01—Abstract
Summary
Summary of the 10-K filed March 7, 2006. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation's 10-K for fiscal 2005 reports record results: net sales rose 12% to $12.70 billiona from $11.38 billion in 2004, and net earnings rose 17% to $1.31 billion, or $8.26 per diluted share.
The company operates two segments, steel mills and steel products, and is the nation's largest recycler, recycling over 23 million tons of scrap steel in 2005. Steel mills accounted for $11.06 billionb of external net sales and $2.21 billion of pre-tax earnings, while steel products contributed $1.64 billion of sales and $180.8 million of pre-tax earnings. Average scrap cost rose 3% to $244 per ton, and a raw material surcharge introduced in 2004 helped Nucor maintain margins.
Cash generation was strong. Cash provided by operating activities reached a record $2.14 billionc, up from $1.02 billion in 2004. Cash and short-term investments grew to $1.84 billion from $779.0 million.
Nucor repurchased about 5.6 million shares for $291.2 million, and dividends paid rose to $209.8 milliond. Long-term debt was unchanged at $923.6 million, and the company entered a new $700.0 million unsecured revolving credit facility with no borrowings outstanding at year end. Capital expenditures were $331.5 million, with 2006 projected at approximately $400.0 million, largely for the Trinidad DRI plant.
Nucor completed several acquisitions in 2004 and 2005, including Corus Tuscaloosa, Worthington's cold mill, Fort Howard Steel and Marion Steel, and grew through joint ventures in iron-making (HIsmelt, Brazil pig iron, and Trinidad DRI) and rebar fabrication. The filing also states that the company's February 2006 board action raised the base dividend to $0.20 per share and set a supplemental dividend of $0.50 per share, implying an annualized rate of $2.80 per share. Risk factors center on steel price volatility, scrap and energy costs, cyclical demand, and imports.
02—Key points
Key Highlights
- Record net sales of $12.70 billion in 2005, up 12% from $11.38 billion in 2004.
- Net earnings of $1.31 billion, or $8.26 per diluted share, up 17% and 18% respectively; net earnings were 10.3% of net sales.
- Cash provided by operating activities was a record $2.14 billion, compared with $1.02 billion in 2004.
- Cash and short-term investments increased to $1.84 billion; long-term debt remained at $923.6 million.
- Nucor repurchased about 5.6 million shares for $291.2 million in 2005 and approved an additional 10.0 million share repurchase in December 2005, with about 12.9 million shares remaining authorized.
- Dividends paid rose to $1.33 per share in 2005 from $0.44 in 2004; in February 2006 the base dividend was raised to $0.20 and a $0.50 supplemental dividend was set, for an annualized rate of $2.80.
- Capital expenditures are projected at about $400.0 million in 2006, primarily for the Trinidad direct reduced iron plant, with production expected to begin in Q4 2006 at 1.8 million metric tons per year.
03—Questions
Frequently Asked Questions
How did Nucor's profitability change in 2005?
Net earnings increased 17% to $1.31 billion, and diluted earnings per share rose 18% to $8.26. Return on average equity was 33.9%, down from 38.7% in 2004. The 2005 results benefited from historically high selling prices, margins, and shipments.
What are the main risks the filing identifies?
The filing cites cyclical demand tied to construction, energy, appliance and automotive markets; volatility in steel prices and scrap and energy costs; steel imports and global overcapacity, particularly in China; competition from companies emerging from bankruptcy with lower costs; and the difficulty of integrating acquisitions and joint ventures.
How is Nucor using its cash and capital?
Nucor funded acquisitions of Fort Howard Steel and Marion Steel from existing cash, repurchased about $291.2 million of stock, and paid $209.8 million in dividends. Capital expenditures were $331.5 million in 2005, and the company plans to continue pursuing acquisitions and greenfield projects.
What is the outlook for the steel mills and steel products segments?
Management expects non-residential construction demand to keep strengthening through 2006, benefiting Vulcraft and Nucor Building Systems. Cold Finish sales are expected to rise with the Oak Creek, Wisconsin capacity. Scrap prices remain high, but the raw material surcharge is expected to keep margins appropriate.
What is the status of Nucor's new iron-making projects?
The HIsmelt plant in Australia completed construction in 2005 and completed a 48-day iron-making campaign in January 2006. The Brazil pig iron project began production in Q4 2005. The Trinidad DRI plant is expected to begin production in Q4 2006 at 1.8 million metric tons per year, with a capital budget of about $225.0 million.
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