Nucor Corporation — FY2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing, not a standalone fourth-quarter report; quarterly financial results are not clearly provided in the supplied filing text. Nucor manufactures steel and steel products and operates a raw-materials business, including scrap processing and brokerage. Its segments are steel mills, steel products, and raw materials.
Financial performance and key metrics
- Profit: Nucor reported a net loss of $294 million in 2009, versus record earnings of $1.83 billion in 2008.
- Revenue, operating margins, cash flow, and detailed liquidity balances: The filing incorporates the financial statements and MD&A from the 2009 Annual Report; the supplied text does not provide clear values for these measures.
- Raw materials: Average scrap and scrap-substitute cost per ton used fell 31%, from $438 in 2008 to $303 in 2009. The filing says high-priced raw-material inventory affected 2009 net earnings by approximately $420 million, or $0.85 per share after taxes.
- Operations: Average facility utilization was approximately 54% for steel mills, 49% for steel products, and 53% for raw materials. Industry steel capacity utilization was 51% in 2009, versus 81% in 2008 and 87% in 2007.
- Backlog: Steel-mill backlog was about $1.55 billion at year-end 2009, versus $1.42 billion in 2008. Steel-products backlog was about $954.6 million, versus $1.38 billion, reflecting weakness in nonresidential construction.
- Capital spending and debt: Planned 2010 capital expenditures were approximately $400 million. Nucor disclosed a $1.3 billion unsecured revolving credit facility; at year-end, 14% of long-term debt was variable-rate industrial revenue bonds and 86% was fixed-rate. Total debt and cash balances are not clear in the supplied text.
- Dividend: Nucor paid $1.40 per share in 2009, compared with $2.17 in 2008, which included a supplemental dividend. The quarterly base dividend was increased 3% to $0.36 per share.
Changes, outlook, and management commentary
- The global recession sharply reduced demand, prices, and production. Management described first-quarter 2010 steel-market conditions as likely to remain extremely challenging and expected a long, slow North American recovery.
- Management expected global demand in 2010 to approach pre-recession production levels, with North America and Europe lagging other regions. It anticipated that North American demand growth would initially be driven largely by inventory replenishment.
- Management expected improved raw-material costs after the company completed use of high-cost iron units by the end of the third quarter of 2009, and said margins should continue improving in 2010.
- Growth and operating developments included the start of shipments from the Memphis special-bar-quality mill, commissioning of the Blytheville Castrip facility, and operation of the Decatur galvanizing line. Nucor also began a Trinidad DRI expansion and a plate heat-treating project; the Louisiana iron-making project was delayed by permitting and uncertainty about climate legislation.
- Scrap and energy costs, steel-price volatility, and timing gaps between input costs and customer-price adjustments remain important margin risks. Nucor uses raw-material surcharges and derivatives for some commodity exposures; year-end accumulated other comprehensive income included $74.1 million in unrealized after-tax derivative losses.
Risks, contingencies, and unusual items
- Major risks include prolonged recession, cyclical demand, global steel overcapacity and low-priced imports, volatile scrap and energy prices, and customers’ restricted access to credit.
- Potential climate-change regulation could raise energy, compliance, and capital costs; the company said the effect could not be reliably estimated before the rules’ terms were known.
- Nucor faced antitrust class-action litigation alleging anticompetitive steel-industry conduct. The company denied merit and said it could not predict the outcome or determine potential exposure.
- Other risks identified include operational accidents and interruptions, environmental remediation, acquisition integration, foreign-exchange movements, asset impairments, and changes in tax rules.
Important facts for investors to verify
- Review the incorporated 2009 Annual Report for full revenue, earnings detail, segment results, cash flows, balance-sheet liquidity, and total debt.
- Check quarterly disclosures for the timing and extent of any recovery in shipments, pricing, utilization, and steel-products backlog.
- Assess whether lower raw-material costs and surcharges translated into sustained margin improvement, and how much of the reported 2009 loss reflected the high-cost inventory overhang.
- Monitor the antitrust case, climate and environmental regulation, and progress, costs, and returns from major capital projects.