Nucor Corp (NUE) 2002 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nucor fourth-quarter year-end conference call. At this time, all participate trans in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star and then zero on your touch-tone keypad. As a reminder this conference call is being recorded. I would like to introduce your host for today's conference, Mr. Daniel DiMicco. Mr. DiMicco please proceed.

Thank you, good afternoon and thank you for joining us today for Nucor's conference call. We will briefly review results for 2002 and the fourth quarter, and then we will take your question. At first we would like to say hi it all of members of our Nucor team who are listening into in conference call on the Nucor web site. And a special welcome to the newest additions to our Nucor family, the Nucor Steel teams at Nucor Steel Seattle, Kansas City, Jackson, Birmingham, Memphis, and Florida. Not only bringing us first-rate plant and equipment that broadens the base of customers and markets served by our bar products business, the acquisition has brought us, most importantly, Nucor's kind of people. People with a strong work ethic, innovative thinking, entrepreneurial spirit and a passion for profitable steel-making. As always the 9800 men and women of Nucor walk their talk each and every day as we work together to achieve our goal to build Nucor's position as the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world. Terry Lisenby, Nucor's CFO and our other EVS, John Ferriola, Hamilton Lott, Michael Parrish, and Joseph Rutkowski are with me this afternoon and they will be able to answer questions as well. For those of you new to Nucor corporation, allow me to provide brief description of our businesses. We are the United States's largest recycler, with over 16 million tons expected to be recycled in 2003, with 2002 steel production of 13.6 million tons, Nucor's North America's largest steel producer. Nucor has 45 operating facilities in 14 states and approximately 9800 employees. We are the most diversified steel producer in the United States with products that range from reinforcing bar to motor lamination steel to preengineered buildings. We are nation's largest structural steel producer, the largest steel bar producer, largest steel joist and deck producer, and now with the addition of the four newest members of the Nucor bar mill group, the largest U.S. producer of rebar.

Other major products include hot roll, cold roll, and galvanized sheet steel, cool plate, metal bars, metal buildings, fasteners and light framing. Our fourth-quarter earnings of 55 cents per share compares against year-ago quarterly earnings of 34 cents. An increase of 62%. Full-year 2002 earnings of $2.07 a share compares against full-year 2001 earnings of $1.45 per share at 43% increase. Our results continue to reflect the very difficult conditions that many of our businesses that are impacted by the ongoing severe down cycle in nonresidential construction activity. U.S. Department of Commerce data indicate that through December 2002, nonresidential building spending has declined 27% and the peak seasonally adjusted rate reached in March of 2001. Over the same period, the decline of spending within key segment of nonresidential construction served by our businesses are even more dramatic. Industrial buildings are down 56%. Office buildings down 44%. Hotels and motels down 40%. Economic and steel market downturns are never easy or pleasant to work through. Nevertheless, Nucor has a long-standing tradition of successfully emerging from industry downturns stronger than before entering them. During 2002, we continue to press ahead with our focus and disciplined strategy for driving long-term growth and Nucor's earnings power and raising returns on capital. In short, we took advantage of challenging markets to gain market share, penetrate new steel and steel product markets, implement new disruptive and leapfrog technologies, and sharpen our cost reduction in quality-improving initiatives.

The keys to executing this strategy are: Optimizing existing operations, continuing growth through new technologies, and the pursuit of strategic acquisitions. While this strategy sometimes further damp. s our earnings in the downturn, it provides the foundation for sustained growth in Nucor's earnings power. Our financial strength allows us to take a long-term perspective in building our business. While many of our competitors retrench and fight for mere survival. Our market share expansion in the midst of the current economic downturn is again evidenced by new, record full-year steel production in 2002 of 13.6 million tons, a year-over-year growth of 10.6%. This compares against an increase of 3.4% in total North American steel production. It is worthwhile to note that 2002 steel mill acquisitions have increased Nucor's total finished steel tons of steel-making capacity to roughly 18.6 million tons from 14.7 million tons, an increase of more than 25%. Our market share growth is rooted the in combination of expansion in the new steel product market, geographic expansion and acquisitions. In December 2002, we completed the acquisition of substantially all of the assets of Birmingham Steel corporation for a cash purchase price of approximately $615 million. Primary assets included in the purchase were Steel's four operating mills that have combined annual capacity of approximately -- 2 million tons of steel bars. Purchase also included about 117 million of inventory and receivables. As the recorded inventory required by Birmingham at market prices under purchase accounting, we recognized $3.6 million less this margins in the fourth quarter of 2002 than if the inventory had been valued at cost.

We will also recognize approximately $7.2 million less in margins in the first quarter of 2003, as a remainder of the purchased inventory is processed. The addition of these assets broadens our product and gee graphic base in the bar market while building profitable market share. Nucor's bar steel annual shipment capacity has grown by more than 50%. That's 5-0. Increasing to $5.8 million-plus tons from 3.8 million tons. Our work in integrating these mills into the new core bar mill group is going extremely well. Our successful start-up continues at Nucor Steel Decatur, our new sheets steel mill located in Decatur, Alabama. We completed the purchase of all the assets of the former Trico steel in July 2002. Less than 60 days later in mid-September, our team at Decatur produced its first and cast and its first slab. Decatur is producing hot-rolled coils and all product for outside customers. Most importantly, the quality of the product has been well received in the marketplace. We expect to produce approximately 1.5 million tons at Decatur in 2003. Annual capacity of roughly 1.9 million tons, Decatur acquisition boost our sheet capacity by nearly 30% to 8.4 million tons per year. I have even greater significance, dewaiter will have a flat roll strategy to build profitable market share and to broaden our sheet product portfolio to include higher-quality grades. Both acquisitions, the Birmingham Steel bar mills and the Decatur sheet mill are consistent with our goal to be the market leader in every product group and business in which we compete. Market leadership is the critical underpinning for building long-term earnings power and earning attractive returns on our shareholders capital.

Nucor's new facility in Crawfordsville, Indiana using the Castrip technology began operation in the second-quarter of 2002. The Castrip process cast strips of steel from liquid and has the revolutionary technology for the steel industry. Our team at Crawfordsville has produced prime, salable coils and shipped approximately 6,000 tons to date. Castrip's product capability, carbon, stainless and electrical steels. Official customer reactions are positive. And in December, crews were added to production team with the plant operating 24 hours per day and seven days per week. We continue to be encouraged by our progress toward achieving full commercialization of the Castrip technology. Nucor's past, present, and future's success is rooted in our company's consistent ability to adapt and continually prove ourselves. As evidenced by the work under way to commercialize exciting steel-making and iron-making technologies such as Castrip and ice melt, which is currently under construction western Australia. Technological innovation remains a key competitive strength of Nucor. Our commitment to continued improvement is being applied in a number of other initiatives that we pushed ahead with in 2002. The Nucor best marking program is identifying and transferring best practices across Nucor's divisions and from outside the company. Production focused, web-enhanced best practice database accessible by all employees is combined with regular face-to-face meetings between like functions at different facilities. And our bar mill groups 200 million dollar capital projects program is on target for completion in 2004. Significant cost savings and quality improvements will be realized in the key components of the program that include modernization of the rolling mill in Nucor Nebraska. Shop in Nucor Texas and a new finishing end in Nucor South Carolina. As you can see the Nucor team is focused on managing our business for the future, long-term success of company by building sustainable earnings power and returns that adequately reward our shareholders. This is why we believe Nucor's best years are still ahead of us. At this time, I would like to turn the meeting over to Terry Lisenby, who will now review results from the fourth quarter and the year. Terry.

Thanks, Dan. Good afternoon. Sales for 2002 were $4.6 billion, an increase of 10% over 2001. Sales for the fourth quarter of '02, $1.2 billion, an increase of 26% year-over-year. Nucor's established new fourth-quarter and annual tonnage record for steel shipments in 2002. Fourth-quarter steel shipments of 3.5 million tons represented an increase of 19% year-over-year, and full-year 2002 steel shipments of 13.4 million tons were up 11% over 2001 shipments. However, fourth-quarter 2002 joist production of 119,000 tons was down 7% from last year's fourth quarter. Full-year 2002 steel joist production of 462,000 tons declined 13% from the 532,000 tons of steel joist produced in 2001. Our fourth-quarter 2002 composite average sales price for steel and steel products of $353 per ton increased $23 per ton or 7% year-over-year.

However, that composite average sales price decreased $2 per ton from the third quarter. The full-year 2002 composite average sales price of $340 per ton compared to $338 per ton in 2001. This improvement was driven by higher sheet steel prices, rising from a trough level of $259 per in the fourth quarter of '01 to $349 per ton in the fourth quarter of 2002. Comparing year-over-year changes in fourth-quarter average selling prices, joist prices were down 11%. Deck prices down 3%. Structural prices are down 8%. Bar prices, up 3%. Plate prices up 8%. And sheet prices are up 35%. Preoperating start-up and acquisition expenses of new facilities were 33.5 million for the fourth quarter of 2002. Compared to 31.3 million for the fourth quarter of 2001, and 21.7 million for the third quarter of 2002. For the full year of 2002, these costs were 87.8 million, down from the 2001 level of 98.3 million. Preoperating and start-up cost attributable to Nucor Steel Decatur were 31.4 million for the full year of 2002 and 21.3 million for the fourth quarter of 2002. Preoperating and start-up costs attributable to the Castrip facility were 23.5 million for the full year of 2002 and 7.1 million for the fourth quarter of 2002. The average cost of scrap and scrap substitutes for the fourth quarter of 2002 was $118 per ton. Up $19 per ton from the fourth quarter of 2001, and flat with the third quarter of 2002. A LIFO charge of 16.6 million for the fourth quarter of 2002 compared to a credit 16.2 million for last year's fourth quarter.

With the extent of the increase in scrap prices experienced year-over-year, a LIFO charge for the fourth quarter exceeded our earlier estimate of $10 million to $11 million charge, upon which we paced our earlier fourth-quarter earnings per share requirements of 45 to 50 cents. Our gross margin was 10.9% in the fourth quarter compared against a gross of 9.2% in the fourth quarter of 2001. Earnings before federal income taxes were $20 per ton for the fourth quarter of 2002, compared to $15 per ton for the fourth quarter of 2001. Cash and short-term investments totaled about $218 million at the end of 2002. Compared to about $462 million at the end of 2001. Approximately $180 million of the December 31, 2002 cash and short-term investment position is held by Nucor Yamato Steel company which is 51% owned by Nucor. During the fourth quarter of 2002, Nucor issued 350 million dollars of fourth and 7/8% unsecured note due 2012. Total debt, 893 million, up from the year-end 2001 of $460 million.

In addition to the notes issue, Nucor assumed approximately 86 million of industrial revenue bond financings in acquiring the Decatur sheet mill in July 2002. At the close of '02, total debt was 26% of total capital. Capital expenditures were $244 million for 2002. And we project approximately $275 million in capital spending for 2003. Depreciation expense for 2002 was $307 million, and it is expected to be approximately $375 million for 2003. Looking at the numbers for 13 weeks, ended December 31, 2002, compared to the same period a year ago, for sheet steel production was up 28%. Shipments up 30%, net orders down 62%, and backlog down 30%. For steel bars, production was up 23%, shipments up 21%, net orders up 29%, and backlog up 47%. For structural steel, production was down 6%, shipments down 7%, net orders down 10%, and backlog down 20. For steel plate, production was up 45%, shipments up 4%, net orders down -- 21%, and backlog up 1%. Steel joist, production was down 5%, quotes up 7%. Net orders up 9%, backlog up 2%. For steel deck, production was up 13%, quotes up 18%. Net orders up 34%. And backlog up 38%. For cold finish steel, production was up 31%. Outside shipments up 31%, net orders up 19%, and backlog up 34%. Sheet steel average pricing increased by $6 per ton in the fourth quarter from the third quarter, an increased $90 per ton from a year-ago level. Driven by domestic capacity restarts, import surges from developing countries, high service center inventories and continued weakness in economic activity, spot who will roll sheet pricing began to decline sharply in the fourth quarter of 2002.

Bar selling prices decreased by $5 per ton in the fourth quarter from the third, but increased by $7 by ton from the year-ago level. In an effort to recover some of the recent rise in raw material costs our bar mill group has announced a $15 per bar shipment beginning February 17th and our cold finish bar operations are raising selling prices by $25 per ton effective today. And as recently as today, several domestic bar producers have raised bar prices another $20 per ton. We see this latest move is warranted by the increasing raw material costs. Structural steel average pricing decreased by $17 per ton in the fourth quarter from the third quarter, and by $31 per from the year-ago level. This market continues to be burdened by excess capacity and weak demand. However, our beam mills have announced a $15 per ton price increase effective February 4, also to recover a portion of the recent rise in raw material costs. Our plate mill in [ INAUDIBLE ] County, North Carolina, price hike of $20 per ton beginning with shipments March 8, this price hike is being driven by escalating raw material costs. Steel joist averaged selling price in the fourth quarter were down $77 per ton from a year-ago levels but were up $11 per ton from the third-quarter level. Order and quotation levels in our joist businesses remain at depressed levels.

Thank you, Terry. At this time, I would like to turn the presentation over to John Ferriola, our Executive Vice President, President of flat roll products for brief presentation. John.

Thanks, Dan, and good afternoon. In the sheet group, we are continuing with our strategic plan of improving our product and new customer mix. We are increasing our3 participation in value-added products and value-added markets. Three areas of particular focus are automotive, lamination and stainless. In the automotive market, we expect to double our shipments this year. In 2002, we did about 130,000 tons, and we expect to do over 300,000 continues in '03. More importantly, we are currently conducting trials with several domestic and transplant automotive companies to support and expand our presence in this high-valued market, we are installing a vacuum degazer at our Berkeley mill. This will allow us to produce steel with excellent elongation, drawing, and forming properties which will enable us to further penetrate the automotive and modal lamination markets. We have focused in the automotive market with our stainless product. In 2001, our stainless shipments were 21,000 tons, of which 3,000 went into the automotive market. 2002, our stainless shipments rose to 35,000 tons, with 15,000 tons going into the higher-valued auto market. In 2003, our stainless shipments will be almost 50,000 tons, with 38,000 tons in automotive. The remaining product went into service centers, power generation and export. Our stainless qualitiness to improve, and we are being rewarded with many new opportunities in the automotive and other markets.

Another value-added product in which we continue to grow is cold-rolled mode lamb nations. We now have a supply position with all of the major domestic motor manufacturers. We produce all grades up to type 8, and this year we will supply over 250,000 tons of cold-roll motor lam into the electromotor industry. We have also maintained our focus on increasing our percentage of contract business. In the third-quarter conference call, we set a target of having 60% of the groups' shipments being under contract. We have achieved that goal. Today, 60% of the groups' projected shipments are contract tons. This percentage excludes Decatur, since they are in a start-up mode, including decater, the group percentage is about 50%.

A new opportunity that appeared in first quarter of this year was exports. We have moved quickly to capitalize on that opportunity. In this quarter, we expect to export about 275,000 tons. This will include about 210,000 tons of hot band, 60,000 tons of cold roll and 5,000 tons of stainless. All four of our division also participate in this business opportunity. Pricings for the exported hot band and cold roll product is at or above current domestic spot pricing. At our new mill in Decatur, Alabama, the start-up continues to go extremely well. We have already set a new weekly production record of 25,000 tons, which is an annualized production rate of 1.25 million tons. We produced 90,000 tons and pickled 32,000 tons in January. Products that have been well accepted in the market and our quality continues to improve. The cross Rolling technology is working well and we are confident that it will produce shape quality needed for our product to be very successful in the market. The quick start-up and continuous improvement we have seen at this facility is testimony to the many hours of hard work by the dedicated teams at Decatur. At our Castrip facility, we have produced 16,000 tons of coiled hot band in 2002 of which 10,000 tons were produced in the fourth quarter. 9,000 of the 16,000 tons coiled were. We shipped 900 ton of Castrip between start-up and November 1st of last year. We shipped an additional thousand tons in November, 1500 tons in December, and we shipped 3,000 tons in January of this year. The low carbon product we shipped was pickled, cold produced and galvanized. The gauge of the product was .07. The finished gauge was .03, and the product was 52 inches wide. Electrical and stainless steel are still in the trial stage at Castrip. We began operating the plant on a 24-7 basis on January 1st. We are expecting to produce 100,000 tons and ship 75,000 tons of product this year. To date, all of the product produced at Castrip has been silicon kill.

Initially being able to produce aluminum kilt steel was seen as necessary to license technology and sell the pro -- product produced with this technology. After a year of visiting with potential licensees and selling Castrip product into the market, we are re-evaluating that position. It has been a nonissue with potential licensees and customer acceptance of the Castrip product within the construction and agricultural markets has been excellent. As we move into other markets, we will continue to re-evaluate the need for aluminum killed Castrip product. Producing Castrip with alum nut steel will be more challenging but we are confident it is possible. We continue to assess the commercial viability of Castrip. Our business models for successful commercialization were based upon being able to cast three heat sequences. We feel that the greatest unknown in achieving this milestone is the life of consumables used in the Castrip process. Although we have not yet casted a three heat sequence, the consumption rates we have observed on the two-heat sequences we have indicated that consumables will not be an issue on three heat sequences. We are scheduled to cast a three heat sequence in the second half of this year.

In summary, 2002 was a very good year for Nucor's sheet business. We set a new melting record at our mill at Berkeley county. Last year, we melted over 3 million tons, an astonishing accomplishment and a tribute to the hard work and dedication of all of the employees in that division. We had record shipments in all of our sheet divisions. In addition, we set records at each production unit, at each of our mills. Although order entry for the first quarter was slow when we opened the books in December, it improved as we started the quarter. We are currently full and all of our sheet divisions. We expect pricing to be weakest in the first quarter and improving throughout the year. Finally, we expect this year's shipments for the sheet group to be 7.9 million tons, an increase of 30% over last year's shipments of 6.1 million tons.

Thank you, John. Next, I would like to turn the presentation over to Michael Parrish for a brief review of the Birmingham acquisition and how that's going and a few other items. Mike.

Thanks, Dan. Good afternoon. In general, the transition integration is going very well. Thanks to the excellent work of our Nucor transition team division and the corporate personnel. Also, we have been very impressed our new employees from Birmingham, and they have been extremely helpful in the transition as well. We didn't miss a beat on production and shipments. Comments back from our customers have been, quote, smooth, seemless, and great transition. Specifically, all our production incentive programs are now in place. As you may expect, we have already experienced some all-time record shifts at some of the mills already just like we did at Auburn. Hats you off to all those production people. They are doing a great job. We are also in the process of moving all accounting, sales and administrative functions out to the division. We are 95% complete on that. Also, we are coordinating all of our marketing and sales efforts so that we are not only an efficient team but staying aggressive and we continue to improve our customer services. Along these lines, we have added a new position of national sales and marketing manager for the bar mill group to help with this task. In summary, things are going very well. Again, we like to thank who all have helped to make this transition a big success.

Thank you, Mike.

With that, we turn the meeting over to questions.

Ladies and gentlemen, if you have a question, please press the 1 key on your touch-tone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound sign. Our first question comes from Michelle Applebaum from Salomon Smith Barney. Please proceed.

Hi. I had a couple of questions, if I can. Did you give some guidance on what your start-up costs would be during the first quarter?

Yes. We are estimating at this time start-up cost between $25 million and $30 million. We are also estimating one-time charges due to the acquisition of Birmingham of approximately $7.2 million. We are also estimating approximately $8 million in LIFO --

Charge.

-- charge. And we are also just -- the complete thought process, we are expecting our scrap usage numbers, not purchase numbers, but usage numbers to increase during the quarter up to $10 to $12 a ton from the beginning to end of the quarter.

The guidance you gave, does that include all these items?

Yes.

Okay, so you have a charge in there, you are saying.

Yes.

And then start-up costs. Okay, then that's -- okay, next question is, you gave us, like, fourth-quarter orders per sheet. But we have seen a trend at some of your peers partially because of the ax force but because of depleted inventories at domestic service centers of kind of healthy January increase in orders. Could John comment on what he's seeing out there.

I would agree with that statement. The order entry in January has been healthy. Much improved over December's levels. And as I mentioned in the report, we are full at all of our divisions. Just so you know, Michelle, our numbers do not include anything outside of first quarter. No contract business is put into those numbers. We will not start showing any orders that are second-quarter orders until we open the books in mid February. So all contract business and all spot business for second quarter is not shown in those numbers, and as John said, we are fully booked at all of our mills, including dewaiter.

Oh, you are fully booked for first quarter.

Yes.

I am sorry, I did not hear that.

Yes, we are absolutely fully booked. Remember now, we are already through first month and a week of the first quarter.

Okay. How much of U.S. Steel's numbers were out but they were down from a year ago. How much of an increase have you seen in the month of January?

What percent increase are we looking at?

Yeah. And how does it compare sequentially as well as year on year.

I don't know if we have any percentage numbers, John -- no, tons.

Well, I can give you the tons that we are anticipating. We did in fourth quarter about 1.57 million tons as a group, and we are anticipating first quarter of about 1.87 million.

Okay.

So you can do the math.

And the in general, Michelle, orders in December were very, very weak and orders for the first quarter, obviously were very strong. I don't have the percentage increase in terms of orders in front of us, but as John just showed you, we are going to be doing 1.878 million tons of sheet in the first quarter fully booked. So it is a significant improvement.

Okay. And you will get that all on your web site soon require hope?

There's stuff throughout right now, I think.

Okay, when the call started, it wasn't there yet. Okay. Great. Can I -- hello?

Hold on, Michelle, just for a second. I am getting a clarification on what's on the site.

Okay. Why you are clarifying that, can I ask just one more question --.

Just hold on to -- hold on for a second. Through December is on the site now.

Okay. And when will the January numbers be put on?

Next week.

Next week. You will see the January numbers on there next week.

Okay. Obviously they will be up a lot. And -- What you need to understand -- I don't know what numbers you are going to look at, because we don't necessarily put, you know, the numbers in [INAUDIBLE] there in the way that U.S. Steel does, okay.

Okay.

What you need to focus on is we are fully booked at a 1.87 million ton clip for the first quarter, and we produced and shipped 1.5 million in the fourth quarter. So our orders are up significantly, quarter over quarter, our production will be up quarter over quarter, and if you took a look at actual December order entry, it was very slow, and things didn't -- as John said, didn't pick up until January, and the order entry rate was strong enough in January to fill up the entire month at a 1.87 million ton clip.

You mean the entire quarter.

The entire quarter, yes.

Got it, okay -- then just bottom line. Now prices -- are we past the worst of it.

On bar products, we believe we are. On the beam business, it's still very competitive environment. Even though we are working with the marketplace to get a $15 a ton increase there. Some of our competitors have already gone up $30 or up to $30. And on the sheet side of the business, yeah, -- yes, we believe that the first quarter will be the worst of it at this time.

Okay, will January be the worst of it? Or -- did you still have rollover of commitments.

There will be some rollover into February of January tons but not much.

When will the influxion point in terms of incoming orders on prices? It was as recently as two or three weeks ago? Was it in December?

Actually, I would have said it was about the middle of January.

Okay.

Michelle, thank you.

I am sorry.

Usually we limit to one question.

Sorry, sorry.

That's okay. Good questions.

Our next question comes from Brett Levy from RBC. Please proceed.

Really kind of two questions about kind of things in the future here. Obviously, you guys are doing a lot in Berkeley to kind of upgrade the quality of the market that you can address in the automotive side. You know, can you talk a little bit about kind of parts of cars that you are not on now that you see yourself on in the next two to three years. And then another sort of developmental one, with respect to the Castrip project in craw Fordsville, can you talk a little bit about, kind of, what people are willing to pay for the product coming off of that mill versus, say, a similar product coming off of one of the more traditional sheet-producing mills.

John, would you like to answer those questions?

In terms of the automotive question, ultimately, we feel that we will be qualified to produce just about every product on automotive except exposed. At this time, we have no plans to enter into the exposed automotive market. On Castrip, it's hard to answer that question of the way it was posed. Castrip is a hot-band product that is a cold-rolled replacement product. The pricing will be somewhere between the traditional hot band pricing at the market level at the time and cold rolled pricing.

I guess what I am asking is, are you guys able to move product at basically north of traditional hot band prices and close to, you know, current cold-rolled prices.

Close to current cold-rolled prices, yes. Absolutely.

Thank you. I will get back in queue.

Our next question comes from Mark Parr from McDonald's Investment. Please proceed.

Good afternoon. Congratulations on a great quarter.

Thank you.

Looked really good. I had two questions. First of all, John, I was wondering if you could address the -- on the contract pricing, I mean. What kind of increases you are seeing, and then secondly, Dan, I was wondering if you could give us an update on high smelt and how that's going.

John, you first.

Okay -- thanks, Dan. [ LAUGHTER ] We've seen a substantial increase in contract pricing year-over-year. There's so many different products, it's hard to put a general number to it, but I would say probably in the range of $30 to $50 depending on the product. Okay shop is it -- if we are going to try to use that for forecasting purposes, would it be, you know, fair to use, like a $40-a-ton number and put it across half a year mix on flat rolled?

Mark, one thing that we may need to clarify here and I am going to ask John a question. On actual contract business year-over-year, that $30 to $50 a ton is representative, but if you take a look at the increased number of tons under contract and what the prices were a year ago versus the contract price that those tons are under today, it is significantly -- I would guess significantly more than $30 to $50 a ton. Year-over-year, yes.

You want to put a number on that?

I would say maybe $06 a ton.

Okay, thanks.

You are welcome. The high smelt, Joseph Rutkowski will fill you in on that.

Hey, Mark. On high smelt, we are basically on schedule. What we are doing over there is taking out the vessel of the -- that was originally part of the commercial -- or the pilot plan require should say. A rather large pilot facility that has all been completed. We are out of what we call the deconstruction phase. We are about to begin the construction phase. But you are looking at a project that's still, you know, a couple years out here yet. We've got all the permits, construction is about to begin. In fact, we are heading there next week for our board meeting.

Next question comes from Wayne Atwell from Morgan Stanley. Please proceed.

Thank you. If I am trying to rationalize the guidance we have gotten from first quarter which I would guess 20 do 25, if we assume for a second $80 more a ton -- $60, that would be $120 million more which would work out to be about $1 a share per year and bring to you 70 or 80 cents if we look at the fourth-quarter base and back out your guidance, I don't quite fit to your 20 cent to 25-cent projection even assuming higher strap cost and the higher two charges. Am I missing something? How come your guidance is so cautious?

How come our guidance is cautious?

Or I guess, how -- if you take a look at the 55 cents as a base, add in roughly 25 cents, which would be the impact quarterly of the higher contract pricing. Factor in higher scrap in those two charges you mentioned. I still have trouble getting down to the 20 or 25 cents.

I am not sure of what numbers you are getting together there. Our numbers are based upon roughly $30 a ton lower spot selling price for flat rolled in the first quarter. And on average, looking at a $10 to $12-a-ton increase in scrap usage numbers, of contract business is 60% of our business, not counting decater, 50% as John mentioned including Decatur. So you have 50% of it seeing a $30 a ton drop due to the spot markets on the hot roll, cold roll and galvanized. Maybe a little more on galvanized. I don't think you factored any of that into your calculation. And, you know, the part about the contract business is correct, but you have got to factor into the fact that 50% of our total sheet projections for the first quarter are going to see a $30-a-ton drop in spot pricing. John.

And as I mentioned the scrap issue for during first quarter looking at $10 to $12 a ton. Now what we have increased prices as we enumerated a minute ago, and we have not included any price realizations that might come in our projections in the products overall, long products, in particular, because we are just not certain how much we will actually see on the first quarter on that. So our estimates are probably on the conservative time of 20 to 25 cents. So some of that scrap increase we will get back. At least on the lawn product side, but how much we don't know at this time. I think what you are miss something the spot tonnage that is still 50% over all of our sheet business that is down those 30-plus dollars a ton.

Okay. I hadn't factored in the full $30. I thought it might be down a little bit, not that much. My understanding that China is paying $25 more than the U.S. market. I thought that might have mitigated some of that impact.

It is true that the Chinese market is probably -- in China, FOB, China, $25 a ton. But you have to factor in our transportation costs which are very significant, in the neighborhood of $40 or $50 for most of our divisions to Chinese ports

I thought you could actually -- based on conversations with your competition, I am understanding they can sell steel to the Chinese FOB their mill at $25 above what they would sell to domestic customer.

We have not seen those opportunities. A lot depends on what they are selling to their customer -- domestic.

Okay, one other point. Can you clarify the state tax credit, what the origin of that is, and part of that extra and nonrepetitive?

Terry.

Yeah, they are primarily incentive credits. And it concerns a few different states. Some of that is reoccurring and we pointed out the portion that is it not reoccurring.

Okay. So only part of that require guess about a nickel is something that won't recur. And there is a tax on that? You have -- the credit is federal tax impacted?

Yes.

Okay. Thank you.

What we said in the earnings release, Wayne, was that there was 6 million of the 16.2 million that was nonrecurring. After-tax that resulted in a $3.6 million -- after tax and profit sharing or net impact of 5 cents a share. The rest of that 10.1 million is reoccurring. On an annualized basis.

Right. Thank you.

Our next question comes from Dan Rolling from Merrill Lynch. Please proceed.

Thank you. Basically it was the same -- on the taxes. But, Terry, are you saying none of that is a tax loss carry-back. It is all for incentives?

Correct.

And it tied to capital expenditures?

Yes and no. It's a variety of incentives. And I really can't go into allotted more detail on it.

And nonexpiring and we can use them for the next five years?

Some of them I think we can use for the next -- long time. [ LAUGHTER ]

Good. I am glad to hear that. And I missed numbers earlier. Can you give us the capital expenditure numbers for '02 and '03 and what you said on Nucor Yamato Steel.

Cap Ex for all of '02 was $244 million. And for '03, our projection is $275 million. -- I am sorry, what was the second part of that.

Nucor [INAUDIBLE]

Roughly $180 million of that cash is Nucor Yamato Steel 13.

51% is Nucor's, I know you know that. And just -- I think Terry also mentioned -- you may have missed, Dan, was that depreciation next year we expect to be $375 million versus $340 million --.

$307 million.

$307 million this year excuse me, 2002.

Our next question comes from John from Prudential Financial. Please proceed.

Dan, I would appreciate if your team could take a victory lap and explain a little bit of the nuts and bolts of producing 3.6 million tons of steel in the quarter. It looks like the original three sheet mills produced at 6.5 million ton rate, and the good market in '02 must have figured out how to make good steel and a lot of steel and that the peak output for beams, bars and plates were in the second quarter and if you could describe where the maintenance shutdowns were and whether it was 12-week or 13 weeks of output we are looking at. It is really good to see you make all that steel.

Well, our number one -- our people -- we make sure they've got a mind-set of continued improvement, they have got all the incentive in the world to produce quality tons. They have got good equipment and just do a hell of a job and always working to continually improve the process, and right now, there is 9800 employees taking their victory lap, and we appreciate that comment, John. As far as shutdowns go, typically we have one shutdown in the early part of the year. It can vary, but sometimes it is in March. Sometimes we may have a couple that are in July. Then we will have the second shutdown -- most of them in September. The time frame with the remainder in sometime around Christmas, depending on whether the northern plants or Southern plants. We don't want to be shut down, if necessary, unless absolutely necessary during a cold winter month because everything freezes up. The beauty of what you pointed out are the guys aren't done yet. There is still more productivity improvements to be garnered at every plant and every operation. And using the latest in technology, process control systems, and our best marketing system is really working well. Our people are comparing notes, not only within our own divisions but outside the company. And just -- everybody is just getting better at doing their jobs.

Dan, how many of the 15 melt shops or plants had 12-week versus 13-week quarter. And can you break out the sheet output of Hickman versus Crawfordsville versus Berkeley so you have a flavor of how you made all that great steel.

Boy, we would have to run down the list here. I would say maybe two-thirds of them shut down in the fall quarter. And one-third of them shut down in the winter quarter. But -- we can get you that information, John. But that's probably a rough guess.

That's a good guess. Remember, though, that it could vary from year to year depending on business conditions and equipment conditions.

But typically year-over-year, our mills are shutting down at the same time every year. If you look year-over-year, you can assume that the same number plans to shut down in the winter quarter as in the fall quarter, but the difference between the two is probably on the order as I said, but don't hold my children's life to that, all right? What is the other part of your question.

Can you break out the output of each of the sheet mills in the fourth quarter.

We don't normally do that. John did --.

I will say this, we can make this comment, that all of the sheet divisions -- all of the divisions produced well in the fourth quarter and set records.

Thank you. It is just great to see. I don't know what everybody is all worried about in terms of your stock and your company. When you make steel, you kick butt.

We are growing our company, John. And we are in it for long term. We appreciate that recognition. Thank you.

Our next question comes from Aldo Mazzaferro from Goldman Sachs. Please proceed.

Hello!

Get off your cell phone, Aldo.

I am calling clients, you know. [ LAUGHTER ]

Hopefully you are saying good things not like some other folks I know. [ LAUGHTER ]

So the question I have here is on the sheet market, what's holding you back from raising price in flat roll?

No comment. At this time it is not appropriate to talk about what we might or might not be doing on flat roll going forward. We will be getting ready to open our books for second quarter. It is mid-February, and if anything is going to happen, you will hear about it then.

Okay. And in the bar business, probably from Mike, did you report any -- in your total shipments, anything from Birmingham in that $764,000?

Just a little bit. Just a little bit, Aldo.

Less than a month's worth. Like that's -- well, a month at a million and a half, would that be about 30,000 or so, 40?

You know I don't think I have that number at my fingertips 13 we might have it.

We might have it. We are looking.

If I can get more from you. Given what you see in the pig iron market where do you think the upside limit on scrap is?

As usual, a lot less than people project and fear and the panic-type environment that some folks like to get started. The thing that has been impacted pig iron, obviously overall just like with the rest of scrap, it is the demand, export activity, business in Asia, particularly China is pretty hot. More than anything the outage in Venezuela that's been there which shut down the HBI production. That is currently being brought back on-line as I understand it. So we think that will be a strong moderating impact on pig iron going forward. There's also a few other things that I can't talk about at this time that will make pig iron more readily available from more places in the world going forward in second quarter. We are probably looking at the peak numbers of that right is our guest.

Aldo, it's Mike.

Hi, Mike.

74,000.

74. Thank you. Congratulation

Thanks.

Thank you.

Our next question comes from Barry Headlines from Sage Asset Management. Please proceed.

Good afternoon. Great quarter. I will reiterate. I had a question on the export opportunity. China was alluded to but are there other areas that you are tripping to or where you see opportunity right now? Was it mostly China?

Most of it goes to China. You are shipping to a few other locations. Shipping some product to Spain and some to as tone I can't.

My how times -- Astonia.

My, how times change. They will change again

Marco Connect from Credit Suisse First Boston. Please proceed.

Good afternoon. I have three questions. The first is, what was your operating cash flow including changes in working capital.

From what period?

For the year -- or for the quarter. You can give me either.

500 million for the year, and 176 million or so for the quarter.

Okay. My second question. You commented on the preproduction of the start-up cost. Can you just give me the sense of what the composition is for the first quarter and when you think those might decrease.

Our first quarter is just a summary of the things we know are out there. I don't want to be so detailed as to try to break it down. The big ones will continue to be Nucor Steel Decatur and Castrip.

But on Decatur specifically, I understand Castrip has more uncertainty, when would you expect to see a material decline in those costs. Would it be in the second quarter or further out than that.

Probably late second quarter, certainly moving into the second half of the year.

Okay.

Sometime in the second half of 2003, if the economy improves and export activity is maintained as it is today is what we are looking at.

Okay. And all of the inventory purchase accounting, that will all be done by the end of the first quarter?

Correct, on the Birmingham acquisition, yes.

Finally, I was under the impression in your long-term contracts you do have a mechanism where you have clauses to adjust for scrap, and I thought there was an adjustment that happens beyond a certain threshold. Can you just give us some further color in terms of whether that threshold has been achieved and what percentage of your chart applies too.

We do have a scrap adjustment in many of our contract tons. As far as specifics go, it varies from customer to customer. In general, I would say with the current pricing of scrap, we have exceeded that threshold.

So if you have exceeded that threshold, we should then see a commensurate increase in your pricing for that, and until we see scrap abate. Would that be reasonable?

That is reasonable. For the portion of the contract business we are saying as a course that flat roll is 50%. For that portion that does have those close clauses. All of it does not have those clauses.

That's just $1 per ton basis, right? Price per scrap?

Right.

Okay. Thanks a lot.

Your welcome

Our next question comes from Frank Dunay from Adage Capital.

I have a few technical questions, 7.2 million pretax charge you are talking about in the first quarter, 7.2 million, pretax or aftertax?

Pretax.

Pretax. When you -- on the ex-ports, you said that you were getting the same price as you were on domestic shipments, is that net of shipping charges?

Yes, that's FOB, the mill, and it is at or above our domestic pricing.

Okay. And if you take into account scrap and energy. Rising scrap costs and rising energy costs for the quarter, is that enough to -- the price increase in bars, is that enough to offset those two things?

The current price increase of $15 a ton is not enough to offset the actual purchase number differences we are seeing. As I mentioned that's probably going to be $25 to $30 a ton in purchase increases over the quarter, but usage would be less than that, somewhere around $10 to $12. And going into the second quarter, it would not be enough to cover for those increases, and as we mentioned earlier, already some of our competitors have gone with a second round of increases on bar products.

Right. Which we see as being warrant basically just trying to cover the cost increase -- that what we are all trying to do here?

I think so. Remember the lawn product producers are all scrap-based electric firms.

Right. I believe that's all the questions I've got. Thanks.

Thank you.

Our next question comes from Ross Paine from Wachovia Securities, please proceed.

My questions have been answered

Adam Grass from Bear Stearns.

This is Tony Risutto, hi, gentlemen.

Hi, Tony.

All my questions have been answered but I was wondering if you could update us further on the electricity and natural gas outlook. As I recall you guys are pretty well protected at least in the first half of this year. Will you update us on that and also a question, Dan, on your views on energy consolidation.

In general, on electricity we are well protected over the first half of the year because we are on long-term five-plus, ten-year contracts. Natural gas, we have done a fair bit of hedging through a corporation that will get us through the first half of the year but not 100% heads. So we will be susceptible to some spot pricing. And, so, there will be some fuel added adjustment so some of our electricity contracts based on natural gas moving, but don't have any hard numbers for you for what that would be due to first half of the year. For the most part, we are protected on electricity.

Just in general, obviously a lot of developments on the consolidation front. You guys obviously taking part in a lot of this, but what are your general thoughts in terms of -- from an integrated standpoint as you look at the integrated industry consolidation. Do you regard this as positive for Nucor. What do you see as a long-term impact on industry pricing in flat-rolled products?

First off, any form of consolidation in any business industry that is highly fragmented like the steel industry is a good thing, and we see it in general as good thing. The 64 million or maybe 200 million dollar question will always be are we just talking about consolidation or people actually taking out some of that inefficient excess capacity that might or might not exist, whether it be in the United States or globally. Right now, it remains to be seen as to whether or not the consolidation is that we see being worked on by U.S. Steel and AK and national and ISG at Bethlehem will result in any true rationalization of capacity as opposed to just consolidating and keeping the same number of tons going. Certainly, the dramatic impact of 6 million tons of flat-roll capacity coming back with the LTV start up of ISG had a tremendous impact on spot pricing in the fourth quarter, as well as the increase imports from developing countries that surge pretty strongly in flat rolled. In the long run, with the strong economy, the issue of taking tonnage out, inefficiency out is less of an issue but always an important part of that. In general, as far as how that you goes, consolidation is a good thing, particularly if people are in it to make a profit, which they are supposed to be, and in excess of cost of capital, and if you don't have people, plants and companies out there that are just barely trying to exist by generating cash flow and have replaced them with entities that are profit-driven, a good thing for the industry and if it ain't good for the industry will definitely good fob Nucor.

Thank you very much. Just a quick follow-up regarding your export strategy, we are very happy to see that you are taking advantage of that opportunity, but do you see as the U.S. dollar has weakened here and hope neon a sustainable basis that you will have longer-term opportunities?

The dollar itself is relative to the Euro, and a little bit to the yen is still grossly overvalued compared to where it was in the mid-90s. Like 30%. If you take it versus the Chinese currency which is being manipulated to maintain a strong export economy for China, the Japanese manipulation of their currency to keep it from dropping to levels where the market would allow it too, I think there is still potential for the dollar to soften nor people let market forces work and don't manipulate the currency and that would be good for the U.S. industry, in general manufacturing in general, and the steel industry as part of manufacturing. How things go in the future with respect to export activity depends on two things. Somewhat the currency as it stands is now a positive. More movement toward a sound dollar is a positive. But the biggest thing going on right now is that huge sucking sound in China. Sucking up every ounce of steel they can get and how long that continues. That will be the first thing to keep an eye on if that disappears or slows down, even if the growth is strong, slows down significantly, than those export opportunities may tart to dry up.

Dan, thanks for your thoughts.

You are welcome. Next question?

Our next question comes from Wayne Atwell, please proceed.

Thank you. In giving us your guidance, are you factoring in the potential contribution from the Birmingham Steele steel acquisition.

Yes. That's in there. It is in there but because of $7.2 million adjustment on the inventory side, it is in there to probably -- not as strongly positive as you might think.

Right. So the two factors, the LIFO and Birmingham 15 million or ten cents a share after tax, 10, 11 cents, that should be an additive number for the second quarter versus the first I guess?

Certainly from the Birmingham standpoint, the inventory standpoint, yes. From the scraps standpoint, the LIFO standpoint, that remains to be seen and depends on scrap prices.

Okay. What are your thoughts of seasonality of scrap. Usually scrap runs up December, January, February, flattens out in March and come back up April, may and June. Do you think that will happen this year?

I think that certainly that historical challenge have been there since scrap was being used. And it will have an impact on scrap pricing. Not only scrap pricing itself but two things will influence the flows, the improvement in the weather and also the currently higher prices for scrap will bring in more scrap. But, yes, there will be a moderating effect on that. In normal times it would be significant. Depends on what's going on with export activity of how significant an impact it will have.

Now that you have had Birmingham for about two months or something approaching that, I think in the past I have been told there were probably few synergies. Much in the way of cost-cutting that you can achieve by operating this as part of your innovative systems?

Mike, do you want to take a shot at that?

I think in the Birmingham case, I think the synergies are more involved in the culture. The culture was a good fit. The people are doing great. And like I said before, the production numbers are already showing that they are breaking records. I think some of the synergies that we can gain are more on the marketing side, coordinating our marketing efforts and working together there. On the marketing side, our customer base, particularly the service centers are national, and by us being able to service with complete geographical coverage for some of the large service center chains, that brings in more business to all our plants, which improves the continue -- the tonnage going out of those plants and obviously the profits at those plants. There is tremendous energies that can be developed. But after two months, ask me again in a year.

Do you have a ballpark estimate, $5 million, $50 million, how can you handicap this?

We are not going to handicap it at this time, but keep asking that question, Wayne.

Thank you.

Our next question comes from Dan Rolling. Please proceed.

Thank you. Terry, just for clarification, I know it is in your annual report, you have put your state income tax -- your state incomes income taxes in the footnote under the federal,. As you pointed out this credit goes against cost of goods sold. Can you explain the rationale of putting state taxes and cost of goods sold instead of putting it all together in a tax line?

It is pretty easy for us. We look at state taxes as the cost of doing business in that particular state. So it is assigned out a new division level. So we literally look at them as a cost of goods sold at division level where federal taxes based on the overall corporate profit. That -- as you know, Dan, that has been our practice for 30 years.

Yep, just needed it refreshed. Thank you.

Our next question comes from John Chris from European Investors. Please proceed.

Thank you. I guess in my own lack of knowledge, I have a question about trying to deal with these nonrecurring charges, preoperating expenses, start-up expenses, acquisition expenses. If you adjust for those or eliminate those, how would the first quarter earnings guidance compare with what you actually reported in the fourth quarter. You reported 50 cents in the fourth quarter. 20, 25 cents is before these kind of costs. Does that mean that excluding these nonrecurring costs, earnings in the first quarter projected to be roughly flat with the fourth quarter

No. We have start-up costs in the fourth quarter as well.

Okay.

That's in the earnings release, the numbers are in the earnings release.

I saw a mention of them, I just didn't know if they were included or excluded from the 50. The second question I have is was there anything going on in the area of terrorists that will increase or decrease the probability that terrace will be maintain when the International Trade Commission does its midterm review.

There is a lot of noise out there on these issues still and a lot of misinformation being deliberately perpetrated in the press. The bottom line and this is just my evaluation of it. The bottom line is the 201 terrorists have accomplished what the President had set out to accomplish. We have subsidy talks going on globally. They are meeting with a lot of success. We have the world's attention on this issue and a problem not just in the United States but globally. And we also have the domestic industry going go the consolidation that the President wanted to see happen. So that we can become more globally competitive as an industry as a whole. Certain parts of our industry are already very globally competitive, and the last thing is, any time you have our laws being broken, whether our laws or laws in other countries, those laws will be enforced, and so looking forward, I see things, 201 staying in place for the full term and I also see our trade laws being strengthened going forward to allow us to have a fair and level playing field. So nothing in my estimation is going to take place to weaken things. At the very worse, maintain the status quo.

Thank you.

Thank you, sir. Our last question comes from Aldo Mazzaferro. Please proceed.

Hey, Dan. Just a couple of real detailed questions. On that stainless steel you are shipping to automotive. Can you say what kind of stainless, with the 400 series.

409. 400 series.

For the exhaust systems.

Yes, primarily for exhaust systems.

And then on the Decatur mill, you are running 90,000 a month, which is about, what, the -- that's the run rate about half -- half capacity. Is that injure shipping rate as well?

That's about two-thirds of capacity, three quarter -- we were saying -- I am sorry.

When you -- when you say "capacity" what are you are looking as the rate of capacity, 1.9 million. 2 million, yeah?

That's corrected. We are projecting 1.5 million tons this year. So you are looking at something around 70% of capacity for the year is what we are projecting.

Yeah, so that's about equivalent to what your shipping rate will be -- or is right about now too?

It is not quite that yet. But, you know, that's what we expect for the year, and we will build during the course of the year

All right, thank you.

You are welcome. Thank you all very much, and, again, to all our employees, who are still taking that victory lap, we appreciate your hard work. Keep it up. And stay safe out there. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone have a nice day.