01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation's Form 10-K for fiscal 2006 reports record results for the third consecutive year.
Net sales rose 16% to $14.75 billiona in 2006 from $12.70 billion in 2005, and net earnings rose 34% to $1.76 billion, or $5.68 per diluted share. Net earnings were 11.9% of net sales, compared with 10.3% in 2005, and return on average equity was 38.6%. Gross margin improved from 20% to 24%.
Steel mills net sales to external customers rose 18% to $13.03 billionb, and steel products rose 5% to $1.73 billion. Cash provided by operating activities was a record $2.25 billion, and year-end cash and cash equivalents plus short-term investments totaled about $2.20 billion. Capital allocation was shareholder-focused.
Nucor repurchased about 11.7 million shares for roughly $599.4 millionc and paid $577.8 million in dividends in 2006. In February 2007 the board raised the quarterly base dividend 10% to $0.11 per share and continued a $0.50 quarterly supplemental dividend, for an annualized rate of $2.44 per share. The company expects capital expenditures of about $940 million in 2007, of which about $500 million is allocated to greenfield projects.
The largest planned growth move is the January 2007 cash tender offer for Harris Steel, valued at about US$1.07 billiond, expected to close in the first quarter of 2007. The filing also flags risks that investors should weigh. Management cites cyclical end markets, scrap and energy cost volatility, and imports, and says the International Trade Commission's late-2006 decision to remove duties on many countries may allow more foreign steel into the U.S. The company describes itself as the nation's largest recycler, recycling over 21 million tons of scrap in 2006, and reports total long-term debt of $922.3 million against a $700 million unused revolving credit facility.
02—Key points
Key Highlights
- Net sales of $14.75 billion in 2006, up 16% from $12.70 billion in 2005, with the steel mills segment contributing $13.03 billion of external sales.
- Net earnings of $1.76 billion, up 34%, or $5.68 per diluted share, compared with $4.13 in 2005; net earnings were 11.9% of net sales.
- Gross margin improved from 20% in 2005 to 24% in 2006, and return on average equity was 38.6%.
- Record operating cash flow of $2.25 billion; repurchased about $599.4 million of stock and paid $577.8 million in dividends during 2006.
- Dividend policy: 2006 dividends totaled $1.88 per share versus $0.67 in 2005; the February 2007 annualized rate was set at $2.44 per share, including a $2.00 total supplemental dividend estimated over four quarters.
- Pending Harris Steel acquisition (about US$1.07 billion, Nucor's largest to date) and 2007 capital spending projected at about $940 million, roughly $500 million of it for greenfield projects.
- Balance sheet strength: long-term debt of $922.3 million, a $700 million undrawn revolving credit facility, and long-term debt ratings of A+ (S&P) and A1 (Moody's) as stated in the filing.
03—Questions
Frequently Asked Questions
What drove the increase in Nucor's 2006 earnings?
Management attributes the 2006 increase to historically high selling prices, margins and shipments. Net sales rose 16%, and the average sales price per ton increased 7% from $621 to $667. Approximately half of the steel mills sales increase came from higher volume, including acquired capacity, and half from higher average selling prices.
What are the main risks identified in the filing?
The risk factors cover cyclical demand tied to commercial construction, energy and automotive markets; global overcapacity and rising imports, particularly from China; volatility in scrap steel and energy costs; proposed greenhouse gas legislation that could raise costs; integration risk from acquisitions; and environmental compliance costs under a 2000 EPA consent decree.
How is Nucor returning cash to shareholders?
In 2006 Nucor repurchased about 11.7 million shares for approximately $599.4 million and paid $577.8 million in dividends. About 14.1 million shares remained authorized for repurchase at year-end. In February 2007 the base quarterly dividend was raised 10% to $0.11 per share, and a $0.50 quarterly supplemental dividend was continued.
What growth projects does Nucor have underway?
The filing cites a planned SBQ steel mill in Memphis, Tennessee (about $230 million, start-up expected in the first quarter of 2008), a Castrip facility in Blytheville, Arkansas (expected to operate in the second half of 2008), a fourth sheet galvanizing line at Decatur, Alabama (about $152 million, start-up in mid-2008), and the Harris Steel acquisition expected to close in the first quarter of 2007.
What does the filing say about trade and imports?
Management says unfairly traded steel imports have hurt the U.S. steel industry. It notes that in late 2006 the International Trade Commission removed duties on many countries involved in dumping coated sheet and carbon plate products, which may allow more foreign steel into the U.S. Nucor is evaluating an appeal and in February 2007 the U.S. requested WTO consultations with China over subsidies.
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