

Financial Statements. As at their respective dates, the consolidated statements of income and retained earnings, the consolidated balance sheets and consolidated statements of cash flows of the Company included in the Public Documents were prepared in accordance with accounting principles generally accepted in Canada consistently applied (except (i) as otherwise indicated in such financial statements

 

- 3 -


 

and the notes thereto or, in the case of audited statements, in the related report of the Company’s auditors, or (ii) in the case of unaudited interim statements, which are subject to normal period-end adjustments and may omit notes which are not required by applicable Laws in the unaudited financial statements) and fairly present, in all material respects, the consolidated financial condition of the Company at the respective dates indicated and the results of operations of the Company (on a consolidated basis) for the periods then ended (subject, in the case of unaudited quarterly financial statements, to normal year-end audit adjustments).

 

9. Litigation, etc. Except as set forth or specifically reflected in the Public Documents, or as disclosed in writing to Nucor prior to the date hereof, (i) there is no suit, claim, action, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or affecting any of their properties or assets before any court or Governmental Authority or body, and the Company is not aware of any basis for any such claim, action, proceeding or investigation and (ii) neither the Company nor any of its Subsidiaries is subject to any outstanding order, writ, injunction, decree or arbitration order or award, that, in any such case described in clauses (i) and (ii), has resulted in or would reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect or prevent or materially delay consummation of the transactions contemplated by this Agreement or the Offer. As of the date hereof, there are no suits, claims, actions, proceedings or investigations pending or, to the knowledge of the Company, threatened, seeking to prevent, hinder, modify or challenge the transactions contemplated by this Agreement.

 

10. Title to Properties. The Company and each of its Subsidiaries has sufficiently good and valid title to, or an adequate leasehold interest in, its respective properties and assets (excluding real property) in order to allow it to conduct, and continue to conduct, its business as currently conducted, except for such failures of title or failures to hold such leasehold interest as would not reasonably be expected to cause a Material Adverse Effect.

 

11. Environmental.

Each of the Company and the Subsidiaries and their respective businesses, operations, and properties:

 

  (a) has obtained and currently holds all Permits (each, an Environmental Permit) which are required under all Environmental Laws, except where the absence of same would not in the aggregate reasonably be expected to result in a Material Adverse Effect;

 

  (b) is in compliance with all Environmental Laws and all terms and conditions of all Environmental Permits, except where the failure to be in compliance would not in the aggregate reasonably be expected to result in a Material Adverse Effect;

 

- 4 -


  (c) has not received any written order, request or notice from any Person alleging a violation of any Environmental Laws or Environmental Permits, except where any such order, request or notice would not in the aggregate reasonably be expected to result in a Material Adverse Effect;

 

  (d) except where the same would not in the aggregate reasonably be expected to result in a Material Adverse Effect: (i) is not a party to any litigation or administrative proceeding, nor so far as it is aware, is any litigation or administrative proceeding threatened against it or its property or assets, which in either case (A) asserts or alleges that it violated any Environmental Laws; (B) asserts or alleges that it is required to clean up, remove or take remedial or other response action due to the Release of any Hazardous Substances; or (C) asserts or alleges that it is required to pay all or a portion of the cost of any past, present or future cleanup, removal or remedial or other response action which arises out of or is related to the Release of any Hazardous Substances; (ii) is not aware of any conditions existing currently or likely to exist which could reasonably be expected to subject it to damages, penalties, injunctive relief or clean up costs under any Environmental Laws or which require or are likely to require clean up, removal, remedial action or other response action pursuant to applicable Environmental Laws by it; and (iii) is not subject to any judgment, decree, order or citation related to or arising out of applicable Environmental Law and has not been named or listed as a potentially responsible party by any Governmental Authority in a matter arising under any Environmental Laws;

 

  (e) has not used, owned, operated, occupied or managed, had charge of or control over, now or in the past, any Real Property or any real property formerly used by the Company or any Subsidiary (such real property, together with the Real Property, being the “Occupied Property”) that is not free of contamination from any Hazardous Material, except for such contamination that could not reasonably be expected to adversely impact the value or marketability of the Occupied Property and which could not reasonably be expected to result in liabilities under Environmental Laws, except where the same would not in the aggregate reasonably be expected to result in a Material Adverse Effect;

 

  (f) has not caused, suffered or permitted to occur any Release of Hazardous Materials on, at, in, under, above, to, from or about any of the Occupied Property contrary to any Environmental Laws, which has not been remediated or dealt with in compliance with Environmental Laws, or does not require remediation to be in compliance with Environmental Laws, except where the same would not individually or in the aggregate reasonably be expected to result in a Material Adverse Effect; and

 

  (g) is not involved in operations or knows of any facts, circumstances or conditions, involving any Release of Hazardous Material, that could reasonably be expected to result in any liabilities under Environmental Laws, except where the same would not in the aggregate reasonably be expected to result in a Material Adverse Effect.

 

- 5 -


12. Tax Matters.

 

  (a) The Company and its Subsidiaries have timely filed all Returns required to be filed by applicable law with respect to each of the Company and its Subsidiaries or any of their income, properties or operations, except where the failure to file does not, individually or in the aggregate, result in a Material Adverse Effect. All such Returns are true, accurate and complete and accurately set forth all items required to be reflected or included in such Returns by applicable Tax laws, except to the extent that any inaccuracies in filed Returns do not, individually or in the aggregate, result in a Material Adverse Effect. The Company and its Subsidiaries have timely paid all Taxes attributable to each of the Company and its Subsidiaries that were due and payable without regard to whether such Taxes have been assessed or are shown or required to be shown on a Return, except to the extent that failure to pay does not, individually or in the aggregate, result in a Material Adverse Effect. The Company has made available to Nucor complete and accurate copies of all United States and Canadian federal, state, provincial, local and foreign income tax Returns, and any amendments thereto, filed by or on behalf of the Company or any of its Subsidiaries or any member of a group of corporations including the Company or any of its Subsidiaries for the taxable years as follows: (i) in respect of Harris Steel Inc. and its Subsidiaries, the years ended December 31, 2003 to December 31, 2005; (ii) in respect of Golden Gate Ventures Inc., the years ended December 31, 2003 to December 31, 2005; (iii) in respect of Harris US Holdings Inc. and its Subsidiaries, the period ended December 31, 2005; (iv) in respect of Fisher & Ludlow Inc. (formerly Laurel Steel Inc.), the period ended December 31, 2004; and (v) in respect of the Company and Canadian Subsidiaries, the years ended December 31, 2001 to December 31, 2005, in each case such returns being applicable only to Subsidiaries for the periods of ownership by the Company. The Company and each of the Subsidiaries have not received any refund of Taxes to which they were not entitled to.

 

  (b)

Except as disclosed in writing there are no pending or, to the knowledge of the Company, threatened audits (other than annual audits as a large case filer in Canada), examinations, investigations, deficiencies, claims or other proceedings relating to Taxes of the Company or any of its Subsidiaries. The Company and its Subsidiaries have made adequate provisions in accordance with Canadian generally accepted accounting principles appropriately and consistently applied to each of the Company and its Subsidiaries in the consolidated financial statements included in the Public Documents for the payment of all Taxes for which the Company and its Subsidiaries may be liable for the periods covered thereby that were not yet due and payable as of the dates thereof, regardless of whether the liability for such Taxes is disputed. None of the Company nor its Subsidiaries is liable for Taxes in respect of the

 

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period after the date of such consolidated financial statements other than in respect of Taxes arising in the ordinary course of business or Taxes that do not, individually and in the aggregate, result in a Material Adverse Effect.

 

  (c) There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Return of the Company or any of its Subsidiaries, including, without limitation, any waiver or other arrangement providing for an extension of time with respect to the filing of any such Return, the payment of any Tax or the issuance of an assessment or reassessment. Neither the Company nor any of its Subsidiaries (i) has any Tax liability under United States Treasury Regulation Section 1.1502-6 or analogous state, provincial, local, or foreign law provision for the Tax liabilities of any entity other than the Company or any of its Subsidiaries, or as a transferee or successor, except to the extent any such liabilities do not, individually or in the aggregate, result in a Material Adverse Effect, or (ii) is a party to a Tax sharing or Tax indemnity agreement or any other agreement of a similar nature with any entity other than the Company or any of its Subsidiaries that remains in effect and under which the Company or any such Subsidiary could have any material liability for Taxes. No claim has been made in writing by a taxing authority in a jurisdiction where the Company or any of its Subsidiaries does not file Returns that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction where such claim, if determined adversely to the Company or such Subsidiary, would, individually or in the aggregate, result in a Material Adverse Effect.

 

  (d) The Company and each of its Subsidiaries has withheld or collected all amounts required to be withheld or collected by it on account of Taxes and has remitted all such amounts to the appropriate Tax authority when required by Law to do so, except where the failure to do so would not, individually or in the aggregate, result in a Material Adverse Effect. With respect to any taxable period ended on or prior to December 31, 2001, all Canadian federal income and capital tax Returns of Harris Steel Limited have been audited by the Canada Revenue Agency or are closed by the applicable statue of limitations. The Company and its Subsidiaries have never been subject to an audit in respect of any of their United States federal income tax Returns. None of the Company or any of its Subsidiaries has entered into an agreement contemplated by Section 191.3 of the Canadian Tax Act. For material transactions between the Company or any of its Subsidiaries, on the one hand, and any non-resident person with whom the Company or such Subsidiary was not dealing at arm’s-length, for the purposes of the Canadian Tax Act, on the other hand, during a taxation year commencing after 1998, the Company or such Subsidiary has made or obtained records or documents that have been provided to the Offeror. The Company and each of its Subsidiaries is in full compliance with all terms and conditions of any Tax exemptions or other Tax-sharing agreement or order of a foreign government and the consummation of the transactions contemplated hereby shall not have any adverse effect on the continued validity and effectiveness of any such Tax exemptions or other Tax-sharing agreement or order.
 

 

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13. Employment Agreements. Other than as provided by applicable employment standard or legislation, neither the Company nor any of its Subsidiaries is a party to any written policy, agreement, obligation or understanding or any oral agreement or understanding with any of its directors or officers, in any such case providing for severance or termination payments to, or any employment agreement with, any person, other than Paul Kelly, Gary Richmond and Michael Satterdahl.

 

14. Pension and Termination Benefits.

 

  (a) True and complete copies of all the Company’s Benefit Plans and material related documents, and all amendments thereto, have been made available to Nucor.

 

  (b) Except where failure to do so would not result in a Material Adverse Effect, the Company has administered each Benefit Plan in all material respects in accordance with the terms thereof and all applicable Laws and all contributions, premiums and payments required to be made under the terms of any Benefit Plan have been made. Except where failure to do so would not result in a Material Adverse Effect, each Benefit Plan which is intended to be qualified under Section 401(a) of the Code has received a favourable prototype opinion from the United States Internal Revenue Service, and the Company is not aware of any circumstances reasonably likely to adversely affect the qualified status of such plan. The Company has made available to the Offeror reasonably acceptable evidence that each Canadian Pension Plan and all amendments thereto have been accepted for registration by Canada Revenue Agency and any provincial Governmental Authority having jurisdiction over such Canadian Pension Plan. To the knowledge of the Company, nothing has occurred which would result in the revocation of the registration of any Canadian Pension Plan under the Canadian Tax Act and any applicable provincial pension legislation. To the knowledge of the Company, all amounts paid by the Company under the provisions of the Canadian Pension Plans will be deductible for income tax purposes.

 

  (c) No material liability under Title IV of ERISA has been or is reasonably expected to be incurred by the Company or any of its Subsidiaries or any ERISA Affiliate. No Pension Plan of the Company or any of its Subsidiaries or any ERISA Affiliate has incurred any outstanding “accumulated funding deficiency,” as defined in Section 412 of the Code and Section 302 of ERISA, whether or not waived.

 

  (d)

Except as disclosed in writing, each Canadian Pension Plan that is a defined benefit pension plan is fully funded on both a “going concern” [and a “solvency”] basis, as determined in accordance with the actuarial assumptions and methods used in the most recent actuarial report filed with (and accepted

 

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for filing by) the applicable Governmental Authorities in respect of each such Canadian Pension Plan. There has been no withdrawal by the Company of assets from any Canadian Pension Plan and no application for approval of a withdrawal of assets has been made to any Governmental Authority. To the knowledge of the Company, any application of surplus assets in any of the Canadian Pension Plans to offset required employer contributions to such Canadian Pension Plans has been permitted by law and was permitted under the terms of the relevant Canadian Pension Plan and associated funding agreement.

 

  (e) Except pursuant to items referenced in Section 13 of this Schedule B, the execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any Benefit Plan, employment, termination or severance contract or other obligation, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any current or former employee, officer or director, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of the Company or Nucor to amend or terminate any Benefit Plan and receive the full amount of any excess assets remaining or resulting from such amendment or termination, subject to applicable taxes. The execution of, or performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) result in any payment or benefit being made by the Company, Nucor, or any of their respective affiliates with respect to any employee of the Company that will be characterized as an “excess parachute payment,” within the meaning of Section 280G(b)(1) of the Code.

 

  (f) Neither the Company, any of its Subsidiaries, nor any ERISA Affiliate has any material liability not recorded in the financial statements of the Company with respect to any benefit plan which provides life insurance, medical, severance or other employee welfare benefits to any of its employees upon his retirement or termination of employment, except for those which would not result in a Material Adverse Effect and except as may be required by Section 4980B of the Code or any other law.

 

  (g)

Neither the Company, any of its Subsidiaries, nor any ERISA Affiliate has incurred or reasonably expects to incur any withdrawal liability (within the meaning of Section 4201 of ERISA) with respect to any “multi-employer plan” within the meaning of Sections 3(37) or 4001(a)(3) of ERISA (a “Multi-Employer Plan”), which liability has not been fully paid as of the date hereof. As of the Expiry Date, the Company, each of its Subsidiaries and each ERISA Affiliate will not have completely or partially withdrawn from any Multi-Employer Plan and will not be subject to any withdrawal liability as described in Section 4201 of ERISA for withdrawals that have occurred on or prior to

 

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the Expiry Date. Neither the Company, any of its Subsidiaries nor any ERISA Affiliate has knowledge that any Multi-Employer Plan fails to qualify under Section 401(a) of the Code, is insolvent or is in reorganization within the meaning of Part 3 of Subtitle E of Title IV of ERISA.

 

15. Employment Relations.

 

  (a) The Company and each of its Subsidiaries (i) is in compliance with all applicable Laws respecting employment, employment practices, labour, terms and conditions of employment and wages and hours; and (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to its employees, except, in each case, for instances which do not, individually or in the aggregate, result in a Material Adverse Effect.

 

  (b) Except as disclosed in writing, neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreements in effect and, to the knowledge of the Company, no union organization activities, certification efforts or proceedings or membership drives are in process or underway involving the Company or its Subsidiaries.

 

  (c) Except as disclosed in writing, no work stoppage or labor strike against the Company or any if its Subsidiaries is pending or, to the knowledge of the Company, threatened. Neither the Company nor any of its Subsidiaries is involved in or, to the knowledge of the Company, threatened with any material labor dispute, grievance, or litigation relating to labor matters, including, without limitation, violation of any federal, provincial, state or local labor, safety or employment Laws (domestic or foreign), charges of unfair labor practices or discrimination complaints.

 

16. Material Agreements. Other than as referred to in the Public Documents or as otherwise disclosed in writing, there are no other agreements material to the conduct of the business of the Company and its Subsidiaries, the termination of which would result in a Material Adverse Effect.

 

17. Compliance with Applicable Laws. Except as disclosed in the Public Documents or disclosed to Nucor prior to the execution of this Agreement, the Company and its Subsidiaries are in material compliance with all applicable Laws (other than Environmental Laws) of any Governmental Authority, except for non-compliance which would not reasonably be expected to result in, in the aggregate, a Material Adverse Effect.

 

18. Licences. The Company and its Subsidiaries hold all licences, permits, consents, authorizations and registrations (collectively “Permits”) necessary to conduct their businesses as currently conducted, the absence of which would result in a Material Adverse Effect, and each of them has complied with and is in compliance with each Permit, except where the failure to so comply would not result in a Material Adverse Effect.
 

 

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  19. Written Opinions of Financial Advisors. The Company has received an opinion from its financial advisors, GMP Securities, Inc., acting for the Company and the Special Committee, and Canaccord Capital Corporation, acting for the Special Committee (a true, correct and complete copy of which will be delivered to Nucor by the Company when reduced to writing), to the effect that, based upon and subject to the matters set forth therein and as of the date thereof, the price to be received by the Shareholders under the Offer, is fair, from a financial point of view, to such holders (other than the Offeror or its affiliates) (the “Fairness Opinion”) a copy of which the Company shall use its commercially reasonable efforts to cause it to be provided in the Directors’ Circular.

 

  20. U.S. Securities Laws. The Company is a “foreign private issuer” within the meaning of Rule 3b-4 under the Exchange Act and less than 40% of the Shares are held by U.S. holders within the meaning of Rule 14d-I under the Exchange Act.

 

  21. Intellectual Property. Each of the Company and its Subsidiaries owns or, to the knowledge of the Company, has rights to use, all Intellectual Property necessary to continue to conduct its business as now or heretofore conducted by it. Each of the Company and the Subsidiaries, to the knowledge of the Company, conducts its business and affairs without infringement of or interference with any intellectual property of any other Person in any material respect. As of the date hereof, the Company is not aware of any known material infringement claim by any other Person with respect to any of the Company’s Intellectual Property.

 

  22. Books and Records. The corporate records and minute books of the Company and its Subsidiaries have been maintained in accordance with all applicable Laws in all material respects and the minute books of the Company and its Subsidiaries are complete and accurate in all material respects. Financial books and records and accounts of the Company and its Subsidiaries in all material respects (i) have been maintained in accordance with good business practices on a basis consistent with prior years; (ii) are stated in reasonable detail and, in the case of its Subsidiaries, during the period of time when owned by the Company, accurately and fairly reflect the transactions and dispositions of assets of the Company and its Subsidiaries; and (iii) in the case of the Subsidiaries, during the period of time when owned by the Company, accurately and fairly reflect the basis for the Company’s consolidated financial statements.

 

  23. No Undisclosed Material Liabilities. The Company and its Subsidiaries, considered on a consolidated basis, do not have any liabilities of any nature, whether accrued, absolute, fixed, contingent or otherwise, whether due or to become due and required to be recorded or reflected on a consolidated balance sheet of the Company under accounting principles generally accepted in Canada, except: (i) as reflected or reserved against or disclosed in the Audited Statements; and (ii) liabilities incurred since September 30, 2006 that have not resulted in and are not reasonably likely to result in, individually or in the aggregate, a Material Adverse Effect.
 

 

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  24. Real Property. The complete list of Real Property owned by the Company or any of the Subsidiaries (the “Owned Real Property”) is set forth in the documents made available to the Offeror or the Offeror’s representative on or before December 21, 2006 in the data room located at Goodmans LLP. Owned Real Property is held by the Company or a Subsidiary with good and marketable title, free and clear of all liens, charges, claims or encumbrances except (i) intercompany agreements; (ii) easements, covenants, rights-of-way and other similar restrictions of record, (iii) zoning, building and other similar restrictions (iv) encumbrances that have been placed by any developer, landlord or other third party on property over which the Company or any of its Subsidiaries has easement rights and subordination and other similar agreements related thereto, (v) unrecorded easements, covenants, rights-of-way and other similar restrictions, in each case which are not reasonably likely to result in, in the aggregate, a Material Adverse Effect (collectively, the “Permitted Liens”). The Company has delivered to Nucor true, correct and complete copies of all material leases and subleases (as amended to date) and other material agreements for occupancy, including all amendments, extensions, offers and other modifications thereto as of the date of this Agreement with respect to each Real Property leased or licensed to the Company or any Subsidiary (collectively, the “Real Property Leases”). Each Real Property Lease is binding and enforceable, and in full force and effect, provided that enforcement may be limited by: (a) bankruptcy, insolvency and other similar Laws of general application affecting the enforcement of creditors’ rights generally; and (b) specific performance, injunctive relief and other equitable remedies may be granted only in the discretion of a court of competent jurisdiction. There does not exist under any Real Property Lease any event of default or event or condition that, after notice or lapse of time or both, would constitute a default, violation, breach or event of default thereunder on the part of the Company or any of its Subsidiaries or, to the knowledge of the Company, any other party thereto or give rise to any right of termination or cause any acceleration of obligations thereunder to the extent that such default, violation, breach or event of default would reasonably be expected to cause a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has assigned, transferred, conveyed, mortgaged, subleased, deeded in trust or encumbered any of its interest in any of the Real Property Leases. The Owned Real Property and the Leased Real Property constitute all of the Real Property used by the Company and its Subsidiaries in the conduct of their respective businesses and the purpose for which each Real Property is used is, in all material respects, in compliance with zoning and local use requirements.

 

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SCHEDULE “C“

REPRESENTATIONS AND WARRANTIES OF NUCOR

 

1. Organization of Nucor. Nucor has been duly incorporated and organized and is existing as a corporation under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as it is now being conducted.

 

2. Authority. Nucor has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by Nucor and no other corporate proceedings on the part of Nucor are necessary to authorize this Agreement and the transactions contemplated hereby (other than the approval of the Offer Documents as required by applicable securities laws). This Agreement has been duly executed and delivered by Nucor and constitutes a valid and binding obligation of Nucor, enforceable by the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Laws relating to or affecting creditors’ rights generally and to general principles of equity.

 

3. Financing. Nucor has made adequate arrangements to ensure that required funds will be available to permit the Offeror to effect payment in full for all Shares that are subject to the Offer.

 

4. Share Ownership. None of the Offeror or its Affiliates beneficially owns any Shares.

 

5. No Violations.

 

  (a) None of the execution and delivery of this Agreement by Nucor, the consummation by it or the Offeror of the transactions contemplated hereby nor compliance by it or the Offeror with any of the provisions hereof will:

 

  (i) violate, conflict with, or result in a breach of any provision of, require any consent or approval under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in a right of termination or acceleration under, any of the terms, conditions or provisions of:

 

  (A) the constating documents of Nucor or the Offeror; or

 

  (B) any material contract to which Nucor or the Offeror or any of its Subsidiaries is a party; or

 

  (ii) violate any judgment, ruling, order, writ, injunction, award, decree, statute, ordinance, rule or regulation applicable to Nucor or the Offeror or any of its Subsidiaries.

 


  (b) Other than in connection with or in compliance with the provisions of applicable Securities Laws, the Competition Act (or other applicable competition Laws of any Governmental Authority), the Investment Canada Act, the policies of the TSX, and as otherwise contemplated herein (or, to the knowledge of Joseph Rutkowski or Hamilton Lott, on behalf of Nucor, after having made due enquiry, in respect of the Company and its Subsidiaries): (i) there is no legal impediment to the Offeror’s consummation of the transactions contemplated by this Agreement; and (ii) no filing or registration by Nucor or the Offeror with, or authorization, consent or approval of, any domestic or foreign public body or authority need be obtained by Nucor or the Offeror in connection with the making or the consummation of the Offer, or completing the Compulsory Acquisition or a Subsequent Acquisition Transaction.

 

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SCHEDULE “D”

PROVISIONS TO BE INCLUDED IN HOLDCO AGREEMENT

Unless the context requires otherwise or unless otherwise defined, defined terms used in this Schedule have the same meaning as in the Agreement.

Each Holdco Agreement shall include at least the following representations, warranties, terms, conditions and indemnities in favour of the Offeror:

Representations and Warranties of the Holdco Shareholders

Each of the Holdco Shareholders hereby represents and warrants to the Offeror as follows and hereby acknowledges and confirms that the Offeror is relying on such representations and warranties in connection with the purchase by the Offeror of the Holdco Shares:

 

  (a) the Shares which are being acquired under the Offer have been held directly or indirectly since at least the date of the Support Agreement by Holdco, a Holdco Shareholder or the principal shareholder of the Holdco Shareholder;

 

  (b) the execution and delivery of this Holdco Agreement by the Holdco Shareholders and Holdco and the completion by the Holdco Shareholders and Holdco of the transactions contemplated hereby:

 

  (i) will not conflict with, result in the breach of or constitute a default under the articles, by-laws or resolutions of Holdco or its shareholders or any agreement, indenture, contract, lease, deed of trust, licence, option, instrument or other commitment, whether written or oral (a “Contract”) to which the Holdco Shareholders or Holdco is a party; and

 

  (ii) do not and will not violate any provision of law or administrative regulation or any judicial or administrative award, judgement or decree binding upon the Holdco Shareholders or Holdco;

 

  (c) each of the Holdco Shareholders and Holdco is a resident of Canada for the purposes of the Canadian Tax Act or is a “Canadian partnership” for purposes of the Canadian Tax Act;

 

  (d) this Holdco Agreement has been duly executed and delivered by each of the Holdco Shareholders and Holdco and is a valid and binding obligation of each of the Holdco Shareholders and Holdco enforceable against each of the Holdco Shareholders and Holdco in accordance with its terms, subject to applicable bankruptcy, insolvency and other laws affecting the enforcement of creditors’ rights generally and provided that equitable remedies will only be awarded in the discretion of a court of competent jurisdiction;


  (f) at the time at which the Offeror takes up and pays for the Holdco Shares, all of the Holdco Shares are registered in the name of, and beneficially owned by, the Holdco Shareholders and will be free and clear of all Encumbrances;

 

  (g) no Person has any Contract, warrant or option or any right capable of becoming a Contract, warrant or option for the purchase from any of the Holdco Shareholders of any of the Holdco Shares or from Holdco of any shares or other securities of Holdco or of any of the [insert number] Shares held, directly or indirectly, by Holdco (the “Subject Holdco Shares”);

 

  (h) the Holdco Shares are validly issued and outstanding as fully paid and non-assessable shares in the capital of Holdco and are the only issued and outstanding shares in the capital of Holdco;

 

  (i) Holdco is an unlimited liability corporation duly incorporated on or after the date of the Support Agreement and duly organized and validly existing under the laws of Alberta or is an unlimited liability corporation existing under the laws of Alberta otherwise acceptable to the Offeror;

 

  (j) at the time at which the Offeror takes up and pays for the Subject Holdco Shares, Holdco is the beneficial holder of the Subject Holdco Shares all of which will be free and clear of all Encumbrances;

 

  (k) Holdco owns or holds no property or assets (other than nominal cash) or any interests therein of any nature or kind whatsoever other than the Subject Holdco Shares or other shares which comprise all of the share capital (which shall consist solely of common shares) of another unlimited liability corporation under the laws of Alberta which itself satisfies all of the criteria specified in paragraphs (a) through (s), and Holdco carries on no active business;

 

  (l) as of the date immediately prior to the Expiry Date and at the time at which the Offeror takes up and pays for the Holdco Shares, Holdco will have no obligations, liabilities (whether actual or contingent) or indebtedness to any Person, including without limitation any liabilities in respect of federal or provincial income, corporate, goods and services, capital, harmonized sales, sales, excise, employer health, surtaxes, education, social services, social security, employment insurance, health insurance, Canada, Quebec and other governmental pension plan premiums or contributions, land transfer or any other taxes, duties or imposts of any nature or kind whatsoever, or in respect of any judgements, orders, fines, interest, penalties, awards or decrees of any court, tribunal or governmental, administrative or regulatory department, commission, board, bureau, agency or instrumentality, domestic or foreign;

 

  (m) at the time at which the Offeror takes up and pays for the Holdco Shares, Holdco has no subsidiaries (other than as permitted by paragraph (k) above) and is not bound by any Contract to acquire or lease in any manner any shares or assets of any nature or kind whatsoever;

 

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  (n) At the time at which the Offeror takes up and pays for the Holdco Shares, Holdco is not a party to any Contract of any nature or kind whatsoever that has not been fully and completely performed and discharged;

 

  (o) there are no claims, investigations, actions, suits or proceedings pending or threatened against or affecting any of the Holdco Shareholders, whether at law or in equity or before or by any federal, provincial, municipal or other governmental or administrative or regulatory department, commission, board, tribunal, bureau, agency or instrumentality, domestic or foreign, that would adversely affect in any manner the ability of Holdco and the Holdco Shareholders to enter into this Holdco Agreement and perform their obligations hereunder;

 

  (p) there are no claims, investigations, actions, suits or proceedings pending or threatened against or affecting Holdco, whether at law or in equity or before or by any federal, provincial, municipal or other governmental or administrative or regulatory department, commission, board, tribunal, bureau, agency or instrumentality, domestic or foreign;

 

  (q) Holdco is in full compliance with all laws, rules or regulations to which Holdco or the Subject Holdco Shares may be subject;

 

  (r) the books and records of Holdco fairly and correctly set out and disclose in all respects, in accordance with generally accepted accounting principles in Canada consistently applied, the financial position of Holdco as of the date hereof and all financial transactions of Holdco have been accurately recorded in such books and records; and

 

  (s) the corporate records and minute books of Holdco contain complete and accurate minutes of all meetings or other proceedings of the directors (or any committee thereof) and shareholders of Holdco held since its incorporation and all such meetings were duly called and held and the share certificate books, register of shareholders, register of transfers and register of directors and officers of Holdco are complete and accurate.

Covenants

 

  (a) Holdco Documents. The Holdco Shareholders and Holdco shall forthwith make available to Nucor and its authorized representatives all minute books, share certificate books, share registers, books of account, accounting records, corporate documents and all other books or records, documents, information or data relating to Holdco (collectively the “Holdco Documents”). At the time of closing, all of the Holdco Documents shall be delivered to Nucor by the Holdco Shareholders and Holdco.

 

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  (b) No Share Issuances. No Holdco Shareholder that is a corporation shall issue any shares or agree to do so from and after the date hereof to and including the Effective Time in connection with any direct or indirect transfer of Shares without the prior written consent of the Offeror.

 

  (c) Bump’ Covenants:

In this Schedule “D”, the following terms have the following meanings:

“Canadian Subsidiaries” has the meaning ascribed to such term in the Support Agreement;

“Canadian Tax Act” means the Income Tax Act (Canada), as amended;

“Closing Date” means the date the Offeror acquires all of the outstanding shares of Holdco;

“Prohibited Period” means the period beginning on the Closing Date and ending 48 months thereafter;

“Prohibited Property” means:

 

  (1) any property owned by the Company or its Canadian Subsidiaries immediately prior to the Closing Date, and

 

  (2) any property, other than a property referred to in paragraph (ii)(a) below, the fair market value of which is (i) wholly or partly attributable to any property that was owned by the Company or its Canadian Subsidiaries immediately prior to Closing Date, or (ii) determinable primarily by reference to the fair market value of, or to any proceeds of disposition of, any property that was owned by the Company or its Canadian Subsidiaries immediately prior to Closing Date.

but does not include:

 

  (3) property that is a security of a Person (other than a Subject Company) where such securities of the Person are widely held and available to the public, provided that the aggregate fair market value of any property described in paragraph (ii)(a) below and any Prohibited Property owned by such Person represents less than 10% of the fair market value of all the property owned by the Person at the time such property is acquired.

“Related Party” means, in respect of a Person, (a) any Person who is an Affiliate of the Person, (b) any Person who is “related” to the Person within the meaning of and for the purposes of the Canadian Tax Act, or (c) any Person with whom such Person, does not deal at arm’s length within the meaning of the Canadian Tax Act;

 

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“Subject Company” means Nucor;

“Subsidiaries” has the meaning ascribed to such term in the Support Agreement;

Covenants

 

  (i) Each of the Holdco Shareholders and Holdco acknowledges that the intention of Offeror, after the Offeror has acquired all of the outstanding Shares of the Company and Holdco Shares, is to amalgamate Offeror or an Affiliate of Offeror with the Company (or a successor by amalgamation to the Company) in the manner described in subsection 87(11) of the Canadian Tax Act (the amalgamated corporation being referred to in this section (c) (‘Bump’ covenants) as “Amalco”), and then to make designations pursuant to paragraph 88(1)(d) of the Canadian Tax Act in respect of non depreciable capital property (including shares of the Subsidiaries) that will be owned by Amalco immediately after the amalgamation such that the cost to Amalco of the property will be determined in accordance with paragraph 88(1)(c) of the Canadian Tax Act, including an addition to the cost determined under paragraph 88(1)(d) of the Canadian Tax Act and Nucor, Offeror and each of the Holdco Shareholders acknowledges that certain transactions entered into or actions taken by all or any of the Holdco Shareholders and Holdco could have the effect of preventing the Offeror from obtaining a full tax cost ‘bump’ pursuant to paragraph 88(1)(d) of the Canadian Tax Act and in connection therewith and with a view to ensuring that the ‘bump’ is obtained only, each of the Holdco Shareholders and Holdco makes the representations, warranties and covenants set forth below.

 

  (ii) Each of the Holdco Shareholders severally represents, warrants and covenants that he, she or it will not, and will ensure that each Related Party of the Holdco Shareholder during the Prohibited Period will not:

 

  (a) own during the Prohibited Period:

 

  (A) any share or debt of the Subject Company, or

 

  (B) any right to, or interest in, or option in respect of any share or debt of the Subject Company; or

 

  (b) own during the Prohibited Period any Prohibited Property; other than:

 

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  (c) any property that was acquired by the Holdco Shareholder or Related Party, as the case may be, prior to the time at which the Holdco Shareholder had knowledge of the specific transaction in respect of which this Agreement is being entered into and any property acquired in substitution therefor;

 

  (iii) Each of the Holdco Shareholders severally represents, warrants and covenants that he, she or it will ensure that no corporation, other than a Related Party of the Holdco Shareholder to which paragraph (ii) above applies, that meets the description in clause 88(1)(c)(vi)(B)(III) of the Canadian Tax Act, will own during the Prohibited Period:

 

  (a) any property referred to in paragraph (ii)(a) above; or

 

  (b) any Prohibited Property;

 

  (iv) For the purposes of this section (c) (‘Bump’ covenants), (i) a Person who is a beneficiary of a trust shall be deemed to own that proportion of all shares of a corporation owned by the trust at that time that the fair market value at that time of the beneficial interest of the beneficiary in the trust is of the fair market value at that time of all beneficial interests in the trust, except that where a beneficiary’s share of the income or capital of the trust depends on the exercise by any Person of, or the failure by any Person to exercise, any discretionary power, then the Person who is the beneficiary shall be deemed to own all shares of a corporation owned at that time by the trust; and (ii) a Person who is a “member” of a partnership for purposes of the Canadian Tax Act shall be deemed to own that proportion of all shares of a corporation that are property of the partnership at that time that the fair market value at that time of the member’s interest in the partnership is of the fair market value at that time of the interests of all members in the partnership;

 

  (v) For the purposes of this section (c) (‘Bump’ covenants), the provisions of subparagraph 88(1)(c.2)(ii) of the Canadian Tax Act shall apply to any partnership or trust.

Expenses

The Holdco Shareholder will be required to pay, upon execution of the Holdco Agreement, all of the reasonable fees and expenses incurred by the Offeror and the Company in connection with the Holdco Alternative.

Opinion

The Holdco Shareholder will be required to provide a legal opinion satisfactory to Nucor and the Offeror, acting reasonably, as to the valid existence, organization and corporate authority of the Holdco and the due authorization of all matters and enforceability and non-violation of all agreements, subject to usual opinion qualifications, in connection with the purchase and sale of the Holdco Shares.

 

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Indemnification

 

(a) Obligations to Indemnify. Each Holdco Shareholder and, if applicable, its shareholder and/or the ultimate principal investor of the respective Holdco Shareholder agrees to indemnify and save harmless Nucor and the Offeror from all claims, demands, proceedings, losses, damages, liabilities, deficiencies, costs and expenses (including, without limitation, reasonable legal and other professional fees and disbursements, interest, penalties and amounts paid in settlement) (singly a “Loss” and collectively “Losses”) suffered or incurred by Nucor or the Offeror as a result of or arising directly or indirectly out of or in connection with: (i) any liabilities of Holdco relating to any matter occurring on or before the Expiry Date; and (ii) any breach by the Holdco Shareholder, and where applicable, its shareholder and/or the ultimate principal investor of such Holdco Shareholder, of any representation, warranty, obligation or covenant of the Holdco Shareholder, its shareholder and/or the ultimate principal investor of the Holdco Shareholder, as the case may be, to Nucor, the Offeror or the Company. Nucor agrees to indemnify and save harmless the Holdco Shareholders from all Losses suffered or incurred by them as a result of or arising directly or indirectly out of or in connection with any breach by the Offeror of any representation, warranty, obligation or covenant of the Offeror contained in the Holdco Agreement. Such indemnification obligations shall be on a joint and several basis amongst all Related Parties (which for greater certainty in the case of the Locked-up Subject Persons other than Paul Kelly includes the members of the Harris family) making a Holdco Election except that with respect to the ‘Bump Covenants’ specified in paragraph (c) above, such indemnity obligations shall be on a several and not joint basis.

 

(b) Notice of Claims. In the event that a party (the “Indemnified Party”) shall become aware of any claim, proceeding or other matter (a “Claim”) in respect of which another party (the “Indemnifying Party”) agreed to indemnify the Indemnified Party pursuant to the Holdco Agreement, the Indemnified Party shall promptly give written notice thereof to the Indemnifying Party. Such notice shall specify whether the Claim arises as a result of a claim by a Person against the Indemnified Party (a “Third Party Claim”) or whether the Claim does not so arise (a “Direct Claim”), and shall also specify with reasonable particularity (to the extent that the information is available) the factual basis for the Claim and the amount of the Claim, if known. If, through the fault of the Indemnified Party, the Indemnifying Party does not receive notice of any Claim in time to contest effectively the determination of any liability susceptible of being contested, the Indemnifying Party shall be entitled to set off against the amount claimed by the Indemnified Party the amount of any Losses incurred by the Indemnifying Party resulting directly from the Indemnified Party’s failure to give such notice on a timely basis.

 

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(c) Direct Claims. With respect to any Direct Claim, following receipt of notice from the Indemnified Party of the Claim, the Indemnifying Party shall have sixty (60) days to make such investigation of the Claim as is considered necessary or desirable. For the purpose of such investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the Claim, together with all such other information as the Indemnifying Party may reasonably request. If both parties agree at or prior to the expiration of such 60-day period (or any mutually agreed upon extension thereof) to the validity and amount of such Claim, the Indemnifying Party shall immediately pay to the Indemnified Party the full agreed upon amount of the Claim.

 

(d) Third Party Claims. With respect to any Third Party Claim, the Indemnified Party shall have the exclusive right, at the expense of the Indemnifying Party, to contest, settle or pay the amount claimed and to retain counsel and other experts or advisers selected by the Indemnified Party in its sole discretion in connection therewith; provided, however, that the Indemnified Party shall not settle any Third Party Claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. If the Indemnified Party elects to assume such control, the Indemnifying Party shall have the right, at its sole expense, to participate in the negotiation, settlement or defence of such Third Party Claim. If any Third Party Claim is of a nature such that the Indemnified Party is required by applicable law to make a payment to any person (a “Third Party”) with respect to the Third Party Claim before the completion of settlement negotiations or related legal proceedings, the Indemnified Party may make such payment and the Indemnifying Party shall, forthwith after demand by the Indemnified Party, reimburse the Indemnified Party for such payment If the amount of any liability of the Indemnified Party under the Third Party Claim in respect of which such payment was made, as finally determined, is less than the amount that was paid by the Indemnifying Party to the Indemnified Party, the Indemnified Party shall, forthwith after receipt of the difference from the Third Party, pay the amount of such difference to the Indemnifying Party.

 

(e) Payment and Cooperation. The Indemnifying Party shall pay to the Indemnified Party all amounts for which the Indemnifying Party is liable pursuant to this section promptly after the Indemnified Party incurs the Loss in respect of which such liability arises. The Indemnified Party and the Indemnifying Party shall co-operate fully with each other with respect to Third Party Claims, and shall keep each other fully advised with respect thereto (including supplying copies of all relevant documentation promptly as it becomes available).

 

(f)

Tax Effect. If any payment received by an Indemnified Party hereunder (an “Indemnity Payment”) would constitute income for tax purposes to such Indemnified Party, the Indemnifying Party shall pay a Tax Gross Up (as defined below) to the Indemnified Party at the same time and on the same

 

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terms, as to interest and otherwise, as the Indemnity Payment. The amount of any Loss for which indemnification is provided shall be adjusted to take into account any tax benefit realized by the Indemnified Party or any of its Affiliates by reason of the Loss for which indemnification is so provided or the circumstances giving rise to such Loss. For purposes of this paragraph (f), any tax benefit shall be taken into account at such time as it is received by the Indemnified Party or its Affiliate. For purposes of this paragraph (f), “Tax Gross Up” shall mean, with respect to any Indemnity Payment, such additional amount (calculated in accordance with the Calculation Method (as defined below)) as is necessary to place the Indemnified Party in the same after tax position as it would have been in had such Indemnity Payment been received tax free; and “Calculation Method”, with respect to the calculation of any Tax Gross Up on any Indemnity Payments, shall mean that such Tax Gross Up shall be calculated by using the combined Canadian federal and Canadian provincial income tax rate applicable to the Indemnified Party for the taxation year in which the Indemnity Payment is made and, except as provided in this paragraph (f), without regard to any losses, credits, refunds or deductions that the Indemnified Party may have which could affect the amount of tax payable on any such Indemnity Payment.

 

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Lock-Up Agreement

Exhibit 2(i)

LOCK-UP AGREEMENT

STRICTLY CONFIDENTIAL

December 29, 2006

 

TO: THE PERSONS LISTED ON SCHEDULE “A” HERETO (each such person a “Subject Person” and collectively the “Subject Persons”)

This agreement (the “Agreement”) sets out the terms and conditions upon which Nucor Corporation (“Nucor”) will cause a corporation to be designated by it (the “Offeror”) to make an offer (the “Offer”) to purchase all of the outstanding common shares (“Shares”) of Harris Steel Group Inc. (the “Company”).

This Agreement also sets out the terms and conditions of the several and not joint agreements of each Subject Person to: (i) support the Offer; and (ii) to deposit or cause to be deposited the Shares owned or controlled by such Subject Person under the Offer (collectively referred to as the “Subject Shares”).

Each Subject Person enters into this Agreement upon the basis that he or she intends to both (i) engage in a re-organization of certain of the holdings of the Shares in which it has a beneficial interest prior to the take-up of the Shares by the Offeror under the Offer; and (ii) use the Holdco Alternative to tender to the offer all or some of their Subject Shares; and Nucor and the Offeror acknowledge and agree that each Subject Person enters into this Agreement upon this basis.

In connection with the Offer, Nucor has entered into a support agreement with the Company dated the date hereof (the “Support Agreement”) pursuant to which, among other things, the Company has agreed to support the Offer. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Support Agreement.

 

1 THE OFFER

 

1.1

Subject to the provisions of the Support Agreement, not later than the Latest Mailing Time, Nucor shall cause the Offeror to mail the Offer in accordance with the terms of the Support Agreement. The Offer shall: (i) offer not less than Cdn.$46.25 in cash for each Share; and (ii) expire not earlier than midnight (Toronto time) on the 35th day after the date of mailing of the Offer, subject to the right of the Offeror to extend the period during which Shares may be deposited under the Offer (as it may be amended, the “Expiry Time”). Notwithstanding any other provision hereof, but subject to the conditions of Section 2.1(2) of the Support Agreement, the Offer will permit the Subject Persons to tender to the Offer through the use of the Holdco Alternative and the Subject Persons shall be permitted to effect all transactions required to reorganize in order to accept the


 

Holdco Alternative. Subject to the satisfaction of the conditions of the Offer as contemplated in Section 1.2 below, Nucor shall abide by and perform its obligations under this agreement, the Support Agreement and the Offer, including, but not limited to, causing the Offeror to take-up and pay for Subject Shares deposited under the Offer (or, if applicable, acquire any Holdco Shares pursuant to and in accordance with the terms and conditions of the Holdco Agreements) as soon as reasonably possible and, in any event, not later than three (3) business days following the time at which the Offeror becomes obligated to take up such Shares under the Offer pursuant to the Securities Act (Ontario) and the regulations thereunder and other applicable securities laws (collectively, “Applicable Securities Laws”).

 

1.2 The obligation of Nucor to cause the Offeror to make the Offer and to take up and pay for the Subject Shares under the Offer (or, if applicable, acquire any Holdco Shares pursuant to a Holdco Agreement) shall not be subject to any conditions, save and except for those conditions set out in the Support Agreement (and, in the case of any Holdco Shares, pursuant to the Holdco Agreement with the Subject Person). The conditions to the making of the Offer and of the Offer itself are for the sole benefit of Nucor or the Offeror and may be waived in whole or in part in their sole discretion.

 

1.3 Each Subject Person acknowledges and agrees that the Offeror may, in its sole discretion, modify or waive any term or condition of the Offer; provided that, and the Offeror hereby covenants that, it shall not, without the prior written consent of the Subject Persons and the Company, increase the Minimum Condition, impose additional conditions to the Offer, decrease the consideration per Share, decrease the number of Shares in respect of which the Offer is made or change the form of consideration payable under the Offer (other than to add additional forms of consideration) or in any other respect that is material and adverse to the interests (including economic benefits) of the Subject Persons. It is further understood and agreed that the Offeror may, in its sole discretion, waive any conditions of the Offer in whole or in part at any time that are for the benefit of Nucor or the Offeror.

 

1.4 Nucor hereby covenants to pay to the Subject Person the highest price per Share paid to any other shareholder of the Company pursuant to the Offer, as the same may be extended or varied from time to time.

 

2 COVENANTS OF THE SUBJECT PERSONS

 

2.1 Each Subject Person hereby agrees that he, she or it shall not, from the date hereof until the earlier of: (i) the termination of this Agreement pursuant to Section 5; and (ii) the Expiry Time, except in accordance with the terms of this Agreement:

 

  (a) acquire direct or indirect beneficial ownership or holding of or control or direction over any additional Shares or obtain or enter into any right to do so;

 

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  (b) grant or agree to grant any proxy or other right to the Shares, or enter into any voting trust or pooling agreement or arrangement or enter into or subject any of such Shares to any other agreement, arrangement, understanding or commitment, formal or informal, with respect to or relating to the voting thereof;

 

  (c) directly or indirectly, through any officer, director, employee, advisor, representative, agent or otherwise (as applicable), make, solicit, assist, initiate, encourage, or otherwise facilitate any inquiries, the submission of proposals or offers from any other person, corporation, partnership or other business organization whatsoever regarding an Acquisition Proposal, participate in any discussions or negotiations regarding any Acquisition Proposal, or otherwise cooperate in any way with, or assist or participate in, knowingly facilitate or encourage, any effort or attempt by any other person to do or seek to do any of the foregoing; provided, however, that the foregoing shall not prevent a Subject Person who is a member of the board of directors of the Company or is a senior officer of the Company (but not any other Subject Person) from responding (solely in his capacity as such) to any bona fide Acquisition Proposal in the circumstances expressly permitted by and in accordance with Section 3.2 of the Support Agreement; provided always that, for greater certainty the Subject Person acknowledges and agrees that nothing in this subsection 2.1(c) or subsection 2.1(f) shall affect the Subject Person’s obligation to tender (and, except as permitted by this Agreement, not withdraw) the Subject Shares to the Offer in accordance with the terms and conditions of this Agreement (or, if applicable, to transfer the Subject Person’s Holdco Shares to the Offeror in accordance with the terms and conditions of the Holdco Agreement between the Subject Person and the Offeror);

 

  (d) option, dispose of, pledge, encumber, grant a security interest in or otherwise convey any Shares or any right or interest therein, or agree to do any of the foregoing except pursuant to the Offer or in connection with any internal re-organization in preparation for using the Holdco Alternative;

 

  (e) except as required by applicable law, prior to the public announcement by Nucor and the Company of the Offer, directly or indirectly, disclose to any person, firm or corporation (other than the Company and the financial and legal advisors of the Company) the existence of the terms and conditions of this Agreement, or any terms or conditions or other information concerning the Offer; and
 

 

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  (f) not take any action to encourage or assist any other person to do any of the prohibited acts referred to in foregoing provisions of this Section 2.1, provided however, that the foregoing shall not prevent a Subject Person who is a director or officer of the Company from performing his, her or its duties or obligations as a director or officer of the Company.

 

2.2 Each Subject Person hereby agrees that he, she or it shall, from the date hereof until the earlier of: (i) the termination of this Agreement pursuant to Section 5; and (ii) the Expiry Time, except in accordance with the terms of this Agreement:

 

  (a) immediately cease any existing discussions or negotiations it is engaged in with any parties other than Nucor with respect to any potential Acquisition Proposal; provided, however, that the foregoing shall not prevent a Subject Person who is a member of the board of directors of the Company or is a senior officer of the Company (but not any other Subject Person) from responding (solely in his capacity as such) in the circumstances expressly permitted by and in accordance with Section 3.2 of the Support Agreement; provided always that, for greater certainty the Subject Person acknowledges and agrees that nothing in this subsection 2.2(a) shall affect the Subject Person’s obligation to tender (and, except as permitted by this Agreement, not withdraw) the Subject Shares to the Offer in accordance with the terms and conditions of this Agreement (or, if applicable, to transfer the Subject Person’s Holdco Shares to the Offeror in accordance with the terms and conditions of the Holdco Agreement between the Subject Person and the Offeror).

 

  (b) as soon as reasonably practicable notify Nucor of: (i) any proposal, inquiry, offer or request that the Subject Person receives, or of which the Subject Person becomes aware, that the Subject Person reasonably believes constitutes a bona fide Acquisition Proposal; or (ii) any request that the Subject Person receives for discussions or negotiations, or any request for non-public information relating to the Company or any of its subsidiaries or for access to the properties, books or records of the Company or any of its subsidiaries by any person or entity that informs him, her or it that it is considering making, or has made, an Acquisition Proposal. Such notice to Nucor shall be made, from time to time, orally and in writing and shall include a description of the terms and conditions of, and the identity of the person making, any proposal, inquiry, offer or request and shall include copies of any such proposal, inquiry, offer or request or any amendment to any of the foregoing; and
 

 

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  (c) exercise the voting rights attaching to the Subject Shares, solely in its capacity as a shareholder, to oppose any proposed action by the Company, its shareholders, any of its subsidiaries or any other person: (i) in respect of any amalgamation, merger, sale of the Company’s or its affiliates’ or associates’ assets, take-over bid, plan of arrangement, reorganization, recapitalization, or other business combination or similar transaction involving the Company or any of its subsidiaries other than the Offer; (ii) which would reasonably be regarded as being directed towards or likely to prevent or delay the take-up and payment of the Subject Shares deposited under the Offer, the implementation of or entering into a Holdco Alternative or the successful completion of the Offer, including without limitation any amendment to the articles or by-laws of the Company or its corporate structure; or (iii) which would reasonably be expected to result in a Material Adverse Effect in respect of the Company. In connection therewith, the Subject Person hereby appoints and Nucor as attorney in fact (which appointment is unconditional, irrevocable (subject to Section 5), and is coupled with an interest) for and on his behalf to execute a proxy appointing such person designated by Nucor to attend and act on behalf of the Subject Person at any meeting of the Company in respect of any of the matters referred to in this subsection 2.2(c), and if, pursuant to this power of attorney, Nucor has executed and not revoked a proxy in respect of such a meeting, which proxy has been accepted by the Company, then in such circumstances the Subject Person shall not be responsible for voting under this subsection 2.2(c). Nucor shall advise the Subject Person upon executing any proxies in respect of the Subject Person.

 

2.3 Each Subject Person, in its capacity as a shareholder, covenants to use reasonably commercial efforts to co-operate with Nucor and the Offeror in making all requisite regulatory filings under applicable competition Laws and Securities Laws.

 

3 AGREEMENT TO TENDER

 

3.1 Subject to the terms and conditions herein, each Subject Person agrees to accept the Offer and to cause to be deposited and cause all acts and things to be done to deposit all of the Subject Shares owned or controlled by such Subject Person and, in any event, not less than the number of Shares set forth opposite such Subject Person’s name on Schedule A hereto, together with a duly completed and executed letter of transmittal, under the Offer on the terms and conditions set out herein.

 

3.2

Each Subject Person agrees that if the Offeror makes the Offer in compliance with Section 1.1 and Section 1.2, such Subject Person shall, unless the Subject Person

 

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properly makes a Holdco Election in which case Section 3.3 shall apply, deposit or cause to be deposited with the depositary under the Offer, prior to the Holdco Election Deadline, all of the Subject Shares in accordance with the terms of the Offer, and thereafter, except as may be permitted by this Agreement, such Subject Person shall not withdraw or take any action to withdraw any of such Subject Person’s Subject Shares deposited under the Offer (notwithstanding any statutory rights or other rights under the terms of the Offer or otherwise which such Subject Person might have). In the event such Subject Person does not make a Holdco Election, such Subject Person nevertheless hereby agrees to comply with and be bound by the covenants set forth in section (c) ‘Bump Covenants’ in Schedule “D” of the Support Agreement and agrees to execute an agreement to that effect.

 

3.3 If the Offeror makes the Offer in compliance with Section 1.1 and Section 1.2 hereof, the Subject Person shall be entitled to make a Holdco Election prior to the Holdco Election Deadline in compliance with Section 2.1(2) of the Support Agreement, in which case Nucor, the Offeror and the Subject Person will be required to enter into a Holdco Agreement and Holdco Indemnity Agreement providing for the acquisition by the Offeror of the Holdco Shares that are the subject of the Holdco Election. The Subject Person shall tender or deposit or cause to be deposited with the depositary under the Offer, prior to the Holdco Election Deadline, all of the Shares held and, on the date immediately prior to the Expiry Date, all Holdco Shares. The Holdco Shares that are the subject of the Holdco Agreement will be acquired by the Offeror in accordance with the terms and conditions of such Holdco Agreement, and the certificates representing the Subject Shares that were tendered to the depositary and acquired by the Offeror pursuant to the Holdco Agreement shall continue to be retained by the depositary. Such Subject Person shall not withdraw or take any action to withdraw any of such Subject Person’s Shares and Holdco Shares that are deposited under the Offer (notwithstanding any statutory rights or other rights under the terms of the Offer or otherwise which such Subject Person might have), provided that such Subject Person may withdraw and take any action relating to the withdrawal of any Shares or Holdco Shares tendered to the Offer, directly or indirectly, by the Subject Person in the event that this Agreement is terminated for any reason in accordance with its terms.

 

3.4 For greater certainty, for the purposes of this Agreement, the term “Subject Shares” shall refer to all the Shares and Holdco Shares that the respective Subject Person is required to tender under the Offer pursuant to the terms of this Agreement and any Holdco Election, and shall include all shares or other securities into or for which the Subject Shares may be converted, exchanged or otherwise changed pursuant to any reorganization, merger, amalgamation or other transaction involving the Shares prior to the acquisition of the Subject Shares by the Offeror.
 

 

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4 REPRESENTATIONS AND WARRANTIES

 

4.1 Each Subject Person by its acceptance hereof represents and warrants as follows and acknowledges that Nucor is and the Offeror will be relying upon such representations and warranties in connection with entering into this Agreement and the making of the Offer and the purchase by the Offeror of the Subject Shares:

 

  (a) (i) such Subject Person is the beneficial owner of all of the Shares set forth opposite such Subject Person’s name on Schedule A; (ii) the only securities of the Company beneficially owned, directly or indirectly, or over which control or direction is exercised by or through such Subject Person are those listed on Schedule A beside such Subject Person’s name, (iii) such Subject Person has no agreement or option, or right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option, for the purchase or acquisition by such Subject Person or transfer to such Subject Person of additional securities of the Company;

 

  (b) such Subject Person, alone or together with one or more other Subject Persons, has the sole right to sell and vote all the Subject Shares now beneficially owned or controlled and will have the right to sell and vote all the Subject Shares hereafter acquired or controlled by such Subject Person and all the Subject Shares held or controlled by such Subject Person will, at the time at which the Offeror takes up and pays for such Subject Shares, be beneficially owned or controlled by such Subject Person with good and marketable title thereto, free and clear of any and all liens, charges, restrictions, security interests, adverse claims, pledges, encumbrances;

 

  (c) no person, firm or corporation has any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option, for the purchase, acquisition or transfer from such Subject Person of any of the Subject Shares held by such Subject Person or any interest therein or right thereto, except Nucor and the Offeror pursuant to this Agreement and other Subject Persons;

 

  (d)

none of the execution and delivery by such Subject Person of this Agreement or the completion or performance of the transactions contemplated hereby or the compliance by such Subject Person with such Subject Person’s obligations hereunder will result in a breach of: (i) any agreement or instrument to which such Subject Person is a party or by which such Subject Person or any of such Subject Person’s property or assets are bound; (ii) any judgment, decree, order or award of any court,

 

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governmental body or arbitrator; or (iii) any law, statute, ordinance, regulation or rule relevant in the context of the Offer or this Agreement; and

 

  (e) this Agreement has been duly executed and delivered by such Subject Person and constitutes a valid and binding obligation of such Subject Person, enforceable against such Subject Person in accordance with its terms, except as may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors’ rights generally and subject to the qualification that equitable remedies may only be granted in the discretion of a court of competent jurisdiction.

 

4.2 Nucor represents and warrants as follows and acknowledges that each Subject Person is relying upon such representations and warranties in connection with the entering into of this Agreement and the sale by the Subject Persons to the Offeror of the Subject Shares:

 

  (a) Nucor has been duly incorporated or formed under the laws of the State of Delaware and is validly existing and has all necessary corporate power, authority and capacity to own its property and assets and to carry on its business as currently owned and conducted;

 

  (b) Nucor has the necessary corporate power, authority and capacity to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Nucor and the consummation by Nucor of the transactions contemplated herein have been duly authorized by the board of directors of Nucor, and no other corporate proceedings on the part of Nucor is necessary to authorize this Agreement. This Agreement has been duly executed and delivered by Nucor and constitutes a legal, valid and binding obligation of Nucor, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and other applicable laws affecting creditors’ rights generally, and to general principles of equity;

 

  (c) Nucor has made adequate arrangements to ensure that the required funds will be available to the Offeror to effect payment in full for all the Shares acquired pursuant to the Offer; and

 

  (d)

none of the execution and delivery by Nucor of this Agreement or the completion or performance of the transactions contemplated hereby or the compliance by Nucor with its obligations hereunder will result in a breach of: (i) the constating documents of Nucor; (ii) any agreement or instrument to which such Nucor is a party or by which Nucor or its property or assets are bound; (iii) any judgment, decree, order or award of

 

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any court, governmental body or arbitrator; or (iv) any law, statute, ordinance, regulation or rule relevant in the context of the Offer or this Agreement.

 

5 TERMINATION

 

5.1 This Agreement may be terminated by notice in writing:

 

  (a) at any time by mutual consent of Nucor and the Subject Persons;

 

  (b) by the Subject Persons if:

 

  (i) the Offeror has not made the Offer within the time period provided for in Section 1.1 otherwise than as a result of the non-satisfaction of a Condition in Section 2.1(1) of the Support Agreement and provided that the Company is not otherwise in breach of the Support Agreement;

 

  (ii) the terms of the Offer do not conform with the description of the Offer contained in Section 1;

 

  (iii) Nucor is in material default of any covenant or condition contained herein or in the Support Agreement;

 

  (iv) the Holdco Alternative is not made available to the Subject Person or any election to use the Holdco Alternative is not accepted by Nucor or the Offeror in accordance with the terms of the Support Agreement; or

 

  (v) the Offer has been made and the Offeror has not (for any reason other than the failure of any Subject Person to deposit their Subject Shares for purchase) taken up and paid for all Subject Shares deposited under the Offer in the manner contemplated hereunder by the latest applicable date specified in Section 8.1(d) - “Termination” of the Support Agreement;

 

  (c) by Nucor if the Support Agreement is terminated by Nucor in accordance with its terms;

 

  (d) by Nucor if:

 

  (i) the Subject Person has not complied with all of the covenants contained herein in any material respect or if any representation or warranty of the Subject Persons under this Agreement is untrue or incorrect in any material respect; or

 

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  (ii) any of the conditions to the Offer, as set out in the Support Agreement for the benefit of Nucor or the Offeror, are not satisfied or waived by the Offeror at or prior to the Expiry Time;

provided, however, that upon termination of this Agreement, no party shall have liability or obligations to any other person, except in respect of any breach by any other party of its obligations hereunder prior to the termination hereof. Upon termination of this Agreement, the Subject Person shall be entitled to withdraw any of his, her or its Subject Shares deposited under the Offer.

 

6 TAX MATTERS

 

6.1 Definitions.

In Sections 6.1 and 6.2, the following terms have the following meanings:

Canadian Subsidiaries” has the meaning ascribed to such term in the Support Agreement.

Canadian Tax Act” means the Income Tax Act (Canada), as amended.

Directly Owned Subsidiaries” has the meaning ascribed to such term in the Support Agreement.

Prohibited Period” means the period beginning on the Take-Up Date and ending 48 months thereafter.

Prohibited Property” means:

 

  (a) any property owned by the Company or its Canadian Subsidiaries immediately prior to the Take-Up Date, and

 

  (b) any property, other than a property referred to in Section 6.2(b)(i), the fair market value of which is (i) wholly or partly attributable to any property that was owned by the Company or its Canadian Subsidiaries immediately prior to Take-Up Date, or (ii) determinable primarily by reference to the fair market value of, or to any proceeds of disposition of, any property that was owned by the Company or its Canadian Subsidiaries immediately prior to Take-Up Date.

but does not include:

 

  (c) property that is a security of a Person (other than a Subject Company) where such securities of the Person are widely held and available to the public, provided that the aggregate fair market value of any property described in section 6.2(b)(i) and any Prohibited Property owned by such Person represents less than 10% of the fair market value of all the property owned by the Person at the time such property is acquired.

 

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Related Party” means, in respect of a Person, (a) any Person who is an Affiliate of the Person, (b) any Person who is “related” to the Person within the meaning of and for the purposes of the Canadian Tax Act, or (c) any Person with whom such Person, does not deal at arm’s length within the meaning of the Canadian Tax Act.

Subject Company” means Nucor.

Take-Up Date” means the date the Offeror acquires over 50% of the outstanding Shares pursuant to the Offer, except that, in the case of a Subject Person that sells Shares pursuant to the Holdco Alternative, shall mean the date the Offeror acquires the Holdco Shares in respect of such Holdco Alternative.

 

6.2 Representations, Warranties and Covenants.

 

  (a) Based on representations made to the Subject Persons by Nucor, each Subject Person acknowledges that the intention of Offeror, after the Offeror has acquired all of the outstanding Shares and Holdco Shares, is to amalgamate Offeror or an Affiliate of Offeror with the Company (or successor by amalgamation to the Company) in the manner described in subsection 87(11) of the Canadian Tax Act (the amalgamated corporation being referred to in this Section 6.2 as “Amalco”), and then to make designations pursuant to paragraph 88(1)(d) of the Canadian Tax Act in respect of non depreciable capital property (including shares of the Directly Owned Subsidiaries) that will be owned by Amalco immediately after the amalgamation such that the cost to Amalco of the property will be determined in accordance with paragraph 88(1)(c) of the Canadian Tax Act, including an addition to the cost determined under paragraph 88(1)(d) of the Canadian Tax Act and Nucor, and each Subject Person acknowledges that certain transactions entered into or actions taken by all or any Subject Person could have the effect of preventing the Offeror from obtaining a full tax cost ‘bump’ pursuant to paragraph 88(1)(d) of the Canadian Tax Act and in connection therewith and with a view to ensuring that the ‘bump’ is obtained only, each Subject Person makes the representations, warranties and covenants set forth below.

 

  (b) Each Subject Person severally represents, warrants and covenants that he, she or it will not, and will ensure that each Related Party of the Subject Person during the Prohibited Period will not:

 

- 11-


  (i) own during the Prohibited Period:

(A) any share or debt of the Subject Company, or

(B) any right to, or interest in, or option in respect of any share or debt of the Subject Company; or

 

  (ii) own during the Prohibited Period any Prohibited Property;

 

  other than:

 

  (iii) any property that was acquired by the Subject Person or Related Party, as the case may be, prior to the time at which the Subject Person had knowledge of the specific transaction in respect of which this Agreement is being entered into and any property acquired in substitution therefor.

 

(c) Each Subject Person severally represents, warrants and covenants that he, she or it will ensure that no corporation, other than a Related Party of the Subject Person to which Section 6.2(b) applies, that meets the description in clause 88(1)(c)(vi)(B)(III) of the Canadian Tax Act, will own during the Prohibited Period:

 

  (i) any property referred to in Section 6.2(b)(i); or

 

  (ii) any Prohibited Property.

 

(d) For the purposes of Section 6.1 and this Section 6.2, (i) a Person who is a beneficiary of a trust shall be deemed to own that proportion of all shares of a corporation owned by the trust at that time that the fair market value at that time of the beneficial interest of the beneficiary in the trust is of the fair market value at that time of all beneficial interests in the trust, except that where a beneficiary’s share of the income or capital of the trust depends on the exercise by any Person of, or the failure by any Person to exercise, any discretionary power, then the Person who is the beneficiary shall be deemed to own all shares of a corporation owned at that time by the trust; and (ii) a Person who is a “member” of a partnership for purposes of the Canadian Tax Act shall be deemed to own that proportion of all shares of a corporation that are property of the partnership at that time that the fair market value at that time of the member’s interest in the partnership is of the fair market value at that time of the interests of all members in the partnership.

 

- 12 -


  (e) For the purposes of this Section 6.2, the provisions of subparagraph 88(1)(c.2)(ii) of the Canadian Tax Act shall apply to any partnership or trust.

 

7 GENERAL

 

7.1 This Agreement shall become effective in respect of each Subject Person upon execution and delivery thereof by such Subject Person.

 

7.2 Each Subject Person hereby consents to the disclosure of the substance of this Agreement in any press release or any circular relating to the Offer and to the filing of this Agreement as may be required pursuant to applicable securities laws. The parties shall co-ordinate in the making and dissemination of any public announcement relating to the subject matter of this Agreement. A copy of this Agreement may be provided to the directors of the Company.

 

7.3 This Agreement shall be binding upon and shall enure to the benefit of and be enforceable by each of the parties hereto and their respective successors, assigns, heirs, executors and personal representatives. This Agreement shall not be assignable by any party without the prior written consent of the other parties.

 

7.4 Time shall be of the essence of this Agreement.

 

7.5 If any provision of this Agreement is determined to be void or unenforceable, in whole or in part, it shall be severable from all other provisions hereof and shall be deemed not to affect or impair the validity of any other provision hereof and each such provision is deemed to be separate and distinct.

 

7.6 Any notice or other communication required or permitted to be give hereunder shall be sufficiently given if delivered or sent by telecopier or facsimile transmission:

 

  (a) in the case of a Subject Person, c/o John Harris, 318 Arvin Avenue, Stoney Creek, Ontario, L8E 2M2, Canada, Facsimile: (416) 590-9560, with a copy, which shall not constitute notice, to: Cassels Brock & Blackwell LLP, Scotia Plaza, Suite 2100, 40 King Street West, Toronto, Ontario, M5H 3C2, Canada, Attention: Cam Mingay (Facsimile: (416) 640-3163);

 

  (b) in the case of Nucor and the Offeror, c/o Joseph Rutkowski and Hamilton Lott, Nucor Corporation, 1915 Rexford Road, Charlotte, NC 28211, USA, Facsimile: (704) 362-4208, with a copy, which shall not constitute notice, to: Moore & Van Allen, PLLC, Suite 4700, 100 North Tryon Street, Charlotte, North Carolina 28202-4003, U.S.A., Attention: Ernest S. DeLaney III (Facsimile: 704-339-5819) and Stikeman Elliott LLP, 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario, M5L 1B9, Attention: William J. Braithwaite (Facsimile: 416-947-0866); and

 

- 13 -


  (c) at such other address as the party to which such notice or other communication is to be given has last notified the party giving the same in the manner provided in this section and if so given shall be deemed to have been received on the date of such delivery or sending (or, if such day is not a business day, on the next following business day).

 

7.7 This Agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

 

7.8 The parties hereto hereby irrevocably and unconditionally consent to and submit to the courts of the Province of Ontario for any actions, suits or proceedings arising out of or relating to this Agreement or the matters contemplated hereby (and agree not to commence any action, suit or proceeding relating thereto except in such courts) and further agree that service of any process, summons, notice or document by registered mail to the addresses of the parties hereto set forth in this Agreement shall be effective service of process for any action, suit or proceeding brought against any party in such court. The parties hereto hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the matters contemplated hereby in the courts of the Province of Ontario and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding so brought has been brought in an inconvenient forum.

 

7.9 This Agreement constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes any prior agreement, representation or understanding with respect hereto.

 

7.10 For the purposes hereof, the term “business day” means any day other than a Saturday or Sunday upon which banks are open for business in each of Toronto, Ontario and New York, New York.

 

7.11

Each Subject Person recognizes and acknowledges that this Agreement is an integral part of Nucor agreeing to cause the Offeror to make the Offer, and that Nucor would not contemplate proceeding with causing the Offeror to make the Offer unless this Agreement was executed, and that a breach by such Subject Person of any covenants or other commitments contained in this Agreement will cause Nucor and the Offeror to sustain injury for which it would not have an adequate remedy at law for money damages. Therefore, each Subject Person agrees that, in the event of any such breach, Nucor and the Offeror shall be

 

- 14 -


entitled to the remedy of specific performance of such covenants or commitments and preliminary and permanent injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity, and such Subject Person further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief.

 

7.12 Nucor may designate the Offeror and may assign all or any part of its rights or obligations under this Agreement to any affiliate (as such term is defined in the Securities Act (Ontario)), but no such assignment shall relieve Nucor of its obligations hereunder. This Agreement shall not otherwise be assignable by any Party without the prior written consent of the other parties.

 


If you are in agreement with the foregoing, kindly signify your acceptance by signing, dating and returning to the Offeror the second copy of this letter by facsimile or otherwise.

 

- 15 -


This Agreement may be signed in counterparts that together shall be deemed to constitute one valid and binding agreement.

 

NUCOR CORPORATION

By:

 

/s/ Joseph A. Rutkowski

 

Name:  

Joseph A. Rutkowski

Title:  

Executive Vice President

We hereby accept the foregoing at Toronto, Ontario, on the 29th day of December, 2006.

 

SIGNED, SEALED AND DELIVERED by

  )  

John Harris                                                          in the presence of:

  )  

 

Marie Marchese

  )  

 

/s/ John Harris

Name

  )   John Harris

 

1691 Summergrove Cr., Mississauga

  )  

Address

  )  

 

Legal Assistant

  )  

Occupation

  )  

SIGNED, SEALED AND DELIVERED by

  )  

David E. Harris                                                  in the presence of:

  )  

 

Stuart M. Grey

  )  

 

/s/ David Harris

Name

  )   David Harris

 

36 Hampstead Rd. Jamaica Plain, MA

  )  

Address

  )  

 

Chiropractor

  )  

Occupation

  )  

 

- 16 -


SIGNED, SEALED AND DELIVERED by

  )  

Judith Harris                                                      in the presence of:

  )  

 

Tony Woolfson

  )  

 

/s/ Judith Harris

Name   )   Judith Harris

 

206 St. James St., London

  )  

Address

  )  

 

Educator

  )  

Occupation

  )  

SIGNED, SEALED AND DELIVERED by

  )  

Naomi Ruth Harris                                          in the presence of:

  )  

 

Tomomi Kamiya

  )  

 

/s/ Naomi Ruth Harris

Name   )   Naomi Ruth Harris

 

5-11-16 Roppongi Minato-Ku, Tokyo

  )  

Address

  )  

 

Receptionist

  )  

Occupation

  )  

 

- 17 -


SIGNED, SEALED AND DELIVERED by   )  
Paul Kelly                                                                          in the presence of:   )  

 

Allan Goodman

  )   /s/ Paul Kelly
Name   )  

Paul Kelly

 

 

63 Langtry Place Thornhill, Ontario

  )  
Address   )  

 

Lawyer

  )  
Occupation   )  

 

- 18 -


SCHEDULE A

SUBJECT PERSONS’ OWNERSHIP OF SECURITIES OF THE COMPANY

 

Subject Person

  

Shares of the Company beneficially owned

David Harris    3,280,720 common shares
John Harris    3,573,280 common shares
Judith Harris    3,280,720 common shares
Naomi Harris    3,280,720 common shares
Paul Kelly    300,000 common shares
2006 Annual Report
    4            FINANCIAL HIGHLIGHTS

 


FINANCIAL HIGHLIGHTS (dollar amounts in thousands, except per share data)

 


 

     2006     2005     % CHANGE  

FOR THE YEAR

      

Net sales

   $ 14,751,270     $ 12,700,999     16 %

Earnings:

      

Earnings before income taxes

     2,693,818       2,016,368     34 %

Provision for income taxes

     936,137       706,084     33 %
                  

Net earnings

     1,757,681       1,310,284     34 %

Per share:

      

Basic(1)

     5.73       4.17     37 %

Diluted(1)

     5.68       4.13     38 %

Dividends declared per share(1)

     2.15       0.93     131 %

Percentage of net earnings to net sales

     11.9 %     10.3 %   16 %

Return on average equity

     38.6 %     33.9 %   14 %

Capital expenditures

     338,404       331,466     2 %

Depreciation

     363,936       375,054     -3 %

Sales per employee

     1,273       1,159     10 %

AT YEAR END

      

Working capital

   $ 3,225,008     $ 2,815,854     15 %

Property, plant and equipment, net

     2,856,415       2,855,717     —    

Long-term debt

     922,300       923,550     —    

Stockholders’ equity

     4,825,989       4,279,788     13 %

Per share(1)

     16.04       13.80     16 %

Shares outstanding(1)

     300,949       310,220     -3 %

Employees

     11,900       11,300     5 %

(1) Per share amounts and shares outstanding have been adjusted to reflect the two-for-one stock split effective May 2006.

FORWARD-LOOKING STATEMENTS Certain statements made in this annual 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 volatility in steel prices and 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 and steel products, which, in the case of many of our products, is driven by the level of non-residential construction activity in the U.S.; (4) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (5) uncertainties surrounding the global economy, including excess world capacity for steel production and fluctuations in currency 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.


LOGO


AT A GLANCE            11    

 

STEEL MILLS SEGMENT

  

STEEL PRODUCTS SEGMENT

 

BAR MILLS

 

Products: Steel bars, angles and other products for automotive, construction, farm machinery, metal buildings, furniture and recreational equipment.

 

Darlington, South Carolina

Norfolk, Nebraska

Jewett, Texas

Plymouth, Utah

Auburn, New York (Nucor Steel Auburn, Inc.)

Birmingham, Alabama (Nucor Steel Birmingham, Inc.)

Kankakee, Illinois (Nucor Steel Kankakee, Inc.)

Jackson, Mississippi (Nucor Steel Jackson, Inc.)

Seattle, Washington (Nucor Steel Seattle, Inc.)

Marion, Ohio (Nucor Steel Marion, Inc.)

Wallingford, Connecticut (Nucor Steel Connecticut, Inc.)

Memphis, Tennessee (Nucor Steel Memphis, Inc.)

 

SHEET MILLS

 

Products: Flat-rolled steel for automotive, appliance, pipe and tube, construction and other industries.

 

Crawfordsville, Indiana

Hickman, Arkansas

Berkeley County, South Carolina

Decatur, Alabama (Nucor Steel Decatur, LLC)

 

NUCOR-YAMATO STEEL COMPANY

 

Products: Super-wide flange steel beams, pilings and heavy structural steel products for fabricators, construction companies, manufacturers and steel service centers.

 

Blytheville, Arkansas

 

BEAM MILL

 

Products: Wide flange steel beams, pilings and heavy structural steel products for fabricators, construction companies, manufacturers and steel service centers.

 

Berkeley County, South Carolina

 

PLATE MILLS

 

Products: Steel plate for manufacturers of heavy equipment, rail cars, ships, barges, refinery tanks, pipe and tube, pressure vessels, construction and others.

 

Hertford County, North Carolina

 

Tuscaloosa, Alabama (Nucor Steel Tuscaloosa, Inc.)

  

 

VULCRAFT AND VERCO

 

Products: Steel joists, joist girders and steel deck for non-residential building construction.

 

Florence, South Carolina

Norfolk, Nebraska

Fort Payne, Alabama

Grapeland, Texas

St. Joe, Indiana

Brigham City, Utah

Chemung, New York (Vulcraft of New York, Inc.)

Phoenix, Arizona (Verco Decking, Inc.)

Fontana, California (Verco Decking, Inc.)

Antioch, California (Verco Decking, Inc.)

 

COLD FINISH

 

Products: Cold finished steel bars for shafting and precision machined parts.

 

Norfolk, Nebraska

Darlington, South Carolina

Brigham City, Utah

Oak Creek, Wisconsin (Nucor Cold Finish Wisconsin, Inc.)

 

BUILDING SYSTEMS

 

Products: Metal buildings and metal building components for commercial, industrial and institutional building markets.

 

Waterloo, Indiana

Swansea, South Carolina

Terrell, Texas

Brigham City, Utah (Nucor Building Systems Utah, LLC)

 

FASTENER

 

Products: Steel hexhead cap screws, structural bolts and hex bolts for automotive, machine tools, farm implements, construction and military applications.

 

St. Joe, Indiana

 

NUCON STEEL

 

Products: Load bearing light gauge steel framing systems for the commercial and residential construction markets.

 

Denton, Texas

Dallas, Georgia

  

OTHER

  

 

NU-IRON UNLIMITED

 

Products: Direct reduced iron for use as a charge material in our steelmaking operations.

 

Point Lisas, Trinidad

 

  

CORPORATE OFFICE

  

 

Charlotte, North Carolina


    12            OPERATIONS REVIEW

 

STEEL MILLS SEGMENT

 


BAR MILLS, SHEET MILLS, STRUCTURAL MILLS AND PLATE MILLS

Nucor operates scrap-based steel mills in nineteen facilities. these mills utilize modern steelmaking techniques and produce steel at a cost competitive with steel manufactured anywhere in the world.

 


BAR MILLS

Nucor has eleven bar mills located in South Carolina, Nebraska, Texas, Utah, New York, Alabama, Illinois, Mississippi, Washington, Ohio and Connecticut that produce bars, angles and light structural shapes in carbon and alloy steels. These products have a wide range of usage including automotive, construction, farm equipment, metal buildings, furniture and recreational equipment. Four of the bar mills were constructed by Nucor between 1969 and 1981. Over the years, Nucor has completed extensive capital projects to keep these facilities modernized and globally competitive. Nucor acquired the remaining seven bar mills since 2000, including the purchase of substantially all of the assets of Marion Steel Company (“Marion Steel”) in the second quarter of 2005 and substantially all of the assets of Connecticut Steel Corporation (“Connecticut Steel”) in the second quarter of 2006. Nucor Steel Marion, Inc. has the capacity to produce up to 450,000 tons annually and Nucor Steel Connecticut, Inc. has the capacity to produce up to 300,000 tons annually. With these recent acquisitions, the total capacity of our eleven bar mills is currently approximately 7,960,000 tons per year.

SHEET MILLS

The sheet mills produce flat-rolled steel for automotive, appliance, pipe and tube, construction and other industries. The four sheet mills are located in Indiana, Arkansas, South Carolina and Alabama. Nucor constructed three of the sheet mills between 1989 and 1996. The constructed sheet mills utilize thin slab casters to produce hot rolled sheet. In 2002, Nucor’s wholly owned subsidiary Nucor Steel Decatur, LLC purchased substantially all the assets of Trico Steel Company, LLC (“Trico”). This sheet mill is located in Decatur, Alabama, and has an annual capacity of approximately 2,400,000 tons, expanding our sheet capacity by 30% at the time of the acquisition. In 2004, Nucor Steel Decatur, LLC purchased the adjacent cold rolling mill of Worthington Industries, Inc. (“Worthington”). In 2006 Nucor announced plans to construct its fourth sheet steel galvanizing facility at Nucor Steel Decatur, LLC. Upon completion of the galvanizing facility, all four of our sheet mills will be fully equipped with cold rolling mills and galvanizing lines for further processing of hot rolled sheet. The total capacity of the four sheet mills is approximately 10,800,000 tons per year.

STRUCTURAL MILLS

The structural mills produce wide flange steel beams, pilings and heavy structural steel products for fabricators, construction companies, manufacturers and steel service centers. In 1988, Nucor and Yamato Kogyo, one of Japan’s major producers of wide-flange beams, completed construction of a beam mill located near Blytheville, Arkansas. Nucor owns a 51% interest in Nucor-Yamato Steel Company. During 1999, Nucor started operations at its 1,000,000 tons-per-year steel beam mill in South Carolina. Both mills use a special continuous casting method that produces a beam blank closer in shape to that of the finished beam than traditional methods. Current annual production capacity of our two structural mills is approximately 3,700,000 tons.

PLATE MILLS

Nucor operates two plate mills. Nucor completed construction of its first plate mill, located in North Carolina, in 2000 with the competitive advantages of new, more efficient production technology. This mill produces plate for manufacturers of heavy equipment, rail cars, ships, barges, refinery tanks and others. In 2004, Nucor’s wholly owned subsidiary, Nucor Steel Tuscaloosa, Inc., purchased substantially all the assets of Corus Tuscaloosa. The Tuscaloosa mill has an annual capacity of 1,200,000 tons, and complements our product offering with thinner gauges of coiled and cut-to-length plate used in the pipe and tube, pressure vessel, transportation and construction industries. Current annual production capacity of our two plate mills is approximately 2,800,000 tons.


       13    

 

OPERATIONS

Nucor’s steel mills are among the most modern and efficient mills in the United States. Recycled steel scrap and other metallics are melted in electric arc furnaces and poured into continuous casting systems. Highly sophisticated rolling mills convert the billets, blooms and slabs into rebar, angles, rounds, channels, flats, sheet, beams, plate and other products.

Production in 2006 was a record 22,382,000 tons, a 10% increase from 20,332,000 tons in 2005. Annual production capacity has grown from 120,000 tons in 1970 to a present total of more than 25,000,000 tons.

The operations in the rolling mills are highly automated and require fewer operating employees than older mills. All Nucor steel mills have high productivity, which results in employment costs of approximately 7% of the sales dollar. This is lower than the employment costs of integrated steel companies producing comparable products. Employee turnover in Nucor mills is extremely low. All employees have a significant part of their compensation based on their productivity. Production employees work under group incentives that provide increased earnings for increased production. This additional compensation is paid weekly.

Steel mills are large consumers of electricity and gas. Total energy costs decreased approximately $1 per ton from 2005 to 2006 due to lower natural gas prices. Due to the greater efficiency of Nucor steel mills, these energy costs were less than 10% of the sales dollar in 2006 and 2005. Nucor is partially hedged against exposure to increases in energy costs.

Scrap and scrap substitutes are the most significant element in the total cost of steel production. The average cost of scrap and scrap substitutes used increased 1% to $246 per ton in 2006 from $244 per ton in 2005. A raw material surcharge implemented in 2004 has allowed Nucor to maintain operating margins and to meet our commitments to customers in spite of highly volatile scrap and scrap substitute costs.

MARKETS AND MARKETING

Approximately 92% of the nineteen steel mills’ production in 2006 was sold to outside customers and the balance was used internally by the Vulcraft, Cold Finish, Building Systems and Fastener divisions. Steel shipments to outside customers increased 9% from 19,020,000 tons in 2005 to a record 20,649,000 tons in 2006.

Our steel mill customers are primarily manufacturers, steel service centers and fabricators. The sheet mills continue to build long-term relationships with contract customers who purchase more value-added products. We enter 2007 with approximately 60% of our sheet mill volume committed to contract customers with terms typically ranging from six to twelve months. These contracts are non-cancelable agreements with a pricing formula that takes into account changes in our raw material costs. The sheet mills will continue to pursue profitable contract business on a long-term basis.

GOVERNMENT AFFAIRS

In 2006, Nucor continued our efforts in governmental affairs on several planes. We have continued the aggressive trade case efforts in which we have engaged over the years with our participation in the current statutory five-year sunset reviews of existing duties for coated sheet and carbon plate products. In late 2006, the International Trade Commission chose to remove the existing duties on many of the countries involved in dumping these products into our country. As a result, more unfairly traded foreign steel may continue to enter our borders with negative effects on our business. We are currently evaluating these decisions for an appeal, and we will continue to fight illegally dumped foreign steel in support of free and fair trade through the legal process.

We have also developed a well-embedded grass roots effort with our state and local legislators to help build support toward many other issues beyond the trade cases. Some of these issues include currency manipulation, climate change, energy and tax policy. Our goal is to move state and local legislators to recognize the importance of domestic manufacturing and the serious threat these issues place against our customer base.

In Washington, we have a strong lobbying effort with the House, Senate, Commerce Department and other Executive Branch agencies. At the federal level, we pursue the same issues of currency manipulation, climate change, energy and tax policy while working with government officials to help design legislation and public policies that recognize the importance of the U.S. manufacturing base. Our end goal in all our governmental affairs work is to help generate changes in our laws to advocate free and fair trade in order to allow domestic manufacturing to thrive and succeed.


    14       

 

NEWER FACILITIES AND EXPANSIONS

As part of our long-term growth strategy, Nucor continues to invest in existing operations, make greenfield investments utilizing advantageous new technologies and pursue acquisitions that are accretive to earnings. Capital expenditures in the steel mill segment totaled $242.5 million, $216.0 million and $195.5 million in 2004, 2005 and 2006, respectively.

Nucor began operations of its 100%-owned Castrip facility in Crawfordsville, Indiana, in May 2002. This facility uses the breakthrough technology of strip casting, to which Nucor holds exclusive rights in the United States and Brazil. Strip casting involves the direct casting of molten steel into final shape and thickness without further hot or cold rolling. This process allows lower investment and operating costs, reduced energy consumption and smaller scale plants than can be economically built with current technology. This process also reduces the overall environmental impact of producing steel by generating significantly lower emissions. In 2006, production and shipments of the Castrip product increased more than 30% over 2005 levels. In 2005, Nucor selected Blytheville, Arkansas, as the second Nucor location for a Castrip operation in the United States. The Blytheville, Arkansas, Castrip facility is expected to begin operating in the second half of 2008. Nucor expects to establish at least one joint venture partner overseas in 2007 to utilize the Castrip technology.

During the third quarter of 2004, Nucor purchased substantially all of the assets of Corus Tuscaloosa for a cash purchase price of approximately $89.4 million. This plate mill had an initial annual capacity of about 800,000 tons and complements the product offering of our Hertford County plate mill with thinner gauges of coiled and cut-to-length plate. With minimal investments in this facility, combined with the benefits of our incentive pay program, we have increased capacity to 1,200,000 tons currently. This acquisition was immediately accretive to earnings and made significant operating contributions in 2004 through 2006.

Also in the third quarter of 2004, Nucor purchased certain cold rolling assets from Worthington, located adjacent to our Decatur, Alabama sheet mill, for a cash purchase price of approximately $80.3 million. The purchased assets include all of the buildings, a pickle line, four-stand tandem mill, temper mill and annealing furnaces. This modern 1,000,000-ton cold mill with 600,000 tons of annealing capacity was constructed in 1998 and, together with our new galvanizing line described below, complements our strategy to serve value-added customers in the Southeast market.

In June 2005, Nucor’s wholly owned subsidiary, Nucor Steel Marion, Inc., purchased substantially all of the assets of Marion Steel for a cash purchase price of approximately $110.7 million. The facility is a bar products mill that manufactures angles, flats, rebar, rounds and signposts. Located in Marion, Ohio, the mill is in close proximity to 60% of the steel consumption in the United States. The facility has already grown its capacity from 400,000 ton to 450,000 tons largely as a result of our incentive based compensation program.

In May 2006, Nucor’s wholly owned subsidiary, Nucor Steel Connecticut, Inc., purchased substantially all of the assets of Connecticut Steel for a cash purchase price of approximately $43.9 million. This facility produces wire rod, rebar, wire mesh and structural mesh products. Located in Wallingford, Connecticut, the bar products mill has an annual capacity of approximately 300,000 tons of wire rod and rebar and approximately 85,000 tons of wire mesh fabrication and structural mesh fabrication.

In June 2006, Nucor announced plans to construct its fourth sheet steel galvanizing facility at Nucor Steel Decatur, LLC, with a capital budget of about $152 million. Annual capacity will be approximately 500,000 tons per year and the facility will galvanize up to 72-inch wide sheet steel. Construction is expected to begin in the second quarter of 2006 with completion and start-up in mid-2008. The addition of this facility will increase Nucor’s total galvanizing annual capacity by one-third to 2,000,000 tons.

In October 2006, Nucor announced plans to construct a “Special Bar Quality Products” (“SBQ”) steel mill in Memphis, Tennessee. The planned site was acquired in 2002 from the bankrupt Birmingham Steel Company, and the project will utilize some of the infrastructure existing at this location. The project is expected to cost approximately $230 million and to have an estimated annual capacity of 850,000 tons. The facility will produce high quality carbon and alloy rounds and round cornered squares from 2.25” to 9”, complementing the product offerings of Nucor’s Nebraska and South Carolina SBQ mills. Construction has begun and start-up is expected in the first quarter of 2008.


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RAW MATERIALS STRATEGY

Nucor has established a raw materials strategy to control directly, and indirectly through joint ventures with various partners, the production of 6,000,000 to 7,000,000 tons per year of high quality metallics for consumption at its steel mills. In April 2002, Nucor entered a joint venture with The Rio Tinto Group, Mitsubishi Corporation and Chinese steel maker Shougang Corporation to construct a commercial HIsmelt plant in Kwinana, Western Australia. The HIsmelt process converts iron ore fines and coal fines to liquid metal, eliminating the need for a blast furnace, sinter/pellet plants and coke ovens. Nucor has a 25% interest in the joint venture that owns the HIsmelt commercial plant. Construction was completed and start-up commenced in 2005. This plant has an initial annual capacity of 800,000 metric tons and is expandable to over 1,500,000 metric tons.

In April 2003, Nucor entered a joint venture with CVRD to construct and operate an environmentally friendly pig iron project in northern Brazil. The project, named Ferro Gusa Carajás S.A. (“FGC”), utilizes two conventional mini-blast furnaces to produce about 380,000 metric tons of pig iron per year, using iron ore from CVRD’s Carajás mine in northern Brazil. The charcoal source is exclusively from eucalyptus trees grown in a cultivated forest of about 80,000 acres with the total project encompassing

approximately 175,000 acres in northern Brazil. The cultivated forest removes more carbon dioxide from the atmosphere than the blast furnace emits. Production of pig iron began in the fourth quarter of 2005. Nucor is purchasing all of the production of the plant.

In September 2004, Nucor acquired the assets of an idled DRI plant located in Louisiana and subsequently moved these assets to Trinidad. Construction is complete and heat-up commenced in December 2006. In January 2007, Nucor announced the successful ramp up of Nu-Iron Unlimited to full production capacity of about 2,000,000 tons per year. The Trinidad site benefits from a low cost supply of natural gas and favorable logistics for receipt of Brazilian iron ore and shipment of DRI to the U.S.

 

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STEEL PRODUCTS SEGMENT

 


VULCRAFT AND VERCO are the nation’s largest producers of open-web steel joists, joist girders and steel deck, which are used for non-residential building construction.

 


OPERATIONS

Steel joists and joist girders are produced and marketed nationally through seven Vulcraft facilities located in South Carolina, Nebraska, Alabama, Texas, Indiana, Utah and New York. Current annual production capacity is approximately 715,000 tons. In 2006, Vulcraft produced 570,000 tons of steel joists and joist girders, an increase of 3% from the 554,000 tons produced in 2005.

Material costs, primarily steel, were approximately 53% of the joist sales dollar in 2006 (50% in 2005). Vulcraft obtained 99% of its steel requirements for joists and joist girders from the Nucor bar mills in both 2006 and 2005. Freight costs for joists and joist girders were less than 10% of the sales dollar in 2006 and 2005. Vulcraft maintains an extensive fleet of trucks to ensure and control on-time delivery.

Steel decking is produced and marketed nationally through nine deck plants located in South Carolina, Nebraska, Alabama, Texas, Indiana, New York, Arizona and two in California. Six of these plants were constructed by Nucor adjacent to Vulcraft joist facilities. In November 2006, Nucor’s wholly owned subsidiary, Verco Decking, Inc, purchased substantially all of the assets of Verco Manufacturing Company (“Verco”) for a cash purchase price of approximately $180 million. This acquisition includes three deck plants located in Arizona and California, positioning Nucor to better supply the large western construction market. Current deck annual production capacity is now approximately 530,000 tons. Steel deck sales increased 5% from 380,000 tons in 2005 to a record 398,000 tons in 2006. Coiled sheet steel was approximately 64% of the steel deck sales dollar in 2006 (62% in 2005). In 2006 and 2005, Nucor obtained 99% of its steel requirements for steel deck production from the Nucor sheet mills. For 2006 and 2005, freight costs for deck were less than 10% of the sales dollar.

Production employees of Vulcraft work with a group incentive system that provides increased compensation each week for increased performance.

MARKETS AND MARKETING

Steel joists, joist girders and steel decking are used extensively as part of the roof and floor support systems in manufacturing buildings, retail stores, shopping centers, warehouses, schools, churches, hospitals and, to a lesser extent, in multi-story buildings and apartments. Building support systems using joists, joist girders and steel deck are frequently more economical than other systems.

Steel joists and joist girder sales are obtained by competitive bidding. Vulcraft quotes on a significant percentage of the domestic buildings using steel joists and joist girders as part of the support systems. In 2006, Vulcraft supplied more than 40% of total domestic sales of steel joists. Steel deck is specified in the majority of buildings using steel joists and joist girders. Steel deck is also used as concrete floor support in high rise buildings. In 2006, Vulcraft supplied more than 30% of total domestic sales of steel deck. With the acquisition of Verco in late 2006, Nucor expects to substantially increase deck sales in 2007.

Sales of steel joists, joist girders and steel deck are dependent on the non-residential building construction market.


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COLD FINISH AND FASTENER Nucor manufactures a variety of products using steel from Nucor mills.

 


COLD FINISH

Nucor Cold Finish is the largest producer of cold finished bars in the United States and has facilities in Nebraska, South Carolina, Utah and Wisconsin. Three of these facilities were originally constructed by Nucor between 1978 and 1983. In February 2005, Nucor purchased the assets of Fort Howard Steel, Inc.’s (“Fort Howard Steel”) operations in Oak Creek, Wisconsin for a cash purchase price of approximately $44.1 million. This facility has approximately 140,000 tons of annual capacity. The total capacity of the four facilities is approximately 490,000 tons per year. With the successful completion of the acquisition of Harris Steel, the Laurel Steel division of Harris Steel will add to Nucor’s position as the largest producer of cold finish steel in North America.

These facilities produce cold drawn and turned, ground and polished steel bars that are used extensively for shafting and precision machined parts. Nucor Cold Finish produces rounds, hexagons, flats and squares in carbon, alloy and leaded steels. These bars, in turn, are purchased by the automotive, farm machinery, hydraulic, appliance and electric motor industries, as well as by service centers. Nucor Cold Finish bars are used in tens of thousands of products. A few examples include anchor bolts, farm machinery, hydraulic cylinders, and shafting for air conditioner compressors, ceiling fan motors, garage door openers, electric motors and lawn mowers.

All four facilities are among the most modern in the world and use in-line electronic testing to ensure outstanding quality. Nucor Cold Finish obtains most of its steel from the Nucor bar mills. This factor, along with the efficient facilities using the latest technology, results in a highly competitive cost structure.

 

In 2006, sales of cold finished steel products were 327,000 tons, a decrease of 4% from 2005’s record 342,000 tons. The total cold finish market is estimated to be approximately 2,000,000 tons. The Wisconsin facility represents a continuation of our successful value-added strategy and expands our presence in the midwest market. Nucor Cold Finish anticipates opportunities for significant increases in sales and earnings during the next several years.

FASTENER

Nucor Fastener’s state-of-the-art steel bolt-making facility in Indiana produces standard steel hexhead cap screws, hex bolts, structural bolts and custom-engineered fasteners. Fasteners are used in a broad range of markets, including automotive, machine tools, farm implements, construction and military applications.

Annual capacity is more than 75,000 tons. Nucor Fastener’s dedication to quality, on-time delivery and exceptional customer service yields a competitive advantage in a very import-sensitive market. Nucor Fastener obtains much of its steel from the Nucor bar mills.

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BUILDING SYSTEMS AND LIGHT GAUGE STEEL FRAMING

Nucor manufactures metal buildings and steel framing systems for commercial, industrial and residential construction markets.

 


BUILDING SYSTEMS

Nucor Building Systems produces metal building systems and components in Indiana, South Carolina and Texas. The annual capacity is more than 145,000 tons. The size of the buildings that can be produced ranges from less than 500 square feet to more than 1,000,000 square feet. In September 2006, Nucor announced that Brigham City, Utah, had been selected for construction of a new Building Systems facility. The facility is expected to cost approximately $27 million and to add approximately 45,000 tons to Nucor’s annual capacity to produce metal building systems and components.

Complete metal building packages can be customized and combined with other materials such as glass, wood and masonry to produce a cost effective, aesthetically pleasing building designed for customers’ special requirements. The buildings are sold primarily through an independent builder distribution network in order to provide fast-track, customized solutions for building owners.

Building systems sales in 2006 were a record 116,000 tons (114,000 tons in 2005). The primary markets are commercial, industrial and institutional buildings, including distribution centers, automobile dealerships, retail centers, schools, warehouses and manufacturing facilities. Nucor Building Systems obtains a significant portion of its steel requirements from the Nucor bar and sheet mills.

 

LIGHT GAUGE STEEL FRAMING

NUCONSTEEL™ (“Nucon”) specializes in load bearing light gauge steel framing systems for the commercial and residential construction markets with fabrication facilities in Texas and Georgia. Nucon also sells its proprietary products through a growing network of authorized fabricators located throughout the United States.

In 2004, Nucon introduced two new low-cost automated fabrication systems for residential construction: the NUFRAME™ automated wall panel system and the NUTRUSS® automated truss system. Nucon uses these systems in its residential wall panel and truss fabrication facility in Texas and has formed a separate group within Nucon to sell and license the systems to third parties.

In March 2006, Nucor formed a joint venture with Lennar Corporation. NEXFRAME, LP was established to provide comprehensive light gauge steel framing solutions for residential construction markets across the nation. Nucor plans to continue to aggressively broaden Nucon’s opportunities through geographic expansion and the introduction of new products.

 

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    20            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     OPERATIONS

 


OVERVIEW

Nucor is principally a domestic manufacturer of steel and steel products whose customers are located primarily in the United States. Additionally, Nucor is the nation’s largest recycler. Nucor reports its results in two segments, steel mills and steel products.

Principal products from the steel mills segment are hot-rolled steel (angles, rounds, flats, channels, sheet, wide-flange beams, pilings, billets, blooms, beam blanks and plate) and cold-rolled steel. Principal products from the steel products segment are steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems and light gauge steel framing. Hot-rolled steel is manufactured principally from scrap, utilizing electric arc furnaces, continuous casting and automated rolling mills. Cold-rolled steel, cold finished steel, steel joists and joist girders, and steel fasteners are manufactured by further processing of hot-rolled steel. Steel deck is manufactured from cold-rolled steel. In 2006, approximately 92% of the steel mills segment production was sold to non-affiliated customers; the remainder was used internally by the steel products segment.

During the last five years, Nucor’s sales have increased over 240% from $4.33 billion in 2001 to $14.75 billion in 2006. Average sales price per ton has increased 88% from $354 in 2001 to $667 in 2006. Total tons sold to external customers have increased 81% from 12,237,000 tons in 2001 to 22,118,000 tons in 2006. This growth has been generated through acquisitions, optimizing existing operations and developing traditional greenfield projects using new technologies. For the third consecutive year, Nucor achieved record sales and net earnings in 2006 due to historically high selling prices, margins and shipments.

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In addition to Nucor’s traditional strategy of growing by developing greenfield projects and continually improving existing operations, Nucor’s focus over the past several years has included growing profitably through acquisitions. In the steel mills segment, the capacity of our bar mills has more than doubled over the past five years, increasing from approximately 3,800,000 tons in 2001 to 7,960,000 tons in 2006. This growth was driven by the acquisition of the assets of Birmingham Steel Corporation’s four bar mills in late 2002, the assets of Marion Steel in 2005 and the assets of Connecticut Steel in 2006. Ongoing productivity gains obtained at existing bar mills as well as the acquired mills have supplemented this growth.

The capacity of our sheet mills has increased more than 70% from 6,300,000 tons in 2001 to 10,800,000 tons in 2006 due to the acquisition and start-up in late 2002 of our sheet mill in Decatur, Alabama, as well as by continued productivity advances at our three other sheet mills. The sheet mills are well-positioned to advance our strategic plan for greater participation in higher value-added sheet markets.


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In 2001, Nucor’s plate mill in Hertford County, North Carolina, had been operational for less than two years and produced 523,000 tons. With the successful growth of the North Carolina facility and the acquisition of the assets of the Corus Tuscaloosa plate mill in 2004, Nucor’s plate capacity is now approximately 2,800,000 tons allowing us to continue to benefit from healthy plate market conditions.

Nucor has also increased its participation in downstream steel products via acquisitions and joint ventures. The acquisition of Verco Manufacturing Company in late 2006 expanded the reach of Nucor’s steel decking business to the western United States. With the acquisition of Fort Howard Steel’s operations in Oak Creek, Wisconsin in 2005, Nucor became the largest U.S. producer of cold finished bars. Our value-added steel products provide a valuable base load of volume for our steel mills and are less vulnerable to competition from imports. Nucor established several joint ventures in the past few years, forming partnerships to grow in the reinforcing steel construction market and residential light gauge steel framing industry.

Over the past five years, we have strengthened Nucor’s position as North America’s most diversified steel producer. With this product line diversity, Nucor’s short-term performance is not tied to any one market. This diversity has been a significant factor in Nucor’s ability to maintain profitability every year and every quarter since 1966.

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COMPARISON OF 2006 TO 2005

NET SALES

Net sales for 2006 increased 16% to $14.75 billion, compared with $12.70 billion in 2005. The average sales price per ton increased 7% from $621 in 2005 to $667 in 2006, while total shipments to outside customers increased 8%. In the steel mills segment, net sales to external customers increased 18% from $11.06 billion in 2005 to $13.03 billion in 2006. Approximately 50% of the sales increase was due to higher sales volume resulting from increased demand for our products, as well as additional production capacity obtained from acquisitions made in 2005 and 2006. The remaining 50% of the increase in sales was due to higher average selling prices. Net sales to external customers in the steel products segment increased 5% from $1.64 billion in 2005 to $1.73 billion in 2006. Approximately 70% of the increase was due to higher average selling prices and approximately 30% of the increase was due to increased volume, reflecting an improved non-residential construction market.

Nucor established annual tonnage records in the steel mills segment for total steel shipments and steel shipments to outside customers in 2006. Total steel shipments, including those to the steel products segment, increased 8% to 22,346,000 tons in 2006, compared with 20,669,000 tons in the previous year. Steel sales to outside customers increased 9% to 20,649,000 tons in 2006, compared with 19,020,000 tons in 2005. In the steel products segment, production and shipment volumes increased over 2005 across most major product lines. Steel joist production for 2006 increased to 570,000 tons, compared with 554,000 tons in the previous year. Steel deck sales increased to a record 398,000 tons in 2006, compared with 380,000 tons in 2005. Cold finished steel sales were 327,000 tons in 2006, compared with 342,000 tons in the previous year.


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COST OF PRODUCTS SOLD

 

The major component of cost of products sold is raw material costs. The volume of raw materials used increased approximately 8% from 2005 to 2006, consisting of an increase of 9% in the steel mills segment and a decrease of 1% in the steel products segment. The average price of raw materials remained unchanged in the steel mills segment and increased 1% in the steel products segment from 2005 to 2006. The average scrap and scrap substitute cost per ton used in our steel mills segment increased 1% from $244 in 2005 to $246 in 2006.

 

Nucor incurred a charge to value inventories using the last-in, first-out (“LIFO”) method of accounting of $5.4 million in 2006, compared with a credit of $151.6 million in 2005 when the costs of scrap and scrap substitutes were decreasing.

 

Another significant component of cost of products sold for the steel mills segment is energy costs, since steel mills are large consumers of electricity and natural gas. Total energy costs decreased approximately $1 per from 2005 to 2006 as natural gas prices decreased approximately 10% and electricity prices increased approximately 2%. Due to the efficiency of Nucor’s steel

  

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mills, however, energy costs remained less than 10% of the sales dollar in 2006 and 2005. We expect that our total energy costs will remain high in 2007. Nucor is hedging a portion of its exposure to the variability of future cash flows for forecasted natural gas purchases over various time periods not exceeding four years. In 2006, the settlement of these hedging transactions increased cost of products sold by approximately $6.8 million (reduced cost of products sold by $12.4 million in 2005). In addition to these hedges, Nucor has entered into natural gas purchase contracts that commit Nucor to purchase $144.9 million, $45.3 million and $27.4 million of natural gas in 2007, 2008 and 2009, respectively, and $563.4 million between 2010 and 2028. These natural gas purchase contracts will primarily supply our DRI facility in Trinidad.

In December 2000, Nucor entered into a consent decree with the United States Environmental Protection Agency (“USEPA”) and certain states in order to resolve alleged environmental violations. Under the terms of this decree, Nucor is conducting testing at some of its facilities, performing corrective action where necessary, and piloting certain pollution control technologies.

Nucor revises estimates for environmental reserves as additional information becomes available and projects are completed. In 2006 Nucor made approximately $3.9 million in cash payments for remedial efforts and increased reserves by approximately $2.9 million ($12.2 million in cash payments and a $9.4 million decrease to reserves in 2005).

GROSS MARGIN

Gross margins increased from 20% in 2005 to 24% in 2006. In addition to the events and trends discussed above, gross margins are affected by pre-operating and start-up costs. Nucor defines pre-operating and start-up costs, all of which are expensed, as the losses attributable to facilities or major projects that are either under construction or in the early stages of operation. Once these facilities or projects have attained a utilization rate that is consistent with our similar operating facilities, they are no longer considered by Nucor to be in start-up. Pre-operating and start-up costs of new facilities increased to $49.1 million in 2006, compared with $14.4 million in 2005. In 2006, these costs primarily related to the refurbishment and start-up of our DRI facility in Trinidad, and to the Hlsmelt project in Australia. In 2005, these costs primarily related to the relocation of the DRI plant and its refurbishment, and to the HIsmelt project.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

The major components of marketing, administrative and other expenses are freight and profit sharing costs. Unit freight costs increased 8% from 2005 to 2006 primarily due to higher fuel costs. Profit sharing costs, which are based upon and fluctuate with pre-tax earnings, increased approximately 30% from 2005 to 2006. In 2006, profit sharing costs included $272.6 million for contributions to a Profit Sharing and Retirement Savings Plan for qualified employees, compared with $206.0 million in 2005. In both 2005 and 2006, all employees except for senior officers received a special cash bonus of $2,000 in addition to their regular profit-sharing payments. These extraordinary bonuses were paid to employees for the achievement of record earnings during the year, resulting in additional profit sharing costs of approximately $23.8 million in 2006 and $22.6 million in 2005. 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.


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Stock-based compensation expense included in marketing, administrative, and other expenses increased from $6.7 million in 2005 to $17.1 million in 2006. Since stock-based compensation is impacted by changes in Nucor’s stock price, this increase in expense was primarily due to the 64% increase in Nucor’s stock price from 2005 to 2006, compared with an increase of 27% from 2004 to 2005. The additional stock-based compensation expense incurred in 2006 was also due to the granting of restricted stock units to key employees, officers and non-employee directors for the first time in 2006 and the expensing of stock options for the first time in 2006 due to the adoption of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment.”

INTEREST (INCOME) EXPENSE

Net interest (income) expense is detailed below:

 

     (in thousands)  

Year ended December 31,

   2006     2005  

Interest income

   $ (77,716 )   $ (32,370 )

Interest expense

     40,351       36,571  
                

Interest (income) expense, net

   $ (37,365 )   $ 4,201  
                

Gross interest income more than doubled due to increases in average cash equivalents and short-term investments and, to a lesser extent, due to increases in average interest rates. Gross interest expense increased approximately 10% primarily due to increased average interest rates.

MINORITY INTERESTS

Minority interests represent the income attributable to the minority partners of Nucor’s joint venture, Nucor-Yamato Steel Company. Income attributable to minority interests almost doubled from $110.7 million in 2005 to $219.2 million in 2006. Cash distributions to minority interests increased from $89.9 million in 2005 to $174.7 million in 2006. 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 some years the amount of cash distributed to minority interests exceeds amounts allocated to minority interests based on mutual agreement of the general partners; however, the cumulative amount of cash distributed to partners is less than the cumulative net earnings of the partnership.

OTHER INCOME

In 2005, Nucor received $9.2 million in settlement of claims against third parties related to environmental matters (none in 2006). Nucor has made claims for reimbursement of additional amounts. No amounts have been recorded for such reimbursements, if any, that may be received.

 

PROVISION FOR IN COME TAXES

 

Nucor had an effective tax rate of 34.75% in 2006 compared with 35.02% in 2005. In 2006, the Internal Revenue Service completed its examination of our 2002 through 2004 tax returns. The 2006 tax rate reflects an approximately 0.26% reduction to the federal statutory tax rate as a result of the reevaluation of our liabilities and contingencies in light of the completion of the examination. In 2006, Nucor recorded refundable state income tax credits of $12.6 million ($10.4 million in 2005).

 

NET EARNINGS AND RETURN ON EQUITY

 

Net earnings and earnings per share for 2006 increased 34% and 38%, respectively, to a record $1.76 billion and $5.68 per diluted share, compared with $1.31 billion and $4.13 per diluted share in 2005. Net earnings as a percentage of net sales were 11.9% in 2006 compared with 10.3% in 2005. The 38% increase in earnings per share also reflects the effect of repurchasing approximately 11.7 million shares of outstanding common stock during 2006. Return on average stockholders’ equity was 38.6% and 33.9% in 2006 and 2005, respectively.

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COMPARISON OF 2005 TO 2004

NET SALES

Net sales increased 12% from $11.38 billion in 2004 to $12.70 billion in 2005. The average sales price per ton increased 4% from $595 in 2004 to $621 in 2005, while total shipments to outside customers increased 7%. In the steel mills segment, net sales to external customers increased 9% from $10.11 billion in 2004 to $11.06 billion in 2005. Approximately 75% of the sales increase was due to higher sales volume resulting from stronger business conditions for bar, plate and structural products, as well as acquisitions made in 2004 and 2005. The remaining 25% of the increase in sales was due to higher average selling prices. Net sales to external customers in the steel products segment were $1.64 billion in 2005 compared with $1.27 billion in 2004, an increase of 29%. Approximately 60% of the increase was due to higher average selling prices and approximately 40% of the increase was due to increased volume, reflecting a stronger non-residential construction market.

In the steel mills segment, total steel shipments, including those to the steel products segment, increased from 19,464,000 tons in 2004 to 20,669,000 tons in 2005, an increase of 6%. Steel sales to outside customers increased 7% to 19,020,000 tons in 2005, compared with 17,787,000 tons in 2004. In the steel products segment, production and shipment volumes increased over the prior year across all major product lines. Steel joist production for 2005 was 554,000 tons, compared with 522,000 tons in the previous year. Steel deck sales were a record 380,000 tons in 2005, compared with 364,000 tons in 2004. Cold finished steel sales were a record 342,000 tons in 2005, compared with 271,000 tons in the previous year, aided by the successful integration of the Fort Howard Steel acquisition.

COST OF PRODUCTS SOLD

The volume of raw materials used increased approximately 5% from 2004 to 2005, consisting of an increase of 4% in the steel mills segment and an increase of 14% in the steel products segment. The average price of raw materials increased approximately 5% from 2004 to 2005. The average price of raw materials in the steel mills segment and the steel products segment increased 3% and 25%, respectively, from 2004 to 2005. The average scrap and scrap substitute cost per ton used in our steel mills segment increased 3% from $238 in 2004 to $244 in 2005.

Nucor incurred a credit to value inventories using the LIFO method of accounting of $151.6 million in 2005, compared with a charge of $375.9 million in 2004.

Total energy costs increased approximately $7 per ton from 2004 to 2005 due to increases of 31% and 19%, respectively, in the prices of natural gas and electricity. Energy costs remained less than 10% of the sales dollar in 2005 and 2004. In 2005, the settlement of natural gas hedging transactions reduced cost of products sold by approximately $12.4 million.

Nucor made approximately $12.2 million in cash payments for remedial efforts and reduced reserves by approximately $9.4 million in 2005 ($0.4 million and $10.0 million, respectively, in 2004). The most significant components of the decreases of reserves in 2005 are related to successful implementation of alternate environmental technologies that achieve full compliance with the agreement between Nucor and the USEPA through minor operational changes. The most significant components of the decreases in 2004 related to an agreement with the USEPA that certain technologies identified in the consent decree are not feasible and a favorable court ruling that implicated additional potentially responsible parties for the cleanup of an off-site waste-recycling facility.

GROSS MARGIN

Gross margins increased slightly from 19% in 2004 to 20% in 2005. In addition to the events and trends discussed above, gross margins improved due to the decrease pre-operating and start-up costs from $28.8 million in 2004 to $14.4 million in 2005. In 2005, these costs primarily related to the relocation and refurbishment of the DRI facility and to the HIsmelt project. In 2004, these costs primarily related to the continuing start-up of the Castrip facility at our sheet mill in Crawfordsville, Indiana. Late in 2004, the Castrip process achieved commercial viability; therefore, the costs associated with this facility were not included in start-up costs in 2005.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

Due to the increase in fuel costs, unit freight costs increased 12% from 2004 to 2005. Profit sharing costs, which are based upon and fluctuate with pre-tax earnings, increased approximately 6% from 2004 to 2005. In 2005, profit sharing costs included $206.0 million for contributions to a Profit Sharing and Retirement Savings Plan for qualified employees, compared with $172.3 million in 2004. Profit sharing costs in 2005 and 2004 included an additional $22.6 million and $21.0 million, respectively, in extraordinary bonuses paid to employees for the achievement of record earnings during the year. All employees except for senior officers received a special cash bonus of $2,000 in addition to their regular profit-sharing payments in both 2005 and 2004.


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INTEREST (INCOME) EXPENSE

Net interest expense is detailed below:

 

     (in thousands)  

Year Ended December 31,

   2005     2004  

Interest expense

   $ 36,571     $ 29,335  

Interest income

     (32,370 )     (6,983 )
                

Interest expense, net

   $ 4,201     $ 22,352  
                

Gross interest expense increased approximately 25% primarily due to increased average interest rates, accompanied by an increase in average long-term debt. Gross interest income increased more than fourfold due to increases in average cash equivalents and short-term investments and, to a lesser extent, due to increases in average interest rates.

MINORITY INTERESTS

Income attributable to minority interests increased from $80.9 million in 2004 to $110.7 million in 2005. Cash distributions to minority interests increased from $84.9 million in 2004 to $89.9 million in 2005.

OTHER INCOME

In 2005, Nucor received $9.2 million in settlement of claims against third parties related to environmental matters. In 2004, Nucor sold equipment resulting in pre-tax gains of $1.6 million.

PROVISION FOR INCOME TAXES

Nucor had an effective tax rate of 35.02% in 2005 compared with 35.22% in 2004. In both 2005 and 2004, Nucor recorded refundable state income tax credits of $10.4 million.

NET EARNINGS AND RETURN ON EQUITY

Net earnings and earnings per share for 2005 increased 17% and 18%, respectively, to a record $1.31 billion and $4.13 per diluted share, compared with $1.12 billion and $3.51 per diluted share in 2004. Net earnings as a percent of net sales were 10.3% in 2005 compared with 9.9% in 2004. The 18% increase in earnings per share also reflects the effect of repurchasing approximately 11.1 million shares of outstanding common stock during 2005. Return on average stockholders’ equity was 33.9% and 38.7% in 2005 and 2004, respectively.

 


LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities provide us with a significant source of liquidity. When needed, we also have external short-term financing sources available including the issuance of commercial paper and borrowings under our bank credit facilities. We also issue long-term debt from time to time. We have earned long-term debt ratings of A+ by Standard and Poor’s and A1 by Moody’s Investors Services, the highest ratings of any metals and mining company in North America. We believe our strong financial position and our industry-high credit rating provide us with flexibility and significant capacity to obtain additional capital on a cost-effective basis.

We anticipate that cash flows from operations and our existing borrowing capacity will be sufficient to fund expected normal operating costs, working capital, dividends and capital expenditures for our existing facilities. Any future significant acquisitions could require additional financing from external sources.

During 2006, cash and cash equivalents decreased 20% to $785.7 million, short-term investments increased 65% to $1.41 billion, and working capital increased 15% to $3.23 billion. Short-term investments consist solely of variable rate demand notes (“VRDN’s”), which are variable rate bonds tied to short-term interest rates, but with stated maturities on the face of the bonds that exceed 90 days. All VRDN’s in which Nucor invests are secured by direct-pay letters of credit issued by high-credit quality financial institutions. This credit enhancement provides a high degree of security and liquidity to the VRDN’s. Nucor is able to receive a cash payment in the amount of its principal invested and interest accrued on the VRDN’s no later than seven days after notifying the financial institution that it has elected to tender the VRDN’s.


    26       

 

    

(in thousands)

December 31,

   2006    2005

Cash and cash equivalents

   $ 785,651    $ 980,150

Short-term investments

     1,410,633      857,360

Working capital

     3,225,008      2,815,854

Current ratio

     3.2      3.2

The current ratio remained flat at 3.2 at December 31, 2006 when compared to December 31, 2005. Approximately $199.6 million and $144.1 million of the cash and cash equivalents position at December 31, 2006 and December 31, 2005, respectively, was held by our 51%-owned joint venture, Nucor-Yamato Steel Company. We have a simple capital structure with no off-balance sheet arrangements or relationships with unconsolidated special purpose entities. Nucor uses derivative financial instruments from time-to-time primarily to manage the exposure to price risk related to natural gas purchases used in the production process and to manage exposure to changes in interest rates on outstanding debt instruments.

 

OPERATING ACTIVITIES

 

Nucor generated cash provided by operating activities of a record $2.25 billion in 2006 compared with $2.14 billion in 2005, an increase of 5%. This increase was the result of the 34% increase in net earnings and the 98% increase in minority interests, partially offset by changes in operating assets and liabilities (exclusive of acquisitions) that used cash of $84.0 million in 2006 compared with providing cash of $340.8 million in 2005. Inventories increased in 2006 primarily due to higher quantities to support increased sales levels and higher purchase costs. Inventories decreased in 2005 due to reduced inventory levels accompanied by purchase costs declining from the record highs experienced in the fourth quarter of 2004.

 

INVESTING ACTIVITIES

 

Our business is capital intensive; therefore, cash used in investing activities represents capital expenditures for new facilities, the expansion and upgrading of existing facilities, and the acquisition of the assets of other companies. Additionally, the cash used in investing activities includes investments in joint ventures and purchases of and proceeds from the sale of short-term investments.

  

LOGO

 

Cash used in investing activities decreased to $1.15 billion in 2006 compared with $1.38 billion in 2005, primarily due to a reduction in the net purchases of short-term investments ($553.3 million in 2006 compared with $857.4 million in 2005). Nucor invested $338.4 million in new facilities (exclusive of acquisitions) and expansion or upgrading of existing facilities in 2006 compared with $331.5 million in 2005.

Existing cash and cash equivalents and short-term investments funded the acquisitions of assets of Connecticut Steel and Verco in 2006 and Fort Howard Steel and Marion Steel in 2005. Nucor expects to continue to pursue profitable growth through acquisitions. In January 2007, Nucor commenced a cash tender offer for all of the shares of Harris Steel Group, Inc. for approximately $1.07 billion, which we will fund at closing from existing cash, cash equivalents and short-term investments. We do not expect to incur any additional debt to complete this tender offer. We believe we have the financial ability, however, to borrow significant additional funds to finance future acquisitions and still maintain reasonable leverage.

FINANCING ACTIVITIES

Cash used in financing activities increased to $1.30 billion in 2006 compared with $550.7 million in 2005. In 2006, Nucor increased its base dividend and paid a quarterly supplemental dividend, resulting in dividend payments increasing from $209.8 million in 2005 to $577.8 million in 2006.

During 2006, Nucor repurchased approximately 11.7 million shares of Nucor’s common stock at a cost of approximately $599.4 million under the stock repurchase program. A total of approximately 14.1 million shares remain authorized for repurchase under the current program.


       27    

 

The percentage of long-term debt to total capital (long-term debt plus minority interests plus stockholders’ equity) was 15% and 17% at year-end 2006 and 2005, respectively.

In 2005, Nucor entered into a five-year unsecured revolving credit facility maturing in June 2010 that provides for up to $700.0 million in revolving loans. Up to the equivalent of $600.0 million of the credit facility will be available for foreign currency loans, and up to $450.0 million is available for the issuance of letters of credit. The credit facility may be increased by up to $300.0 million at the election of the Company in accordance with the terms set forth in the credit agreement. No borrowings were outstanding under the credit facility as of December 31, 2006.

MARKET RISK

All of Nucor’s industrial revenue bonds have variable interest rates that are adjusted weekly or annually. These industrial revenue bonds represent 43% of Nucor’s long-term debt outstanding at December 31, 2006. The remaining 57% of Nucor’s long-term debt is at fixed rates. Future changes in interest rates are not expected to significantly impact earnings. From time to time, Nucor makes use of interest rate swaps to manage interest rate risk. As of December 31, 2006, there were no such contracts outstanding. Nucor’s current investment practice is to invest in securities that are highly liquid with short maturities. As a result, we do not expect changes in interest rates to have a significant impact on the value of our investment securities.

Nucor also uses derivative financial instruments from time to time primarily to manage its exposure to price risk related to natural gas purchases used in the production process. Nucor, generally, does not enter into derivative instruments for any purpose other than hedging the cash flows associated with specific volumes of commodities that will be purchased and processed in future periods and hedging the exposures related to changes in the fair value of outstanding fixed rate debt instruments. Nucor recognizes all derivative instruments in the consolidated balance sheets at fair value.

Nucor has ventures in Brazil and Australia that are in the early stages of operations and owns the DRI facility in Trinidad. Accordingly, Nucor is exposed to the effects of currency fluctuations in those countries. As a result of the pending acquisition of Harris Steel, in 2007 Nucor has exposure to Canadian currency fluctuations. Nucor hedged a portion of this exposure in January 2007 in anticipation of the closing of this transaction in the first quarter. Nucor has not hedged any other foreign currency exposures.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

The following table sets forth our contractual obligations and other commercial commitments as of December 31, 2006 for the periods presented.

 

     (in thousands)
    

Payments Due By Period

Contractual Obligations

   Total    2007    2008 - 2009    2010 -2011    2012 and thereafter

Long-term debt

   $ 922,300    $ —      $ 180,400    $ —      $ 741,900

Estimated interest on long-term debt(1)

     482,270      42,431      74,279      63,462      302,098

Operating leases

     11,990      2,289      1,764      809      7,128

Raw material purchase commitments(2)

     2,574,150      788,644      639,420      599,236      546,850

Utility purchase commitments(2)

     1,100,995      239,393      197,911      107,055      556,636

Other unconditional purchase obligations(3)

     245,845      155,010      90,828      7      —  

Other long-term obligations(4)

     188,759      77,416      26,884      2,447      82,012
                                  

Total contractual obligations

   $ 5,526,309    $ 1,305,183    $ 1,211,486    $ 773,016    $ 2,236,624
                                  

(1) Interest is estimated using applicable rates at December 31, 2006 for Nucor’s outstanding fixed and variable rate debt.
(2) Nucor enters into contracts for the purchase of scrap and scrap substitutes, iron-ore, electricity, natural gas and other raw materials and related services. These contracts include multi-year commitments and minimum annual purchase requirements and are valued at prices in effect on December 31, 2006, or according to the contract language. These contracts are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such commitments will adversely affect our liquidity position. Approximately $985.7 million of these agreements are with an entity that is the majority investor in one of Nucor’s equity investments.
(3) Purchase obligations include commitments for capital expenditures on operating machinery and equipment.
(4) Other long-term obligations include amounts associated with Nucor’s early retiree medical benefits and management compensation.


    28       

 

DIVIDENDS

Nucor has increased its cash dividend every year since it began paying dividends in 1973. In 2006, in addition to raising the base dividend by 33%, the board of directors doubled the supplemental dividend based on Nucor’s continued strong performance. Nucor paid dividends of $1.88 per share in 2006 compared with $0.67 per share in 2005. In February 2007, the board of directors announced a 10% increase in the base dividend to $0.11 per share and announced the continuation of the $0.50 per share supplemental dividend, resulting in an annualized dividend rate of $2.44 per share. The supplemental dividend of $0.50 per share represents a portion of a total supplemental dividend estimated to be $2.00 per share to be paid over the next four quarterly dividend payments. The payment of any future supplemental dividends will depend upon many factors, including Nucor’s earnings, cash flows and financial position. Nucor’s dividends paid to stockholders have increased more than nine-fold since 2003: $62 million paid in 2003, $70 million paid in 2004, $210 million paid in 2005, and $578 million paid in 2006.

OUTLOOK

Our objective is to maintain a strong balance sheet while pursuing profitable growth. We expect to expand Nucor’s platform for generating earnings through greenfield construction utilizing advantageous new technologies, expansions at our existing steel mills, future acquisitions and global growth through joint ventures that leverage new technologies.

Capital expenditures are currently projected to be approximately $940 million in 2007, more than two-and-a-half times our capital expenditures in 2006. Nucor continues to invest capital in our core operations to keep them state-of-the-art and globally competitive.

In the steel mills segment, total steel production is anticipated to increase over the next several years from the record 22,382,000 tons produced in 2006. Our current estimated annual capacity is approximately 25,300,000 tons, and additional capacity may be obtained through upgrading existing facilities as well as through acquisitions. Approximately $500 million of the 2007 capital spending is allocated to our greenfield projects, including significant projects in the steel mills segment such as the SBQ steel mill in Memphis, Tennessee; the Castrip facility in Blytheville, Arkansas; and the sheet steel galvanizing facility at our mill in Decatur, Alabama.

Our growth strategy has also expanded our participation in attractive downstream steel products businesses. Our value-added steel products provide a valuable base load of volume for our steel mills and are less vulnerable to competition from imports. We anticipate that the continued improvement in non-residential building will increase sales and the volume guaranteed by Vulcraft and Nucor Building Systems in 2007. With the 2005 purchase of our Wisconsin cold finished bar plant, Nucor became the largest U.S. producer of cold finished bars. Our acquisition of Verco has enhanced our market leadership in the steel decking market. The addition of our fourth metal building systems plant in Brigham City, Utah, gives us a national presence as we execute our strategy to grow profitable market share in this industry.

The acquisition of Harris Steel, which will be Nucor’s largest acquisition to date, is expected to close in the first quarter of 2007, upon acceptance by the shareholders of Harris Steel and satisfactory resolution of regulatory approvals. Harris Steel, which will operate as a subsidiary of Nucor, manufactures and places reinforcing products, and manufactures industrial products principally in the United States and Canada. Harris Steel also participates in steel trading on a worldwide basis, and in the distribution of reinforcing steel and related products to U.S. customers. This acquisition will be a major step in advancing Nucor’s vertical integration strategy. Nucor is the largest producer of rebar in North America. With this acquisition, Nucor will become the third largest rebar fabricator in North America. Under Nucor’s ownership, Harris Steel will be able to accelerate its highly successful growth strategy in rebar fabrication through acquisitions and greenfield facilities. In addition to rebar fabrication, this acquisition will enable us to grow our cold finished bar market leadership position and bring us greater geographic reach into Canada.

We expect that demand in non-residential construction will remain healthy in 2007. Nucor continues to benefit from product line diversification. We have recently announced price increases for many of our products. Excess inventory levels at service centers and OEM’s should continue to decline. We expect steel inventories to be at more normal levels by the end of the first quarter; however, this change will depend on continued strong end-use demand and a decrease in imports from the record levels of 2006.

We recognize that uncertainty in external factors such as raw materials costs, availability and cost of electricity and natural gas, the growth rate of the economy, the level of imports and consolidation in the industry will have a significant impact on our results. In 2007, we will continue working towards our goal of controlling approximately six to seven million tons of our supply of


       29    

 

high-quality scrap substitutes. Our raw materials strategy is driven by Nucor’s ongoing expansion of our steel product portfolio into higher quality grades. We will continue our defense of fair trade and will continue to point out examples of unfair trade policies and practices until they are fixed. We will continue to pursue strategic acquisitions that expand our platform for generating earnings and attractive returns on our stockholders’ capital. While we cannot control these outside forces, Nucor will continue to be at the forefront of anticipating and addressing the issues that this uncertainty in external factors raises for us and other steel producers.

 


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year end, and the reported amount of revenues and expenses during the year. On an ongoing basis, we evaluate our estimates, including those related to the valuation allowances for receivables; the carrying value of property, plant and equipment; reserves for environmental obligations; and income taxes. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accordingly, actual costs could differ materially from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements.

REVENUE RECOGNITION

We recognize revenue when products are shipped, which represents when title and risk of loss have passed to the customer.

ALLOWANCES FOR DOUBTFUL ACCOUNTS

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

INVENTORIES

Inventories are stated at the lower of cost or market. The cost of most inventories is measured on the last in, first out (“LIFO”) method of accounting. The LIFO method allocates the most recent costs to cost of products sold, thereby recognizing into operating results fluctuations in raw material, energy and other capitalizable costs more quickly than other methods. The cost of other inventories is determined on the first-in, first-out (“FIFO”) method.

ASSET IMPAIRMENTS

We evaluate the impairment of our property, plant and equipment on an individual asset basis or by logical groupings of assets. Asset impairments are recognized whenever changes in circumstances indicate that the carrying amounts of those productive assets exceed their projected undiscounted cash flows. When it is determined that an impairment exists, the related assets are written down to estimated fair market value.

GOODWILL AND OTHER INTANGIBLES

Goodwill is the excess of cost over the fair value of net assets of businesses acquired. Goodwill, which is included in other assets, is not amortized but is evaluated annually for impairment or if circumstances indicate a possible impairment may exist. Intangible assets that do not have indefinite lives are amortized over their useful lives and are annually reviewed for impairment.

ENVIRONMENTAL REMEDIATION

We are subject to environmental laws and regulations established by federal, state and local authorities, and make provision for the estimated costs related to compliance. Undiscounted remediation liabilities are accrued based on estimates of known environmental exposures. The accruals are reviewed periodically and, as investigations and remediation proceed, adjustments are made as we believe are necessary. The accruals are not reduced by possible recoveries from insurance carriers or other third parties. Our measurement of environmental liabilities is based on currently available facts, present laws and regulations, and current technology.


    30       

 

INCOME TAXES

We account for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” We estimate our actual current tax expense and assess temporary differences that exist due to differing treatments of items for tax and financial statement purposes. These differences result in the recognition of deferred tax assets and liabilities. The deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period in which the change is enacted. We assess the realizability of deferred tax assets on an ongoing basis by considering whether it is more likely than not that some portion of the deferred tax assets will not be realized. If it is more likely than not, in our judgment, that the deferred tax assets will not be realized, we provide a valuation allowance.

 


RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) has issued FASB Interpretation No. 48 (“FIN 48”),”Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” which clarifies the accounting of uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “Accounting of Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of this Interpretation are effective for Nucor beginning on January 1, 2007. Management does not expect the adoption of FIN 48 to have a material impact on Nucor’s consolidated financial position and results of operations.

The FASB has issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for Nucor in 2008. Management is currently evaluating the impact, if any, of this statement.

The FASB has issued FASB Staff Position AUG AIR-1, “Accounting for Planned Major Maintenance Activities,” which is effective for Nucor beginning on January 1, 2007. This position statement eliminates Nucor’s current policy, which is the accrue-in-advance method of accounting for planned major maintenance activities. In accordance with this position statement, Nucor will use the deferral method of accounting for planned major maintenance activities. Although management continues to analyze the impact of this position statement, we do not expect the adoption of this statement to have a material impact on Nucor’s consolidated financial position and results of operations.


    34            SIX-YEAR FINANCIAL REVIEW

 

     (dollar amounts in thousands, except per share data)  
     2006     2005     2004     2003     2002     2001  

FOR THE YEAR

            

Net sales

   $ 14,751,270     $ 12,700,999     $ 11,376,828     $ 6,265,823     $ 4,801,777     $ 4,333,707  

Costs, expenses and other:

            

Cost of products sold

     11,283,123       10,119,496       9,169,172       5,996,547       4,332,277       3,914,278  

Marketing, administrative and other expenses

     592,473       459,460       374,730       165,369       175,589       150,666  

Interest (income) expense, net

     (37,365 )     4,201       22,352       24,627       14,286       6,525  

Minority interests

     219,221       110,674       80,894       23,950       79,472       103,069  

Other income

     —         (9,200 )     (1,596 )     (11,547 )     (29,900 )     (20,200 )
                                                
     12,057,452       10,684,631       9,645,552       6,198,946       4,571,724       4,154,338  

Earnings before income taxes

     2,693,818       2,016,368       1,731,276       66,877       230,053       179,369  

Provision for income taxes

     936,137       706,084       609,791       4,096       67,973       66,408  
                                                

Net earnings

     1,757,681       1,310,284       1,121,485       62,781       162,080       112,961  

Net earnings per share:

            

Basic(1)

     5.73       4.17       3.54       0.20       0.52       0.37  

Diluted(1)

     5.68       4.13       3.51       0.20       0.52       0.37  

Dividends declared per share(1)

     2.15       0.93       0.24       0.20       0.19       0.17  

Percentage of net earnings to net sales

     11.9 %     10.3 %     9.9 %     1.0 %     3.4 %     2.6 %

Return on average equity

     38.6 %     33.9 %     38.7 %     2.7 %     7.2 %     5.2 %

Capital expenditures

     338,404       331,466       285,925       215,408       243,598       261,146  

Depreciation

     363,936       375,054       383,305       364,112       307,101       289,063  

Sales per employee

     1,273       1,159       1,107       637       528       531  

AT YEAR END

            

Current assets

   $ 4,675,036     $ 4,071,553     $ 3,174,948     $ 1,620,560     $ 1,415,362     $ 1,373,666  

Current liabilities

     1,450,028       1,255,699       1,065,790       629,595       591,536       484,159  
                                                

Working capital

     3,225,008       2,815,854       2,109,158       990,965       823,826       889,507  

Cash provided by operating activities

     2,251,233       2,136,615       1,024,756       493,801       497,220       495,115  

Current ratio

     3.2       3.2       3.0       2.6       2.4       2.8  

Property, plant and equipment, net

     2,856,415       2,855,717       2,818,307       2,817,135       2,932,058       2,365,655  

Total assets

     7,884,989       7,138,787       6,133,207       4,492,353       4,381,001       3,759,348  

Long-term debt

     922,300       923,550       923,550       903,550       894,550       460,450  

Percentage of debt to capital

     15.4 %     17.1 %     20.3 %     26.4 %     26.0 %     15.6 %

Stockholders’ equity

     4,825,989       4,279,788       3,455,985       2,342,077       2,322,990       2,201,461  

Per share

     16.04       13.80       10.83       7.45       7.43       7.07  

Shares outstanding

     300,949       310,220       319,024       314,361       312,720       311,258  

Employees

     11,900       11,300       10,600       9,900       9,800       8,400  

(1) Per share and shares outstanding amounts have been adjusted to reflect the two-for-one stock split effective May 2006.


    36       

    MANAGEMENT’S REPORT AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

    FIRM

 


MANAGEMENTS REPORT on internal control over financial reporting

 


Nucor’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Nucor’s internal control over financial reporting as of December 31, 2006. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on its assessment, management concluded that Nucor’s internal control over financial reporting was effective as of December 31, 2006. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited management’s assessment of Nucor’s internal control over financial reporting as stated in their report which is included herein.

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 


PricewaterhouseCoopers LLP

To the Stockholders and Board of Directors

Nucor Corporation:

We have completed integrated audits of Nucor Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

CONSOLIDATED FINANCIAL STATEMENTS

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Nucor Corporation and its subsidiaries at December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


       37    

 

INTERNAL CONTROL OVER FINANCIAL REPORTING

Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

LOGO

Charlotte, North Carolina

February 27, 2007


    38            CONSOLIDATED STATEMENTS OF EARNINGS

 

CONSOLIDATED STATEMENTS OF EARNINGS

  

(in thousands, except per share data)

 

Year Ended December 31,

   2006     2005     2004  

NET SALES

   $ 14,751,270     $ 12,700,999     $ 11,376,828  
                        

COSTS, EXPENSES AND OTHER:

      

Cost of products sold

     11,283,123       10,119,496       9,169,172  

Marketing, administrative and other expenses

     592,473       459,460       374,730  

Interest (income) expense, net (Note 14)

     (37,365 )     4,201       22,352  

Minority interests

     219,221       110,674       80,894  

Other income (Note 15)

     —         (9,200 )     (1,596 )
                        
     12,057,452       10,684,631       9,645,552  
                        

EARNINGS BEFORE INCOME TAXES

     2,693,818       2,016,368       1,731,276  

PROVISION FOR INCOME TAXES (Note 16)

     936,137       706,084       609,791  
                        

NET EARNINGS

   $ 1,757,681     $ 1,310,284     $ 1,121,485  
                        

NET EARNINGS PER SHARE (Note 17):

      

Basic(1)

   $ 5.73     $ 4.17     $ 3.54  
                        

Diluted(1)

   $ 5.68     $ 4.13     $ 3.51  
                        

(1) Adjusted for the stock split effective May 2006. See Note 1.

See notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY             39    

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

(in thousands, except per share data)

 
    COMMON STOCK  

ADDITIONAL
PAID-IN

CAPITAL

   

RETAINED

EARNINGS

   

UNEARNED

COMPENSATION

   

ACCUMULATED

OTHER
COMPREHENSIVE

INCOME (LOSS)

   

TREASURY

STOCK

(AT COST)

   

TOTAL
STOCKHOLDERS’

EQUITY

 
    Shares   Amount           Shares     Amount    

BALANCES, December 31, 2003

  91,067   $ 36,427   $ 117,399     $ 2,641,708     $ —       $ —       12,477     $ (453,457 )   $ 2,342,077  

Comprehensive income:

                 

Net earnings in 2004

          1,121,485               1,121,485  

Net unrealized loss on hedging derivitives, net of income taxes

              (1,177 )         (1,177 )
                       

Total comprehensive income

                    1,120,308  

Stock options excercised

  1,333     533     54,685                 55,218  

Issuance of stock under award plans, net of forfeitures

        11,915         (592 )     (43 )     1,497       12,820  

Amortization of unearned compensation

            200             200  

2-for-1 stock split

  91,983     36,793     (36,793 )         12,437         —    

Cash dividends ($ 0.24(1) per share)

          (74,638 )             (74,638 )
                                                               

BALANCES, December 31, 2004

  184,383     73,753     147,206       3,688,555       (392 )     (1,177 )   24,871       (451,960 )     3,455,985  
                                                               

Comprehensive income:

                 

Net earnings in 2005

          1,310,284               1,310,284  

Net unrealized gain on hedging derivatives, net of income taxes

              55,842           55,842  

Reclassification adjustment for gain on settlement of hedging derivatives included in net income, net of income taxes

              (8,065 )         (8,065 )
                       

Total comprehensive income

                    1,358,061  

Stock options exercised

  916     367     26,709                 27,076  

Issuance of stock under award plans, net of forfeitures

        17,935         (5,095 )     (249 )     4,598       17,438  

Amortization of unearned compensation

            2,200             2,200  

Treasury stock acquired

              5,567       (291,244 )     (291,244 )

Cash dividends ($ 0.93(1) per share)

          (289,728 )             (289,728 )
                                                               

BALANCES, December 31, 2005

  185,299     74,120     191,850       4,709,111       (3,287 )     46,600     30,189       (738,606 )     4,279,788  
                                                               

Comprehensive income:

                 

Net earnings in 2006

          1,757,681               1,757,681  

Net unrealized loss on hedging derivatives, net of income taxes

              (57,900 )         (57,900 )

Reclassification adjustment for loss on settlement of hedging derivatives included in net income, net of income taxes

              4,400           4,400  

Foreign currency translation gain, net of income taxes

              11,370           11,370  
                       

Total comprehensive income

                    1,715,551  

Stock options exercised

  1,253     500     36,731                 37,231  

Issuance of stock under award plans, net of forfeitures

  15     6     37,442         3,287       (262 )     6,317       47,052  

Amortization of unearned compensation

        3,900                 3,900  

Treasury stock acquired

              11,248       (599,446 )     (599,446 )

2-for-1 stock split

  185,949     74,380     (74,380 )         30,392         —    

Cash dividends ($ 2.15(1) per share)

          (658,087 )             (658,087 )
                                                               

BALANCES, December 31, 2006

  372,516   $ 149,006   $ 195,543     $ 5,808,705     $ —       $ 4,470     71,567     $ (1,331,735 )   $ 4,825,989  
                                                               

(1) Adjusted for stock split effective May 2006. See Note 1.

See notes to consolidated financial statements.


    40            CONSOLIDATED BALANCE SHEETS

 

CONSOLIDATED BALANCE SHEETS

  

(in thousands)

 

December 31,

   2006     2005  

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 785,651     $ 980,150  

Short-term investments (Note 2)

     1,410,633       857,360  

Accounts receivable, net (Note 3)

     1,067,322       1,000,629  

Inventories (Note 4)

     1,141,194       945,054  

Other current assets (Notes 11, 16 and 19)

     270,236       288,360  
                

Total current assets

     4,675,036       4,071,553  

PROPERTY, PLANT AND EQUIPMENT, NET (Note 5)

     2,856,415       2,855,717  

OTHER ASSETS (Notes 1, 6, 11 and 19)

     353,538       211,517  
                

TOTAL ASSETS

   $ 7,884,989     $ 7,138,787  
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Long-term debt due within one year (Note 8)

   $ —       $ 1,250  

Accounts payable (Note 7)

     516,640       501,624  

Salaries, wages and related accruals (Notes 9 and 13)

     455,051       368,568  

Accrued expenses and other current liabilities (Notes 7, 11 and 12)

     478,337       384,257  
                

Total current liabilities

     1,450,028       1,255,699  
                

LONG-TERM DEBT DUE AFTER ONE YEAR (Note 8)

     922,300       922,300  
                

DEFERRED CREDITS AND OTHER LIABILITIES (Notes 9, 11, 12, 13 and 16)

     448,084       486,910  
                

MINORITY INTERESTS

     238,588       194,090  
                

COMMITMENTS AND CONTINGENCIES (Notes 4 and 12)

    

STOCKHOLDERS’ EQUITY (Note 9):

    

Common stock

     149,006       74,120  

Additional paid-in capital

     195,543       191,850  

Retained earnings

     5,808,705       4,709,111  

Unearned compensation

     —         (3,287 )

Accumulated other comprehensive income, net of income taxes (Note 11)

     4,470       46,600  
                
     6,157,724       5,018,394  

Treasury stock

     (1,331,735 )     (738,606 )
                

Total stockholders’ equity

     4,825,989       4,279,788  
                

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 7,884,989     $ 7,138,787  
                

See notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS            41    

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

  

(in thousands)

 

Year Ended December 31,

   2006     2005     2004  

OPERATING ACTIVITIES

      

Net earnings

   $ 1,757,681     $ 1,310,284     $ 1,121,485  

Adjustments:

      

Depreciation

     363,936       375,054       383,305  

Impairment of assets

     —         —         13,200  

Stock-based compensation

     40,106       16,791       18,581  

Deferred income taxes

     (38,910 )     (29,379 )     6,693  

Minority interests

     219,207       110,663       80,892  

Settlement of natural gas hedges

     (6,793 )     12,365       —    

Changes in assests and liabilities (exclusive of acquisitions):

      

Accounts receivable

     (33,878 )     (19,425 )     (354,897 )

Inventories

     (143,971 )     337,862       (635,641 )

Accounts payable

     (8,517 )     17,259       130,604  

Federal income taxes

     (7,233 )     (68,331 )     35,403  

Salaries, wages and related accruals

     86,475       39,869       219,885  

Other

     23,130       33,603       5,246  
                        

Cash provided by operating activities

     2,251,233       2,136,615