Nucor Corp (NUE) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation fourth quarter and year-end earnings 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 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 effect 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. This is Dan DiMicco. Thank you for joining us for Nucor's conference call. We appreciate your interest in Nucor. Our team will review Nucor's 2007 performance and update you on ongoing implementation of Nucor's growth strategy. I will lead off with some overview thoughts.

First, and most importantly, as I always do, I would like to say thank you and job well done to all 18,000-plus members of the Nucor team, for delivering our fourth consecutive year of exceptionally strong earnings in 2007. As always, we are working safe, working smart, and working hard, and working together to take care of our customers. We have proven again that Nucor's most significant competitive advantage remains our employees, the right people working together as a team. Thank you, all, very much. I also want to extend a warm welcome to our newest additions to our Nucor family. In October, Nelson Steel, now Nucor Wire Products Pennsylvania joined our bar mill group team, and in November, Barker Steel became part of Nucor's Harris steel rebar fabrication team. We are proud to have you join the Nucor family, and together we look forward to a very bright future of profitable growth in the wire mesh, and rebar fabrication businesses.

Now, I will share with you my thoughts on our 2007 earnings report. And most importantly, our exciting plans for 2007 and beyond. Excuse me. 2008 and beyond. In 2007, the Nucor team achieved the second best earnings year in our history. Our 2007 performance was highlighted by pretax profit per tons shipped of $104 per ton, net income of $1.5 billion, and return on stockholders equity of 30%, and these strong results came while working against the severe head wind from a depressed U.S. flat rolled market. 2007 once again proved the tremendous value of Nucor's position, as North America's most diversified steel producer. Sheet metal profits were cushioned by earnings growth in our bar, beam and downstream businesses.

The composition of sales for 2007 was 36% sheet, 27% bars, 14% beams, 11% plate, and 12% downstream steel products. This product line diversity goes a long way in explaining Nucor's long-term record of profitable growth and attractive returns on our shareholders valuable capital. I mentioned earlier that 2007 was Nucor's fourth consecutive year of exceptionally strong earnings. For the 2004 through 2007 time period, net income totaled $5.7 billion. That represents average annual net income of approximately $1.4 billion. For perspective, at the last cyclical peak in the U.S. economy, Nucor reported what was then record net income of $311 million. Nucor's return on stockholders equity averaged 35% over the past four years, and from 2004 to 2007, Nucor generated total cash flow from operations of more than $7 billion, an average of approximately $1.8 billion per year. It is very easy to explain our performance for both 2007 and the past four years. Our team's disciplined execution of Nucor's multipronged growth strategy has dramatically expanded our company's long-term earnings power.

Over the past seven years, you have heard us set forth the four prongs of our growth strategy. They remain the same. The strategy works. Here are the four prongs. Nucor will optimize existing operations. Nucor will pursue strategic acquisitions. We will continue greenfield growth where we can capitalize on significant cost advantages from new technologies and unique market niches. And four, Nucor will grow internationally, with an emphasis on opportunities to leverage technologies and strategic partnerships. Included in these four core strategic strategies is growth within our steel space, downstream and upstream in raw materials. While we are pleased and encouraged by the initial payoff in the hard work, our team is not satisfied and we are extremely excited about our growth prospects for 2008 and beyond. In fact, our confidence has never been greater that Nucor's best years are ahead of us.

Here are some recent achievements by the Nucor team that will play key roles in driving continued growth in our company's long-term earnings power. Nucor's downstream value-added products' annual capacity, has more than doubled over the past year to just under 4 million tons. We have done this with our very successful acquisitions at Virco in steel decking, Harris Steel and rebar fabrication, cold finish bars and metal grating, LMP Steel and cold finished bars, Magnatrax and metal buildings, and Nelson and wire mesh. We are looking forward to growing the already highly attractive returns generated by these businesses. For many years, Nucor's vertical integration into steel products has been a critical underpinning to our proven ability to earn attractive returns in our shareholders valuable capital throughout the cycle. And our vertical integration strategy has been expanded to upstream control of raw materials. Implementation of Nucor's raw material strategy is off to an excellent start, with 2007's very successful start-up of NU-IRON, a DRI plant in Trinidad. in this start-up year, NU-IRON has already established itself as one of the world's most productive DRI facilities, and the facility that produces the highest level of quality anywhere in the world.

We will continue our disciplined execution of our raw materials strategy. The strategy will help us maximize the profitability of our sheet [mesk BQ] product lines. Our Castrip technology is building strong and exciting momentum in productivity and quality. Highlighting this progress was a new sequence casting record in December by the team in our casting facility in Crawfordsville, Indiana. At the same time, we continue to discover unique product applications not offered by other steels, and construction continues on schedule, on budget at our second casting facility in Arkansas. Nucor's disciplined, long-term approach is developing exciting technology has established a significant growth platform that will pay substantial dividends in the years ahead.

Earlier this month, Nucor took a major step forward pursuing international growth opportunities, with the signing of our memorandum of understanding with the Duferco Group. We are excited by this potential joint venture with the leading producer of beams in Italy and southern Europe. As North America's largest producer of beams and most profitable, Nucor would bring considerable expertise for the partnership. This is a business that we understand well. One in which we have earned very attractive profits for two decades. The Nucor culture's focus on profitable growth and continual improvement, our team is better positioned than ever to continue our disciplined execution of our strategic plan for taking care of our shareholders. At this time, I would like to ask our Chief Financial Officer, Terry Lisenby, to discuss our 2007 results. Terry?

Thanks, Dan.

Nucor's fourth quarter 2007 earnings of $1.26 per diluted share were ahead of our quarterly earnings guidance range of $1.10 to $1.20 per share. The better than expected earnings can be explained by several factors. December results for bars, sheet, plate and rebar fabrication were substantially ahead of our forecast, and the fourth quarter effective tax rate of 33.2% was below our typical effective tax rate of about 35%. Partially offsetting the strong operating performance and the somewhat lower tax rate, our fourth quarter LIFO charge was over $92 million. This was well above an estimated LIFO charge of about $33 million that was incorporated in our fourth quarter guidance.

Our full year 2007 results, net income of $1.5 billion and diluted earnings per share of $4.94 benefited from Nucor's diversified product portfolio. That diversification has been enhanced by the very successful acquisitions we have completed over the past seven years. In 2007, our team continued to build upon Nucor's long-term record of being an effective steward of our shareholders' investment. Our focus on the careful allocation of 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 to opportunities that offer the owners of Nucor the highest return on their investment.

Capital expenditures for 2007 were $520 million, approximately $200 million of the 2007 capital spending was at our green field projects. The Memphis SBQ Bar Mill, Decatur sheet mills galvanizing facility, the Arkansas Castrip plant and the Utah buildings systems facility, and we continue to invest capital in our existing operations to keep them state of the art and globally competitive. 2008 capital expenditures are expected to be approximately $800 million. Over $300 million of that amount is for green field projects. Nucor invested $1.5 billion in acquisitions in 2007. This included our largest ever acquisition, the purchase of Harris Steel Group for slightly more than $1 billion. Over the past seven years, the nearly $3 billion invested in acquisitions has generated very attractive returns for our shareholders.

Our disciplined approach to capital allocation is demonstrated by our returning cash to shareholders through both dividends and share repurchases. Nucor returned $1.5 billion of capital to shareholders in 2007 and since the beginning of 2005, Nucor has returned $3.2 billion of capital to our shareholders. Cash dividends paid in 2007 totaled $726 million, up 26% from 2006 dividends, and a more than 10-fold increase from 2004. Consistent with Nucor's pay-for-performance philosophy, the upcoming February 11 dividend payment will be our 12th consecutive quarter of supplemental dividends, and with this payment, our quarterly base dividend increase is 173%, to $0.30 per share. In addition to reflecting our success in building long-term earnings power, the higher-base dividend is evidence of Nucor's belief that the business cycle for steel will see both higher highs and higher lows going forward.

Share repurchases in 2007 totaled 14.1 million shares at a cost of $754 million, or about $53 per share. 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, or about $43 per share. We have remaining share repurchase authorization of 30 million shares. Nucor's strong balance sheet remains an extremely important competitive advantage. At the close of 2007, our debt to capital ratio was 30%. Cash and short-term investments totaled $1.6 billion, and Nucor holds the highest credit ratings awarded to any North American metals and mining company by Moody's and Standard & Poor's.

Our financial strength enables Nucor to take a long-term perspective in managing and growing our businesses. In fact, Nucor has a long history of emerging from economic downturns, stronger than when we entered them. Current turmoil and credit market highlights the importance of this competitive advantage. In November, our superior financial flexibility allowed us to issue $1.3 billion of long-term debt at very attractive rates. As always, Nucor will be both disciplined and opportunistic in seeking profitable growth for our shareholders. Our team has never been more excited about the opportunities ahead of us.

Our outlook for the first quarter is positive, with earnings expected to be in the range of $1.20 to $1.30 per diluted share. Our bar beam plate and downstream businesses, particularly rebar fabrication, should see continued strength. Market conditions for sheet have improved in recent months, due to a much better balance between customer inventories and demand. Risks to our forecast include scrap price volatility and the actual scrap usage cost, any further weakening in the economy, and any significant reversal of the lower import levels experienced in recent months. Dan?

Thank you, Terry. At this time, I would like to ask Ham Lott to update us on Nucor's downstream steel products businesses. Ham?

Thank you, Dan. Good afternoon to everyone.

First, I want to extend congratulations and thanks to all of our steel products teams for a very successful year in 2007 in delivering attractive returns and for positioning Nucor for continued attractive growth in fabricated products. Our long-standing operations Vulcraft and steel joists and decking and Nucor building systems and preengineered buildings had solid years. We are also very pleased by the impressive 2007 profit performance of our recent acquisitions. Virco in steel decking, Harris in rebar fabrication and Magnatrax in metal buildings.

Vertical integration has been a highly successful strategy for Nucor for four decades. Our ability to build market leadership positions in downstream steel products is a critical factor driving Nucor's long-term profitability. These businesses have consistently generated attractive returns for economic cycles and they enhance our steel mill's performance by providing them with a profitable base load of volume. In short, our value-added steel products enhanced Nucor's overall margin and growth opportunities.

In November, Harris Steel completed its joint venture with Barker Steel, merging the company companies' rebar and fabrication operations in Northeast U.S. markets. Harris contributed two facilities and cash for 90% equity interest and Barker contributed eight facilities for a 10% interest in the joint venture. The Barker facilities have total rebar fabrication annual capacity of approximately 218,000 tons. Just as we expected, Harris is proving to be a very powerful platform for profitable growth in rebar fabrication. With the completion of the Barker joint venture, our rebar fabrication annual capacity now exceeds 1 million tons. That is an increase of more than 37% from Harris steel's total capacity at the time of our acquisition in March of 2007. And we see more profitable growth ahead.

The fourth quarter of 2007 also marked the first full quarter with former Magnatrax metal building businesses aboard. The integration of their four brands with our Nucor building systems brand is going well. We expect to start up production this quarter at our Nucor building systems plant in Brigham City, Utah. We will then have 11 plants, nationwide coverage and a total capacity of approximately 470,000 tons. We are looking forward to a bright future in metal buildings. Dan?

Thank you, Ham. I would now like to ask John Ferriola and his team to update us on Nucor steel-making operations at our bar, beam, plate and sheet metals. John?

Thanks, Dan. Good afternoon, and thank you for your interest in Nucor.

2007 was a very strong year for Nucor's steel mills. As Dan discussed in his remarks, our product diversification remains one of our most significant strengths. Despite extremely difficult market conditions, in the flat roll business, our steel mills overall generated very attractive profits. Our bar and beam mills generated record earnings and our plate mills contributed very strong earnings. Our 2007 performance also highlights the ability of our team to profitably manage our business in high lie volatile scrap and raw material markets, despite a number of dramatic up and downs in monthly scrap market pricing during 2007, Nucor's quarterly pretax profits fluctuated within a range of just $11 per ton. And most importantly, our profitability throughout the year was at variable levels.

I have three thoughts to share with you on raw materials. First, Nucor is strategically well positioned as North America's largest scrap buyer, and that position continues to be well-served by our long-term partnership with our scrap broker, the David J Joseph company. Second, Nucor's raw materials strategy is working. New lines, extremely successful startup in 2007 has gotten us off to a great start with their first year production of 1.4 million metric tons of VRI. And third, the Nucor team will continue our disciplined execution of our raw materials strategy.

We are very excited about the opportunities ahead of us for more profitable growth. Mike Parrish will now update us on Nucor's Bar Mill group.

Thanks, John. Good afternoon.

Congratulations and thank you to everyone on our Bar Mill Group team for their record earnings performance in 2007. This is the fourth consecutive year that the Bar Mill Group has set annual and fourth quarter earnings records. 2007 Bar Mill Group shipments were also at record levels, and our performance further benefited from year-over-year improvement in metal margin spreads. The Bar Mill team did an excellent job managing our business in an environment of higher raw material and scrap costs in 2007.

Our growth record in the bar market is the initial payoff from our team's hard work. We have completed a number of highly successful acquisitions. We have implemented capital projects to optimize existing operations. We have intensified our drive to improve both our cost position and the value we provide to our customers. And best of all, we are continuing to build upon our powerful growth platform. Our Memphis special bar quality, or SBQ mill project, is moving ahead very well. The facility will have an estimated annual capacity of 850,000 tons, complimenting our mills in South Carolina and Nebraska, the Memphis mill positions Nucor to provide the most diverse, highest quality, and lowest cost SBQ offering in North America. We are encouraged by the strong level of marketplace interest in what Memphis will be able to provide to our customers. Production start-up is on schedule for the second quarter of this year.

The first quarter outlook for the Bar Mill Group remains positive. Demand is solid from the non-residential construction, energy and agricultural segments. We also expect imports to remain at low levels in the first quarter, and with the good balance between supply and demand, we are optimistic that our margins will remain stable in spite of higher raw material costs. Finally, I want to thank again all the members of Nucor's Bar Mill team for your success in 2007. In 2008, our team is focused on working safe, hard and smart, continuing to improve, and most importantly, taking care of our customers. John?

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

Thank you, John. I want to start by saying good afternoon and thank you to our plate and structural team members at Hertford county, Tuscaloosa, Berkeley County and Nucor-Yamato. Our teams have worked hard this year and their collective efforts have been rewarded with record-setting performances in all key areas for the combined plate and structural group.

Starting with our plate business, our mills set new annual records for production and shipments, both individually by mill and for the product group as a whole. These tonnage records were set in robust market conditions and led to a strong earnings performance for the plate group. In addition, both plate mills achieved these records while earning the Nucor's President's Safety Award. In fact, both plants have earned that award every year since they began operations as Nucor facilities. That is seven straight years for Hertford county and three straight years for Tuscaloosa. That is a tremendous accomplishment and I want to thank everyone for their efforts in working safely.

In our ongoing efforts toward continual improvement, Tuscaloosa is on track with its construction of a temper mill on its cut to length line. The temper mill is expected to begin operations in the second quarter of this year. We are very excited about the growth opportunities this will provide our Tuscaloosa team in the plate markets. As we look at the market for the first quarter of 2008, we see continued strong demand in most plate-consuming sectors, including railcar, barge, wind towers, energy and bridge fabrication. Plate market conditions are also being favorably impacted by low service center inventories and low import levels. Therefore, we are looking forward to another strong year in 2008 for Nucor's plate mills. Congratulations, again, and thank you to your teams at Hertford county and Tuscaloosa for your excellent work in 2007.

Now, turning our attention to our structural business, I also want to congratulate our teams at the Nucor-Yamoto Steel and Berkeley beam mills for their success this past year. In fact, both teams achieved record annual earnings in 2007. For Nucor-Yamato, it was their second consecutive earnings year and for Berkeley, it was their fourth consecutive record earnings year. Thank you for a job well done. The beam market remains very strong in the first quarter of 2008. Some fabricators have reported to us that their backlogs already extend into the first quarter of 2009. In addition to these strong fabricator backlogs, service center inventories are low by historical measures and are below year-ago levels. Fewer imports are also contributing to a good balance between supply and demand. Particularly robust demand is seen in such sectors as power, educational facilities, healthcare facilities, industrial complexes, office buildings, and the amusement and entertainment industry.

We are also encouraged by substantial foundation tiling volumes in early 2008. That product is a good leading indicator of future structural steel market conditions. As for growth opportunities in the structural business, our Nucor-Yamato team is especially excited about our expanded offering of jumbo beams that start production later this year. Nucor-Yamato will be introducing to the marketplace a heavy column section, up to 730 pounds per foot, in the 14-inch by 16-inch section group, as well as offering a new 44-inch section group to compete in the bridge and other fabrication markets. We will be the only North American manufacturer of these larger jumbo beams.

In conclusion, we see a very bright future for Nucor's plate and structural businesses. As always, our success will continue to be driven by our unrelenting focus on taking care of our customers. John?

Thanks, Joe. Ladd Hall will now update us on Nucor's sheet mill group.

Thanks, John. I want to thank everyone on our Nucor sheet metal team for their hard work in taking care of our customers and our shareholders in a very challenging flat roll market.

Our team is succeeding by one, developing new value-added products, producing outstanding quality, providing exceptional service, and delivering on time to our customers the products they want at a competitive price. End use demand in the sheet market remains soft, but stable. The same time, supply side remains tight with low service center inventories and reduced level of imports. Reflecting both increased order activity and higher raw material costs, we have announced increases in our sheet transaction prices, totaling about $140 per ton over the January through March period. The sheet mill group enters 2008 with a solid book of contract business at approximately 40% of the book. Our contract strategy remains focused on building mutually beneficial long-term relationships with value appreciative customers. With healthy overseas demands, the sheet metal group is also pursuing attractive export opportunities.

We announced earlier this month the appointment of a veteran Newport flat roll sales professional to the new position of international sales manager. He will be relocating to our Nova Steel subsidiary in Switzerland. Our international sales manager will coordinator sales efforts between Nova Steel and Nucor to market our products in Europe, North Africa and the Middle East and other areas outside of the NAFTA. We are also looking forward to the third quarter start up of our Decatur, Alabama sheet mill new galvanizing facility. It will have annual capacity of over 500,000 tons and the ability to galvanize 72-inch wide sheets. This will be Nucor's fourth galvanizing plant and increased the sheet metal group's total galvanizing annual capacity by one third, to over 2 million tons. Decatur's galvanizing facility expands our value-added offerings in an attractive growth region for coated steel.

Speaking of the strategy to expand Nucor's participation in the higher value sheet steels, our Berkeley mill enjoyed a number of commercial successes in 2007 with its new complex phase deal for the automotive market. In fact, Berkeley became the first domestic steel supplier to develop, qualify and supply this unique grade of ultra high strength steel to several global automotive manufacturers. Finally, special congratulations go to our team at the Crawfordsville castrip facility. Due to their talent and perseverance in '07, '07 was a break-through year for these men and women in their work to develop strip casting technology into a significant growth platform for Nucor. As Dan mentioned in his earlier comments, they recently established a new record for sequence casting with the technology.

In fact, they have broken record after record after record in recent weeks. Over a 38-hour period in late December, 24 ladles or 2467 tons of steel were cast continuously with the prime yield of 97%. The previous record of a sequence of 9 ladles in 12 hours of continuous casting had stood until early December. Over a roughly 3-week period in December, the sequence casting record was pushed to 14 ladles, then to 18 ladles, and next the current record of 24 ladles. This progress reinforces our high covenants regarding captive future.

The Nucor sheet metal group team is looking forward with excitement to 2008 and beyond, as we continue to build long-term value for our customers and Nucor shareholders. John?

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

Thanks, John, Mike, Ladd, and Joe. Appreciate it. One other news item from Nucor this week is very noteworthy. It is more tangible evidence of Nucor's commitment to developing both people and new technologies. We announced the donation of $1 million to create the Nucor endowment professorship for metallurgical and steel-making technologies at the South Dakota School of Mines and Technology. This is the second such endowment in Nucor's history. In 2006, we endowed the F Kenneth Iverson chair in materials and metallurgical engineering department at the University of Missouri Rolla. And you'll continue to see the Nucor team support higher education in engineering and steel-making research in the years ahead.

Finally, in light of the very current -- excuse me. In light of the current, very uncertain outlook for the U.S. economy, I would like to reiterate an important observation made by Terry Lisenby in his comments. Nucor has a long history of emerging from economic downturns stronger than what when we entered into them. Not only do we have the balance sheet and the financial flexibility to do this, we have the right people on the Nucor team. And we are always adding more. As you can see, our team is focused on the future, a future with our best years still ahead of us. At this time, we would be delighted to take questions.

(OPERATOR INSTRUCTIONS) Our first question is from Michelle Applebaum with Applebaum Research. Please proceed with your question.

Hi, congratulations.

Good morning, Michelle. Good afternoon, I should say.

Hi, good afternoon. Congratulations on a great quarter in a tough environment.

Thank you.

I have a lot of questions. I'm going try to ask a broad question so that I don't ask a couple of small detailed questions that become a few, which is, I'm very excited about what you're doing in, with Duferco and, you know, I think it's a critical and brand-new chapter. The Nova Steel thing as well. I was hoping you could just give us the big picture on what the opportunity is in Europe for you, something about that business, if you can give us a little bit more about maybe how much money it might be, that kind of stuff.

Mr. Joe Rutkowski, who was very instrumental in the initiation of this development over the past year or two will answer any questions he can and give you some additional information. Joe?

Hi, Michelle. First of all, we won't talk about the dollars until we ultimately finish the transaction and announce it, but just in general from a broader view, we've been working for a number of years developing relationships with companies that we think are consult really compatible with Nucor, primarily EAF-based, particularly in places in the world where we believe we feel comfortable doing business.

We have been in discussions with the Duferco group for several years on a number of different ideas and after they bought back Palenzano which is a beam mill, which was owned by Mittal up until February of 2007 and the other 49% of San Bano which was a melt shop that wasn't a joint venture with Arcelor, both of which got divested by Arcelor Mittal once the acquisition took place, we started talking about them bringing all of their electric arc furnace based and long products-based facilities into a group which they called Duferdofin and then seeing whether Nucor wanted to participate in that, as well as in the potential expansion of that. So we -- because of some rumors that were going on in Europe about our discussions with them, after we signed an NOU, we decided to come out with the announcement. We generally would not have done that. We are in those types of discussions with several people in places in the world where we feel comfortable and where we feel we have compatibility.

Okay. I guess I was trying to get a little bit more about what the opportunity was, like what regions you think you would be able to sell into, what the market looks like. Is that going to all wait until the venture is finalized?

Well, they are already an established company there. They have an expansion going on in their mill in Milazzo which is Sicily, of an NBQ plant, but generally they sell in southern Europe. There's a very healthy beam market there. They also are looking to sell in Northern Africa and basically maybe over towards the Balkans a little bit, but primarily southern Europe. It's a healthy marketplace.

Okay. So it gives you expansions to all these other regions from that place if they're there already.

They are there.

There are also a couple of -- I think there are two distribution centers that are part of this as well, is that correct, Joe?

Yes, that's correct, yes.

And there are also the opportunity to grow that distribution together in partnership so that we can service Turkey and the Middle East as well. The new bar mill that Joe was talking about would be about a 700,000 metric mill in Milazzo, as Joe mentioned, that's in Sicily. there currently is a beam mill there as well there. There are three other locations in Italy in Sanzano, San Giovanni and Pallanza that are included in this joint venture. About a million tons of MI-finished production.

Right.

And the capacity on the beam side in those locations is on the order of--

Probably 1.2 million tons.

So to give you an idea of the--

And then the Sanzano melt shop has a lot of capability for expansion, so that's what we're looking at today.

Okay, so something that currently has a meaningful increment that's going to have pretty significant growth as well?

We believe so. Yes.

Got it, okay. Just one related question. You're emphasizing that you've had these discussions going on for a long time and I kind of know how you move and typically you don't announce things until they are more fully baked, but you allude to the places where you're comfortable culturally, which I think is an important point. Can you just tell us what other regions you're comfortable culturally?

We certainly are -- we appear to be comfortable in Europe. We get -- we can be comfortable in, certainly in other parts of North America. We can be comfortable probably in some parts of South America. We have some experience in Brazil and it has its challenges, but it has some great things in it as well. And there are a few other regions where we're still investigating and trying to see if we can get comfortable, I suppose.

Michele, our original focus, as you'll remember, was on taking castrip and new technologies and forming partnerships internationally, and so a lot of these discussions that are still going on or about to be concluded really got their start talking to people about their interest in castrip and as we go forward, there will be more of that. And so Europe has been an area where we definitely are very comfortable and so we look forward to doing some more things in that direction.

Including -- I mean this could turn -- I saw Joe quoted in AMM about this potentially turning into something with castrip as well?

That's a possibility, Michele. At this point too in time, I do need to move on to other questions.

Thank you. I said I would be done.

Thank you.

Thank you. Our next question comes from Timna Tanners of UBS. Please proceed with your question.

Yes, hi, good afternoon.

Good afternoon, Timna.

I wanted to ask, if you wouldn't mind giving a little bit more detail in your written statements, in your comments, you talk about how certain areas of the economy are soft, particularly on the flat rolled side. I know you did highlight nicely areas that are stronger, but if you could give a little bit more detail where you're seeing weakness, and then in line with that question, if you could also give a little more detail on your export opportunities.

Well, I'll turn to John and Ladd to get into the details of the flat roll side, but there's nothing that's really changed from the standpoint of where their softness is in terms of demand. What has changed is dramatically is what the supply side of the equation is and customer inventories are. And the export opportunities are growing, not shrinking, as we indicated we've actually formed a team now through our Novo Group to focus more on that in an organized structured way. I would like to highlight one thing we have talked about probably and we basically put it in the press release. And that is that we believe that 2008 offers the strong opportunities, just the direct opposite of the, of what we saw in our market in the late '90s.

That was a market in the late '90s where we have very strong demand for flat roll products and products of all types, but the excessive imports that came in, many of them illegally as witnessed by a successful 201 case had basically put so much supply into the marketplace, even at these record levels of demand, the steel industry had a very difficult time making a profit. Many folks didn't. Many went into bankruptcy in the early part of the century, and today, what we see is we see a situation where we have demand that is good, it has softened from where it has been, but still remains good. The difference is that supply is very much in balance, maybe a little bit on the tight side with some of the obvious inexperience in North America in particular because of the considerable fall-off in imports.

So today in 2008, we see just the opposite type of situation we saw in the late '90s. One that frustrated us in the late '90s because the demand was there, but there was too much supply. Today we have just the opposite and so that's why we have a very positive outlook for certainly the first six months of this year and quite possibly the entire year. John, would you like to get into that a little bit more?

Maybe to mention a few of the specific issues. I do want to say, we said very specifically it is soft, but stable, and that's a big difference in what we've seen in the past also. Some of the areas that were particularly challenged, everyone knows what they are, automotive, appliance with the housing situation. We see some challenges on the demand side in those areas. Conversely, and as Dan mentioned, on the supply side, we see inventories down at our service centers substantially year-over-year, imports are down significantly, and there's been a number of production issues from some of our competition that have all added to the supply side. So it's always an issue of supply and demand, and although demand is soft, but stable, we see some real opportunities due to the supply issues.

Let me just clarify that if I could, then. We know that you have historically been a big supplier to service centers and also to the non-residential construction sector and those are two areas where I think people are starting to get concerned and some service centers are already talking about a bit of weakness. Are you seeing anything incrementally in non-res construction, maybe on your joist e business or anything where you could comment on specifically?

Well, the first comment I'll make is that we see our order book remaining strong with our -- we've just recently opened up our books to sheet on, for March, and we see service center order entry stable, very stable. So I'm not sure where that's coming from. And our other products, service center demand is extremely strong, so I don't see any change there. In terms of areas where we've grown, as you know, we've really expanded our product line into the higher valued, more stable markets, particularly in sheet and Ladd, you might want to make a few comments about some of the things we're doing at Berkeley and Crawfordsville in the higher valued products.

Thanks, John. Couple of things. Is one, you've got to remember we mentioned exports. Our export business in '07 has been fairly strong and in '08 we anticipate that being fairly strong or stronger. We have a good export market into Europe, Latin and Central America is growing. South America has had some opportunities. So not only are we solid in the States because of low supply, or, the demand is definitely stable, but soft, but we are absolutely seeing increases in our export business, which is taking tons from the mill to those areas.

Timna, one of the areas where you may be getting this discussion of some softness is really tied to residential and light commercial.

Okay.

And that, you're talking about steel framing. Because of the massive slowdown in residential construction and building of associated strip malls and what have you, small office parks associated with those in some parts of the country, in fact lot of parts of the country, the steel framing business has softened quite a bit. Lumber prices have really crashed, so the competition price wise for steel framing versus wood framing is heightened, and I know that some folks in the processing and service center business who sell to those areas also produce in those areas for their own divisions in steel framing, are seeing, the negative impacts of that.

Okay, great. Can you quantify your export business and then I'll go after that?

Yeah, I can give some detail on that. In 2007, we -- outside of the United States, we sold about 2 million tons across all of our product lines. About a million tons of that went outside of the NAFTA region.

Expectations for '08?

Well, we expect that to grow. We've got a great organization in place, working with the Nova Steel group and now we've got some people in place to coordinate that. I see it growing in 2008, both because of that organization and what we see with the dollar today.

Thank you.

Timna -- thank you, Timna. One last point I'll make on that is on the 2 million tons, it was fairly equally split between long products and flat products. Next question, please?

Thank you. The next question comes from [Evan Burke of Morgan Stanley]. Please proceed with your question.

Hi, congratulations on the strong fourth quarter.

Thank you, Evan.

Question on something in your press release actually on scrap. I know a lot of us have seen the charts out there that show Nucor's profits versus spikes in scrap prices, and generally with an exception here or there, we've seen profits actually improve in periods of rising scrap. Why is that written up as a risk? Do you see that more as an opportunity?

Well, we would strongly agree with you that history shows, and recent history reconfirms that higher raw material costs are usually tagged right along and lead into higher profitability and better margins. Obviously the reason for that is -- the reason why raw material costs are up is because demand is up. It's very simple, very straightforward, and usually works to our advantage. It works to our advantage in particular in down periods, where our variable costs of scrap go down significantly and our margins stay relatively strong.

The issue that we talked about in the conference call was in particular related to the first quarter and our guidance. It's more of a timing issue. Depending upon what happens with scrap in our February buy and March buys, last year, we saw a strong drop-off in scrap prices after a sharp uptick, and they still remain at higher levels and they started, but there was a more, more than a 50% dropoff. I'm not saying we're going to see that again, but we do believe we will see the current scrap pricing be at or near the peak of scrap pricing and we do expect to see some softening.

The timing issue comes in as to when the scrap -- difference between when the time when the scrap is purchased, it's shipped, it arrives, it goes into our heats, it gets blended in with the scrap on the ground, and how the actual costs vary throughout the quarter as the scrap comes in that was purchased in December and then again in January at higher prices. So it's more of a timing issue. It's not -- nothing to do with the, the fact that we strongly agree with you that upwards scrap prices usually translate into upward margin increases.

Given that we're already a little bit into the first quarter here, is the timing starting to work out in such a manner that we are starting to see margins compress a little bit, maybe in January?

We are way too early into first quarter to make that kind of projection. We'll know more as we get through the middle of February.

Okay, fair enough. Just quickly, do you have any LIFO guidance or Delta and planned outages in 1Q?

I don't think we have much in the way of outages. Maybe some in March, some of our bar mills. But in terms of LIFO, we're forecasting, Terry?

We're forecasting more than $20 million. It's like, between 20 and $25 million.

Right. Thank you.

Charge. LIFO charge.

Charge, yeah, that helps.

Okay. Next question?

Our next question comes from John Hill of Citi. Please proceed with your question.

Great, and thank you very much for the presentation.

Thank you, John.

Just following up on the LIFO question, the $94 million in the fourth quarter, was that all just for material in the fourth quarter or was there any sort of catch-up or adjustments related to prior periods?

Not so much a catch-up, but our LIFO is driven by the last purchases, so there's really no way to know the index until the end of the year, so there's no way to accurately calculate the reserve until year end. So I don't know if that answers the question or not, but that's how it's done.

Relating to volumes of scrap or commensurate volumes of scrap used in the quarter, does it relate to much higher volumes of scrap than would be used in the period?

No, it relates to the inventory on hand at year end.

Value of that inventory. I'll just add a couple of things, John, that might help you. At the beginning of the year, you take your best shot at forecasting where you see things at the end of the year, and without exception, the fourth quarter will be a correction month. It could be a correction in the way of a charge or correction in the way of a credit based upon how well we, guesstimate where we see scrap pricing at year end, and as you can well imagine with the kind of ups and downs we've seen over the last five years, that's a pretty tough thing to do, so you take your best shot, knowing there will be an adjustment in fourth quarter one way or the other. And this time it happened to be a serious charge.

Yes, I guess that was the nature of the question. With this large adjustment in the fourth quarter, does it not suggest perhaps that underlying operating results were even stronger than they appear, was really where I was going with that.

You could make that conclusion, yes.

Yes, and another, kind of on a small issue, I guess, just from the third quarter to the fourth quarter, we saw realized prices go up roughly $8. We saw realized scrap costs go up about $8. We saw EBIT per ton go down by $9 and that's with an additional contribution from acquired downstream volume. So is this just energy costs and other consumables, or what's driving that prices of scrap moving together, how come we took that step down on EBIT per ton?

Well, the biggest issue on that is the LIFO charge.

Yeah, that's what I thought, okay. Good, thank you.

You're welcome. Next question?

Thank you. Our next question comes from Mark Par of KeyBanc Capital Markets. Please proceed with your question.

Thanks very much. Hey, good afternoon.

Good afternoon, Mark.

I was -- I had a couple of follow-up questions on the first quarter while we're talking about it. Dan, what sort of price realization assumptions and scrap cost assumptions are in, say, a $1.25 first quarter result?

What kind?

How much? How much do you think realized prices will be going up and how much are you assuming scrap's going to go up?

Well, Mark, this is Terry. We really--

Hi, Terry.

We build our forecast up actually in the other direction. We get each operating unit to give us their best estimate for the quarter.

Okay.

And we go from there so we don't give them a price realization or scrap number to use in that guidance. It's all sort of market-driven.

Okay. Well, I guess I'm, I'm just not asking the question right. I guess you take with all the grounds-up information that you have from the operating segment. What's the implied increase in realized prices 1Q versus 4Q?

We don't know.

I don't think we've ever given out that type of information before, and it varies across the country and by division. So you're asking, okay, what, what numbers might you have back there in some formula in corporate that tells you what it's going to be? As Terry mentioned, each division looks at what it sees in its market, product mix, its geography. Scrap cost can vary. Scrap costs can vary, based upon product mix quite significantly in regions of the country and product type. We ask them for what we see their EBIT is going to be for the quarter month by month. We put all that together and come up with a total for the company and that's how we give guidance.

Okay.

So there is no one-page. It's just there saying here's what our scrap assumption is. Here's what our steel selling price assumption is on average. That's not the way we go about it.

Right. If I could ask this one other question, again, this may be too much detail, but I'll ask it. Do you--

You can always ask, Mark. You can always ask.

All right, sir. Do you look for spreads in the flat rolled business to widen in the first quarter in terms of EBIT per ton?

Again, that would depend upon how the scrap actually flows from the purchase through the inventories, into the usage in the first quarter and it's certainly a possibility and as we move through the quarter, that should, that should be more of that rather than less of that. Beginning of the quarter, that may not be the case. So we'll just have to see how it flows through. Lot depends on shipments, how many tons we actually ship, and everybody thinks we should know that, but talking to the railroads and the trucking companies about guaranteeing so many railcars we'll have every month and then we can give you a good forecast on that.

Okay, all right, terrific. Look, you guys are doing a great job. Keep up the good work and thanks for the input.

Thank you, Mark. Sorry I couldn't give you more detailed information.

That's all right.

Our next question--

Next question?

Next question coming from Charles Bradford with Bradford Research. Please proceed with your question.

Good afternoon.

Good afternoon, Charles.

You guys are talking about $800 million of CapEx. We're sitting with $2.2 billion of cash, $1.3 billion which you recently raised. Now, I'm not asking you for any names of any acquisition targets, but this seems to be inconsistent. I'm assuming that this money is going for something along that line. Is that fair--

That's what we -- I'm sorry, Chuck?

I'm assuming that the large cash position way in excess of your CapEx is geared to something you may be wanting to buy. I'm not asking you for any names, but is that basically the target? There's--

Not trying to be elusive, Chuck, but we don't really get into talking about whether we're about to do an acquisition or not. We're thinking we might loan this to some of the banks and some of the insurance companies who are backing the banks these days and see if we could help them out a little bit.

That might hurt the multiple.

We're always looking for opportunities and one is liable to pop at any point in time. We've seen what we have done throughout the course of 2007. We have a number of opportunities in front of us that may or may not occur during 2008, so it wouldn't be out of the realm of possibility for you to see us conclude some acquisitions during the course of 2008, but whether there's anything specifically pending or not and how quickly that money might be put to use is not something that we'll comment on.

I was just looking more towards more general guidance, that you're not borrowing money, let's say, to buy back shares, which is something you hadn't done in the past, or something of that -- it is to expand the business basically.

It is. Could be that we might planning our huge green field project and could be that we're also looking at concluding some acquisitions successfully during the course of the year and we thought it was a good time to go out to the market and borrow. And I would agree with you, though, Chuck, it's definitely not because we're planning on using that to buy back stock.

Okay, and one other small item. Did Terry have an estimate for depreciation for '08?

Yes, our current estimate's $400 million for all of '08.

Okay, all right. Okay. Thank you.

You're welcome. Next question?

Our next question is from David Gagliano of Credit Suisse. Please proceed with your question.

Great, thanks. Just a quick question. It's a bit of a longer-term question on the raw materials side. Obviously a lot of folks on the scrap market these days, and, you have somewhat quietly produced 1.4 million tons of DRI in '07. I'm wondering, are you rethinking your strategy in terms of the DRI expansion opportunities, and where would you like to be in, say, two years on the DRI side?

Well, I think we've mentioned before, David, our strategy there is going to be the increased production at the new facility and Trinidad. John, where do you think -- Ladd, where do you think we're going to be able to get to?

2 million tons, 2 million metric tons--

After--

Initially, initially we can get up to 2 million metric tons. We ultimately think that with expansion in the plant, we can go up to about 2.4 million tons, metric tons.

So that's pretty much the limit there of that particular facility. As we've stated all along, our goal is to be 67 million tons of scrap replacement units, high quality ones, which could include more DRI, could include pig iron, and the scrap space we already have two acquisitions of mostly steel companies. About 500,000-plus tons of scrap processing in the company today and we haven't ruled out that that might be something we would do in the future. We just have not specifically targeted that, the scrap segment because of our strong relationship with the David J Joseph Company and the fact that we're buying 20-plus million tons of scrap a year.

As of today, is your preference to go forward with the organic, or would you prefer to go the acquisition route on the scrap side?

On the scrap side--

No, I'm sorry, on the replacement, on the replacement unit side.

Probably through green field. We have explored a couple of partnerships, but nothing has moved forward today.

Okay. Fair enough. Thank you very much.

You're welcome.

Our next question comes from Sam Martini of Cobalt Capital. Please proceed with your question.

Hi, I just had two questions. One, and I guess first, to see if we could get any further clarity on Timna's question on the export market. If you're right and the imports continue to stay muted, or structurally undersupplied market in the U.S., can you just talk about the economic preference to -- I mean is it as simple as just pure dollars and cents, or do you have customer relationships you're getting pressure to keep your product within, within the United States? I mean it seems like you have a huge umbrella pricing effect going on, and I'm just trying to understand some of the -- it can't be that simple. I'm trying to understand how you think about to export or not to export. Is there other export capacity constraints at the ports? Are there anything else that would constrain that? And then I had one follow-up.

Well, you should take most of what you just said and flush it out and not give it any further consideration. There are no constraints except we organizationally are able to do in terms of exporting steel. As John mentioned, we're putting together a group within the company to focus on increased exports. We have increased our exports considerably, both in flat and long products. We'll continue looking at those opportunities. Part of it is building relationships. Part of it is still dealing with, you know, situations around a world where there may have been oversupply.

The fundamental issue in this country today is not one of undersupply by any means. What we've been saying is not that we're being undersupplied, except maybe for short-term, where there's been a couple of outages. Even there, I don't think that the U.S. market is going to be undersupplied.

There still will be, even at these levels, 20 to 24 million tons of imports coming in. Just not the 35 to 45 million tons that we've seen in the past. The builtup, the excess of inventories created the imbalance between supply and demand. So today we see in this marketplace that we are more in balance, not that we are in a situation where we see any long-term shortages. John?

I just one point you mentioned early on, saying that our customers might want us to say in the United States and not export as much. Exactly just the opposite. A lot of our OEM customers who are moving within NAFTA to other regions are encouraging us to follow them because of our service and our quality and our delivery performance with those customers. So part of this move out of the United States with our product is being driven by our customers' requests.

And then just to, elaborate a little bit more again, if you were just to -- if you were to paint a theoretical picture of the umbrella continues to go higher--

What do you mean by--

If the delivered price of the competition coming in is growing more rather than staying flat, so let's say delivered -- delivered hot band coming in at 750 a ton or something, do you believe that you can just reprice and capture that, or are you hearing from folks that the squeeze is just too much to Timna's question, and that you might want to lay off a little bit and not take that whole spread?

Well, listen, in good times and in bad, the name of the game is the price of the market. And that's what you'll see us do. You'll see what the competition do. You'll see our customers do it. And you'll see their customers' customers do it. The idea of laying off or not laying off really doesn't enter into it. What we'd be looking at is where do we stand in relation to the markets. So pricing internationally is $100 a ton above us or $50 a ton above us, we will look to optimize our spot business in particular, what we can in the marketplace, just as pricing internationally is 50 or $100 below us, we will respond accordingly to be competitive.

Can I ask you what you think Shanghai delivered to Houston is today?

Oh, I have no idea, except that pricing is getting more expensive, not cheaper.

Thank you.

Our next question comes from Bob Richard of Longbow Research. Please proceed with your question.

Good afternoon, and thanks for taking my call.

You're welcome, Bob. Thanks for calling.

Yes, sir. Real quick, can you comment on the pricing outlook for your steel building products? I would presume it's going to go up just because of the spot increases on cold roll, but is there going to be much traction there for vigorous price increases there?

Ham, do you want to take that question?

Yeah, we're raising prices. The mills have raised prices to us, and so therefore we're going to go out into the market. Obviously we'll have to see how the market accepts that. We have done in 2008 exactly what we've done in 2004. We've gone out and informed our customers that the price of raw materials is going up, the price of steel's going up and then we're going to give them guaranteed prices if they give us an order by one date, and if they ship the building by another date. We did that in 2004 and did not reneg anything on a single contract. Frankly we were probably the only nationwide builder that didn't reneg on a contract in 2004. We're going to use the same strategy this year.

Thanks, that's very helpful, and just a quick followup, any concerns of any integrated mills increasing their spot exposure?

No, not at all.

Sand box is big enough for everyone to play in, I guess. Okay, thanks.

If they increased their spot exposure, they have decreased something else and I don't know that that necessarily means there's less to go around.

Okay, thanks very much.

You're welcome.

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

Hi, Dan, how are you.

Thank you. Yourself.

Thanks for taking the call. There's a long queue I guess in questions. Pretty much all my questions have been answered. I had one kind of general question for you. When we went away for the holiday break and came back, it seemed like the buying patterns had really increased, where the the mills were able to raise price out three months in a row January, February and March. I'm wondering, has that persisted for the last three or four weeks, are you still seeing service centers aggressively looking for material, or do you think they are a little shell-shocked with the March pricing?

I think that John has already addressed that issue and said that the business continues to be strong.

And in terms of your export business, Dan, isn't that something that's likely to quiet down as you get more domestic opportunity? Or would you think -- I don't know.

I don't think we're running -- haven't run at full capacity in flat roll for a number of years, so we've got plenty of opportunity to do both.

There's always room for a little more.

What do you think you could -- I mean I know you did 22 million tons of production. What do you think you could do total production if you ran full out, really full out for a year?

Our, our published capacity is about 25 to 26 million tons total long products, plate, sheet, and we've said before sheet's about 10 million tons.

Right, okay, Dan. Looks good to me. Thank you.

Thank you, Aldo.

Thank you. Our next question comes from Michael Willemse of CIBC World Markets. Please proceed with your question.

Good afternoon, Michael.

Great, thank you. Most of my questions have been answered as well. Just one more to follow up on the scrap market and kind of following Aldo's question, was there anything that happened in December that drove the scrap price in such a fast manner? Last year scrap prices didn't really jump until February once, manufacturing came in at a seasonal shutdown. It was just surprising that it happened let's say last week of December, which is pretty slow period. Was there anything you can point towards, or is that just the nature of the scrap market?

My recollection is scrap started going up at the end of the year, and kept going up through January, February last year, didn't come down until March and April. And pretty much seeing the same thing this year. I mean part of it is, certain segments of the manufacturing sector have been seeing less demand, so they took a little extra time off. Less product was produced, so that meant less prime scrap was produced and there was a uptick in demand in export, particularly Turkey, and right now Turkey is a little bit quiet and things are quite a bit softer than they were, say, last go-round.

So would your best guess right now be that scrap prices fall off a bit in February or March?

I wouldn't have predicted scrap would have gone up the way it did in January, so I'm not going to get in the scrap prediction game. But I can just tell you that our sense is that scrap is not very close to peaking.

Okay. That's fair. Thanks very much.

our next question comes from Michelle Applebaum of Applebaum Research. Please proceed with your question.

Hi.

Good afternoon, Michele.

I didn't expect to get a second chance. With regard to the LIFO question, John was asking a good question earlier about the prior quarter's impact. You typically take a LIFO credit for overaccruing the first nine months, and so your LIFO charge being $60 million higher than you thought? How much of that is related to the prior nine months?

No, we typically don't take a credit for overaccruing. We look at LIFO every quarter, update our projection on what year end is, and then adjust the charge in that quarter to try to be on track for year end.

Okay.

So I mean it's an estimation, but at the end of each quarter, it's our best estimate of what it we be for the year.

Can you tell me what there might have been in the fourth for the prior quarters, if there was anything?

I think first quarter--

Well, there's really no way to separate it by quarter. The charges for the year, because it's based on the last purchases--

The first three quarters we're taking our best estimate of where it's going to end up. We don't know where it ends up until last purchase of scrap are made and come in. So we're just taking our best shot, as Terry said, updating it every quarter as we give our guidance. I mean first quarter last year, I think--

We we want -- we did $24.5 million, $66.5 million, $11 million, and then $92.3 million. That was the quarterly charges, so you can see what was happening to our estimations of year end scrap and LIFO value, and there's really no way to put that back in the quarters.

So you really can't separate what happened in the fourth?

No.

No.

Year end adjustment, Michele.

If had you to do it again with perfect knowledge, would that number be the total divided by four for each quarter?

Yeah, pretty much.

We had $194 million thereabouts for the year charged. We divide it by four and spread it out, but when you get that crystal ball, let me know and we'll go to Vegas.

Yeah, I think there's one in Fort Wayne. Can I ask another question?

Nope, you're done. Next question.

Thank you. Our next question comes from Timna Tanners of UBS. Please proceed with your question.

Thanks for taking another. My one question really is on CapEx. It's a big increase. If you had looked two years ago, it's more than doubled and double your depreciation forecast. Can you give us any color about the kind of projects? It seems like a lot of the projects in 2007 are completed in at least the first half or the third quarter. So can you give us any color on your CapEx guidance?

For the first quarter or for the year?

No, you gave annual CapEx guidance of 800-

Yeah, we did.

About $800 million. Timna, I think in their green field expansions, or about, oh, 3$50 million of it.

And is the previous--

Castrip, Arkansas, Building Systems, Utah, galvanizing in Decatur and the bar mill in Memphis and the rest of of would be CapEx for existing operations.

Okay, great.

You're welcome.

This concludes the question and answer session. I would now like to turn the call back over.

Thank you very much. Again, I would like to thank everybody who participated on the call, all our customers for helping us have another successful quarter and year, and most of all, the Nucor teammates who make it happen every day in a tough environment. We're going to keep getting better, mostly through their efforts. Thank you all very much.

This concludes the conference call. Thank you, everyone, for joining. You may now disconnect.