Nucor Corp (NUE) 2005 Q4 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation fourth-quarter of 2005 earnings release conference call. As a reminder, today's call is being recorded. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

Certain statements made in this conference call are forward-looking statements that involve risks and uncertainties. Although Nucor believes that they are based on reasonable assumptions, there can be no assurance that further events will not affect their accuracy.

Some of the important factors that may cause actual results to differ from these predictions are listed in Nucor's SEC filings. The forward-looking statements made in this conference call speak as of the date, and Nucor does not assume any obligation to update them.

For opening remarks and introductions, I would like to turn the call over to Mr. Dan DiMicco, Vice Chairman, President and Chief Executive Officer of Nucor Corporation. Please go ahead.

Thank you, and good afternoon. Thank you for joining us for Nucor's conference call. We appreciate your interest in our Company. We will first briefly review our results for 2005, then provide an update on our progress implementing Nucor's strategic plan for growing long-term shareholder value, and end, then, by taking your questions.

Mr. Terry Lisenby, Nucor's CFO, and our other Executive Vice Presidents, John Ferriola, Ham Lott, Mike Parrish and Joe Rutkowski, are with me this afternoon, and will also be available to answer questions and comment.

First, and most importantly, I would like to say thank you to all the members of the Nucor team for delivering a second consecutive annual earnings record in 2005. To do this, the Nucor team successfully managed through a number of significant challenges in 2005 that included declining flat roll spot market prices and rising energy costs.

I'll repeat what I have said many times -- Nucor's most significant competitive advantage remains our employees -- the right people working together as a team. And our team once again got the job done over the just-completed quarter.

Nucor's fourth quarter of 2005 earnings of $2.18 per diluted share exceeded our guidance given on our October conference call of $1.70 to $1.90 per diluted share. Our results also exceeded the First Call average analyst estimate of $1.89. These back-to-back record earnings years in 2004 and 2005 are the initial payoff from our focused and disciplined strategy for driving long-term growth in Nucor's earning power and raising returns on our shareholders' valuable capital.

As you have heard us discuss many times over the past five years, the keys to executing the strategy have been and remain, first and foremost, Nucor will optimize its existing operations. We will continue greenfield growth via the commercialization of new technologies. Nucor will pursue strategic acquisitions. And fourth, Nucor will grow globally through joint ventures. Quite simply, we have always taken a long-term approach to building our business from day one, an approach targeted to generating higher highs and higher lows in profitability throughout the economic and steel market cycles.

When I studied Nucor's results, two important points stand out. First, our team is building impressive long-term earnings power. Second, but equally important, the growth in our earnings power is derived from a diversified product line portfolio. Our level of product diversification is unrivaled by any other steel company in North America.

My view is that the potent combination of Nucor's unique culture and our product line diversity go a long way in explaining why our Company has been profitable every year, every quarter since 1966.

Let's now take a closer look at my two points that I believe are critical to understanding Nucor and Nucor's future prospects. Our work implementing the strategic growth plan has greatly expanded Nucor's platform for generating earnings. Nucor's earnings performance over these past two consecutive record-setting, or more accurately, record-smashing years tells a story very clearly.

At the last peak in the economic and steel cycles, Nucor totaled earnings per share of $1.90 in 2000. Our 2004 earnings per share of $7.02 were more than 3 1/2 times greater than the 2000 level, and our 2005 earnings of $8.26 per share were more than 4 times greater than the 2000 level. Over the same period, steel shipments increased from 11 million tons in 2000 to more than 20 million tons in 2005.

And Nucor's finished steel production capacity has climbed from approximately 13 million tons in 2000 to approximately 25 million tons today. This growth was fueled by both our strategic acquisitions and our ongoing work to optimize existing operations.

Our Bar Mill Group's volume has more than doubled over the past five years, with shipments growing from 3.1 million tons in 2000 to 7.2 million tons in 2005. This growth was driven by the acquisition of Auburn Steel in '01, the acquisition of Birmingham Steel for Bar Mill in late '02, the acquisition of Marion Steel in '05, and ongoing productivity gains at every Nucor Bar (technical difficulty) in particular, the most recent additions.

Our work over the past five years has enhanced Nucor's leadership position in the bar business by expanding our Bar Mill Group's nationwide network to 10 bar mills with total annual capacity now exceeding 7.6 million tons.

Our Sheet Mill Group shipped 8.5 million tons in 2005, up nearly 80% from the 4.8 million tons shipped in 2000. Nucor's growth in flat roll has been powered by the acquisition and startup in late 2002 of our sheet mill in Decatur, Alabama, as well as by continued productivity advances at our three other sheet mills. With total annual capacity of nearly 11 million tons, Nucor Sheet Mill Group is well-positioned to advance our strategic plan for greater participation in higher value-added sheet markets.

Nucor's 2005 plate shipments of 2.2 million tons compared to 2000 plate volume of less than 20,000 tons. Our penetration into the plate market was achieved with both a very successful startup of our North Carolina plate mill in Hertford County and the acquisition of our Alabama plate mill in mid-2004, formerly Tuscaloosa. With total annual capacity of 2.8 million tons, Nucor should continue to benefit from the current extreme robust plate market conditions.

Nucor's strategic plan has also expanded our participation in attractive downstream product businesses. Our value-added sheet products have consistently generated very attractive returns on assets throughout the economic cycle. With last year's purchase of our Wisconsin cold finished bar plant, Nucor became the largest U.S. producer of cold finished bars.

This acquisition also expanded our cold finished product line to include larger sizes and more long product. Total annual capacity at our four cold finished facilities is 490,000 tons.

Nucor establish two rebar fabrication joint ventures in 2004 and 2005. Nucor is excited to have foreign partnerships to grow in the reinforcing steel construction markets with two leaders in the rebar fabrication industry -- Harris Steel Group and Ambassador Steel Corporation.

In 2004, we formed a joint venture with Harris Steel Group to serve the western and northeastern U.S. rebar fabrication markets. Announcing an agreement last week to acquire a second facility in California, our Harris Steel venture continues to go and generate better-than-expected returns.

In 2005, we entered into a rebar fabrication joint venture with Ambassador Steel that will allow us to expand Nucor's rebar fabrication presence in the central and southern regions of the country. This venture, Nufab Rebar, completed last May its first acquisition, a rebar fabricator serving Louisiana, Mississippi and the Florida Panhandle region.

And, just as importantly as these substantial expansions to our earnings power, Nucor has maintained the strength of our leadership positions in a number of other markets. We are the largest U.S. producer of structural steel or beams, with 2005 shipments of 2.9 million tons and total production capacity of 3.7 million tons.

And our Vulcraft business is the largest U.S. producer of steel joists and steel deck. For joists, our 2005 volume was 554,000 tons, and total annual production capacity exceeds 700,000 tons. For deck, our 2005 volume was 380,000 tons, and total annual production capacity is 430,000 tons.

Having outlined our growing platform for generating earnings, I will now explain the importance of my second point -- product diversity. At the same time that we have dramatically increased our firm's earnings power, we have strengthened Nucor's position as North America's most diversified steel producer.

It is worthwhile to review the composition of our sales tons in 2005 -- 39% sheet, 29% bars, 14% beams, 11% plate and 7% downstreams steel products -- that is the total of joists, deck, cold finished bars, building systems, fasteners and light gauge framing. Nucor's product line diversity is very significant in that our short-term performance is not tied to any one steel product market.

Through a number of steel industry cycles, relatively better conditions in some markets have cushioned the effect of more severe conditions in others. Our ability to set a second consecutive annual earnings record in 2005 proved the value of our position as the most diversified steel producer in North America.

2004 was a record earnings year, with particularly strong performance from our flat roll and plate businesses. And in 2005, our team proceeded to beat that earnings record with net income increasing by $189 million. These 2005 results were achieved despite sharp declines in steel market spot pricing over the first eight months of the year.

2005's performance was driven by record-setting earnings from our Bar Mill Group and our plate mills. Additionally, we benefited from earnings improvement over 2004 levels in our joist beam and building system businesses. I should also note that our 2005 earnings record was supported by the solid results delivered by our flat roll business in last year's tough environment. The Sheet Mill Group once again did an excellent job of locking in contract volume with reasonable margins.

While we are encouraged by these results I reviewed for you, our view is that this is just the initial payoff from disciplined execution of our strategic plan. The Nucor culture remains focused on growth and continual improvement. The Nucor team's journey is that of climbing a mountain with no peak.

Our work continues. We are pressing ahead with additional initiatives to build long-term earnings power and generate attractive returns on our shareholders' valuable capital.

I will now update you on some of our ongoing growth projects. Nucor's strategic plan recognizes that technical innovation must remain a major competitive strength of our Company. Our team understands that success in the marketplace demands an ongoing ability to adapt and continually improve our cost position relative to our competitors.

Our Castrip Technology has proven to be an important step forward, building on our long-standing position as a global leader in commercializing new steelmaking technologies. This revolutionary technology to directly cast sheet steel into final shape and thickness has become even more valuable in today's high-cost energy environment.

After successfully commercializing the technology in 2004, our team at the Castrip facility in Crawfordsville, Indiana, has continued to refine the production process and expand the grades of steel that could be produced applying the technology. Through 2005 and into 2006, our Crawfordsville team has achieved significant advances in both product quality and marketplace acceptance of the product.

Our recent decision to build our second Castrip production facility at Nucor-Yamato Steel in Arkansas provides strong evidence of our confidence in Castrip's future. Work is underway securing environmental and other regulatory permits, and our engineering of the project has already incorporated several technical improvements gained from our experience at the Crawfordsville plant.

Castrip Technology has also proven to be an extremely valuable asset for pursuing international growth opportunities. We expect to establish during the first half of this year our first overseas joint venture partnership utilizing this technology. Our success in commercializing new technologies will drive our growth into the global steel markets.

Looking at work underway to optimize existing operations, Nucor made excellent progress in 2005 implementing a raw material strategy to develop supplies of high-quality scrap substitutes. The ongoing expansion of our sheet steel mills' product portfolio requires that we successfully execute our raw material strategy.

Our objective is to control about 6 to 7 million tons per year of high-quality scrap substitutes or about one-third of our current iron units consumption. Our HIsmelt joint venture with Rio Tinto and other partners completed its construction in 2005 of a facility in Western Australia that converts iron ore fines and coal fines to liquid metal.

The high-smelt process is both a blast furnace replacement technology and a hot metal source for electric arc furnaces. This technology offers attractive environmental and energy efficiency benefits. Initial capacity of the facility, as we've said before, will be 800,000 metric tons with an expandable capacity to over 1.5 million metric tons at very attractive capital cost per ton of incremental capacity.

Preceding the start-up, our talented team at HIsmelt is tackling and resolving the technical challenges that arise when navigating through uncharted waters with new technology. I am pleased to report on January 24, the HIsmelt team completed a 48-consecutive-day campaign of ironmaking. This run breaks the record achieved by the pilot plant -- 38 days of continuous production.

Our Ferro Gusa Carajas joint venture with CVRD is an environmentally friendly pig iron project in Brazil using cultivated eucalyptus trees as a charcoal source. Our team continues to build the production rate on the first mini-blast furnace to start production in the fourth quarter of 2005.

After completing modifications to the charcoal storage and charging systems, the second furnace is expected to start up later this quarter. This has been delayed since the November start-up that we announced in the last conference call because of issues with the charcoal storage and charging system, which have now been resolved.

These two furnaces together will provide 380,000 metric tons of annual pig iron production. And most importantly, Ferro Gusa Carajas project offers us access to environmentally sustainable pig iron production in Brazil.

With our new iron project, we relocated to Trinidad from Louisiana a direct reduced iron, or DRI, plant that we acquired in late 2004. The Trinidad site will benefit from very cost-attractive and long-term supplies of natural gas, as well as favorable logistics for receiving iron ore and shipping DRI to our sheet mills in the United States.

Our team continues to make good progress in the construction at Trinidad, with approximately 40% of the project already complete. We expect DRI production to begin at new iron in the fourth quarter the share. Annual capacity, as stated previously, of the plant will be 1.8 million metric tons.

Another crucial part of our work to optimize existing operations is Nucor's ongoing, very proactive role in the fight for free and fair trade. Our management team constantly monitors global steel product pricing levels and import offerings. I repeat what I said before -- Nucor stands ready to act quickly in conjunction with the appropriate government officials and the others in our industry to address any import surges of dumped and illegally traded steel before they destabilize the U.S. steel market. And you can expect Nucor to continue to apply our firm's can-do attitude and energy level in building grassroots support for the enforcement of our nation's trade laws.

While surveying the global steel market, I note with interest the recent acquisition activity occurring in our industry. It would appear that strategic buyers are making strong statements as to their view that the value of steelmaking assets is rising. And rather than building greenfield capacity that cannot be supported by marketplace demand, the growth plans of these strategic buyers demonstrate they understand our industry must earn acceptable returns and no longer destroy capital.

The lone major possible exception for this is the Chinese government-owned steel industry and its rapid growth to a position of massive overcapacity. Their behavior in the global marketplace continues to pose the greatest risk in the resurgence of the profit-driven global steel industry. We believe they recognized that their 100% subsidized industry must not distort global steel trading and markets because the response globally will be decisive and strong. But only time will show this to be true.

As you can see, the Nucor team's strong focus remains fixed on continuing to build sustainable earnings power and returns that reward our shareholders. Looking at both our progress over the past 5 1/2 years and our ongoing work implementing our strategic plan, our confidence has never been greater that Nucor's best years are still ahead of us.

Terry Lisenby will now provide additional information on our results for 2005 and our financial position. Terry?

Thanks, Dan, and good afternoon. Sales for 2005 were 12.7 billion, an increase of 12% over 2004. Sales for the fourth quarter of 2005 were 3.2 billion, 4% greater than last year's fourth quarter.

In 2005, Nucor's steel mills established records for steel production, total steel shipments and steel sales to outside customers. 2005's steel shipments of 20.7 million tons represented year-over-year growth of 6%. While steel shipments were down modestly, our diversified portfolio enabled us to capitalize on robust long products and plate markets -- I'm sorry, sheet shipments, not steel shipments.

In our steel products businesses, 2005's steel joist production of 554,000 tons was up 6% from 2004 joist production. 2005's steel deck sales of 380,000 tons increased 4% over 2004 deck sales. And 2005 cold finished steel sales were 342,000 tons, up 26% from 2004.

Our fourth quarter of 2005 average composite sales price for steel and steel products was $630 per ton, an increase of $59 per ton from the third quarter and a decrease of $67 per ton from the year-ago quarter. Although sheet pricing was down by $134 per ton from the year-earlier quarter, it was up $60 per ton from the third quarter. And as Dan noted in his comments, Nucor's diversified product mix allowed us to benefit from the relatively more stable pricing of long products and fabricated products.

Looking at some other year-over-year changes in product selling prices, bar pricing was flat and beam pricing increased by more than $30 per ton. Nucor's average usage cost of scrap and scrap substitutes for the fourth quarter of 2005 was $240 per ton, up $23 per ton from the third quarter and down $38 per ton from the prior-year quarter.

Our spread between the average steel mill selling price and the usage cost in metallics is $350 per ton for the fourth quarter of 2005, up $37 per ton from the third quarter and down $33 per ton from last year's fourth quarter.

The LIFO inventory credit for the fourth quarter of 2005 was 3.6 million, which included a $15.3 million charge at our 51%-owned Nucor-Yamato structural steel mill. I will note that our fourth-quarter earnings guidance given in October incorporated the assumption of a LIFO credit of approximately 50 million. Our full-year 2005 LIFO credit was 151.6 million versus 2004's LIFO charge of 375.9 million.

Earnings before income taxes were $108 per ton for the fourth quarter and $104 per ton for full year 2005, compared to $125 per ton for the year-ago quarter and $96 per ton for full year 2004.

Nucor's effective tax rate was 34.4% for the fourth quarter, 35% for the full year of '05. Our cash provided by operating activities for 2005 was a record $2.1 billion, more than double 2004 operating cash flow of 1 billion. Cash and short-term investments totaled over $1.8 billion at year end, up from 779 million at the end of 2004.

Our debt to capital ratio was 17% at year end. Nucor holds the highest debt rating of any North American metals and mining company awarded by Standard & Poor's and Moody's. We view Nucor's strong balance sheet as an important competitive advantage in a consolidating industry.

In 2005, capital expenditures were 331 million and depreciation expense was 375 million. For 2006, we project capital expenditures of approximately 396 million and depreciation expense of approximately 380 million.

The Nucor team is working to build upon Nucor's long-term record of being an effective steward of our shareholders' investment. Our ongoing focus on the careful allocation of our shareholders' valuable capital is demonstrated by our disciplined approach to acquisitions, supplemental cash dividend payments and share repurchases. Quite simply, capital that cannot be reinvested in the business for attractive returns will be returned to the shareholders.

Cash dividends paid to shareholders totaled 210 million in 2005, tripling 2004 payments of 70 million. We again increased our base dividend rate in 2005, continuing a record of annual increases since we began paying dividends in 1973. And consistent with Nucor's pay-for-performance philosophy, we paid three supplemental cash dividends of $0.25 per share each during 2005. In December, we announce a supplemental dividend of $0.50 per share to be paid in February, along with the regular base dividend of $0.15 per share.

In the second quarter of 2005, we activated our share repurchase program. During 2005, Nucor repurchased 5.6 million shares of its common stock at a cost of approximately 291 million or an average cost of about $52 per share. In December, Nucor's Board authorized the repurchase of up to an additional 10 million shares of common stock once the current repurchase authorization of approximate 2.9 million shares from an earlier program is completed.

Our news release this morning gave first-quarter 2006 earnings guidance range of $1.90 to $2.10. Nucor is benefiting from product line diversification and improving nonresidential construction markets. Current trends in our order books, backlogs and pricing indicate that 2006 should be another year of strong profitability for Nucor.

As Dan discussed, imports are always a risk factor in our business. We monitor that risk continuously and we address that risk with a proactive strategy. We believe Nucor is well-positioned to continue delivering attractive returns to shareholders as we move through the economic and steel market cycles.

Thank you for your interest in Nucor. Dan?

Thank you, Terry. At this time, I would like to ask Mike Parrish, our Executive Vice President over our long products group, to say a few words. Mike?

Thanks, Dan, and good afternoon. The bar group markets continue to be very good. Rebar is maintaining its record pace as demand stays positive and pricing levels remain high. The light structural and merchant bar demand continues to remain strong since its positive growth in the second half of last year. We fully expect continued strength here as nonresidential construction is up and our manufacturing business is expected to remain steady. SBQ and cold finished products are also off to a good start in '06 after finishing a strong '05.

Summing up the bar market picture, inventory levels are in line with demand and we are experiencing a strong order book across all products. We are in a much better position entering '06 as the inventory overhang that occurred in '05 is not expected.

Selling prices and metal margins remain steady and continue to be competitive with global markets. Import activity is beginning to heat up. But currently, it seems to be at a good balance with domestic demand. And as always, we will continue to monitor all import activities very closely and respond as necessary in order to remain competitive.

We are optimistic going into 2006 as our customers report strong backlogs and order books. The transition and integration of our newest divisions, Nucor Steel Merion and Nucor Cold Finish Wisconsin, have gone very well and both of these teams are excited about the prospects for '06. Thanks to all the Nucor team members, especially the employees at these divisions, that made all this possible.

Finally, I would like to congratulate the entire Bar Mill Group team for a record performance in 2005 as we set records in production, sales, shipping and profitability. Thanks to everyone in the Bar Group for their focus on safety, teamwork and continual improvements.

Thank you, Mike. I'd like to now ask John Ferriola, the Executive Vice President of our sheet, beam and plate groups, to say a few words. John?

Thanks, Dan. 2005 was another very successful year for the sheet group. We continued our journey up the value-added product ladder. 2006 is shaping up to be another very good year. Sheet market demand continues to be solid. Service center inventories remain low and end use demand continues steady. Most of our customers are in markets that continue to do very well.

Import offerings for the second-quarter delivery are reported to be increasing. We are monitoring the import situation closely via all tools available, including the import monitoring system. And we have not seen offerings that cause us significant concern.

On the supply side, first quarter continues to being restrained due to maintenance outages. Given these trends, we expect the sheet market to remain solid through the first half of the year. Our sheet mills are completely booked for the first quarter, 80% booked for the second quarter and are 40% booked for the second half of the year.

During 2005, we continued to focus on production, quality improvement and product development at our Castrip long facility in Crawfordsville. Last year, Castrip shipments increased 30% over 2004 and major improvements in surface quality were realized.

During the fourth quarter, new equipment was installed to further improve the shape and flatness of our Castrip product. With these additions, we are confident that we will be able to obtain a flatness similar to the shape and flatness of our CSP product.

On the product development front, we are confident that we will be able to increase the Castrip product range from grade 33 through grade 80. With these additional grades and Castrip's unique cast drawing and forming characteristics, Castrip product will continue to successfully penetrate more and more applications. Engineering work continues on Castrip 2. We are incorporating the technological improvements with Castrip 1 into the design of Castrip 2.

The performance of our vacuum degasser at Berkeley continues to improve in both volume and quality. Shipments increased significantly in 2006, and over 90% of these shipments will be IF type or [modal] lamination steels. I'm sorry. Shipments increased significantly -- are expected to increase significantly in 2006 over 2005, and over 90% of these shipments will be IF type or modal lamination steels.

Our vacuum degassed steels form extremely well, match the physical and metallurgical properties of our competitors and meets or exceeds the metallurgical and physical specifications of our customers. It has been well-accepted by both the automotive and appliance markets.

The structural steel market saw improvement starting in September of 2005, which continued through the fourth quarter of the year. Shipments for all of our structural products improved during the fourth quarter. The increased shipments were driven by improvements in the nonresidential construction market, the load-bearing piling market and the manufactured housing market.

Although nonresidential construction did not increase in 2005, activity was definitely more brisk in the last half of that year. This increased activity, combined with the fact that by September, service center inventories had dropped to their lowest level in seven years, prompted many service centers to increase order activity during the fourth quarter. These improvements were seen at both our Nucor-Yamato and our Nucor Berkeley facilities.

2006 also looks promising with nonresidential construction projected to grow approximately 4%.

The foundation market continued steady through the entire year last year. This continued into the fourth quarter, and our piling shipments from our Nucor-Yamato facility were very strong. In fact, NYF had record shipments of sheet piling in 2005, increasing by more than 70% over 2004.

The manufactured housing market was strong throughout the quarter. This market has been a growth market for our Nucor Berkeley structural facility. Congratulations to our team at Berkeley Structural Mill for setting a shipment record in 2005.

Plate demand remained strong through the fourth quarter of 2005, and that strength is continuing into the first quarter of 2006. Our current lead times are into March. Our orders are coming from all segments of the plate industry, but transportation, industrial equipment, construction and pipe and tube are particularly strong. We feel the plate market will remain stable as long as the present balance between supply and demand remains constant.

As with all of our products, we're closely watching plate import pricing and availability. I would like to congratulate both the Hertford County and Tuscaloosa teams for setting shipping records in 2005. With their focus on customer service, quality and on-time delivery, they are the suppliers of choice in the plate market.

The sheet, plate and structural group has a well-balanced customer mix, and our focus remains to provide our customers with high-quality steel on time with excellent customer service. Our goal is to provide value-added products to serve value-appreciative customers. Thank you. Dan?

Thank you, John. At this time, before we go to Q&A, I'd just like to make one general statement. The Q&A period today should be for the purpose of discussing Nucor's 2005 earnings and our fourth-quarter 2005 earnings. I will not be taking questions speculating on rumors in the marketplace or just recently announced potential takeovers of one company for another.

I'd appreciate it if the Q&A would stick to what Nucor has done in 2005 throughout the year and in the fourth quarter and our forecast for 2006. I don't mean to be rude, but that's what this call is about. And I'm not going to get involved in the speculation.

At this time, I'd like to turn it over to the Q&A.

(OPERATOR INSTRUCTIONS). Wayne Atwell, Morgan Stanley.

Dan, could you give us some guidance on specifics such as your thoughts on scrap prices, volume, pricing for products for the first quarter?

At the present time, the way the scrap market works, it works on a month-to-month basis. A month ago, we would have told you we thought things would stay fairly flat. It looks like there will now be an uptake in scrap pricing for February. And we're not certain what will happen after that.

But if the marketplace for our products continues to stay strong and the international activity continues to stay strong, we can realistically expect that scrap prices will be up throughout the quarter. By how much remains to be seen. So we have changed our forecast from that standpoint. However, we also believe that that will allow us to achieve better pricing in the marketplace as well, as we have demonstrated over the past two years.

And then your thoughts on volume and pricing?

On scrap?

No, I'm sorry, on products -- total shipments and average pricing?

For the quarter or for the year?

For the quarter.

We think that our -- right now, our order books are very strong. Our backlogs are significantly better than they were at this time last year. So we anticipate a similar or slightly up shipment quarter from Q4.

And any thoughts on average pricing?

Again, with our pricing being tied to a raw material surcharge the way it is, that number will vary depending on what happens with scrap. But you can anticipate that we should see things follow the same trend as scrap going throughout the quarter.

Thank you. And by the way, congratulations on another great quarter.

Michelle Applebaum, Michelle Applebaum Research.

Congratulations on a great quarter. I just want to be sure, so I'll ask if I can ask, because you said you did not want to comment on anything that was announced today or speculative -- would that also include the publicly available information on your previous activity in November with regards to [Fasco]?

That would. It's been -- our activity has been published as public. No point in me repeating what's already been out there. But as far as speculating as to what our current involvement is, why we did what we did or whether or not we are going to participate going forward, I have no comments.

Okay. So that would include that. So than I'll ask a real question.

Good.

I wanted to ask you -- it's interesting the information you're giving on your order book being so full. I want to just ask -- is the business that you've got booked for second quarter and into third quarter -- is that kind of the program contract business that you're talking about that is sort of open-ended, or is that fixed volume business with a price to be determined?

Seeing that your comment is really focused on sheet market, I will let John answer that question.

Bookings that I mentioned for the second half of the year, which is about 40% of our total volume, is booked at a firm price and firm volume commitments.

And the firm price does fluctuate with the surcharge.

Absolutely. It's a firm base price with surcharge.

But she also was asking about the second-quarter numbers.

In the second quarter, we are about 50% booked on firm contract and on firm pricing with surcharge, again, base price plus surcharge, and the remainder of the terms were sold on a quarterly basis, not a contract basis. We define a contract, Michelle, at six months or longer. So we had people who wanted a three-month contract or are wrapping up a 12-month contract from the middle of the year last year.

And just to continue on that, the 40% that we have booked through the second half of the year, that is not a final number because there will be contracts that come up for midyear that still are in the discussion stages or have not come up yet.

Absolutely. Yes.

But right now, the amount of steel you have booked on annual contract -- is it correct to say that it is 40%?

For the second half of the year, that would be correct.

And there's no number you can give us for the full year?

Well, it's basically going to be an average at this present time by the first half of the year and the second half. You've got to keep in mind that contracts these days don't necessarily all start at the beginning of the year and at the end of the year. They can start -- go from first quarter to 12 months first quarter; they can go midyear to 12 months the following midyear.

So we have a host of different ones in there, dependent upon when these things were initially initiated. And a lot of that had to do with some of the craziness we saw in the marketplace on the downside in '03 and on the upside in '04 as to when these things got started -- initiated. We're not really stuck on the annual thing like they do with the automobile companies.

So it's just more of a quarter-to-quarter kind of annual thing? That helps. A related question, sort of?

Last one. We need to move on. Last one on this go around. Go ahead.

There's been like in the last two or three weeks all this flurry of activity, a little bit of pickup here and there in China, and then last week, Bao Steel announced up 8% on plate. Did you guys see also confirmation -- I know it is hard to forecast China, but do you think that maybe we are seeing the beginning of the bottom, at least?

It certainly appears that in China, they have cut back on production a little bit more than people thought. They've done it to get to the point where they could start raising prices over there. They have not really taken their 100% subsidized product and flooded the world market with it. So right now, the signs appear to be that they are working to get their pricing up.

Now keep in mind, they're coming from fairly low numbers, as the government has done everything it could to help at this point in time -- not everything we think they can do, but everything they think they can do to force consolidation in their home marketplace. So we do see it; it may be. But is really too early to tell. But those are the signs, and that's how I read them right now.

Next question?

John Hill, Citigroup.

Congratulations on another strong result. Just a quick question whether we could get some more color on the headaches and the reconfigurations at the Green Pig project?

The headaches principally involve, as I mentioned, the charcoal methane, the force, not necessarily the process of making charcoal, but we had a storage facility that caught fire. That put us behind a little bit in terms of having the proper amount of charcoal available for the second startup.

Joe, do you want to comment? Joe Rutkowski heads up that.

Yes, we did. We had problems with the charcoal storage system and the feed system to the blast furnace. And we are redesigning that today. It just makes it difficult with how we are having to run while we redesign that to bring the second furnace up. So we are waiting until we get that redesigned and implemented, and that's being done.

And the first furnace is running and it is running at capacity -- close to capacity.

Yes, I think it is running at about 80%. So that's it.

And then just a final or follow-up question. With natural gas prices coming off, and in view of the volatility that we experienced last year, do you have any changes to your hedging strategy as we look out into '06?

Not really. What we are -- don't have hedged we're buying on a spot basis and benefiting from the lower prices. But we still see natural gas as being a serious cost issue going forward and we'll continue to execute our hedging strategy, as we have over the past couple of years.

Would it be reasonable to be trying to lock in prices in the 7 to $8 range now, or are you waiting for lower?

Well, I think there's two different markets right now, as I understand it. There's a short-term market, which you buy your spot in. The long-term market still has not come down the way the short-term market has. So we really have not changed our approach to the long-term hedging at this point in time. When we see the longer-term markets start to go down and stay down, then we will take another look at how we go forward with our hedging.

Michael Gambardella, JPMorgan.

Congratulations on not only the quarter, but years of successful planning and execution. I wanted to ask you two questions -- one, in terms of your first-quarter guidance on EPS, can you give us the implied LIFO assumption in that guidance?

yes, we can. Terry?

Yes, we've got a $23 million charge in there assumed in that guidance.

So just sequentially, you had a modest credit in the fourth quarter, and now with the assumption going forward that you will have a charge -- a fairly large charge, so making the numbers even better sequentially?

Correct.

Second question, maybe for John -- a number of market observers have been predicting the flood of Chinese steel cheap to hit the U.S. market for the past six or nine months, and lately in the last few weeks, saying that there's a lot of product on ships coming into the U.S. right now. I guess you're in disagreement with that, based on your comment that you are not seeing anything of any material substance right now?

Again, Michael, we are seeing some increased offers out there. From what we see, the service centers are reluctant to buy large volumes and get into an overinventoried situation, similar to what they were in last year, and then following up with an inventory devaluation. We do see in that market, we see mostly cold rolled or galvanized coming in and not much hot band.

Michael, if you take a look at the monitoring numbers, we're not saying there isn't going to be an increase in imports, we just at this point in time don't see that they are going to be significant enough, with the inventory levels the way they are and the way the demand in the marketplace is, that they are going to be significant enough to have a negative impact on the pricing and the operations of our mills or, for that matter, of the flat roll industry in this country. Now that can change. It certainly can change. You know the way things are on the imports side. In a 90-day period, things can change significantly. We are seeing an increase, but not an increase that looks to be destabilizing.

Tony Rizzuto, Bear, Stearns.

I am going to echo that congratulatory note, and also on your stock hitting new highs. The commentary about the pickup underway in nonresidential construction is becoming increasingly positive. You guys just spoke about it. Could you dissect the specific areas or markets where you are seeing the most strength, as well as areas that may be lagging at this point, but you see possibly some improvement as we look further into this year?

In general, I've seen estimates overall of numbers increasing anywhere from 4 to 8%. And certainly there are some sectors that increases will be greater in. We are a little concerned about the manufacturing sector not seeing a strong uptick, although there may be an increase. But I really haven't, and I don't think John has, either, and I'll let him verify that, seen any specific breakdown at this point in time. Ham, have you seen anything?

No.

John?

No, I've see no breakdown to that level.

We are basically making our comments off of customers and what they are saying about their level of business at the fabrication shops and the service centers, and also some of the yearly reports on in general as to what's going on with respect to nonres. There are reports out that will break it down, but we have not really looked at in in detail. I'm sure our people at Nucor-Yamato and Nucor Berkeley have.

Would it be fair to say, guys, that when you look at kind of the infrastructure build that we see going on in the States and the strip shopping center that you continue to see going up and schools and hospitals -- I mean, in our own area, we are seeing continued formation there. I guess as opposed to high-rise buildings, this would seem to be fueling a lot of this. Would that be a fair statement in terms of --

I think that is a fair statement. But I think there's also -- I was at the World of Concrete conference a week ago out in Las Vegas. I really was working, by the way. And there was a fair amount of construction going on with respect to the high-rise condominiums. And I heard a lot of discussion about that craze still being an active one.

Here in Charlotte, there's a lot of activity with respect to high-rise condominiums, a number of projects that have been announced. So there's probably -- and how much of that is pure speculation or what have you, we can take a shot at it. I'm sure there's a fair amount of it in there. But there are some high-rise stuff going on -- there is some high-rise office construction going on. I think it's -- we're not talking about a 20% increase in nonresidential construction here. But there does appear to be a broad-based increase.

Congress did pass a big highway bill last year that's starting to kick in this year.

Exactly. It seems to be that you guys are well-positioned in the rebuild efforts in the hurricane aftermath, too. You mentioned piling before and manufactured housing. So are you seeing that, too, in that part of the country?

Yes, but it's like anything else here -- it's not happening fast enough for the people -- the communities in the Gulf Coast. But it is happening and it will continue to happen over the next several years. And we will continue to benefit from that.

And just to refresh my memory, what percentage of your overall mix now is construction? The last number I had in my mind was about 60%.

It is probably closer to 55% now with our growth in flat roll. But that's about right.

Thank you very much and keep up the good work.

Mark Parr, KeyBanc Capital Markets.

I was wondering if we could get an update on the scrap substitute shipment activity that you'd expect for '06, given some of the reengineering that's going on right now.

We have a fair amount of figuring on how to go around in Brazil right now, that there should be a shift coming our way in February. And we should receive continued shipments throughout the year. As far as high smelt goes, there is pig iron on the ground down there. But I don't think it's at the level yet where we're going to be receiving any shipments. Joe, can you clarify that?

It would probably be second quarter before we get anything out of high smelt.

And of course, the DRI project won't be started up until the latter part of the year.

Can you add all that together and quantify it for us?

I imagine we will see several hundred thousand tons.

I'd say 5, 600,000 tons.

This year.

Terrific. And one other question, if I could. On the capital spending projects you have scheduled for this year, could you talk about one or two of the most significant growth-oriented projects?

Well, as you know, Castrip will be moving forward to Castrip 2. The DRI plan will see a lot of capital expended out this year. The rest of it is principally upgrades to our existing operations -- [Tuscaloosa], mills, all of which will have a cost savings component to it, related to energy or productivity enhancements and additional tonnage creep as well. Anybody want to jump in here -- any other major projects?

That's pretty much it at the present time.

Thanks for the update and congratulations on fantastic results.

Timna Tanners, UBS.

I wanted to ask you about the potential for debottlenecking and increasing capacity, as you just mentioned a little, and the optimizing of some of your operations. In the past, John has talked about being able to potentially increase shipments by as much as a million a year on the flat roll side. And I know you've also talked about some potential capacity creep on some of the other product areas.

Absolutely.

Can you update us on if that's something that's in the works in this strong market, if that's something that you would seek, and talk a little bit about the products specifically?

John, do you want to talk about the flat roll, beam and plate areas?

Sure. We are constantly working on that. There's a multitude of things that are going on. We changed the energy going into our furnaces. And there's just a multitude of things that we're doing on a daily basis.

One of the other things that we have really focused on in the last couple of months, the last six months, was equipment utilization, optimization, making sure that as we looked across the whole group of flat products, we optimize the equipment at each of the facilities through better production scheduling on all four of the facilities. And that has helped us a lot.

We think we have a real growth potential in our Decatur facility, which is really just starting to come online. We expect them to have a good year with growth. In the plate side, Tuscaloosa, we think there's a lot of room for improvement in our Tuscaloosa facility also.

And we are spending some capital dollars in Tuscaloosa on shape control and issues that will help to improve the throughput there by probably a couple hundred thousand tons.

I would say if you were going to look for numbers, I think you're probably pretty close in the next year or two, I would say, for sheet products. We can improve in the neighborhood of 700,000 to 1 million tons. I think on the plate side, a number of about 2 or 300,000 tons is an accurate number. And that's through the incremental growth.

Can you comment also on the bars?

Principally, we are focused on cost control projects. Right now, as Dan mentioned, we've got several reheat furnace projects we're working on. We are working on one of the furnace that we're going upgrade a furnace -- an EAF furnace. And we do have a couple of mill projects. Basically focused, though, on cost control and throughput. We will see some maybe couple, 300,000 tons, maybe 400,000 tons over the next year or two of increased production capacity. But typically, we are focused on cost there.

So your response with regard to long products has been on bars and beams?

Just bars.

On the beam side, keep in mind that we are only -- we're not running at 100% of capacity by any means. We have about 3.2 million tons of capacity. And we did about -- I forget the actual -- 2.7 last year. Overall, we are only running at about 82% of our current achievable capacity, even though we had record shipments and a record year. We have been able to move the ball forward on what our actual capacity is at these facilities if we were running them all full.

And on the beam side, certainly we're not anywhere near being full. And on the sheet side, with Decatur continuing to come on and some of the things that have been going on at our other sheet mills, we are still only running at a little over 82% of capacity.

Thanks so much for the clarity on the information there.

Frank Dunau, Adage Capital.

I've got some questions for Terry. And I want to thank you -- that LIFO number was almost what I had in my model. So I think I may finally understand what you do.

Good. Do you want to come down and explain it to us?

No, but we'll have a little chat about whether that -- I may understand it. I may not agree with the way you do it. But it is accounting -- it is GAAP, so it's okay. But you had a thing in your cash flow statement, a settlement of natural gas hedges. Is there some sort of corresponding thing that flows through the income statement, or what is that all about or how does that work?

Yes, it is. That's just the counterparty payments to us on natural gas hedges that were favorable.

So is that an income item, basically?

Yes.

Is that above and beyond the hedge? Or is that offsetting -- I'm just trying to figure this out.

It is equal to the hedge. That's the benefit.

The benefit, but I mean, is there an offsetting -- I want to know if it's a net zero to the income statement, or is it actually like --

No, it is a net increase.

Is that above -- let me try to -- if you had 100 million BTU you wanted to buy and you hedged out 100 million BTU and you had a cost of like $7, is this basically just offsetting the cost or what?

This is exclusive of the cost. Cost benefits are in addition to the hedge benefit. Is that correct?

Yes, you are mixing the physical buy with the financial hedges. The financial hedges are just financial settlements. And then off to the side, we're still buying gas at whatever the market price is.

That was Mr. Frias, Jim Frias, responding.

John Tumazos, Prudential.

Congratulations on the results. The gentleman in Latin America, Alberto Hassan, estimates there would be about 28 million tons of new DRI/HBI capacity available this year?

Great.

Which is equivalent to 5 or 6% of the scrap usage of the electric furnace or basic oxygen producers globally. It amazes me that the scrap prices remain at these levels, because this is a very large volume of supplemental material. And blast furnaces aren't as available reasonably too?

Well, John, the disconnect would be that probably a lot of that is still under construction, like ours is. But when it comes to market, it will definitely have an impact.

So you would expect the scrap price to be falling over the course of the year, even with stable steel demand conditions?

Well, it depends on how business conditions change. Joe, do you have a comment you'd like to make?

John, I don't know where that guy got the number. It's going to actually come on stream in '06 (multiple speakers)

This was in the metal market two nights ago.

I'm sorry, but I don't know where you got the number, and it does not make sense.

We've got 1.8 million tons coming on by year end.

At the year end. So, I mean, available to the market -- I think he is way off.

But if there was 28 million tons available to the market coming onstream, we don't agree that there is, but if there was, of course it would have an impact on the marketplace on the pricing of scrap. And it would depend on when it came in and what was going on with demand in the marketplace, too. So as a general statement, we would agree with you, but we have a disconnect here --

How much do you think will be available to the market incrementally this year? 10 million tons? 15?

I don't know. We hadn't done the math.

Maybe 10 million tons is our best guess.

If I could ask a small question, the IISI data implied another 1 or 2% growth in Chinese output in December. It was 1,033,600 tons a day. You had described a decline in Chinese output. I was just wondering if you use a different survey than the IISI data?

Well, the data coming out of China of all types is very suspect. They grossly underestimate their trade circles by about $200 million -- excuse me, $200 billion. The numbers -- even IISI will tell you that their numbers are the best that they can achieve, but they are not accurate.

And based upon what we hear coming out of China from our contacts in China, people in the industry, there's been more of a cutback than that indicates. But the cutback, John, is with respect to existing plants -- existing plants that are running -- Bao Steel at their plant might be cutting back 10%.

At the same time, you've got announcements of other capacity coming onstream -- exactly how many tons that are being produced or what have you. But the cutbacks I am referring to have to do with operations that have been existing throughout the year. And there definitely have been more cutbacks in the marketplace, as was discussed. And so I always question. I always look with a tainted view at any numbers that come out of China that get published, even by the IISI, which we are members and have been members of the Executive Committee.

Daniel Roling, Merrill Lynch.

Could you give us an update on the appliance market? Have you seen any slowing? Housing resales was down, or at least at a slower rate, even though it was a record year. Any concerns about the outlook for the appliance market?

John Ferriola?

We agree, the housing starts are down. That has impacted the appliance market in general. However, Nucor's participation in the appliance market has grown.

So you are continuing to gain market share. Is that on quality or price?

Quality. Value-added products.

Chris Olin, Longbow Research.

This might be directed for John, but I'm thinking about November of 2004, service center inventories began to balloon. And it seems, or I guess I would attribute the buildout to a surge of imports actually landing in the U.S. at a time when the mills were running full.

I guess my question is -- what is or could be different this time -- or why the confidence that the imports are not going to land and essentially flood the market sometime later -- or a couple months from now, resulting in order cancellations like it did in early '05? Are you doing something different in terms of your customers that gets you more comfort in identifying global steel movement or anything like that?

I will ask John to further answer that question in a second. But at any point in time, Chris, you make the best assessment you can based upon market feedback, inventory situations, orders, bookings and what have you, and the additional data that we have from our contacts with respect to how much steel is coming, the import monitoring data, where current inventories are.

And we don't disagree with you that the buildup in inventories primarily took place because of a huge increase in imports during a relatively short period of time. But that was in part due to a panic situation that came about at the end of 2003 and the beginning of 2004, which does not exist today. And that's probably our biggest reason we're feeling comfortable that we won't see that kind of uptick again. Plus there was a lot of damage that took place in the marketplace when the domestic mills lowered the pricing, particularly because our scrap pricing came down, and interjected some severe penalties to folks who did panic and bring in a lot of imports.

So we think that we are in a different environment today without that panic situation and without -- with a better discipline overall in the marketplace on the supplier side and the customer side. But in this business, you just take it a couple of months at a time to see how things are going. But that is certainly the way it looks right now. John?

You hit most of the points. I would add just one, Dan. And that was, if you recall, during that time, over the previous quarter during the summer of 2004, China was importing everything that it could get. And it actually became a loggerjam at the docks and suddenly they stopped importing. And the steel had nowhere else to go, and it kind of flooded the world market.

So a lot of factors came into play. I do agree with what Dan said -- I think everyone learned from that experience, both on the production side and on the service center side. And everyone is a little bit more disciplined and educated this time.

But we won't know for sure until -- hindsight is perfect, and our forecast is at best risky, when you make these kind of forecasts. But that's certainly the way things look now. Three months from now on our next conference call, we'll know a lot more.

John Novak, CIBC World Markets.

On the 12-month contracts you mentioned, the ones that are rolling over now, are you seeing increases in the base price, or is it relatively flat?

That's tough to answer because it depends upon where we were at the time that the original contract was made. So on some of them, we see increases in the base pricing. Others that were made during the peak of the market, we do not. So it's kind of all over the field. But versus today's spot market, we see good pricing on our contract terms. Frankly, if we did not see that kind of stable, good, high pricing, we wouldn't be taking the contracts.

And the scrap surcharges -- are they based on monthly scrap surcharges? Or have you gone to quarterly scrap surcharges on any of them?

I don't think we have gone to any quarterly. We base it upon the AMM, Chicago monthly number.

And just on your Castrip facility at Nucor-Yamato, is there any CapEx number pegged to that yet? I know you've mentioned you've got some more engineering work that you've done on it?

We're still working through the engineering. And once we do that, we will start with the construction estimates. So today, we do not have a number associated with that.

Is there a number associated for 2006? You mentioned the CapEx number -- is there a portion of that to the Castrip facility yet?

Now.

[Liz Barney], Eagle Capital.

Congratulations on a great quarter and a great year. Quick question for you. On the structural pricing, when I looked at your sheets, clearly it's up quite a bit versus last quarter. I think it's 560 up to 630 average price on your structural product. Can you explain what that differential was? I know you guys said you were doing quite a bit of piling. I think piling sells at a higher price. So is it just a mix issue, or are prices going up in general in the structural market?

I credit it to a fantastic sales team. And also, you are right -- we did see quite an increase in piling. So some of it is mix-related.

Do you know how many tons of piling you did in the fourth quarter?

In the fourth quarter specifically, I do not know.

Or in 2005?

I can tell you that in general, the piling business, shipments out of NYS increased substantially in 2005 over 2004.

What happened to the scrap pricing during the quarter you modeled? Didn't it go up a little bit?

Yes, you are right.

The pricing went up --

Scrap pricing did go up. So the surcharge would have been a little bit higher in the fourth quarter.

A lot of it had to do with just what was taking place with the surcharge mechanism.

Yes, but I think the base price came down a little bit to offset that.

It went up and down and up again. It did both during the course of the three-month period.

So then it was a timing issue and also a mix issue?

Yes, that is reasonable.

What drove the prices up. And so should I immediately -- should I expect them to go way back down? Or is this a new sustainable level that you guys are at?

The last two moves have been -- for December and January have been flat. Yes, transaction prices have stayed flat -- stayed up.

So you have set a new bar, in other words. And you have just moved up. And one last quick question, thanks so much for your time -- piling capacity -- how many tons of piling could you do should the demand be there?

On our wide flange mills, H-piling, which is similar to a wide flange beam, can be intermixed virtually identically in terms of how many tons you can produce. It pretty much maxes your total capacity of your mill. Okay?

On sheet piling, our capacity is basically limitless as well. So just a matter of market strategy, pricing and how much -- where we are making the most profits as to how much we do of either one.

H-piling is nothing more than an equal flange with equal web height product. And wide flange has a different -- the width of the flanges varies and the height of the flanges varies from one another. So it basically all gets rolled on the same mill with the same kind of throughputs. So there's no limit to how much we could produce except the market.

But more specifically, I'm sorry, the sheet piling -- do you have a fixed amount you could do there?

No.

No. You could run that full-out? But also, then, it becomes a question of you're going to have orders to fill on the beam side?

First off, the market is what limits you because it is only a couple hundred thousand ton market -- maybe 400,000 tons might be your best year, okay? So it's more market-limited than capacity-limited. Next question, please.

Wayne Atwell, Morgan Stanley.

It looks like the plate business is pretty exciting with the demand for ship building and infrastructure around the world.

And prices.

Well, exactly. So any chance you -- you have been very good in the past at anticipating markets, getting in early and building capacity ahead of demand. Any thoughts you might expand your plate mill, build another one?

Well, currently we're still experiencing a continually improving capacity at both of the plate mills. And they just keep being able to produce more and more. But we still don't -- we don't believe at this point in time any differently than five years ago, Wayne, that building additional capacity using existing technologies that don't give you a cost advantage is the right way to go. So we would not be planning, certainly not in North America, to build any additional plate capacity. And we will just continue to grow out to that marketplace, which could be to the tune of a half a million more tons through general growth of our existing operations.

John, do you have any--?

The only other comment I would make is that at Tuscaloosa, we do have a great deal of flexibility between the plate and the sheet product that we produce there. So again, we react to the market there. If we see the plate market being that much stronger than the sheet market, we will shift to a higher percentage of plate production.

At Tuscaloosa, we can produce discrete plate, coil plate, and that's when a guy's talking about the sheet, he's talking about the coil plate business. And we can go back and forth, dependent upon market strengths.

And if we look our over the next 10 to 20 years, we are going to have to redistribute where the oil comes from. There are tar sands in Canada and elsewhere. And it seems that the transmission pipe mill would make a lot of sense. You've been pretty good about putting in high-return downstream facilities. Any thought you might go into the transmission pipe business?

We really don't have any comment on what we might be doing down the road. We don't usually telegraph that stuff until we are ready to make the move, Wayne. So I really don't have a comment on that.

Aldo Mazzaferro, Goldman Sachs.

I'm busy with a lot of the things you cannot talk about.

We figured that must be what was going on.

But you guys are an island of tranquility out there, I guess.

I guess. I don't know about that. In this business, I don't think you ever think of yourself as being an island of tranquility.

I did have a question for Terry. In his comments about being more proactive in returning cash to shareholders so they don't find a high return for it, should we think about the special dividend in the first quarter as reflecting the strong cash flow from 2005? And is there any way you could give us some guidance as to what you feel like the cash levels should be at your Company as you go through the year?

We certainly don't have a target for cash balances. But I can't tell you we're all that comfortable with the amount we've got on the balance sheet now.

Are you putting yourself in a posture, Terry, where you think about your earnings at a certain level, cash flow at a certain level, and then everything above that level you're kind of earmarking it for shareholders?

No, I don't know that it is that formal. We take a look at it every quarter and make a decision about that variable dividend amount. So as long as the cash flow remains strong, we don't see major projects to reinvest in, we will keep returning it to shareholders via that method.

Or through stock buyback. But on the dividend side, as you all know, you've got to be careful with whatever you do to your base dividend, because down the road, there will be a slowdown. And you want to make sure you can continue that base level of dividend. That's why we use a supplemental to pay back additional shareholder value to the shareholders in the good times, as opposed to just taking our base dividend level up by the same amount. And so we will continue to do that.

But we have another -- what's the total stock approval we have to buy back now?

Over 12 million.

Over 12 million. But again, it all depends on what opportunities are out there for us. But we -- you have seen us give back more to our shareholders in other forms over the last 12 to 24 months than you have in the past.

If I can switch gears, Dan, on the sheet business for a second, I understand your March pricing showed essentially a little $10 decline in the transaction, which was actually less than the scrap surcharge drop. I'm wondering, are you looking now that your April pricing might be the opposite of that? Or do you think you can raise prices if scrap goes up in the face of the imports that are hanging over the market or maybe hanging out there?

We will let you know that when next month rolls around.

Well, great job. Thanks.

[Sal Perrigno], Goldman Sachs.

The question I wanted to ask, I'll ask it. I would like to get some more color on your cash project. What market are you right now targeting on that product, and where do you see going forward in a couple of years, how much quality improvement that you can achieve? And lastly, in the joint venture you guys are working on, have you guys been talking to people and what kind of response are you getting on that?

Yes, we are talking to numerous people and the responses are all very positive. As far as the quality improvement, for the last 20 years, we have been improving the quality on our CSP operations. So I'd don't anticipate that that will change with respect to Castrip.

Early on in the technology, the changes in quality are not incremental or significant. That continues to be the case, which does not mean that we are not producing good quality in grades A, B, C and D -- it means now we're able to move to grades E, F, G, a higher-quality scale of things, and that's a continual situation. We're making excellent progress expanding our product availability from the Castrip Technology. And we are servicing in the ultrathin sheet market, particularly cold rolled equivalent product without having to go through the cold-rolling operations.

Next question?

Peter [Udu, City of] Investment Management.

Dan, I'd like to thank all the Nucor employees as well for a great quarter and a great year. Just one question. Given Nucor's size and the product breadth that you've described, and listening to your description of the market strength, I'm curious, can you rank the products by your view of how strong each is at the current time -- which is strongest, next strongest, etc.?

They are all strong. So we're not talking about strong to weak. We're talking about on a scale of 1 to 10, we are between 8 and 10, not between 2 and 10. But certainly, the bar products group has been extremely strong, probably would rank that it and place right up there at a 10, beams at a 9.5, and sheet probably at an 8.5 to 9.

Great quarter again.

David Martin, Deutsche Bank.

Thanks and congratulations. Just a couple quick ones. I first wanted to go back to Frank's question about natural gas. This settlement of $12 million -- that was entirely a fourth-quarter event?

Yes.

There was no balance at the end of the third quarter?

No.

And then secondly, coming back to Castrip, you didn't make any comments on Castrip number 3. And I think in prior quarters, you suggest maybe one was coming internationally before year end?

Yes, we did make a comment. We said that that should be finalized before midyear.

Sorry. I missed that. And then lastly, just on the SG&A line, on your quarterly number, it was up a bit.

Yes, it's called profit-sharing to employees, special $2000 per employee payout, which totals over $20 million, and bonuses throughout -- for all the employees in the Company, including senior officers. Terry, anything else?

That is the majority of it.

Tony Rizzuto, Bear, Stearns.

I assume the surcharge mechanism also pertains to zinc as well?

No, we don't have a zinc surcharge.

So how much of zinc do you guys consume annually? And how do you guys normally purchase that?

We consume a lot. And we purchase it on an annual basis where the volume is fixed and pricing is tied to the LME. We constantly look at -- we do not have a zinc surcharge. But we do always look at our galvanizing extras. And in looking at our galvanizing extras is where we consider the cost of the zinc.

So that's -- they are add-ons, in effect?

Yes.

So essentially, you can pass that through?

Yes. And hopefully, you appreciate the highly technical term that we use there. We used a lot.

Yes, I like that a lot.

Michelle Applebaum, Michelle Applebaum Research.

I was curious -- the $10 a ton discount we heard about for March --

It's not discount. It is what we anticipated having to lower our spot pricing in that quarter. Of course, as you know, spot pricing is spot pricing. And also, as you know, the contract business in place would have gone down by the full amount of the surcharge.

Right. I know you lowered -- prospectively, your surcharge is coming down, your base price went up. But I was just curious, if you are completely booked out, what relevance is the spot price for March? And was this some kind of imports signaling kind of thing that you might have been doing?

Well, first off, when we did that, we weren't fully booked out through March, although we were in pretty good shape for March. John, do you wan to comment?

No, I'll just make the comment that Dan is right, and we were not completely booked out. A lot of people were waiting to see what happened, and as soon as we made the announcement, we booked out very, very quickly after that, I would say within a day, we booked out for March.

And some people might interpret that as a signal to importers that we are prepared to let the price of steel go down to match scrap pricing if there's an oversupply of steel, which would impact how much demand there is for scrap and the pricing of scrap. Some people might interpret it that way. Some people might look at it differently.

Very good. Can I squeak another one in?

Last one.

There is talk about global iron prices. I've seen some up 20, but then recently up 40? Do you have a view?

Do we have a view? The Japanese walked away, or the iron ore producers walked away from the Japanese negotiations. So that tells me that in general, prices are going to go up. How much? Probably in that 20 to 40% range. But [Frias], do you have any thoughts on that?

We hear the same thing, Michelle, that you do -- anywhere from 10 to 20, maybe 25.

We are going to wrap it up at this time. I want to thank you all for the questions and your patience and getting through them all. And again, I want to think all the employees and team members of Nucor for a super job this year.

We are going to be challenged this year to run, run well, take care of our customers, do it safely. And I also want to thank our shareholders and those who are coming -- becoming to be shareholders or increased shareholders for continuing to drive the value of Nucor to our shareholders based upon our performance. Thank you all very much.

That does conclude today's conference call. We thank you all for joining us today. At this time, you may now disconnect.