01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation reported record net sales of $16.59 billiona for 2007, up 12% from $14.75 billion in 2006, but net earnings fell 16% to $1.47 billion, or $4.94 per diluted share, from $1.76 billion ($5.68 per diluted share) in 2006.
The company describes 2007 as the second-best earnings year in its history. Net earnings were 8.9% of net sales versus 11.9% in 2006, and return on average equity was 29.5% versus 38.3%. Gross margin declined from 24% to 19%, reflecting higher raw material costs (scrap and scrap substitutes averaged $278b per ton, up 13%) and LIFO charges of $194.3 million.
Nucor operates two segments, steel mills and steel products, and is North America's largest recycler, recycling approximately 21 million tons of scrap steel in 2007. Growth in 2007 was driven largely by acquisitions, including Harris Steel (about $1.06 billionc in cash), Magnatrax ($275.2 million), and Verco (2006). Cash used in acquisitions totaled $1.54 billion, and the company repurchased about 14.1 million shares for roughly $754.0 million.
Long-term debt rose to $2.25 billiond from $922.3 million after $1.3 billion of notes were issued in November 2007. Cash and cash equivalents ended the year at $1.39 billion, and working capital was $3.49 billion with a current ratio of 3.2. The filing also discloses a pending $1.44 billion cash acquisition of The David J.
Joseph Company (DJJ), a scrap processor and broker, expected to close in the first quarter of 2008. Capital expenditures are projected at approximately $800 million for 2008, of which more than $300 million is allocated to greenfield projects including a special bar quality mill in Memphis, Tennessee and a Castrip facility in Blytheville, Arkansas. The filing flags several risks: cyclical end markets tied to non-residential construction, steel import pressure and global overcapacity, volatile scrap and energy costs, and proposed greenhouse gas legislation that could raise energy costs.
On February 27, 2008, the board raised the quarterly base dividend 7% to $0.32 per share and declared a supplemental dividend of $0.20 per share, for a total quarterly dividend of $0.52 per share. The company paid total dividends of $2.43 per share in 2007 versus $1.88 in 2006.
02—Key points
Key Highlights
- Net sales rose 12% to $16.59 billion in 2007, but net earnings fell 16% to $1.47 billion ($4.94 diluted EPS) from a record $1.76 billion in 2006.
- Gross margin fell from 24% to 19%, with scrap and scrap substitute costs up 13% to $278 per ton and LIFO charges of $194.3 million.
- Acquisitions totaling about $1.54 billion in cash in 2007 included Harris Steel, Magnatrax, LMP Steel & Wire, and Nelson Steel; long-term debt rose to $2.25 billion.
- A pending $1.44 billion cash acquisition of The David J. Joseph Company (DJJ) expands Nucor's scrap supply chain and is expected to close in the first quarter of 2008.
- Capital expenditures are projected at approximately $800 million for 2008, more than 50% above 2007, with over $300 million for greenfield projects.
- The board raised the quarterly base dividend 7% to $0.32 per share and declared a $0.20 supplemental dividend, for a total quarterly dividend of $0.52 per share.
- Shareholder returns included $754.0 million in share repurchases (about 14.1 million shares) and total 2007 dividends of $2.43 per share.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 27, 200805—Questions
Frequently Asked Questions
Why did earnings decline in 2007 despite record sales?
Net sales rose 12% to $16.59 billion, but net earnings fell 16% to $1.47 billion. Gross margin dropped from 24% to 19%, driven by higher scrap and scrap substitute costs (up 13% to $278 per ton), LIFO charges of $194.3 million, and pre-operating and start-up costs of $56.1 million for new facilities.
What is the significance of the DJJ acquisition?
Nucor agreed in February 2008 to acquire SHV North America Corporation, which owns The David J. Joseph Company, for about $1.44 billion in cash. The company describes scrap as its largest single cost, and DJJ operates over 30 scrap processing facilities with capacity to process 3.5 million tons of ferrous scrap and brokers over 20 million tons. The acquisition is expected to close in the first quarter of 2008.
How is Nucor's balance sheet positioned after 2007?
Long-term debt increased to $2.25 billion from $922.3 million, following $1.3 billion of notes issued in November 2007. Cash and cash equivalents were $1.39 billion, working capital was $3.49 billion, and the current ratio was 3.2. The $1.0 billion unsecured revolving credit facility had no borrowings outstanding at year-end. Long-term debt represented 29% of total capital, compared with 15% in 2006.
What are the main risks identified in the filing?
The filing cites cyclical demand tied to commercial construction, energy, appliance and automotive industries; global steel overcapacity and resulting imports; volatility in scrap steel and energy costs; proposed greenhouse gas legislation that could raise costs and exempt imports for eight years; and the risk of difficulties integrating acquired businesses.
What did Nucor return to shareholders in 2007?
Nucor paid total dividends of $2.43 per share in 2007, compared with $1.88 in 2006, and repurchased about 14.1 million shares for approximately $754.0 million. In February 2008, the board approved a 7% increase in the quarterly base dividend to $0.32 per share and a supplemental dividend of $0.20 per share.
06—Continue