NUE

NUCOR CORP - 10-Q Summary (Period Ended September 30, 2006)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2006, and the nine-month period ended on that date. Nucor Corporation operates in two primary segments: Steel Mills (carbon and alloy steel) and Steel Products (joists, decking, fasteners, etc.). The company reported record production and sales volumes for the steel mills segment during the first nine months of 2006. A two-for-one stock split was executed in May 2006, and all share data has been restated accordingly.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 19% year-over-year for the nine-month period and 30% for the third quarter. This was driven by an 11% increase in tons shipped and a 7% increase in average sales price per ton for the nine months.
• Profitability: Net earnings surged 39% for the nine months and 77% for the third quarter compared to the prior year. Earnings per share (diluted) increased 42% and 81%, respectively.
• Cost Dynamics: While average raw material costs decreased slightly (1%) for the nine months, they rose 18% in the third quarter. However, gross margins expanded significantly due to higher sales prices outpacing cost increases.
• Interest Income: The company reported net interest income of $25.8 million for the nine months, reversing a net interest expense of $7.4 million in the prior year, due to higher cash balances and interest rates.
• Share Repurchases: Nucor repurchased approximately 10.1 million shares for $515 million in the first nine months of 2006, compared to 9.4 million shares for $245 million in the same period in 2005.

Guidance, Outlook, and Risks

Outlook: Management expects strong earnings in the fourth quarter of 2006. However, shipments are anticipated to be lower due to seasonality and inventory destocking by service center customers. Margins are expected to remain strong, supported by lower scrap costs, despite lower spot market prices for sheet and bars. Over 80% of sheet mill volume is committed to contract customers, limiting exposure to spot price volatility.

Capital Projects: Capital expenditures are projected to be approximately $340 million for the full year 2006. New projects include a galvanizing facility in Alabama ($150 million), a metal building systems facility in Utah ($27 million), and a special bar quality mill in Tennessee ($230 million).

Risks and Contingencies:

• Market Sensitivity: Results are sensitive to steel prices, raw material costs (scrap steel), and energy costs (natural gas/electricity).
• Competition: Pressure from imports and substitute materials remains a risk.
• Regulatory: Environmental compliance costs and potential changes in trade policy affecting steel imports/exports.
• Accounting Changes: The company is evaluating the impact of new FASB interpretations regarding income taxes (FIN 48) and fair value measurements (SFAS 157), effective in 2007.

Investor Verification Checklist

• LIFO Reserve Impact: Verify the magnitude of the $45 million LIFO charge in the first nine months of 2006 compared to the $148 million credit in 2005, as this significantly impacts reported earnings.
• Inventory Levels: Confirm the extent of customer inventory destocking mentioned in the outlook, as this could impact Q4 shipment volumes.
• Raw Material Costs: Monitor the trend of scrap steel prices, which rose 18% in Q3, to assess pressure on future margins.
• Acquisition Integration: Review the performance of recent acquisitions (Connecticut Steel, Marion Steel) and the subsequent Verco acquisition announced in November 2006.
• Dividend Sustainability: Note the supplemental dividend of $0.50 per share declared in Q3, bringing the total to $0.60, and assess cash flow coverage.