Nucor Corp (NUE) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation third quarter of 2007 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 come at that time. Certain statements made in this conference are forward-looking statements that involve risk and uncertainties. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future affects 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, Chairman, President, and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Good afternoon. We appreciate your interest in Nucor and thank you for joining us for Nucor's conference call. Our team will discuss Nucor's third quarter of 2007 performance, and update you on ongoing implementation of Nucor's growth strategy. I will lead off with some overview thoughts.

But first and most importantly, I want to say thank you to all the members of the Nucor team for delivering solid profitability in the third quarter's challenging economic environment. Once again the 17,300 men and women of the Nucor team have proven that Nucor's greatest competitive advantage remains our employees. The right people, working together as a team, take care of our customers and our shareholders. I also wish to extend a warm welcome to our new teammates at Nucor LMP, Magnatrax, and Consolidated Rebar. We're excited about the profitable growth opportunities you bring to the Nucor team in the cold finish bar, metal building systems businesses and rebar fabrication, and we are also looking forward to welcoming Nelson Steel to the Nucor plant family later this quarter. It will be an outstanding addition to the Nucor Bar Mill group as we continue to grow in the mesh business.

Nucor's third quarter 2007 net income of $381 million again demonstrates that our multi-pronged growth strategy is working. Here is the statistic that tells the story. Our quarterly earnings for the past eight consecutive quarters have exceeded the prior record annual earnings reached in 2000, the last cyclical peak in the U.S. economy. And 2007 should be our fourth consecutive year of exceptionally strong earnings as well as the second-best earnings year in our history. Nucor's long-term earnings power has been dramatically expanded by our disciplined work to optimize existing operations, pursue strategic acquisitions, and continue greenfield growth where we can capitalize on significant cost advantage opportunities.

While we are pleased and encouraged by this payoff from our hard work, our team is not satisfied. We see ever-better days ahead of us and more exciting growth. And to position us for continued profitable growth, we have added more talent to Nucor's executive management team here in Charlotte. The reasons for these changes is simple. We are a much bigger company than even six years ago. From 2000 to 2006, net sales more than tripled, net income increased by more than 5.5 times and we have grown from 23 to 50 operating divisions and this does not include the 50 Harris Steel locations.

Here are the changes. John Ferriola is promoted to the new position of Chief Operating Officer of steelmaking operations. John now has responsibility for all of our steel mill operations. And two of our general managers joined the corporate management team as executive vice presidents to take on John's previous duties. Ladd Hall is our Executive Vice President of flat rolled products, and Joe Stratman is our Executive Vice President of beam and plate products. They, along with Mike Parrish, our Executive Vice President of bar products will report to John Ferriola. Continuing to report to me along with John will be Ham Lott, our Executive Vice President for fabricated products, Joe Rutkowski, our Executive Vice President for business development, and Terry Lisenby, Nucor's Executive Vice President and Chief Financial Officer.

I am very excited about these moves, of course growth and profitability will benefit from the addition of Ladd and Joe, two exceptional leaders for our management team here in Charlotte. And with John Ferriola focused on operations, I will be able to devote even more of my energies to areas critical for our next phase of growth at Nucor. These areas of focus include domestic and international strategy, emerging technologies, and spending more times visiting our operations to strengthen our special Nucor culture. In addition, we will stay fully engaged in the ongoing fight for enforcement of our nation's trade laws, trade agreements and true free rules-based trading, in order to achieve a level playing field for America's vital manufacturing base. The Nucor culture's focus on profitable growth and continual improvement, our team is better positioned than ever to continue our disciplined execution of Nucor's growth strategy.

I will now ask Terry Lisenby to discuss our third quarter results and our ongoing work as effective stewards of our shareholder's valuable capital. Terry?

Thanks, Dan. Nucor's third quarter 2007 earnings of $1.29 were ahead of our quarterly earnings guidance range of $1.10 to $1.15, due primarily to better than forecasted results at our bar and sheet mills. Also, the LIFO inventory charge was somewhat less than our forecast and there was some positive impact on a tax rate adjustment in the quarter. Our third quarter earnings before income taxes were a very healthy $107 per ton.

Our team continues to build upon Nucor's long-term record, being an effective steward of our shareholder's investment. Our ongoing focus on the capital allocation of Nucor's shareholder's valuable capital is evidenced by our disciplined approach to organic growth projects, acquisitions, dividends, and share repurchases. Our decision-making process is very simple. We allocate capital through the opportunities that offers the owners of Nucor the highest returns on their investment. Nucor's financial strength and consistently strong cash flow generation provide us with superior flexibility to take advantage of opportunities when they arise.

The close of the third quarter, our debt-to-capital ratio is 15%. Capital expenditures for the first nine months of 2007 were $331 million. For full-year 2007, we project capital expenditures of approximately $600 million. Major projects underway include the Memphis SVQ mill, the Arkansas cast strip plant, Decatur sheet mill's galvanizing facility, the Utah building systems plant, and a number of projects with existing operations to keep them state of the art.

In the third quarter of 2007, we completed the acquisition of Magnatrax, Consolidated Rebar, and LMP Steel & Wire. Year-to-date we invested approximately $1.4 billion in acquisitions. This includes Nucor's largest ever acquisition, our purchase of Harris Steel Group in March, for slightly more than $1 billion.

Our disciplined approach to capital allocation is also demonstrated by our returning cash to shareholders via dividends and share repurchases. Nucor has returned approximately $3 billion worth of capital to shareholders since the beginning of 2005. Cash dividends paid in the first nine months of 2007 totaled $550 million, up 39% from the year-ago period. This follows a more than nine-fold increase from annual dividends from 2003 to 2006. The November 9 dividend will be Nucor's 11th consecutive quarter of supplemental dividends. Supplemental dividends are consistent with Nucor's philosophy.

In the first nine months of 2007, Nucor repurchased 14.1 million shares of its common stock at cost of approximately $754 million, about $53 per share. That includes 11.6 million shares repurchased in the third quarter at a cost of $600 million. Since reactivating our share repurchase program in the second quarter of 2005, we have bought back approximately 37 million shares at a cost of $1.6 billion, about $43 per share. In September our board approved the repurchase of up to an additional 30 million shares of our common stock. Our team has never been more excited about the opportunities to profitably grow Nucor's business and continue delivering attractive returns to our shareholders. Dan?

Thanks, Terry. Ham Lott will update us on Nucor's downstream steel products businesses. Ham?

Thank you, Dan. Good afternoon. In late August Nucor completed the acquisition of Magnatrax Corporation for a cash purchase price of about $280 million. Magnatrax is a leading provider of custom engineering metal building systems. The addition of the Magnatrax brands, facilities, and most importantly, their talented people, has significantly enhanced Nucor's market position in one of our core downstream businesses.

The combination of Nucor building systems and Magnatrax has created the second largest metal building producer in the United States. While the Magnatrax corporate name is being retired, we will continue to use their valuable brand names. The largest brand is American Buildings Company, with four plants located in Alabama, Illinois, Nevada, and Virginia. The other three brands each have a single plant, CBC Steel buildings in California, Gulf States Manufacturers in Mississippi, and Kirby Building Systems in Tennessee. With their estimated annual capacity exceeding 250,000 tons, these brands have increased Nucor's metal building annual capacity to approximately 400,000 tons. I am very pleased to welcome our teammates at American Buildings, CBC, Gulf States, and Kirby to the Nucor family and to congratulate them on the outstanding results in September. We are looking forward to a bright future of profitable growth together.

In September, our wholly-owned subsidiary, Harris Steel, announced an agreement with Barker Steel Company to form a joint venture, merging the two companies' rebar fabrications in the northeast U.S. market. Harris will contribute its two northeastern facilities and cash for a 90% equity interest in the new venture, in exchange for 10% interest in the venture, Barker will contribute its eight facilities. The Barker facilities have total rebar fabrication capacity of approximately 218,000 tons. Expected to close in the fourth quarter of 2007, the transaction is expected to be immediately accretive to earnings.

Just as we expected, Harris is already providing a powerful platform for profitable growth for Nucor in rebar fabrication. Our teammates at Harris Steel again delivered impressive profitability in the third quarter and more growth is still ahead. With the completion of the Barker joint venture, Harris Steel's rebar fabrication annual capacity will exceed 1 million tons. That will represent an increase of more than 30% from Harris Steel's total rebar fabrication capacity at the time of our acquisition in March of this year.

Vertical integration has always been a successful strategy for Nucor for almost 40 years. In addition to consistently generating attractive returns through the economic cycle for our company, these downstream businesses provide a profitable base load of volume for Nucor's steel mills. With the acquisition of Verco decking business last November, Harris Steel in March, and Magnatrax in August, Nucor has increased in less than a year its value-added steel products annual capacity by more than 80% to approximately 3.5 million tons. Nucor's fabricated products team is excited about the opportunities ahead of us for profitable growth. Dan?

Thanks, Ham. I will now ask John Ferriola and his team to update us on Nucor's steelmaking operations at our bar, beam, and plate and sheet mills. John?

Thanks, Dan, and good afternoon. I will begin with some comments on our recent additions to Nucor's corporate management team. Most importantly, I would like to reiterate Dan's statement that Ladd Hall and Joe Stratman are great additions to our executive team. Both Ladd and Joe, working together with their divisional teams have consistently delivered outstanding results for Nucor.

I consider myself fortunate and privileged to be working with Ladd, Joe, and Mike Parrish to ensure that our steel operations are the safest, lowest-cost, most efficient, and most profitable steel operations in the world. With these organizational changes, Nucor's steelmills are primed and ready for more profitable growth in the years ahead. As always, our most significant competitive advantage remains our team of outstanding employees.

Now, I would like to share some thoughts with you on raw materials, and more importantly, Nucor's raw materials strategy. Several acquisitions of scrap companies have been announced recently. This has led some observers to argue that Nucor is at a competitive disadvantage relative to our competitors who own significant scrap collection and processing assets. Keep in mind that these are not iron ore deposits or reservoir of scraps, but rather we are talking about collection and processing assets. It has also been suggested that given these recent transactions Nucor might feel pressure to overpay for scrap assets. This speculation is completely off target.

Nucor has a well-established raw materials strategy that we have been implementing over the past several years. That strategy is working and we will continue with our traditional Nucor discipline in implementing that strategy. As we have shared with you on previous conference calls, our strategy calls for Nucor to control about 6 to 7 million tons per year of high-quality scrap substitutes or about one-third of our current metallics usage. The objective is to provide a hedge against the volatility in the price of the low residual scrap grades used by our sheet and SVQ mills.

Beyond that, we are well positioned to meet the balance of our scrap requirements through our position as North America's largest scrap buyer. And that position in the marketplace has been well served by our long-term partnership with our scrap broker, David J. Joseph Company. It is also worth noting that Nucor already has more than a half a million tons of scrap under our control from the combination of three scrap yards we own and customer scrap buyback relationships. We will look to add to this position when and only when it makes good business sense to do so.

Our raw material strategy is off to an excellent start with this year's very successful start-up of NU-IRON, our 2 million tons per year DRI plant in Trinidad. NU-IRON reached its 1 millionth ton production milestone on September 12, only 257 days after start-up... NU-IRON will be an increasingly valuable asset, supporting our expanding presence in higher-quality sheet and SVQ markets. In fact, our team in Trinidad is already exploring possible opportunities to increase NU-IRON's capacity.

Our high smelt joint venture in Australia continues to make progress with its promising technology. The technology converts iron ore finds, and coal finds to liquid metal. The plant recently completed its best is ever iron-making campaign of 83 days of continuous production and at times reached capacity utilization as high as 80%. The high smelt team will be continuing to build on this progress. Moving ahead, we look forward to reporting to you on these and other additional initiatives underway as we continue with disciplined execution of Nucor's raw material strategy.

Finally, I will share some thoughts regarding market conditions and outlook for our steel mills. We expect to see continued strength in our bar, beam, and plate businesses. Sheet market conditions are slowly improving. We were very encouraged by this week's MSCI report that September 2007 service center inventories fell to a 22-month low and we are finally seeing significant drops in imports. That has helped bring service center inventories back into better balance. However, a significant reversal of the recent declines in imports remains a risk factor, one that we can continuously monitor and always stand ready to respond to as necessary. We expect that the fourth quarter of 2007 will be another quarter of strong profitability for Nucor and we are optimistic about our prospects for 2008.

Mike Parrish will now update us on Nucor's bar mill group. Mike?

Thank you, John, good afternoon. Congratulations and thank you to everyone bar mill group team for their record earnings performance in the first nine months of 2007. Our team is building on their prior, impressive achievements of having set annual records over the past three years. As always, our Bar Mill teams refused to set limits on what they can achieve with their skills and their hard work.

I'm also very excited to welcome our new teammates at Nucor LMP. You are a great addition to our cold finished bar business and we are looking forward to a bright future together and profitable growths. Our third quarter results benefited from improved shipments over the second quarter pace, which had been reduced by customer hedge buying earlier this year in March. As we expected, the third quarter 2007 bar shipments increased 10% over this year's second quarter level and we're up 3% from last year's third quarter. Margins also remained very healthy. Overall, demand for bar products is good as our markets are benefiting from ongoing strength in the nonresidential construction, mining, energy, and agricultural segments.

We also see good opportunities for us in exports. However, the residential construction and automotive markets remain soft. Although it is a seasonally slower period, we do expect continued market strength and good profitability in the fourth quarter. Finally, I would like to thank one more time all the 3400 members of Nucor's bar mill team for their excellent work and of course for taking care of our customers. John?

Thank you, Mike. Joe Stratman will now update us on Nucor's structural and plate mills. Joe?

Thank you, John, and good afternoon, everyone. After achieving record-breaking earnings in the second quarter and first half of this year, our teams at the Nucor-Yamato and Berkeley County South Carolina structural mills have moved forward to set new earnings records in the third quarter and the first nine months of 2007. More importantly, our employees at both mills are on track to set new safety records in 2007. Our folks are truly living their motto, which is, no one gets hurt on our shift today. Congratulations and thank you to our teams at Nucor-Yamato and Berkeley for this record-setting performance. Well done and keep it going.

The structural market continues at the strong levels that began in 2006. Projects continue to use heavier sections with a greater emphasis on seismic and homeland security design criteria. Especially robust sectors of the nonresidential construction market include the hotel and casinos, energy, health care, office buildings, education, bridges, and port and sea wall construction. Additionally, structural steel is benefiting from its position as the material of choice in green building or Leeds specifications with structural steel having an average recycled content of 95%. Based on the feedback received from our customer base, we expect the structural steel market to remain strong into 2008 with construction in Las Vegas and New York City leading the way.

Nucor-Yamato is supplying steel for both the World Trade Center memorial and the new Freedom Tower, and as always, our structural teams are focused on continual improvement and developing new products to better take care of our customers. As one example, Nucor-Yamato is expanding its product offering for jumbo beams from our current maximum weight of 398 pounds per foot to 730 pounds per foot. We expect production to begin in the first quarter of 2008. Again, thank you to our teams at Nucor-Yamato and Berkeley beam mills. You are the reason for our success in the structural business.

On the plate side of our business, let me first say how glad I am to be joining our teams at Hertford County, North Carolina, and Tuscaloosa plate mills. These teams are an extremely successful part and integral part of the Nucor organization, and the third quarter proved no exception. Our plate mill teams both achieved record production and shipments in the third quarter and first nine months of 2007. This performance led to very attractive profits for both the quarter and year-to-date. Operationally, Tuscaloosa was also successfully completed shape and gauge controlled upgrades and is beginning construction on a temper mill, which is expected to begin operations in the first half of 2008. Congratulations and thank you to our teams at Hertford county and Tuscaloosa for your record-setting performance. Great job and keep it going.

As we enter the fourth quarter, we continue to see strength in many major plate-consuming sectors. These include rail car, barge, heavy machinery, and wind towers. The plate market is obviously positively impacted by balanced inventories at service centers. These favorable conditions are expected to continue into 2008. In conclusion, we are very optimistic about the future for Nucor's structural and plate businesses. Our success will continue to be driven by our unrelenting focus on taking care of our customers. John?

Thank you, Joe. Ladd Hall will update us on Nucor's sheet mills.

Thanks, John. I want to thank everyone on the Nucor sheet mill team in their hard work in taking care of our customers and taking care of our shareholders. The flat-rolled market today is a challenging one and it will take everyone's effort to continue to reach the goals that we have set for ourselves. We are building attractive, long-term value for Nucor shareholders by developing new value-added products, producing outstanding quality, providing exceptional service, and delivering our customers the product that they want on time at a competitive price.

Overall demand in the sheet market remains soft but stable. Automotive, appliance, and residential construction continue to be the weakest end use markets. Demand does remain solid in the nonresidential, construction, and energy industries. I also want to reiterate what John said. We're encouraged by the continued declines in service center inventories. Earlier this week, as John stated, the MFI reported the September flat-rolled inventories were down 26% from year-earlier levels. Imports have also declined and are expected to continue to decline through year end. However, they are certainly not at historically low levels.

Nucor also applauds the sunset review decisions on October 10th that the U.S. international trade commission made to continue countervailing and antidumping duties on high-rolled sheet still from China, India, Indonesia, Taiwan, Thailand, and the Ukraine. Of particular importance, these rulings were by a unanimous vote of all six commissioners. We are pleased that the ITC recognized the importance of maintaining these orders and continues to enforce our existing trade laws. The entire Nucor team will continue to apply our can-do attitude and our energy level to support actions that enforce the rules of free trade.

Moving into fourth quarter, the sheet mill group was aggressively working on our contract business with our value-appreciative customers. The export market will also offer some opportunities for us to participate in. By doing this along with taking care of our customers, we see continued opportunity to grow. John?

Thank you, Ladd. I will now turn it back to Dan.

Thank you John, Mike, Joe, and Ladd. My confidence has never been greater that Nucor's best years are still ahead of us. At this time, we would be delighted to take questions.

(OPERATOR INSTRUCTIONS) We'll have our first question from Nate Carruthers, Michelle Applebaum Research.

Hi, guys. Congratulations on a great quarter.

Thank you, Nate, and good afternoon.

Hey. I was wondering how much steel you exported in the third quarter? If you can give us a regional breakdown of that. And then I also read in a trade publication that you guys are starting up or you're establishing a trading team for exports and I was just wondering if you could provide some color on that as well?

John?

We have exported about 0.5 million tons so far this year.

Do you have a breakdown of third quarter and which regions?

In the third quarter, it was about 150,000 tons and primarily to Europe, but frankly it's all over the world.

All right. And then I read in a trade publication that you're putting together a new trading team and I was just wondering if you could make any comments about that?

As part of our Harris Group acquisition, we acquired an international steel trading company by the name of Nova Steel. As part of that acquisition, we are expanding our export team. We will be implanting some of our Nucor sheet mill salespeople into the Nova Steel organization and we will provide some coordination here in Charlotte for that effort. We hope to have all of this established by the end of this year.

Nova Steel is primarily, as John has mentioned previously, a long products marketer and we are now expanding it to include -- really, we'll have an opportunity to move all of our products, depending on how the world sets up for other products like plank and beam, but being certainly sheet the one that we are expanding for right now.

All right. Thank you very much for the color.

Thank you, Nate.

We'll go next to Kuni Chen, Banc of America Securities.

Hi. Good afternoon, everybody.

Good afternoon.

Notice that you're going to state to quantitative guidance now, so I think that's very helpful. So thanks for the switch there. I guess just on the export question from before, where do you -- where do guys see the export potential going forward, either as a percent of your production or if you care to throw a number out, whether it's 1 million tons a year or 5 million tons a year?

Well, first of all, our philosophy on exporting is really developed on virtue of the fact that the dollar today has weakened significantly against several of the global currencies, particularly the Euro. Unfortunately, it's still pegged artificially to most Asian currencies and in particular China. But we believe that this structural weaker dollar -- it's not a weak dollar, by any means, historically, but currently structurally weaker dollar will provide us with the opportunity for export, not just this year and next year, but for some time to come. John?

The only thing I would add is that we are continuously looking at all of our potential markets, both domestic and international and the opportunities that afford the best return on our sales volumes is the ones that we'll take.

Okay. Sounds good. You guys haven't talked about the Memphis bar mill in a while. Others out there in the industry have talked about equipment delays. Can you just bring us up to speed on what's new there and kind of the date when you expect to commission the mill next year?

Mike?

Yes, the Memphis project is going well. We've had no equipment delays. The construction proceeds well. We're still looking at a start-up date in the first half of next year and we now have around 100 new team members there, the management team is in place so things are proceeding very well. I will comment that our customers are really excited about it. So the sooner we can get it going, the better.

Any idea how much production you can get out of that next year?

Boy, that's hard to say right now because of not knowing exactly when we're going to start up. I can say principally in the beginning, we'd be doing semi finished more than the finished product and the finished product would be coming online more in the third quarter. So probably 2 to 300,000 tons next year is probably our best guess at this point in time.

Okay, thanks. One last question and I'll turn it over. If you can give us an overview on backlogs across the different product lines, that would be very helpful.

In a general sense, because we don't publish the hard numbers on backlog, backlog numbers are good.

All right. Thanks, guys.

We'll have our next question from Michael Gambardella, JPMorgan.

Hey, Dan. Congratulations.

Hello, Michael.

A couple questions. One, I know you've had a lot of successes recently, but one thing that I'm kind of disappointed in is the cast strip. I know you're building out the second unit here in the states, but I think you would have to say you're disappointed as well that you haven't sold the technology overseas. Can you give us any -- shed any light on that?

Sure, Mike. I think in the last conference call we talked a little bit about this and I'll be happy to discuss it again. Yes, we are disappointed that we have not been able to bring to successful conclusion, negotiations to build one or more cast strip plans overseas, although several of the discussions are still going on. Can tell you that those discussions were not undone by the technology. They were undone by the inability to come together and agree on a structure of the joint ventures. As we've told people many times, cast strip is a long-term strategy, we're not in any hurry, so we decided to build our second facility. If we cannot put together the desirable joint ventures internationally, we'll continue to look to build them ourselves. But we do believe that will happen, but it is disappointing that we haven't been able to come to terms with the potential partners that we were furthest along with earlier in the year.

Is your intent on the cast strip technology sales overseas to pretty much exchange the technology from an already staked steelmaker overseas?

Well, as we stated very early on, our strategy was to use the technology to get the joint venture the opportunities, not to just go out and license the technology. And those discussions have been going on in terms of joint venturing. Whether or not we're involved just in the exchange of technology or in exchange of the technology along with a capital infusion, depending on the project size and scope, it could be either one of those two things.

Okay. Last question. Why the change in the quarterly guidance, giving guidance today?

Really want to go there, Mike?

Well, I --

Obviously, you do or you wouldn't ask the question. We tried a number of different tactics on these quarterly forecasts, which as you know most business folks abhor trying to get into that quarterly guidance stuff. We're a long-term focus, we've demonstrated our long-term earnings trends and profitable growth and we thought that if we gave qualitative guidance that people would respond accordingly to that guidance. Unfortunately, when we gave our quarterly qualitative guidance last quarter, next thing we knew people were $0.20, $0.30, $0.35 a above what the qualitative guidance should have indicated to folks and did by virtue of what people said when we said, hey, it's going to be consistent with the first six months of the year. Instead of seeing numbers that were consistent with that, we were seeing numbers $1.37, $1.39 average estimates, some people as high as $1.50. Obviously, there's a problem with the system.

So our decision was to go back to giving our best shot at quantitative guidance early on, and see if we can get people to focus on that guidance as opposed to focus on what they think people might be hedging on or sandbagging or anything else. When we give guidance, we give it based upon our best assessment. It's a very, very volatile number from the standpoint of, a lot of things can happen in the course of a quarter and the course of a month, particularly when you're leveraged by as many tons as Nucor is and by as many different businesses and product types. So when we do it, we're not doing it to hedge.

People say that Nucor is conservative in the way that we look at things, that's a fair assessment, we're always conservative. But when we give our guidance, we're not giving guidance where we expect to be off by 10, 15%, even 5%, we think that we're going to be close. It's nice to be pleasantly surprised in the positive, we've had a few unpleasant surprises on the negative over the past couple of years, so it goes both ways and I guess it's our frustration that people were not willing to follow qualitative guidance, so we've taken another shot at quantitative.

Thank you.

You're welcome.

We'll go next to Bob Richard, Longbow Research.

Good afternoon. Thanks for taking my call.

You're welcome. Good afternoon.

Contract pricing, is it a little too early to discuss what we may be looking forward to in 2008?

It is early. We're still in the process of negotiating next year's contracts. I wouldn't want to make any comments on it, as we're right in the middle of it now. This is the hardest contract season.

Okay and one other follow-up. I appreciate your comments on the integration of about one-third of your raw material inputs. With your current facilities now, is it safe to say you're about halfway there?

Between the PIR facility, I would say that we're halfway there. We're probably a third of the way there and we are exploring other opportunities to get us the remaining two-thirds as we speak.

Okay. Thanks very much and best of luck.

Thank you.

We'll go next to Mark Parr, KeyBanc Capital Markets.

Hey, thanks very much. Good afternoon.

Good afternoon; Mark.

Dan, John, how are you? Congratulations on all the enhancements to the executive staff. Really looking forward to working with your expanded team going forward.

Thank you.

I had a couple of questions. First, on the steelmaking side, could you give us some color on internal capacity enhancement initiatives that you're looking at for '08 in terms of what your -- normally you might get a 2 or 3 capacity creep just based on basic improvements. Is there anything in the pipeline that might give a little more in a traditional sort of productivity creep?

Obviously, the Memphis SBQ facility will add significantly to capacity. Next year we're forecasting just very roughly, adds we mentioned 2 to 300,000 tons, it could be more than that. But the plan is designed to do a minimum of 850,000 tons. And you know what we all do with name plate tonnages, they don't really stay there. John?

The other comment I would make is the galv line we're running at our sheet mill in Decatur, Alabama. And our final comment would be that our teams are continuously working every day on optimizing our operations. They do a great job. It's not always just because of equipment additions. In fact, most times it's not. It's increases in the productivity, ways of doing things differently that our people come up with every day. So it's difficult to put a number of around that. But the two big items would be the Memphis facility coming online next year and the new galvanizing line at Decatur, Alabama.

Okay. I was just fishing around for something else, but I appreciate that color.

Keep fishing, Mark.

It's all good stuff, Dan. There's nothing wrong here. Had another question related to high smelt. It's really encouraging to see the progress there I guess I would like to ask a hypothetical question, if you were going to put -- build a high smelt operation in North America, where would you think it be an ideal location to put it and what do you think the conversion costs might be out of high smelt using North American cost inputs?

Well, first off, there would be a number of locations. Obviously, you're still going to be moving in significant amounts of raw materials, whether they be iron ore finds or coal finds and also looking possibly to move some fig iron or other products away from it. So usually in that case, access to water is a good thing and we have a number of locations on the water in our company that would make good sites and as far as the actual cost, until this project reaches its completion, in spite of the fact that I think the Chinese are looking to build several plants here in the not-too-distant future, high smelt plants, the numbers work out to be significantly more competitive than the prime grades of scrap we're at today. And I don't know if anybody wants to add anything to that at this point in time? Joe?

Well, we look at it continuously, Mark, but anyway you look ate, you have to look at the type of iron ore you're going to bring it, the type of coal ore you're going to bring in, where's it going to come from and all of those, depending on your site location change. I would say with today's inputs, you're in the mid-200s.

Okay. All right. That's really helpful.

That would be all-in, including depreciation. Somewhere in that neighborhood.

Right. Okay.

It's hard to skin the cat past that kind of a number today.

Plus, as you know, we're not building one today, let alone starting it up and running it, and with the way iron ore prices seemed to be focused right now, when that day does come, the cost structure will be significantly impacted where iron ore pricing is and the like.

I appreciate the update on the progress with that initiative. And I'm looking forward to future once. I think that could be a very interesting development for the North American market.

I have one last question. I was wondering if you could provide some update as far as the change in the lead times particularly for the beam operations and the flat-rolled facilities, say from end of second quarter to the end of third quarter. That would be really helpful and congratulations and thanks again for taking my questions.

Thank you, Mark. On the beam side, no change, things are strong. Small section, there's been a little softness showing up here. Joe?

I would agree, Dan. Lead times on the medium range and the larger sections are no change from the second quarter or third quarter. The lighter sections are showing a little bit of lead time improvement, but there's still a very strong market in those areas, Mark.

We'll have our next question from John Hill, Citi Investment Research.

I apologize, before we go to the next question, we didn't fully answer the last question.

I just want to make a comment on sheet lead times, since you specifically, Mark, asked that question. They have been moving out, we're encouraged by the fact that they are moving out and today we're probably at somewhere between five and six weeks on our lead time for sheet products.

Okay. Next question.

Mr. John Hill, Citi Investment Research. Please go ahead.

Great. And thanks for all the detail on the call, everyone. I was just wondering if we could get a little bit more color on the performance of the downstream acquisitions. It seems you're confronted with a situation with a lot of ability to reinvest and forced with the choices, do we buy our customers or suppliers? If we're buying our customers and had $107 a ton of EBIT in the quarter, how should we track the profitability of the fabricated rebar? How much has that added to that $107 and what should we look for as a target going ahead in terms of the fabricated rebar and downstream contribution to margins.

As you know, John, we do not break that information out and we have no plans to do so. Qualitatively it is the best assessment we'll give you and what we have said about that is that the returns on the fabricated rebar business have significantly succeeded our metrics when we bought into them.

Fair enough, but they're asset-light business and how would you recommend that investors assess the performance of this rather significant strategic shift in the company?

Watch how our earnings go from quarter to quarter.

Okay.

Watch it from year to year.

Got it.

That's the best I can give you, John. Got another question?

Just curious if you could give us some color on mill capacity utilization as we look out. In conversations the company has mentioned there are some forces of margin compression at work out there, intending to offset those with better capacity utilization in the back half of the year. Just wondering how we were looking on that?

We were about 85% overall for the third quarter.

And what should we look forward going ahead?

I would say -- again, it's pretty much the same 83 to 85%.

Okay. And that's including more maintenance outages or less?

There's some additional maintenance outages as we go into the holiday season, but we work at spreading them out evenly over the course of the year so that we can provide resources for all of them as they occur. Traditionally, there's a few more that occurred toward the end of the year during the holiday season, but it's not significant.

Great. Thank you.

We'll go next to Aldo Mazzaferro, Goldman Sachs.

Hi, Dan and John. I had a question on the scrap comments you made. John, when you said that there was a collection business in scrap, not necessarily an iron ore mine, I understand that, but on the DRI assets you have, for example, those could be thought of as collection and processing of iron ore. I'm just wondering if you can tell us why do you value DRI assets for raw materials better than you would value scrap assets and do you plan at some point to own an iron ore mine or mining assets?

I'm going to have Joe Rutkowski answer that question for you.

Thank you.

Aldo, the reason I think we would look at that differently is our decision to move the American Iron Reduction DRI plant to Trinidad was based on getting an extremely competitive gas contract, which is the reductant of the iron ore. So we don't own the iron ore mine, but we have a tremendous advantage from a cost competitive perspective on using natural gas in Trinidad. So we have a 22-year long-term gas contract there that lets us know that we will have the base cost of the conversion of iron ore to iron at a very, very competitive rate for that entire contract. That's different than owning just a processing center. We have a significant cost advantage.

In addition, Aldo, that's definitely the main difference and there's a secondary difference. The material that you do use is under a longer-term contract. The iron ore is under a longer-term contract and that's subject to month-to month swings and that brings us a more stable cost environment for that product coming out of Trinidad. So those two things there make it significantly different than just being referred to as another form of as a processor.

We're not knocking the idea that buying scrap yards might not be a good thing, but what we are saying and in particular in reference to comments that you have made, to be quite honest, that nobody is going to go off running half-cocked to do things just because over people have done them and make bad investments. The fact that for people who think that Nucor doesn't have a raw material strategy or even a scrap strategy, as the largest by far buyer of scrap, not only in North America, but one of the largest in the world, our relationship with the David J. Joseph company, Nucor is a customer, a preferred customer out there in the world of scrap and our relationship enables us to be very competitive when dealing with those markets. So there's a big difference.

I really appreciate that answer, Joe and Dan, that was great insight into the gas issue. Dan, can I ask one other question, on the supplemental dividend that you're paying, this quarter you had almost a 50% payout ratio. I know with your balance sheet and capital spending, et cetera, it doesn't seem to be too much of an issue. At these levels of earnings going forward, should we expect a supplemental dividend to remain as large as it is today with perhaps an increase in the base?

We're not going to forecast things until we actually make a decision to do something. As of right now, we made the statement now several quarters ago that we would maintain a special dividend throughout the repayment period for 2007. The last one will be -- I guess pay that in the first quarter of this year -- excuse me, of 2008. And at that time, we will let people know exactly where our strategy is going to be going forward. Obviously, as we said all along, now it depends on other things that we might be looking at, that goes for stock repurchases as well. So stay tuned.

Okay. Thanks, Dan.

We'll have our next question from Debra Fine, Fine Capital Partners.

Good afternoon, gentlemen, congratulations on the strong quarter, and I appreciate that you thank all of your employees at the start; it's wonderful to hear a company doing that. Can you talk about any concerns or lack of concerns you have about new capacity coming on in the U.S. and in the same vein, as imports are falling into the U.S., are you less concerned about Chinese overproduction, how do you put that all together?

At the end of the day, the concern levels over production from China, excess capacity building there, other places in the world, all depend on what actually ends up showing up on our shores and the shores of other nations of the world, because what doesn't come here goes somewhere else. And the folks in those other areas are looking for a place to move their steel. It's one great big world out there and interconnected so basically we're very pleased to see some of the downward movement in imports. It's still not historically what I would consider to be historical stable low numbers, but it has come down significantly, particularly in the last two months and as we stated that that trend continues, that bodes well for us.

As far as China goes, China is still an area to be concerned with. They're still flooding the U.S. market with various products made out of hot band with pipe and tube being one of them. I'm sure there'll be some cases lining up to go forward on those as well because of the blatant subsidies and dumping that the Chinese do in moving these products around the world, let alone some of the quality problems that they've been experiencing. So the China concern is still there and will stay there until their capacity is such that it's not out of balance with their own demand and we don't see them working to push it around the world. Just because you have one or two good months of imports doesn't mean that that concern disappears. But we are very encouraged by the way that not only the U.S. ITC and the rest of the world is responding to these issues. As you well know, the EU has made a very last statements about Chinese imports to the European Union, as well as Mexico and Canada and Australia and it's concern and actions are being taken to the WTO by a number of countries. This is not a U.S. only issue. There's a lot of folks involved in it, which just increases our confidence that it will be dealt with effectively as time proceeds.

As far as the other part of your question in terms of capacity being built in the U.S. market, obviously the Achilles heel for the local steel industry as well as the U.S. steel industry, the North America steel industry has been overcapacity. And any time new players come in the market, there's going to be a period of adjustment. Certainly that period of adjustment and impact is lessened if the imports go down and stay down. A lot will depend on what the demand is in the marketplace and what happens with our economy going forward. But as new exports come in, whether we're building on the capacity or other people are building it on, there certainly is cause to be concern about how that will impact the marketplace and pricing. Only time will tell exactly how it does. But there is a lot of capacity either coming on or slated to come on or being discussed as coming on and people should be concerned about that.

Some of your competitors aren't concerned about it so I appreciate your frankness in understanding how the market works. Finally, wondering if you can take a step back from any of the individual businesses and give us your thoughts on how the strength of the industrial economy in the U.S. overall?

I think overall the industrial economy is nowhere near where it should be, where it could be.

How about where it is now?

Where it is now, I would say it's at a good level, not a strong level and I think it has the opportunity if we get ourselves in the position of leveling the playing field to be significantly stronger down the road. But right now I think it's qualitatively at a good level. I don't really know how else to answer that question. If you look at the order entry, you can look at industrial activity, it's dropped here recently, that's concern as the overall economy can be impacted by the credit issues that are out there, as we stated in our press release, part of the two risk factors is what happens with the U.S. economy going forward. There's a lot of concern out there.

Paulson's talking about it, Bernanke's talking about, the banks are working feverishly to put together a plan to minimize the impact on homeowners and how that will impact the overall economy, but there's no doubt that the economy is slowing. The question is, how slow will it go and will it go into recession? Right now, we're encouraged by all the activity and the concern and we think that things will work themselves out, but you're not going to see us going back to a 3%-plus growth rate over the next couple of months. And that will have its impact on manufacturing and its impact on the industrial economy.

Okay. Thanks and congratulations to you and your team.

Thank you, Debra.

We'll go next to Michael Willemse, CIBC World Markets.

Thank you. I wanted to go back to the comments on the NU-IRON. Dan, you mentioned the iron and ore purchases that were under long-term contracts. If iron and ore global contract prices increased by say 30% next year, what would be the impact on the iron ore purchases in Trinidad?

I'm not exactly sure when our contract expires?

We have a long-term contract, but it's for all pricing.

So pricing would increase 30% next year?

Well, we buy DRI pellets, so whatever the pellet price goes up, our contract will go up.

Okay. Just to follow up on that, is there any thoughts on what what the implications on the scrap market could be if annual contract prices are up 30% next year?

Well, scrap market pricing will be dictated by demand for scrap. It's certainly is not separate by what's going on with other metallics, but over the course of any period of time, it's going to depend on what's going on with respect to demand scrap, not only in the U.S. market, but globally. And that is, as you well know, can change from one month to the next.

Okay. Just one more follow-up question. On the service center inventories, you talked about being down, I think they're down almost 30% now versus last year and last year they were up about 30% versus the prior year. Just wondering -- it seems to be some problems at the service center end managing inventories and I'm wondering if you're having discussions with your customers at the service centers and how they can better manage the inventories there?

Well, managing a steel business -- steel company's got its own challenges. I'll be the last one to tell our service center customers how they should manage their inventories. And we are not engaged in doing that, but we are very happy to see that they're more in-line with demand and that the excessive inventories really were built up by a lot of imports coming into the U.S. and are probably a lot of delays in the shipments of imports. People thought we were coming at one time and we didn't show up until later. That of and by itself had a lot to do with customer's inventories getting out of whack. Our service center customers know exactly how to run their businesses and we are happy to see that the inventories are more balanced. That's for sure.

Okay. Thank you.

Our next question comes from Timna Tanners, UBS.

Good afternoon. I wanted to ask two questions. The first one is to follow up on what Aldo said, but really to think about strategically about one of the things Dan said in the beginning about long term earnings power expanding and you did switch to a net debt position again this quarter for the first time in a while, but I was just wondering, what does it take for Nucor to get into a position where it maybe expands its debt level a bit to be more in-line with its peers, or to where it gets to the point to maybe make the special dividend a permanent dividend.

I'm not so sure we want to get in line with our peers, depending upon what their debt levels are. This is a business that we've learned throughout history can have some tough times. You always see Nucor be conservative, I know that's nothing new for you, Timna. But as always, we stated we don't have a problem getting it to a more leveraged position, if you will, 50%, 40%, if the right opportunity comes along. The right opportunity has not -- I wouldn't say hasn't come along, but hasn't been concluded successfully and so you haven't seen us take on a significant amount of debt, but there's always the opportunity for that to take place. So we're not opposed to doing it, but the conditions under which we would do it is that the right you not would come along, we wouldn't have to overpay for the asset and we know we would to pay down that debt to a reasonable level during a short period of time, meaning a year or two. We're not opposed to it, but debt for debt's sake is a bad ideas.

Got you. And those conditions are the ones you've outlined in your past about sticking to your knitting and the cultural fit ad not overpaying, correct?

That's correct.

The only other question I had, I look at your volumes on the sheet side relative to peers, it seems like Nucor did take more of a decline in sheet volumes relative to peers and I wondered, is this kind of a trend that Nucor is looking to be the more disciplined of the producers, to take the hit when demand is a little lighter. Is there any reason why you think that Nucor may have had shorter volumes relative to peers?

Obviously, we always do work to match our supply with demand in the market. That's good business sense. The other point I would offer is that we continue to move to the higher-valued products and sometimes that changes the productivity our mills. An example would be our higher carbon products. That takes longer to run on a mill. So it's a question of mix and we are continually focused on moving up the value-added chain and that will affect our mix and in some cases our productivity.

Okay. That makes a lot of sense. Thanks so much.

We'll have our next question from Dave Martin, Deutsche Bank.

Yes, thank you. I just had one remaining question, and it's a partial follow-up to a question earlier on China. There have been some reports that China's product and production growth have been slowed by a lack of iron units in the country, can you give us any thoughts or perspective on the issue?

I wouldn't claim to be an export on that. I am aware of those thoughts. That's not too far out of the realm of reason, particularly, I think it's more maybe an issue of getting vessels to move the iron ore around the world and the cost thereof and maybe a little bit on the part of the Chinese to make sure they do what they can to keep the pricing pressure down on iron ore as well. But there are a whole host of reasons why those trends may be developing, including several recent statements out of the leaders with Chinese governments to make sure that they're operating efficient operations, starting to work hopefully more on their environmental issues which are significant and their waste of very important resources like energy and water and also to try and get control over the pricing on some of these global commodities by making sure they're using it as efficiently as possible. There's a lot going on there.

But it does sound like you're a little more encouraged?

I am more encouraged. I definitely am. And part of that encouragement is based upon what we're seeing in some of the numbers and what we're seeing in the discussion over there and I certainly hope that there's reason to be even more positive about things in the coming months. Okay. Great. Thank you.

We'll have our next question from David Gagliano, Credit Suisse.

Hi, thanks. First of all, most of my questions have been answered so I'm going to try to keep this pretty short. I was wondering if you could give us a feel for the assumptions that go into the fourth quarter target range? Specifically regarding things like LIFO, scrap cost, and are you assuming any buybacks in there for the $1.10 to $1.20?

Well, the buyback story will be told on the next conference call. We don't forecast actual buyback activity. I think it would be inappropriate to do that. I think our assumptions on LIFO and scrap, Terry, do you want to address that?

LIFO, I think we've got about $33 million in there for the quarter.

And on the scrap side.

On the scrap side, pretty much the same thing, we're seeing pretty much sideways throughout the rest of the year, perhaps down a little bit, but pretty much sideways, down slightly.

Okay. Perfect. That's all I had. Thanks.

We'll have our final question from Sal Tharani with Goldman Sachs.

Good afternoon.

Hello, Sal.

How are you? John, I wanted to ask you a question, your comments on scrap are very helpful and you mentioned your relationship with David Joseph, can you elaborate a little bit more on this relationship and also, there has been a lot of consolidation in the industry and what if the David Joseph's honors tried to or decide to get out of this business and want to sell it, what would your position be? And also, as Dan mentioned, that we are not totally against buying a scrap company, if you decide at some point, how will that work out with David Joseph?

Well, our relationship with David Joseph is a 40-year relationship. Like in most long marriages, we have our up and downs but we always communicate and work through the issues. It's a very strong relationship today, it's a growing relationship, and a respectful relationship and as far as speculating as to whether SHV might sale David Joseph or not sell David Joseph to somebody and what our reaction would be, I would rather not go down that road. As far as us buying scrap assets, as John mentioned, we already have a couple of scrap assets. We actually have David Joseph managing one of those scrap assets for us and working closely with the other two. So the relationship so far has been very positive and complementary.

Great. Thank you very much.

You're welcome.

We'll have a final question from Michelle Applebaum, Michelle Applebaum Research.

Hi.

Good afternoon.

How are you?

I'm fine. How are you?

Okay. I have a couple questions. Number one, you're forecasting a LIFO charge for the fourth quarter, Terry?

That's correct.

Okay. And in the third quarter, you said that the LIFO charge was $10 million?

$11 million.

$11 million, I'm sorry, I'm rounding. And the nine months were about 100?

About.

So can I infer from that that your run rate was $40 million a quarter and when you gave your guidance you were expecting a $40 million charge?

No.

Sorry.

We said it was exactly -- on the last call we thought LIFO might be --

Did you say we can find it in the notes.

Hang on a second and we'll get it.

Okay. The next question while he's doing that, I wanted to clarify from the comments at the start of the call, you seem to be responding more to the issue of overpaying for a scrap acquisition, not the concept of buying a scrap company. Did I get that right?

Well, our comment about overpaying is not just scrap assets, but any assets in the space that we might look to acquire, Michelle. It certainly would apply to scrap assets as well. And while we are not opposed to being opportunistic and looking at what might take place in the scrap space in terms of acquisitions, our focus has been on new technology, developing high quality iron units and getting six to seven million tons of scrap substitute materials, high quality scrap substitute materials because we believe and still believe our relationship with our partners at DJJ and also our position at 20-plus million ton a year buyer scrap puts us in the very favorable scrap position in terms of dealing with that environment. But we wouldn't rule out buying scrap yards if we thought that we could do it at the right price and the right format and as we said we had a couple already that we had acquired. Mostly through other acquisitions. But we're very comfortable operating them together with our partners at DJJ.

Okay. So you're saying that you're going to be completely consistent and be completely opportunistic. So if the right scrap acquisition comes along, you may very well step up if the pricing is right, but you don't feel compelled because you have Joseph and your other strategy.

Absolutely correct.

Thank you. My other question for you is, you didn't give us your contract percentage update, which you normally do.

That's because we're in the middle of contract seasons and the other times we're not in the middle of the season. Once we have those contracts in our -- under our belt, so to speak, then we talk about it , but while we're putting those contract negotiations in place, while we're in the middle of them, we don't talk about where we're at. In terms of where we would like to be, we have an objective that's pretty consistent to be somewhere around 50% contract business, we could be below that if we thought spot pricing would be stronger in the coming year, we could be above there if we thought it might be weaker. Right now, the environment for pricing seems to be pretty favorable going forward. Currently, we're at 50% for the fourth quarter. The existing contracts, not the ones that we are either negotiating or just

My experience is that the willingness of your customers to go along with the 12-month deal or go spots in inverse to what typically happens with prices, so the more your customers are interested in contracts, the more likely you would typically see the price not gap and the more they're not interested in contracts, the more you would not see the price go up. Right now how would you gauge their interest, are they trying to stay short?

As I said earlier, we're currently in negotiations and I really cannot comment.

That's fine. Did you find the --

LIFO, $30 million.

You had said you expected $30 million?

That's correct.

So when you gave your guidance of $1.10 to $1.15, you expected roughly a dime more LIFO than what you actually reported of $1.29, so that's a big part of that difference, that's what I'm trying to figure out.

It's more like $0.04.

It comes out to $0.04? Oh, I used $0.40, so it's $0.04. And so for the fourth quarter you also have a LIFO credit that offsets the -- it's a normal -- it's a catch-up. Would this year be any different, I know last year was different, could this year be different, or will we know that on the 31st?

The issue, Michelle on LIFO is not just where your scrap value or inventory values are in general, but the levels of your inventories and there could be big movements in that and we won't know until we close.

Okay.

It's one of the hazards being on the LIFO system.

Yes. It's interesting. Obviously, because the scrap is such a big chunk of your cost of goods sold.

Absolutely.

It hit you more than some other countries.

Thank you.

what?

I said, thank you.

Is there a way you can give us a number for scrap, what it's going to be in December?

No.

Very good. Thank you so much. Great quarter, great guidance. I agree with everything you said.

Thank you, Michelle.

Bye.

That concludes our question-and-answer session. I'll turn the conference back over to Mr. DiMicco for closing remarks.

Thank you. Again, I would just like to thank everybody for participating in the call, the questions, and your interest in our company. To all of you who are shareholders, thank you, we will not disappoint you. And to all of our employees, great job, keep it going, and stay safe. Thank you very much.

That concludes today's conference. You may disconnect at this time. We do appreciate your participation.