Nucor Corp (NUE) 2006 Q3 法說會逐字稿

Good day everyone and welcome to the Nucor Corporation third quarter of 2006 earnings release conference call. [OPERATOR INSTRUCTIONS] Certain statements made in this conference call are forward-looking statements that involve risks and uncertainties. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. Some of the important factors that may cause actual results to differ from our predictions are listed in Nucor's SEC filings. The forward-looking statements made in this conference call speak only as of this 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, sir.

Good afternoon and thank you for joining us for Nucor's conference call, and thank you for your interest in Nucor. We will briefly first -- excuse me. We will briefly review our results for the third quarter of 2006, provide an update on our progress implementing Nucor's strategic plan for growing shareholder value, and then take your questions. Terry Lisenby, Nucor's Chief Financial Officer, and Nucor's other EVP's, John Ferriola, Ham Lott, Mike Parrish, and Joe Rutkowski are with me for today's call.

First and most importantly, I want to say thank you to all the members of Nucor's team for delivering record quarterly and first nine months earnings. In fact, our first nine months of 2006 earnings of $4.33 per diluted share exceeded the full year of 2005 earnings of $4.13 per diluted share. I will state the obvious. 2006 is on track to be our third consecutive record earnings year. The 11,600 men and women of Nucor are working safely, working hard, working smart, and working together to take care of our customers. I will repeat what I have shared with you many times. Nucor's most significant competitive advantage remains our employees. The right people working together as a team. Great job, team, and thank you all.

The Nucor team's third quarter of 2006 performance highlights the importance we placed on meeting or exceeding the commitments we made to our shareholders. Nucor's third quarter 2006 earnings of $1.68 per diluted share were ahead of our quarterly guidance range of $1.50 to $1.60 given in our September 7th press release. Going back to the third quarter of 2003, our team has met or exceeded earnings guidance for 13 consecutive quarters. Consistent with Nucor's culture -- consistent with Nucor's culture's core value of taking care of our customers, we are strongly focused on generating attractive returns for our shareholders. The Nucor team's record-setting performance is easy to explain. It is being driven by the stellar performance of our people and by the disciplined execution of our strategy for growing Nucor's long-term earnings power and increasing returns on shareholders valuable capital.

Quite simply, our work implementing the strategic growth plan has greatly expanded Nucor's platform for generating earnings. As you've heard us say many times over the past six years, the keys to executing the strategy have been and remain. First, Nucor will optimize existing operations. Second, Nucor will pursue strategic acquisitions. Third, Nucor will continue greenfield growth, exploring new technologies and other unique marketplace opportunities where we can demonstrate a major cost advantage over the competition. And fourth, Nucor will grow globally through joint ventures that leverage new technologies.

A multipronged growth strategy, along with our unrivaled financial strength, allows us to be patient and to go where the growth opportunities are at any point in time. The Nucor team has very effectively implemented this growth strategy, and this work has positioned Nucor to generate higher high's and higher low's through the economic and steel market cycles. Our results prove my point.

First nine months of 2006 net income is more than four times greater than full-year 2000 earnings, or the level we achieved at the last peek in the economic and steel market cycle. And our year-to-date 2006 total steel shipments are more than 17 million tons compared to full-year 2000 steel shipments of 11 million tons. In addition to dramatically expanding our long-term earnings power, our strategic plan has enhanced Nucor's position as North America's most diversified steel producer. The composition of our sales tons for the first nine months of 2006 was 39% sheet, 30% bars, 14% beams, 11% plate, and 6% downstream steel products.

Our product line diversity is extremely important strength of Nucor and the underpinning of our ongoing success. The reason is simple. Because of our product line diversity, Nucor's short-term performance is not tied to any one market. Through a number of economic and steel market cycles, relatively better conditions in some markets have cushioned the impact of more severe conditions in others. Nucor's favorable outlook for setting a third consecutive annual earnings record in 2006 is, again, proving a value of our position as North America's most diversified steel producer.

Our team has set and then broken earnings records, while successfully managing through such significant challenges as unprecedented volatility and scrap pricing and the market-distorting effects of global overcapacity. To fully appreciate what the Nucor team has accomplished, it is worth noting that many of our competitors experienced earnings declines in 2005. While our diversified product makes a variable cost structure, we were able to more than offset the impact of 2005's sharp declines and sheet market spot pricing. I think the first nine months of 2006, our results have benefited from a strong recovery in flat-roll products, further fueled by continued robust growth in our bar, beam, plate, and downstream businesses.

I mentioned the ongoing challenge our industry continues to face, global over capacity. China is the most serious abuser, a country where the steel industry is heavily subsidized or or outright owned by the government, and where new capacity is built without consideration of the market demand or market dynamics for that capacity. This has resulted in China becoming the largest exporter to the world, and in particular to the United States today. China is in direct violation of the WTO agreement on industry subsidisation -- subsidization and they will be held accountable for that.

Nucor is calling it exactly what it is; China is breaking laws and trade agreements when it comes to global trade. As a crucial part of our work to optimize existing operations, Nucor is taking care of our customers by building grass-root support for enforcement of our nation's trade laws. We must not only support, we must strengthen the backbone of America's economy, our manufacturing sector.

As part of these initiatives, I testified earlier this week at the U.S. International Trade Commission's [inaudible] review hearings. It's critically important that our government enforces U.S. trade laws that appropriately penalize those countries that have clearly violated the law and abused our markets in the past and today. As always, the Nucor team is applying our "can do" attitude and energy level to proactive approaches to both opportunities and challenges.

A press release this morning reported our view of Nucor's outlook for the fourth quarter as positive. We expect to see some reduction in shipments from normal seasonal and holiday volume declines, as well as inventory destocking by service center customers. However, margins will remain strong. Most importantly, underlying demand trends are very healthy heading into 2007. We are optimistic that 2007 will be another year of strong profitability for Nucor.

We are encouraged by our progress implementing our growth strategy, but we are never satisfied. Our team's journey is that of climbing a mountain with no peaks. We view the results we have achieved at this point as just the initial payoff from our growth strategy. Our confidence has never been greater that Nucor's best years are still ahead of us.

Our executive vice president team will provide you with additional comments on third quarter results and update you on Nucor's growth initiatives. Terry Lisenby will lead off with a review of our financial position and our work building long-term value for Nucor shareholders. Terry?

Thanks, Dan, and good afternoon. Third quarter net income of $518 million increased 77% over last year's third quarter net income of $292 million, and increased 14% from second quarter's net income of $453 million. These are record quarterly earnings, breaking our previous record set in this year's second quarter. First nine months net income, also a record, was $1.350 billion, up 39% from the prior-year period and greater than full-year 2005 net income of $1.310 billion. Third quarter total steel shipments were 5.670 million tons, an increase of 6% over last year's third quarter.

First nine months total steel shipments of 17.286 million tons increased 11% from the first nine months of 2005. Our third quarter average steel mill selling price of $664 per ton was up $43 per ton from this year's second quarter, and was up by $134 per ton from last year's third quarter. Leading the year-over-year average pricing changes, sheet increased by $151 per ton, and beams increased by $142 per ton. Nucor's average usage cost of scrap and scrap substitute for the third quarter was $257 per ton, up $10 per ton from the second quarter of this year and up $40 per ton from the third quarter of last year. With selling price increases exceeding the increases in tallix cost, Nucor's third quarter metal margin spread increased by $32 per ton over this year's second quarter, and increased by $94 per ton over last year's third quarter.

Earnings before income taxes were $150 per ton for the third quarter, up from $126 per ton for the second quarter of 2006, and up from $89 per ton in last year's third quarter. Nucor's effective tax rate was 34.9% for the third quarter, and 35.1% for this year's first nine months. Our cash provided by operating activities for the first nine months of 2006 was $1.690 billion. At the close of the third quarter, cash and short-term investments totaled $2.222 billion, and our debt to total capital ratio of 16%.

Nucor holds the highest debt ratings of any North American metals and mining company, awarded by Standard & Poor's and Moody's. We view our strong balance sheet as an important competitive advantage in a consolidating and cyclical industry. Capital expenditures were $240 million for first nine months, and depreciation expense was $274 million. For full-year 2006 we project capital expenditures of approximately $340 million and depreciation expense of approximately $380 million.

The Nucor team continues to build upon our Company's long-term record of being an effective steward of our shareholders' investments. Nucor's ongoing focus on the careful allocation of our shareholders valuable capital is evidenced by our disciplined approach to organic growth projects, acquisitions, supplemental cash dividends, and share repurchases. Nucor's dividends paid have increased more than nine-fold since 2003, from $62 million for that year to an estimated $580 million to be paid this year. In addition to raising the base dividend each year, the upcoming November 2006 payment will be our 7th consecutive supplemental dividend. Supplemental dividends are consistent with Nucor's pay-for-performance philosophy.

In the third quarter of 2006, Nucor repurchased 6.3 million shares of its common stock, a cost of $318 million, on an average cost of approximately $51 per share. This was a significant increase over the 3.6 million shares we purchased in the second quarter of 2006. Through to the first nine months new core has repurchased 10.1 million shares at a cost of $515 million, also at an average cost of $51 per share.

Since reactivating our share repurchase program in the second quarter of 2005, Nucor has repurchased approximately 21.3 million shares of its common stock at a cost of $806 million. Approximately 15.7 million shares remain authorized for repurchase under the current program. As Dan indicated in his remarks, our outlook for the fourth quarter is favorable, and we believe Nucor is well positioned to continue delivering attractive returns to our shareholders through the economic and steel market cycles.

Thank you for your interest in Nucor. Dan?

Thanks, Terry. Mike Parrish will give us an update on Nucor's bar mill group. Mike?

Thank you, Dan, and good afternoon. The bar mill group again continued its record setting pace in 2006, with a new quarterly earnings record established in the third quarter. Our team broke the previous record set in this year's second quarter, and the bar mill group's record earnings for the first nine months exceeded our full-year 2005 earnings. Third quarter performance was highlighted by attractive margins across the board and by strong shipments of merchant bar and light structural products.

Demand for our NBQ and light structural is being driven by the non-resident construction, transportation, energy, and mining markets. However, SBQ and rebar volume declined, due to weaker automotive and housing markets. The rebar market has also been impacted by record imports, 85% ahead of last year's level, and tracking at an annual rate of more than 2.3 million tons. These imports have contributed to an inventory build primarily at the distributor levels. As always, we continuously monitor all market activity and stand ready to respond, as necessary, to remain price competitive.

For the seasonally-slower fourth quarter, demand, mill inventories and backlogs remain at good levels, and we expect solid profitability in the fourth quarter at the bar mill group. We also remain very optimistic about the 2007 outlook for bar markets. Our team has been very busy over the past six years. We have completed a number of highly successful acquisitions and we have implemented capital projects to optimize our existing operation. We have intensified our drive to improve both our cost position and the value we provide to our customers. We continue to enhance Nucor's leadership position in the bar market, and continue to build upon a powerful growth platform.

Speaking of growth, we are very excited about our new SBQ bar mill project, as it supports our strategy to build the most diverse, highest quality and lowest cost SBQ offering in North America. Earlier this month we announced that Memphis, Tennessee, has been chosen as the site for a special bar quality mill in the southern United States. This facility will have an estimated annual production capacity of 850,000 tons, producing rounds and round-cornered squares from 2-1/4 to nine inches. This new mill will produce a large bloom, with significant reduction ratios that will yield a very high quality product. Start-up is expected to begin in the first quarter of 2008.

For a number of reasons Memphis is a great location for our SBQ mill. Most importantly, Memphis is situated right in the heart of a rapidly-growing market for SBQ product. additionally, we will be taking advantage of the existing infrastructure in place at the idle bar mill facility we acquired in the Birmingham Steel transaction back in 2002. Our capital costs will be dramatically reduced by utilizing the good assets we already have on the ground at this site; foundations, buildings, drives, and cranes.

In fact, the project's estimated capital cost of $230 million, or about $270 per ton of annual capacity, is substantially less than the $450 million that many analysts forecasted in July. Memphis will compliment our Nebraska and South Carolina SBQ mills, giving us a product range from 7/32nd to 9-inch rounds. This project is an exciting opportunity to capitalize on a significantly better cost structure compared to key competitors in the SBQ market, both domestic and foreign.

Finally congratulations and thank you to everyone on Nucor's bar mill group team for another great job and another record performance. We appreciate your interest in Nucor. Thank you. Dan?

Thanks, Mike. John Ferriola will now update us on our sheet, plate, and structural steel businesses. John?

Thanks, Dan, and good afternoon. Nucor's sheet mill group has had another excellent quarter, reporting both solid profit growth over this year's second quarter and strong growth over last year's third quarter. Our team has done an excellent job, capitalizing on improved market conditions throughout the first nine months of 2006. At the same time, Nucor has successfully managed through the erratic scrap markets. While the sometimes dramatic month-to-month swings in [prompt[ scrap pricing often cause concern among participants in the financial markets, Nucor continues to benefit from a highly variable cost structure.

Our team continues to utilize contracts as an important tool for building value for both Nucor and our sheet customers. We have just opened our December order book, and currently 90% of our available fourth quarter capacity, adjusted for our standard fourth quarter maintenance outages and holidays, is under firm price and volume agreements. And we are at work securing contracts for 2007 production. We are pleased with the progress we have made to this point. I should emphasize that supply agreements are particularly, given today's level of government-owned global overcapacity. Demand remains good in our key end use markets.

However, as we all know, flat-rolled service center inventories to are high. In this environment, Nucor's order because is benefiting from our solid base of contract business. Domestic supply is also being reduced by planned maintenance outages, as well as by the traditional seasonal reductions at many competitors. Similar to past experience, the more disciplined and profit-driven U.S. flat-rolled industry is appropriately focused on pacing supply to match customer demand.

Looking ahead, the future looks very positive for Nucor's sheet mill group. We continue to see the results from our team's relentless focus on providing value-added products and services to value-appreciative customers. As an example, 2006 is Nucor steel Arkansas' third consecutive year of record-breaking achievement in safety, quality, and productivity. Most importantly, the Hickman division's customers are recognizing and rewarding this performance. Two customers currently -- two customers currently have new facilities under construction on HIckman campus and three other customers already operating on the Hickman campus are expanding their facilities.

Our proprietary castrip technology to directly cast sheet steels is an extremely valuable growth driver for us. Our team at Crawfordsville's castrip facility continues to move ahead with this break-through technology. Since start-up, over 400,000 tons of castrip products have been produced at that facility.

In September, a new castrip monthly shipping record was set. Crawfordsville is also serving Nucor's first contract customers for castrip products. Work continues on our project to build our second castrip production facility at Nucor-Yamato Steel in Arkansas. Based on current equipment delivery lead times, we expect production will start up in the fall of 2008.

Congratulations are very much in order for our teams at Hereford County and Tuscaloosa Point mills for achieving record earnings for the first nine months of 2006. Every time I speak to investors about our Company, I always emphasize one important fact about Nucor. Our greatest asset is our people. Allow me to share one example from our plate business. When we acquired our Tuscaloosa plate mill in 2004, rated annual capacity was 800,000 tons and that level was never achieved by the previous owner. This year, Nucor Steel Tuscaloosa is on pace to ship one million tons.

It should be noted that we have not expended any material amounts of capital to expand either the melting or the rolling capacity at Tuscaloosa. What we are seeing is the right people working in the Nucor culture, doing their jobs to maximize returns on the valuable capital of Nucor's shareholders. And the best news is that Tuscaloosa's team best years are still ahead of them. The plate market has remained robust into the fourth quarter.

End user demand is strongest in construction equipment, railcars, barges, heavy machinery and wind towers. However, similar to other products, record levels of imports in the third quarter have resulted in inventory corrections at distributors. But overall, our plate pricing has remained steady. Nucor's plate mills are looking forward to continued b success into the first quarter of 2007. Congratulations to our teams at the Nucor-Yamato Steel and Berkeley [B] mills for the record earnings they achieved in the third quarter and the first nine months of 2006.

The structural markets have continued to strengthen since the third quarter of 2005 and this past quarter was no exception. September 2006 order entry at our structural mills was the highest single month in seven years. Our backlog remains at or near record levels. Structural steel market demand is broad-based, and is coming from three different market segments. First, nonresidential construction continues to grow.

Current predictions are that 2006 will see 6% growth over 2005, based on square footage put in place. Industrial and commercial building construction has shown some of the most dramatic increases. Additionally, 2006 has seen the strongest demand from the energy section -- sector. Construction of power plants and petrochemical facilities is growing at a very brisk pace. Comments from our customers suggest that this market segment will remain strong for some time to come.

Finally, the piling and foundation markets continue to be strong, driven by both public and private sector infrastructure work. Demand is coming from a number of sources, including highway and bridgework, New Orleans reconstruction activity, and the foundation work that precedes non-residential construction. The forecast for 2007 points to continued strength in all of these markets.

Service center inventories of structural products have grown through 2006, but are in-line with demand. After strengthening in the first half of this year, import licensing activity has declined. However, unfairly traded imports remain a constant threat, and we are monitoring that situation carefully. Nucor's structural steel group is looking forward to another strong year in 2007.

Finally, congratulations and thanks to everyone on Nucor's sheet, plate, and structural mill group teams for a great job and another outstanding quarter, and thank you for your interest in Nucor. Dan?

Thanks, John. Ham Lott has comments for us on Nucor's steel product businesses. Ham?

Thank you, Dan, and good afternoon. Nucor's strategy of building market leadership in attractive downstream businesses has consistently generated very attractive returns through the economic cycle. In September we announced two important growth initiatives for our value-added steel products. Nucor entered into an agreement to purchase substantially all of the assets of Berko Manufacturing Company.

Berko produces steel floor, and roof decking in three locations in the western United States. We are buying these assets for $180 million in cash, subject to post-closing adjustments. Closing is expected to occur this quarter. The transaction is expected to be immediately accretive to earnings. We are looking forward to the upcoming addition of Berko team to Nucor's Vulcraft group, the largest U.S. manufacturer of steel joists and steel decking. . Berko has built some impressive 40-year record of success serving the western U.S. deck market. This acquisition will position Nucor with a national reach to provide U.S. non-residential construction markets with a complete package of joists and deck products.

Additionally, Nucor selected Brigham City, Utah, as the location for our fourth metal Building Systems plant. Annual capacity will be approximately 45,000 tons, and operations are expected to begin in the first quarter of 2008. Nucor Building Systems Utah advances our strategy to grow profitable market share in this value-added business. With plants in Indiana, South Carolina, Texas, and Utah, Nucor Building Systems will have a national reach and a combined annual capacity of more than 150,000 tons.

Thank you for your interest in Nucor. Dan?

Thanks, Ham. Now Joe Rutkowski has some comments on Nucor's raw material strategy. Joe?

Thank you, Dan, and good afternoon to everyone. We continue to make excellent progress implementing our raw material strategy to develop supplies of high-quality scrap substitutes.. These projects are a critical underpinning to Nucor's expansion into the higher-quality sheet and SVQ products. And will prod -- projects will reduce Nucor's risk exposure to the fluctuations in the supply and the pricing of the low residual grades of scrap.

We're very excited. The commissioning is well underway at our new iron -- direct reduce iron plant in Trinidad, and we expect to begin producture -- production later this quarter. Annual capacity of the plant will be 1.8 million metric tons of DRI. Our team in new iron has done an outstanding job on this project, and we expect this DRI facility to be an increasingly important strategic asset, supporting our growth plans..

I also have good news to shore with you on our [Heisfelt] joint venture in Australia. The plant is currently engaged in its most successful iron-making campaign We have been operating continuously for over 40 days, and at our highest utilization rate thus far. Our Ferro Gusa Carajas joint venture with CVRD, a pig iron plant in Brazil, is running both furnaces, and so far, Nucor's steel mills have received shipments of over 135,000 gross tons of pig iron from FGC. Thanks to your interest in Nucor, and back to you, Dan.

Joe, thank you. At this time we will be happy to take your questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Kuni Chen with Banc of America Securities.

Hi, good morning -- good afternoon.

Good afternoon.

Obviously we're in an environment where the industry has become more disciplined and you see companies adjusting their production in line with where inventories need to get by year end. Can you talk more specifically as far as your production plans for the quarter and either put that into terms of days of down time or tonnage? Thanks.

What I can do is to indicate exactly how we plan on going forward there and the market will determine exactly how many days we do or do not operate in a quarter. We don't preannounce shutdowns, mostly because we're not in the same type of situation that the integrative producers are in where they have to take down a large blast furnace and it's an event that takes time to shut down and is down for more than just a day or two. In our electric furnace operations, you can literally shut down the furnaces on a minute-by-minute basis.

So we will look at the marketplace, look at where orders are, look to main taken pricing in the marketplace, adjust our production schedules accordingly, like we have in the past. Historically, over the last several years, you can see from our shipments that the fourth quarter is a lower shipment month -- or excuse me, shipment quarter, anywhere from 4% to 8%. Based upon holidays are normal maintenance outages, and we'll just to have see come the end of the fourth quarter and our next conference call exactly where things ended up.

All right, thanks. I'll circle back.

We'll go next to Michelle Appelbaum with Michelle Appelbaum Research.

I wanted to ask you about two things. One is in terms of the electrical steel market. I know you used to do some of that at Crawfordsville. There was once plans to do more. How big are you in that market, if at all, and can you get bigger? Because it seems like that's a pretty tight place.

I'll let John Ferriola address that question.

Hi, Michelle. We are involved in the electrical steel markets, as you know, not only at our Crawfordsville facility, but we have grown that business to expand to our Hickman facility and also to our Berkeley, South Carolina facility. So we're quite active in it. I'd say it probably accounts today electrical steel's for about 3% to 5% of our total sheet field production.

And do you have any plans to expand that?

That's a value-added product, and we always plan to expand and grow our value-added business, so, yes, we plan to continue to work to penetrate further into that market and to grow that product.

Is all the electrical steel that you sell on annual contracts?

Is all of it? I'd say the vast majority of it is electrical -- I mean, is contract tons, yes.

Okay. And there's some -- there's some --

Michelle, Michelle. Thank you for your multiple questions. You can come back in the queue later. We appreciate your interest in Nucor. Next -- next person, please.

We'll go next to Michael Gambardella with JP Morgan.

Yes, good afternoon, Dan, and congratulations to the whole Nucor team.

Thank you, Mike.

I've got a question on castrip. Could you give us an update on how the process is going, and also could you give us an update on anything on the licensing of the technology overseas and how that's working out?

I will ask John Ferriola to talk about the status of the technology at Crawfordsville. As far as overseas licensing goes, we have been a little disappointed about some of the opportunities that we've been exploring. They haven't taken place as quickly as we'd like, but the -- that's the bad news. The good news is we're still talking actively with numerous folks. Some for their own internal reasons had to put the project on hold, and we look forward to successful completion here in the next several months of the joint venture opportunity. John, could you talk about the technology a little bit, please.

Certainly. The castrip product quality continues to improve every month. We are expanding the range of grades that we're able to produce with the castrip technology, and we're seeing a much improved market penetration for the castrip product, as our customers become more comfortable and more familiar with the capabilities of the product. So we're very pleased with what's going on at castrip one, in Crawfordsville. And as I mentioned, we are in the process of completing the engineering for castip two, [Nucor remodel] in Arkansas, and we should have ground breaking either late this year or early next year.

John, how much tonnage have you put in the market from castrip one and how's that progression been over the last few quarters?

Every quarter it's getting better.

And the total amount of tonnage that you have sold out of there so far that's in the --?

I'm not sure what we've sold since day one, but what we've done -- what we've shipped this year to date is over 100,000 tons.

Okay, great. Thank you.

Next we'll go to Timna Tanners with UBS.

Yes, hi. Good afternoon. I wanted to --

Hello, Timna. How are you?

Good. Thanks. I wanted to ask a lot of questions. I guess I was -- the one I really want to ask about is on M&A, which is such a hot topic. I think that Nucor's had a different approach than some in terms of not just looking at producing assets, but also at vertical integration and downstream integration. I just wanted to get your thoughts on kind of what's going on lately, or what you might be attracted in, in terms of what you'd look and whether or not you think you have to have more tons or how to look at value-add opportunities, as well?

Well, Tamna, as you know, it's very difficult to talk about your strategy on acquisitions without saying things that we would compromise discussions on or get ourselves in trouble. No one here likes those orange jacket that they wear in prison too well, so -- But I can tell you is that you're absolutely correct. Our strategy not only focuses on acquisitions within the steel-making area, but also upstream and downstream.

I can tell you that we are very active in evaluating opportunities in all three directions, and as we execute on them, we'll make everybody aware of them. But it's not appropriate for us to discuss any specific businesses or industry groups or product groups or what have you with respect to to what we might be lacking at in terms of an acquisition. But we are very active in all of those areas. Next question?

And next we'll go to John Hill with Citigroup.

Yes, congratulations on the great quarter and doing such a fine job managing both strong prices and inputs, as well.

thank you, John.

you're welcome. Just a quick question. Given the softness in the power markets and that -- in gas as well, very high storage levels, have you become more aggressive in terms of lengthening power contracts, gas hedges out into '07, and is this an important source of margin support for you?

As usual, Nucor will focus on the very conservative way on both of those issues, and they are very high cost components for us. And we are looking at our electrical power situation. Not just over the next six months or so, but years down the road, and developing strategies to help make sure that we maintain a low-cost structure there, a very competitive structure. The natural gas situation actually was quite surprising for, I think, everybody that it came down as hard as it did. And that is a -- we're in a very good position with what we have hedged relative to where pricing is, and we still are buying a fair amount in the spot market and benefiting from that. And we don't have any really specialized plans that are different than what we've already been looking at and executing on.

But we do monitor that very closely, and on monthly basis evaluate what actions we should take or not take. That's more with respect to natural gas than electricity. As you know, our electricity contracts are run for five, ten years, and we focus on those as we get close to the expiration of those contracts. But we are also looking at supporting efforts to build more power plants, improve the transmission facilities. We'd love to see more nuclear plants built in this country. The clean coal technology works very well.

The last thing we want to see, in all honestly, is building more natural gas-fired plants when we have not really opened up the ability to deliver additional supply here domestically. We do not want to see ourselves become more dependent on foreign oil or foreign natural gas and energy sources. We need to become more self-reliant at home, and those are the things that we're focusing on, both here and in Washington, to help accomplish that.

Great perspective. Thank you.

Next we'll go to Mark Parr with Keybanc Capital Markets.

Good afternoon.

Afternoon, Mark.

Congratulations.

Thank you.

You guys keep really setting a good example for the rest of the industry, and I wish you all the best in continuing that. I had a question regarding the competitive landscape. There is a new mill that's under construction in the southeast, and I'm just curious if you've begun to see any competitive activity on the part of that mill, or how you see the southeastern market growing or emerging to be able to effectively absorb this incremental capacity that's scheduled to be coming on line?

Well, first off, there's been nothing in the marketplace to indicate that there are any competitive issues at this point in time or in the near future. And exactly -- I've heard what their timetable for start-up is. We all have timetables. We'll know when they actually start doing things and from a production standpoint, but we don't anticipate any significant or even noticeable competitive pressures for a period of time yet.

I think their best estimate's for start-up of the complete plant sometime mid-year, next year. And as far as the competitive front going forward, obviously there is a growth in the south and southeast with respect to the automobile companies, and some of that production, along with our galvanized greenfield over in Decatur will benefit from that. It will be a competitive situation, which -- as you know, steel moves some long distances, all the way from China, as a matter of fact, and certainly can move from Indiana or Ohio or Arkansas or what have you. So it'll be a competitive situation as we go forward, and as always Nucor will be right there leading the pack.

Okay, thanks for that. If I could ask just one more, just to change subjects on to raw material strategy. I know at one point you had said you thought that it would be a good idea to have about 30% of your metallics inputs generated internally. Could you give us an update on where you are along that process and how soon you might be able to get there? And again, congratulations on a great result.

Thanks, Mark. Yes, we've said we want to have between six and seven million tons of high quality iron units. Of course we will have started up this December -- early December we'll have our DRI plant, should ramp up quick to 1.8 million metric tons there. We should be receiving a couple hundred thousand tons from Brazil next year, as well. As Joe mentioned, we've received over 135,000 metric tons already during the course of this past year. And the high smelt, we have received pig iron from our high smelt operation, the joint venture out there in Australia. I am not sure how many tons it's been.

I think it's somewhere around 60,000 tons, or 40,000 to 60,000 tons so far. And as Joe mentioned, the last -- the latest production run is going very well. So next year we should be looking at somewhere between two and 2.25 million tons of our own in-house iron units coming to us. And after that, a lot will depend on how the ramp up at high smelt continues to go, and where we would build one of those -- or more of those plants in future years. In the meantime, we are looking at some other opportunities, and we're still on track to over next five years get to the point where we can be looking at having several million tons, hopefully in the neighborhood of six million tons, under our own control. Next question, please.

All right. Thank you.

And next we'll hear from Chuck Bradford with Bradford Research.

Good afternoon. TVR D has said that they are desirous of reducing their ownership in your joint venture, and that they've been negotiating in regard to this. Do you have right of first refusal, and does your contract set a price?

First off, what CVRD has said is that they are exploring many things with us, including reducing their ownership position, not eliminating it. Secondly, we don't really get into details of discussions that might be going on about plans. Third, yes, Nucor is in a position to exercise first right of refusal on any additional shares in that joint venture, moving forward. And as far as price being established, that's always a subject of negotiation.

Thank you.

You're welcome.

We'll go next to John Tumazos with Prudential.

Congratulations.

Thank you, John.

Maybe earlier decades, when Nucor built a lot more steel mills before the acquisition period, sometimes there was a strategy of aiming at product classes or regions where there were large steel imports, since there was an unsatisfied domestic customer. And given that there is over 35 million tons of finished imports, maybe over 45 million tons of total imports, that would suggest great opportunity. You've got four western fab plants, you're adding rebar imports double this year, and you've got enough cash to build seven million tons of steel capacity. Should we look forward to a new internal growth spurt?

John, you make some good points. Historically, Nucor has looked at opportunities around the country. Sometimes those opportunities did involve displacing imports, as we opened up the Climat, Utah, bar mill years ago. And certainly there are a lot of tons coming in from offshore. The issue there always is are they being traded fairly or are they going to contribute to a downward spiral. that puts us in an unfairly-traded situation. And Nucor has been growing principal through acquisitions, but you do see us now looking at few greenfield projects up and down the product lines, including our SBQ mill Memphis and the galvanized facility in Decatur, and we will continue to evaluate that.

In a general sense, as assets become more expensive, the interest in building greenfield is something that you reevaluate. Of course when you build greenfields you have not only to build the plant and start it up successfully and train your people, but you also have to penetrate a market that has plenty of suppliers and that can be very costly. So you weigh all of that when you're looking at whether to do a greenfield opportunity or not. But those are things that we do look at on a regular basis and we'll continue to look at.

Dan, if I can ask another, the joist and deck businesses were only up 1,000 tons this quarter from a year ago, yet non-res construction seems to be growing. Are you losing share to other players or is the form of non-res construction not involving the [louverized[ buildings that Nucor specializes in?

John, this is Ham Lott. We are not losing share. We track that fairly closely in both the joist industry and the deck industry. And you're able to do that because both the Steel Deck Institute and Steel Joist Institute publish statistics for their member companies. Our backlogs have grown, so that's where some of it is.

We are sitting on larger backlogs than we were a year ago, and there's not as much a sense of urgency to ship jobs as there was the last couple of years. And on top of that, I think you're right. I think some of the construction is not normally what fits into the steel roof deck and in the steel joist markets.

Thank you.

Our next question comes from Dave Martin with Deutsche Bank.

Yes, thank you. I just had a quick two remaining questions or left open questions, if I may. First is on your comments about CapEx spending this year.

Yes.

You're guiding to $340 million, I guess, for the year, which is I believe about $100 million less than what you would have said maybe three months ago. I guess I'm just wondering is that just a deferment of some projects, or was something cancelled? Then secondly, looking at your inventories, they're at the highest levels they've been in a little over a year, year and a half. I'm just wondering if you can help me understand what's attributable to input costs and what may be attributable to tons of finished steel?

There's nothing been cancelled on the capital project front and I'm not -- I'll let Terry discuss what that does include in that number. As far as inventories, our inventories have not built in terms of volume. They have in terms of value because, as you know, the price for scrap and the price for finished steel is significantly higher than it that been year over year, and even quarter over quarter, so there's not an inventory build going on. That's something we watch very closely. But there is a value build in the inventory, which is a natural consequence of the higher prices. Terry, you want to address the capital expenditures, please?

Sure. There's not been anything cancelled. It's really just a timing issue, with things being a little bit slower than expected.

Can you then give us an estimate of what the '07 figure may look like?

Not yet because we do that -- we do the capital budget for '07 in our November general manager meetings.

Okay, thank you.

Still to come.

And next we'll go to Aldo Mazzaferro with Goldman Sachs.

Hi, Dan, how are you?

Good, Aldo, and yourself?

I just had kind of one big picture question for you, and then a follow-up on some -- on a couple of details. In the acquisition strategy, you said at the outset you would go where the growth opportunities are. That was one of your comments does. I'm just wondering, does that imply any relaxing of the reinstructions you've had in terms of, like you only wanted to do a licensing venture or some kind of a joint venture overseas, or also would that relax the restriction you've always had on unionized operations?

Aldo, what we are saying is really not inconsistent with what we've said before. Let me explain. We've always said that our acquisition strategy focused on three things. One, do not overpay. Two, do not overpay. Three, do not overpay. Okay, I'm overdoing it. Two, be cautionary compatible, which can be interpreted as meaning you usually have thought to that. And third, make sure you stick to your knitting, things that you understand.

And we understand the steel business and the steel fabrication business and we understand raw material business. As far as would we entertain acquiring companies that might be unionized? Certainly we entertain that more today than we would have when we first started acquiring companies, and particularly from an overseas standpoint. Outside the United States there's very few places that don't have unions of one type or another, and we've stated that before that that would not deter us from any acquisitions internationally.

As far as our strategy internationally goes, we've always said that we'd be opportunistic. Our principal strategy there is to grow via joint ventures with our new technologies, because we believe that really brings the maximum potential return to our shareholders, because we're penetrating existing markets with technology to bring major cost advantages and allow for that penetration to take place in a very cost-effective and maximize to profit return. But we've never said that we wouldn't look at acquiring assets internationally, but our preference is to do it via joint ventures, whether to do a new technology or in owning part of a international asset with a partner in the area of the world that we'd be looking at.

That was a leader, was at the top of their game, and similar to what we have experienced with Nucor-Yamato, where Yamato came to the United States and partnered with Nucor. Brought the technology, we brought the market savvy in the states, the work force, the culture, the understanding of business practices here, and made a great partnership. And that's still our preferred way to go, but we will remain opportunistic on an international basis and keep our options open.

That was great detail, Dan. I appreciate that. If I could just follow up with just one little micro is, would you expect to commercialize the high smelt operations right now, and secondly, how much of your planning in the SBQ mill is for exported material from Memphis? Thanks.

As far as high smelt, the jury's still out on that. We are making some tremendous progress, but I don't think we're in a position to say when we think it'll be fully commercialized. And Joe is shaking his head, so I got that one right. Mike, you have a comment? Zero on exports at this point in time? Of course, we'll be opportunistic. If the market internationally says we can send stuff there, but our focus is going to be on displacing high-cost competition, poor quality competition in the states and imports.

So how much of the SBQ do you think would be automotive?

Mike, so you have any thought on that?

Yes, the way that's going to break down is the capacity of the mill's around 850,000 tons. We expect around 450,000 tons to go into finished product and I'd say a great percentage of that would be tied to automotive somewhat. So I'd say probably anywhere from 60, 70% of that being automotive. The other portion, the 400,000 tons would be in semi finished.

And those go to third parties?

Yes.

Thanks, Aldo.

Thanks a lot, Dan.

Next question.

Next we'll go to Michael Willemse with CIBC World Markets.

Thank you. Just had a question on capacity utilization. It sounds like in the sheet business it's going to be questionable over the next few weeks, but in your other divisions, how would you gauge your capacity utilization in the fourth quarter?

Well, first off, there's nothing that we said that should have indicated to you that flat-rolled sheet would be questionable in terms of capacity utilization over the next few weeks. What we did say is that, at present, we have 90% of our allotted operating time booked with firm pricing and firm volumes. And we also said that how that remaining 10% will go would depend -- it'd depend upon market conditions. and so, as far as the -- your other question, I forgot it already. What was it?

Just on capacity utilization in your other segments.

Capacity utilization in plate and beams is full bore and bar products is still, at this point in time, full bore, and as Mike said earlier, our backlogs are very strong. John, have anything you want to add?

Yes, Dan, I just wanted to add that the 90% figure, you must remember that we just opened up our December back three days ago. Our December book opened up on Monday, so we're really just in the process of booking our spot tons for December, so that 90% figure does not include spot tons that we will sell for the December month.

Okay. Just one more quick question, then. What's your sense of how long it'll take this inventory, I guess correction, to manage?

Well, before you can really answer that with any integrity or accuracy at all you have to be able to determine when is the flood of imports going to cease. And as of this point in time, we have not seen any drop-offs -- measurable, significant drop-off in imports coming in. So the other part of it is how's the economy in this country going to fair next year? Right now our forecast is that it should grow at around 3% or thereabouts, so we see another solid year. But as far as how long it'll take, you're talking in terms of months, not weeks, that's for sure.

Okay. Thank you.

Next we'll go to Jernej Omahen with Goldman Sachs.

My question.s already been answered. Thank you.

Thank you.

Moving on to Deborah Fine with Fine Capital.

Good afternoon. Congratulations on the strong results,Dan, and all the team.

Thank you, Deborah.

Could you comment a little bit on what you see from China in terms of your perception of their geoproduction and their export discipline or lack there of? And if you could also make some comments on what -- if you see any steel coming in from Canada -- through Canada from China, via Canada?

The latter part, I'm not sure that I really have any good information to share with you there. The first part of your question, every ton of steel that is shipped out of China is a ton that should be penalized for being government subsidy, and every ton that comes into the North America market, as well as the United States, I see no discipline at this point in time.

They came out with a -- what I consider to be a phony reduction in the tax rebate that they give on exports of steel. They made a big adieu about it, but it doesn't cover very many of the steel products that are of interest to us here in the states or elsewhere. I haven't really seen them cut out the production that they need to cut out from the standpoint of antiquated highly-inefficient production. I don't think they've made a lot of progress there.

I know that our government, along with some of our own representatives from the steel industry, including Nucor, are over in China as we speak having discussions on the subject. But the reality is that they're exporting significant amounts of steel internationally into the North American and U.S. markets. And because of that, we will have to be taking action as an industry, and it won't be just here. The EU is, as we speak, exploring filing trade cases against China for flat-rolled product penetration into the European market, so are countries like Australia.

This is a global issue for steel companies, not just here in the states, but just about everywhere people are concerned about this, and working to educate the Chinese that they need to be more responsible. They've built excess capacity with no sense of what the market is, no market forces acting on it. Build tremendous overcapacity and then want to export that around the world. That will not be tolerated, and we will have to deal with it, and we'll deal with it.

Sounds like no change.

Sounds like no change --

Okay.

-- at this time.

Thank you.

Remain hopeful that they will be responsible.

Next we'll go to Frank Dunau with Adage Capital.

I think these questions are for John Ferriola.

Okay, you got him.

And they're all sort of related, so let's see. How much of your -- what percentage of your contracts run out, and I'm talking like the six and twelve-month variety, are up for renewal in the next three months?

What percentage of our contracts expire in the next three months?

I'm trying to figure out whether a lot of your contracts roll at the end of the year, or they roll throughout the year. I'm just trying to figure out if there's a time of the year that I should concentrate more on, or something.

No, it's -- we think about 40% of our contracts go into next year from a June period to June period., and the rest would be coming to closure at the end of this year. But, of course, we're constantly negotiating those contracts. A lot of these are steady customers of ours, and we're in the process of working with them today to extend those contracts through next year.

So so do you know how much you've got extended either through June of next year or through December of next year so far?

Well, for the full year of next year, we have about 25% of our capacity under contract to date.

Okay. And I just want to tell Dan that I told you on the last call all we had to do was take your last estimate, add 5% to 10% to it and we get earnings for the quarter, and I still think I'm right. It worked.

Well, I hope that continues to be the case. [LAUGHTER] Thank you. Next question.

And one other thing, if you get -- never mind. [LAUGHTER]

Next we'll go to Sal Tharani with Goldman Sachs.

Hi, guys. Two quick questions. On the bar shipment, your bar shipment was down about 11% quarter over quarter, despite Connecticut Steel's. Just want to make sure if you can clarify what was the reason?.

Second, you're paying about $180 million for Verco. I agree in your press release you said that this will bring your capacity to 500,000 ton. You're shipping about 380, so there's 120,000 tons. It comes to about $1,500 per ton for this [inaudible].. I was wondering if this is a typical cost for building a new capacity, and also how much -- how many people are you going to add at Verco in your payroll when you acquire the company?

Well, I'm going to ask Mr. Lott to answer those questions.

Don't forget the bar shipment question.

Oh, and the bar shipment question --

if I understood the question on Ver -- one of the questions on Verco, how many people are we going to add. They currently employ about 90 people. We think we'll keep substantially all of those. What our release says is it takes our capacity to in excess of 500,000 tons. If you want to extrapolate, they're 120,000 tons. Then I think from there you -- I didn't understand what the question was from there?

I'm saying that you're paying $180 million, , so 120,000 tons brings it to about $1,500 per ton of capacity. I was just wondering it is a fair cost, if you were building a new capacity?

Is it a fair cost?

Yes.

We said it would be accretive, so it's probably a fair cost.

Thank you.

What we're doing is buying a going business there that has a customer base that we'll be supplying and cash flow, as well as capital and inventories and what have you, so it's a little bit more to it than just saying it's 1,500 tons, or dollars per ton of capacity. And you certainly would not equate that number to what we bought steel mills for, particularly since it's a going profitable business, in fact, very profitable business. And it compares favorably with what it would take to build that amount of capacity and start it up and certainly, favorably, with respect to penetrating in a competitive situation. So we're very pleased with it. Mike, do you want to talk about the decrease in shipments?

Yes, in the third quarter, we did have a few shutdowns that contributed to a little bit less shipments. Also, on the rebar side in the distribution end, that's where we saw some of the inventory I would build that started in the third quarter, and that's where the imports had the biggest impact on rebar. And also a little SBQ fall I don't have in automotive.

Thank you.

Next we'll return to Kuni Chen with Banc of America Securities.

Hi, thanks. I know it's getting late in the call. Just one quick follow-up on the steel product side. You know, margins have been pretty good over the last couple of quarters. Just want to get a sense as to the true earnings power of that business. If you were to strip out Nu-Con at this point, where do you think margins would be in the steel products? Thanks.

We typically don't comment on what the margins are in the individual businesses. We are still spending money at Nu-Con trying to develop that market, but, yes, we don't break those numbers out either.

All right. Good enough. Thanks.

And we'll return to Timna Tanners with UBS.

Yes, hi. I haven't heard anybody ask you about your scrap outlook, Thought I'd see what you're saying on the outlook for scrap, if you could, for the rest of the year, please.

Our general outlook on scrap is that we will see some price fall-off between here and the end of the year. Exactly how much and, you know,that's -- with the volatility that we've seen and the wild price swings over the last several years, even this year, your guess is as good as mine, Timna, but in general we see that there'll be some softening on scrap prices. How much remains to be seen.

What do you attribute that to, since the market seems to be pretty strong aside from hot rolled -- or flat products, like you've mentioned?

First off, there've been numerous announcements by producers about cut-backs. They all use scrap to varying degrees. And as far as other people in the business and on the long product side, it remains to be seen exactly how much reduction in production there might be along with -- throughout the industry. So in general, we're saying, listen, there's an inventory to work off that has to take place. That is going to have an impact. It will impact everybody's shipments, and that will have a softening effect on prices on the raw material side, particularly for scrap, not on iron ore, or coke or what have you, but on scrap it will. And that's -- we're looking at that and coming up with that judgment.

Okay, appreciate it. Thank you.

Next we'll go to John Hill with Citigroup.

Great. Well, Frank asked the question that I was really most focused on, but maybe you could give us a couple words on the beam market. How long can it stay as good as it is and what, if anything, derails that picture?

Well, right now it's -- our forecast is it's going to stay strong for as far as we can see into the future, particularly with the strength and multiple markets, energy markets, infrastructure markets, you name it. And until those markets start falling off significantly, our customers, particularly the fabrication side, see a very strong 2007. Forecasting out past that is always questionable, but it looks very good for sometime to come.

Great. Can I compliment you on your endurance on the call.

Thanks. [LAUGHTER]

We'll return to Michelle Appelbaum with Michelle Appelbaum Research.

Hi. Just wanted to follow up on the ITC hearings this week. Theer was a lot --

I thought you weren't going come to back after I cut you off there, Michelle. I appreciate you sticking with us.

Well, I've stuck with you for a long enough time and I've never been disappointed.

Thank you.

There was a lot on last week on the automakers. Can you talk about, if the sunset reviews don't get in your direction, realistically in the short run can you give us the impact and perhaps longer run what the impact would be?

Well, I'm not going to get into forecasting what impact might be on one particular company or another. What I can tell you is that, if the ITC does not follow the law as it's written and does not renew the dumping duties, that sends a very bad message, and it will still be up to what people actually do internationally. We do not see that as a very positive thing. We see that it can impact the profitable of the entire domestic industry.

It will affect some companies more than others because this is focused principally on galvanized and high-quality galvanized is what the automobile, companies are most concerned about,. But it's a galvanized, much broader product group than just automotive, and we're very confident that the ITC will, again, renew the sunset provision just like they have renewed the provision for pickup trucks that GM and Ford all have been giving sunset reviews on since 1993 in their favor, although they seem to be against us having the same opportunity to apply trade laws properly. And so, we think it's going to be a positive outcome. But if it isn't it will have a negative impact, particularly if we're not successful in getting China to recognize its international agreements and withhold from exporting 100% subsidized steel into the world marketplace.

But those -- nobody's been bashful about that. It's an Achilles' heel of the steel industry globally, not just here in the United States. In 1980, 44% of the global steel industry was government owned. In 2006, outside of China, it's about 5% government owned. Tremendous progress has made there in creating an atmosphere where people are profit motivated. Unfortunately, with what China's built up in the last three years, you put China into the mix you're back up to 40%, 43% government owned. That needs to be dealt with, and I think it will be dealt with because it's going to be an international issue. So it wouldn't be good news. How bad news would it be is anybody's guess, but it would not be good news.

Terrific. Thanks for the run down.

We have no further questions at this time. Mr. DiMicco, I'll turn things back to you for any additional or closing remarks.

Thank you. Thank you all for your questions. Thank you all for your interest in our Company. Rest assured that the entire team here at Nucor will continue to work diligently to use the shareholder's dollar wisely and increase shareholder value. And again, thank you to our entire Nucor team for another successful quarter and what will be another successful record year. Thank you all.

And that does conclude today's conference. Thank you everyone for your participation.