Nucor Corporation — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. Nucor manufactures steel and steel products, produces direct reduced iron (DRI), and operates scrap-processing and metals-brokering businesses. Its three reportable segments are steel mills, steel products, and raw materials.
Financial and operating results
- Profit: Net income was $134.1 million in 2010, versus a net loss of $293.6 million in 2009. The filing describes 2008 net earnings of $1.83 billion.
- Revenue, margins and cash flow: The supplied filing text incorporates the detailed financial statements and MD&A by reference but does not provide clear values for revenue, operating margins, or cash flow.
- Debt and liquidity: The text does not state total debt or cash balances. At year-end, 24% of long-term debt was variable-rate industrial revenue bonds and 76% was fixed-rate. Nucor had a $1.3 billion unsecured revolving credit facility; management expected internally generated funds or borrowings to fund business needs.
- Segment mix and utilization: Steel mills represented approximately 69% of external sales. Average facility utilization was approximately 70% for steel mills, 54% for steel products, and 69% for raw materials.
- Backlog: Steel mills backlog was approximately $1.64 billion at year-end, up from $1.04 billion in 2009. Steel products backlog was approximately $1.02 billion, versus $954.6 million. Most orders were expected to be filled within one year.
- Capital allocation: Nucor paid $1.44 per share in dividends in 2010, compared with $1.40 in 2009. The board raised the quarterly dividend to $0.3625 per share in December 2010.
- Raw materials and hedging: Nucor recycled approximately 17 million tons of scrap steel in 2010. Accumulated other comprehensive income included $68.9 million of unrealized, net-of-tax losses on derivative instruments at year-end.
Material changes and developments
- Nucor returned to profitability after its first-ever annual loss in 2009, although the filing characterized the economic recovery as weak and uncertain.
- In 2010, Nucor agreed with Mitsui to form NuMit LLC, a 50%-owned venture that owns Steel Technologies, operating 23 sheet-processing facilities in the United States, Canada, and Mexico.
- Nucor selected St. James Parish, Louisiana, for a planned DRI facility with annual capacity of 2.5 million tons. It also entered a seven-year natural-gas drilling arrangement intended to offset exposure to gas-price volatility for the planned facility.
- Capital expenditures excluding acquisitions totaled approximately $2.61 billion over the five years ended December 31, 2010; the filing does not give a clear 2010-only amount in the supplied text.
Outlook, risks and contingencies
- The filing provides no quantified earnings or revenue guidance. Management cited uncertain economic conditions, depressed housing and construction markets, and an uneven recovery as continuing constraints on demand.
- Key risks include steel-industry cyclicality and global overcapacity; low-priced imports and trade practices; competition from other materials; volatility or supply disruption in scrap, energy, and other raw materials; and potential inability to pass higher costs through to customers.
- Potential greenhouse-gas regulation, environmental compliance costs, foreign-currency movements, acquisition integration, business interruptions, and possible impairment of investments or long-lived assets could affect results. The company stated that the impact of proposed greenhouse-gas rules could not yet be reliably estimated.
- Nucor was a co-defendant in steel-purchaser antitrust class actions alleging anticompetitive conduct; it said it would vigorously defend the claims and could not estimate potential exposure. An Ohio environmental matter was expected to result in a civil penalty that Nucor did not believe would materially affect its consolidated financial condition or results.
Important facts for investors to verify
- Review the incorporated 2010 Annual Report and audited statements for revenue, margins, cash flows, cash balances, total debt, and complete segment results, which are not clearly stated in the supplied filing text.
- Assess whether higher backlog translated into shipments and improved profitability, considering low facility utilization and the uncertain recovery.
- Verify the funding, schedule, economics, and gas-supply arrangements for the planned Louisiana DRI facility, along with NuMit’s contribution to results.
- Monitor scrap and energy costs, the effectiveness of surcharges and hedges, and developments in the antitrust litigation and environmental penalty.