NUE

NUCOR CORP 10-Q Summary: Period Ended April 4, 2009

Business Context and Reporting Period

This Form 10-Q covers the 13-week period ended April 4, 2009. Nucor Corporation is a leading manufacturer of steel and steel products, operating primarily in North America. The company reports through three segments: Steel Mills, Steel Products, and Raw Materials. The reporting period reflects the severe impact of the global economic crisis, characterized by unprecedented declines in economic activity and steel demand.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 47% year-over-year, driven by a 43% drop in total tons shipped and a 7% decrease in average sales price per ton.
• Profitability Reversal: The company swung from a net profit of $501.5 million in Q1 2008 to a net loss of $190.5 million in Q1 2009. Gross margins turned negative (-5%) due to lower sales prices, reduced utilization rates, and inventory write-downs.
• Inventory Write-Downs: Nucor incurred a charge of approximately $60 million to write down inventories to the lower of cost or market. Additionally, equity method investment losses included a $33.4 million pre-tax charge related to the Duferdofin-Nucor joint venture.
• Utilization Rates: Average facility utilization dropped significantly to approximately 45% for Steel Mills and Steel Products, and 44% for Raw Materials, compared to 92%, 70%, and 76% respectively in Q1 2008.
• Cost Structure: Energy costs increased $11 per ton due to lower utilization. Pre-operating and start-up costs for new facilities rose to $33.2 million.

Guidance, Outlook, and Risks

Outlook: Management states that the global economic crisis is unprecedented and conditions have worsened each month in 2009. There are few signs of improvement, and a significant recovery is not expected to begin in 2009. Management anticipates a second-quarter loss greater than the first quarter due to continued low operating rates, lower pricing, and the consumption of high-cost pig iron inventories.

Liquidity and Capital: Despite the loss, Nucor maintains a robust cash position of $1.9 billion and an undrawn $1.3 billion revolving credit facility. The company suspended its supplemental dividend, expecting to reduce total dividends paid by approximately $215 million in 2009. Capital expenditures for 2009 are projected at $400 million, down from $1 billion in 2008.

Risks and Contingencies:

• Market Risk: Significant exposure to volatility in steel prices, raw material costs (scrap, pig iron), and energy prices.
• Legal Proceedings: Nucor is a co-defendant in antitrust class-action complaints alleging anticompetitive activities from 2005 to the present. Management believes claims are without merit but cannot predict the outcome.
• Asset Impairment: While no impairment testing was deemed necessary in Q1 2009, management notes that if projected cash flows are not realized due to an extended recession, future impairment charges may be required.

Key Facts for Investor Verification

• Verify the timeline for the consumption of high-cost pig iron inventories, which management expects to impact results through the third quarter of 2009.
• Monitor the status of the antitrust class-action litigation and any potential exposure to treble damages.
• Track the utilization rates of steel mills and steel products facilities as a leading indicator of demand recovery.
• Confirm the company's ability to maintain its investment-grade credit rating (A+ from S&P, A1 from Moody's) amidst the economic downturn.
• Review the progress of new facility start-ups (SBQ mill, Brigham City facility, Castrip project) and their impact on pre-operating costs.