Nucor Corp (NUE) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation fourth quarter and year end 2011 earnings conference call. As a reminder, today's conference is being recorded. Later, we will conduct a question and answer session and instructions will come at that time.

Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and Nucor's websites. 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, either as a result of new information, future events, or otherwise.

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

Thank you. Good afternoon. Again, this is Dan DiMicco, Nucor's Chairman and Chief Executive Officer. Thank you for joining us for our conference call today, and as always, we appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior management team -- our President and Chief Operating Officer, John Ferriola; Chief Financial Officer, Jim Frias; and other Executive Vice Presidents; Jim Darsey, over our Long Products group; Keith Grass over our Scrap and Raw Materials Group; Ladd Hall over our Flat-Rolled and DRI group; Ham Lott over our Downstream Complicated products; and Joe Stratman, heading up Business Development and our Plate and Beam business.

First and most importantly, I want to thank everyone on our Nucor, Harris Steel, David J. Joseph, Duferdofin, and Steel Technologies teams for their excellent work in an economic environment that remained extremely challenging in 2011. Together we are continuing to deliver on our goal of taking care of our customers. We define our customers as our fellow teammates, the people who buy and use our products, and our shareholders, who trust us to provide attractive returns on their capital invested in Nucor. Thank you all.

Earnings increased almost sixfold in 2011, to $778 million from 2010's net income of $134 million. This improvement was achieved despite severely depressed nonresidential construction markets, which in 2011 remain more than 60% below the peak level reached in 2007. How did our team accomplish this performance? Nucor's superior competitive position with our unrivaled financial strength, product, diversification, and operational flexibility which allows us to grow stronger during the periods of economic distress. In 2011, we were able to expand our participation in markets enjoying more robust demand, which you'll hear more about later. Throughout our Company, the more than 20,000 men and women of Nucor are enjoying outstanding success, developing new products, reducing costs, and improving quality across Nucor's entire product portfolio.

What do I mean when I say that our team is building a stronger Nucor? By a stronger Nucor, I'm describing one position to deliver higher highs and higher lows in earnings power throughout successive economic cycles. That type of performance has a long tradition at Nucor and one we plan on continuing. The most recent example being the investments we made last year that were major contributors to a sixfold increase in cyclical peak earnings from $311 million in 2000 to more than $1.8 billion in 2008. And the Nucor teams who work growing long-term earnings power and shareholder value is ongoing. Over the 2008 to 2012 period, Nucor will have invested more than $6 billion of capital, with a disciplined execution of our five-prong growth strategy.

The bottom line is that Nucor is primed and ready for new, higher highs in earnings, once a sustainable economic recovery inevitably arrives. In 2012, we expect to see continued growth in sales and earnings for Nucor, albeit in a slow growth US economy burdened by a challenging regulatory and overall business environment. Uncertainties in Europe's financial sector will weigh on both global and US growth in 2012. In short, we are cautiously optimistic for the year coming up. Fortunately, there are solutions to the serious problems threatening our nation's economic well-being. A move back to creating, making, and building things as the major driver of our economy's growth and the growth of the American middle class is long overdue.

The idea that a service-dominated economy alone could provide substantial wealth creation is a hugely failed business model, as proven over and over again in the last 20 years. It has given us ill advised government policies and financial sector business practices that have created one economic bubble after another, culminating with the great financial collapse and panic of 2008 that is still with us today. US-based manufacturing holds the key to reinvigorated growth for our country in the years and decades to come. The time is right, the opportunity is here for us to seize, and the path forward is clear, and the naysayers should go back into their closets. New opportunities in energy, infrastructure and rebuilding our infrastructure, revitalizing our manufacturing sector, are shouting out to us as the path forward for future generations of Americans to have the opportunity to earn a rising standard of living.

This is the path that will create the 30 million net jobs we need over the next five to seven years, while rebuilding our economy, our tax base, our middle class, and our global competitiveness. We at Nucor, working together with our partners in the domestic and multi-national manufacturing community, are applying our can-do attitude management level to shine a bright life on this exciting path forward. I will now ask our CFO, Jim Frias, to discuss our fourth quarter and year-end results. Following Jim's comments, President and COO, John Ferriola, will report on our operations and the implementation of our current growth initiatives. Jim?

Thanks, Dan, and good afternoon. Fourth quarter 2011 earnings of $0.43 per diluted share exceeded our guidance range of $0.22 to $0.27 per diluted share. A portion of that outperformance resulted from a lower than expected LIFO charge and two non-recurring items. The quarter's LIFO charge of $52 million was approximately $27 million less than the estimate used in our mid-December guidance. A non-cash gain of $29 million was recognized in the fourth quarter, for the correction of an actuarial calculation related to the medical plan covering certain eligible early retirees. And our equity in earnings of unconsolidated affiliates included a favorable year-end tax adjustment of approximately $7 million. Together, these items increased fourth quarter earnings by about $0.13 per diluted share.

Excluding the effect of these items, our earnings still exceeded our fourth quarter guidance range. Nucor's fourth quarter performance benefited from stronger than expected volumes in margins in December. The fourth quarter 2011 effective tax rate, measured as a percent of earnings before taxes and non-controlling interests, was 29.4%. After adjusting out profits belonging to our non-controlling interests business partners, the effective tax rate was 32.5%. Full-year 2011 earnings per diluted share, up $2.45 represent significant improvement from 2010 earnings of $0.42. Nucor's return in equity for 2011 was 11%, a respectable level for a year in which our steel mill capacity utilization rate was only 74% in continuing depressed market conditions. Our returns were achieved with the lowest financial leverage in the industry.

While construction remains our largest end-use market, Nucor's 2011 profit improvement reflects our Company's unrivaled product diversification and initial returns from our ongoing strategy to grow long-term earnings power. It goes back to Dan's point that our team uses economic downturns as opportunities to grow stronger. Emerging from downturns stronger than when we entered them is how we build long-term value for our shareholders. We get stronger because our financial strength allows us to invest in attractive growth opportunities through the economic cycle. Nucor again generated healthy cash flow with cash provided by operating activities of more than $1 billion in 2011. Regarding the cash flow generating capacity of our expanding platforms and the steel products business, here is a noteworthy statistic -- through the current downturn, average annual cash generated from operations from 2009 through 2011 more than doubled the amount generated during the last downturn from 2001 through 2003. Our growth strategies objectives is higher highs and higher lows in the returns achieved through successive business cycles.

Cash, short-term investments, and restricted cash totaled over $3.1 billion at the end of 2011. Restricted cash of $586 million is available to fund a significant portion of the DRI plant we are building in Louisiana. Further to Nucor's strong liquidity, in December we increased the size of our unsecured revolving credit facility by $200 million to $1.5 billion. The facility is undrawn and does not mature until December 2016. We have no commercial paper outstanding. Long-term debt totaled $4.3 billion at the end of 2011. We expect our leverage to decline as a result of upcoming long-term debt maturities of $650 million this year and $250 million in 2013. Our plan is to fund these maturities by drawing from our healthy liquidity position and continued strong operating cash flow.

Nucor has earned the highest credit rating awarded to any metals and mining company in North America, an A2 rating from Moody's and an A rating from Standard and Poor's. Our Company is the only steel producer in North America to enjoy the very important competitive advantage of an investment grade rating. To that point, Standard and Poor's, in their January 9 report entitled, North American Metals and Mining Companies Strongest to Weakest, again ranked Nucor number one for credit rating and credit outlook among a universe of 68 companies. Nucor was also the only metals and mining company in the group that S&P awarded a strong business risk profile, due to our competitive position and profit performance relative to our peers.

In 2012, we are continuing to invest in projects that will grow our long-term earnings power and provide attractive returns to our shareholders. We project 2012 capital spending of approximately $1 billion, or more than double the 2011 capital spending of $441 million. 2012's capital spending at our Louisiana DRI project is expected to increase to approximately $450 million from about $50 million in 2011. John Ferriola will review additional exciting growth projects that we will initiate in 2012. In addition to allowing us to invest in attractive growth opportunities, Nucor's strong financial position and cash flow generation has enabled our Company to build an impressive record of cash dividends paid to our shareholders and total shareholder return. In December, Nucor's Board of Directors increased our regular or base dividend for the 39th consecutive year.

Reflecting the Nucor's team success in growing long-term earnings power, the base quarterly dividend has increased approximately tenfold over the past 11 years. Further, during that same time period, Nucor has delivered a total return of 464%. Let me repeat that. Over that 11 year period, Nucor has delivered a total shareholder return of 464%. That compares with 174% for the Standard and Poor's Steel Group Index and 4% for the S&P 500. For the first quarter of 2012, we expect earnings to improve from the fourth quarter 2011 level, after adjusting for the one-time benefits received in the fourth quarter.

Several end-use markets, such as automotive, heavy equipment, energy, and general manufacturing have continued to experience improvement in demand, benefiting SBQ sheet and plate products in particular. We were also seeing small but encouraging signs of improvement in our construction products businesses. Nucor will again follow our practice of providing quantitative guidance around the middle of the final month of the quarter. We are excited by the opportunities we see ahead to reward our shareholders with very attractive long-term returns. Our competitive advantages will continue to be the flexibility, diversification, and sustainability found in Nucor's business model. Thank you for your interest in Nucor. Dan?

Thank you, Jim. I will now ask John Ferriola to report on Nucor's operations. John?

Thanks, Dan, and good afternoon. Let me begin by thanking all of our raw material, steel making and steel product teammates for your outstanding commitment to working safely and to taking care of Nucor's customers. I am always inspired when I visit our operations, and see firsthand, the impressive work you are doing to profitably grow our businesses for the long-term. You are Nucor's most powerful competitive advantage. The right people, living our culture, every day. Thank you and please keep it up.

Dan and Jim both discussed the value of Nucor's business model. Our business model, with its flexibility, diversification, and sustainability is why Nucor is an unrivaled position of strength and taking advantage of our strengths is his how we expect to continue delivering industry-leading, through the cycle return on capital performance. Our 2011 results again highlight the bottom line benefits we gain from Nucor being North America's most diversified steel and steel products manufacturer. Impressive year-over-year profit growth was achieved by our plate mills and our bar mills. Also contributing solid 2011 profitable growth were our sheet mill, beam, deck, coal finish bar and scrap businesses. Our diverse and growing product portfolio, combined with our operational flexibility, is allowing us to grow our presence in end use markets, such as automotive, heavy equipment, energy, and general manufacturing; markets that are currently enjoying more robust growth.

Our 2011 performance demonstrated another compelling aspect of the Nucor story. Our Company has a proven track record of using our strong balance sheet and cash flow to prepare for the good times during the bad times. Many of the investments we have made during the current downturn are already paying off for us. Here are some examples. The newest additions to our bar mill group, our special bar quality mill in Memphis, Tennessee and our wire rod and rebar mill in Kingman, Arizona, both achieved profitability last year. Our Hertford County, North Carolina plate mill's new heat treat line has been sold out since March of 2011. We are growing our presence in higher margin products, where higher strength, abrasion resistance, and greater toughness are required. The heat treat line has also allowed us to improve the product mix allocation between our two plate mills and four sheet mills, which enabled us to improve margins at those facilities. And more value added plate products are on the way, with a vacuum tank degasser and normalizing line currently being installed at Hertford County.

In our Nebraska SBQ mills, new quality assurance line was completed in 2011 and is already providing us growth opportunities in higher margin SBQ products. Our downstream businesses, including rebar fabrication, joist, deck and pre-engineered metal buildings, continued to grow their long-term earnings power in 2011, by expanding both their geographical footprint and their product offerings. Our David J. Joseph team expanded their overall footprint and also grew their nonferrous metal sortation capacity. Looking ahead, we see more extremely attractive opportunities to continue growing Nucor's long-term earnings power. In December, our Board approved projects totaling $290 million at our Tennessee, Nebraska and South Carolina SBQ mills, that will expand Nucor's SBQ and wire rod capacity by 1 million tons. These investments position Nucor to meet the growing needs of our engineered bar customers in a number of attractive markets that include automotive, energy, heavy truck, and heavy equipment. We expect to complete each of these projects by the end of 2013, subject to regulatory approvals.

Nucor continues to grow our value added capabilities in the sheet market. At our Hickman, Arkansas sheet mill, we are installing a vacuum degasser. As the westernmost flat-roll facility in the United States with a vacuum degasser, Hickman will be strategically positioned to take advantage of the growing markets of the southwest United States and Mexico. The degasser should be operating by the end of this year. At our Berkeley County, South Carolina sheet mill, capital has been approved to allow the facility to produce wider and lighter gauge hot rolled sheet steel. With the planned modifications, Berkeley will be able to produce a 74-inch wide hot band, with the downstream products, such as pickled and oiled, and cold rolled being produced at a finished width of 72 inches. We will also be sending cold rolled output from our Berkeley facility to our Decatur, Alabama sheet mill to produce 72-inch wide galvanized sheet steel. This wide light project at Berkeley will enhance the ability of the entire Nucor sheet mill group to continue to move up the value chain in flat-rolled markets.

I am also pleased to report that our Louisiana DRI project is proceeding on schedule. The full management team is in place and construction is well underway. Start-up is expected in mid-2013. Completion of the first 2.5 million tons per year module in Louisiana, combined with our existing DRI plant in Trinidad, will bring us to about two-thirds of our goal to control from 6 million to 7 million tons of annual capacity in high quality scrap substitutes. In summary, our team's unrelenting focus remains on long-term, sustainable growth in Nucor's profitability. Thank you for your interest in our company. Dan?

Thank you, John. I want to again thank everyone in our Nucor, Harris Steel, David Joseph, Duferdofin and Steel Technologies teams for working safely, working hard, working smart and working together. You're the reason that I can say with the greatest confidence that Nucor's best is yet to come.

Before moving on to questions, I would like to read a favorite quote of mine. Some people make things happen. Some people watch things happen. Other people wonder what happened. The rest often criticize those that make things happen. Be part of the solution, not part of the problem. Remember, this is your world, shape it or someone else will. We'll be happy to take your questions.

(Operator Instructions) Sal Tharani, Goldman Sachs.

First on the DRI, when you planned this project last year, you had mentioned about locking in natural gas price at a very good price. Since then, natural gas prices have collapsed further and I was wondering if that mechanism allows you to renegotiate around the index of the market price so that your costs also will go down if the natural gas price does (inaudible) low by the time this project starts?

We are not locked into a financial instrument. We are actually involved in drilling and in the joint venture partnership. And the cost per unit 1 million BTU of natural gas as we are producing it and where pricing is today does not put us at a competitive disadvantage.

Okay. The second question is, a comment in your press release about scrap flat to down, I thought that the scrap was actually up in actually January. Is it the flow of scrap that you have a one month lag that it will be coming down because you'll be using the December scrap in January?

We always do have a lag between a purchase of scrap and when it shows up a production of steel. You're right, we are saying that scrap will be down moderately, as we go into February, driven by, we've had a pretty mild winter and Nucor has made some pretty strategic overseas buys, which will be arriving in the February timeframe. We do expect longer-term scrap pricing to rebound, probably in the March timeframe. Because at the end of the day, it's still winter, steel mill production is still steady, and the dollar's depreciated. Short-term, we see sideways to moderately down, longer-term, we see it rebounding.

Great. Thank you.

Luke Folta, Jefferies.

John, you made a comment about being able to make 72-inch bands at Berkeley. I was hoping you could maybe give some more color on what the significance of that is and what markets that puts you in and how that changes your exposure there?

First of all, just to get the facts straight, we will be making 74-inch hot band at Berkeley. The finished product downstream coal-rolled and galvanized will be coming off at 72-inch. Obviously, that opens up many opportunities for us in the market, particularly in a appliances and in automotive. The wider product is required for automotive applications, as you get further into the value added products up to and including exposed automotive. Also, it gives us some advantages in our pipe and tube markets, as you can have a wider product with more slits and brings more value to the customer.

Okay.

Let me point out that you referenced the width, but don't discard the fact that we will be making a lighter gauge. We'll be able to have extra additional strength, which also gives us new applications in automotive and in other areas, also. The lighter gauge, the extra mill stand will give us higher strength product to bring into the market.

Okay. Thanks for that. Then just on the SBQ press release that was out yesterday, it sounds like it's an additional million tons. Firstly, I shouldn't read that as additional steel making capacity? It seems like it's more downstream or finishing capacity. Also, can you give us a sense of is this basically more of the same products you are producing? Or does this put you in a different part of that market as well?

Yes, John.

Okay. First of all, it will be additional capacity we will be producing. I want to be very clear about this. As we bring additional SBQ capacity online in our facilities, we will not be surrendering or abandoning any of our merchant or rebar products or customers. It will be additional capacity. And it really isn't just more of the same, many of the projects that we will be doing over the next two years will get a sense of new products.

We're basically expanding our size range and our grade range. The rod block and lang head in South Carolina in our Darlington facility will allow us to expand our size range in Darlington. In Nebraska, we'll be adding a fifth strand, which gives us more volume. But our Nebraska mill has a pretty good, diversified grade mix as it stands and they have been doing extremely well in the market. They've qualified in most of our customers that use SBQ products. In Memphis, we'll also be adding a fourth strand and we're adding advanced testing equipment, which will allow us to get into the even higher-valued, more critical applications of SBQ.

I'd like to add to that when you have to distinguish between additional capacity that is being generated from existing facilities versus building new facilities, and we're not talking about building completely new steel making facilities, our capital cost per ton of increased production here is going to be somewhere underneath $290 a ton versus what it would cost to build a $1 million facility, that would be north of $600 a ton for this type of product that we're producing. This is really becoming more efficient at our existing operations, taking full advantage of the equipment that we have in place, and putting enhanced equipment in to allow, not only for more production capability in these types of products, but also expanded market products and different products than we're producing today. It's important that you understand what we define a market and how people define markets may be different from one another, because we define the market for this type of products, that includes not only special bar quality rounds, but also forging stock, and also stock for pipe finishing operations, seamless pipe finishing operations as well. John, do you want to add anything more to that?

I would add maybe two points. One is that sticking with our focus on having diversity, the products that we will be adding, the million tons that we will be adding spread out across many markets, many industries, and many customers. It will not be concentrated in any one market, industry, or any one customer base, creating an over capacity situation. The other thing I'd like to point out, Dan, is that as the second largest SBQ supplier in the United States, we have firmly established ourselves with our customer base. We've qualified on most of the critical applications and we're in a good position to follow-up on that with additional tons into those same customers and those same markets that we've already qualified on at our mills.

Thank you, John.

David Macgregor, Longbow Research.

Can you just help us, with everything we've got going on, what should we be modeling for pre-operating and start up costs for 2012?

This is Jim Frias. This year they were about $21 million in the fourth quarter, $20.8 million is what's in the earnings release. In the first quarter, we think they're going to be a similar level and eventually they are going to ramp up because of the new DRI facility, but it's too early to tell you what those are going to be. We'll give you quarter-by-quarter what we're looking at. Okay?

Okay. Secondly, just with all the new investment, you've got the wide coated sheet, the like-edge sheet, you've got the DRI coming up, you've got SBQ, you've got the degasser going in. Automotive and appliance seems like such a natural market for all this, can you talk about what your percentage of your business would be in that end market today and what it might be come in 2014?

Right now, we're at about 10% of our sheet product goes into automotive. Another couple percent going into appliances. In our SBQ market, about 5% to 10%, also of our SBQ product goes into those two markets, currently. Frankly, with the additions that we're making in SBQ portfolio and what we are adding to our sheet portfolio, we expect that to grow.

We're also doing about 10% to 15% in the energy sector, with respect to our SBQ quality product.

It seems like a lot of this is coming up over the 2013 period. I'm just trying to get a sense of how important those markets might be to you in 2014 or around that point?

Obviously very important, because the direction that we're heading here, with this additional capacity, and our continual movement up the value chain, whether it be in sheets or bar or plate, the heavy equipment sectors, the energy sectors, the automotive and appliance sector, but in particular, the automotive will be very important. We'll continue to participate at greater levels and greater percentages with our current growth strategy and the capital that we're going to be expending over the next couple of years in each of those markets as those markets continue to improve as the economy recovers.

Dan, I might just add to that, just so we are clear, this isn't something new that we're moving into.

Right.

We've been in the automotive market for several years now, probably going on almost 10 years.

Right.

Our presence in that market, both from a product diversity, value added, and customer base has been growing every year. We're ready for this next step. We're excited about this next step, going to 74-inch substrate at Berkeley is a big advantage for us, moving forward. The other thing I'd point out, Dan, is what this does for us as a Company is provide even more diversification, allowing us to take more products, across more customers, and more industries. We're continuing to diversify.

Thank you John.

Just with the RG outage this past quarter, how much tonnage do you think you picked up from that and how much do you think you can retain going forward?

We're not going to comment on that. Rest assured we're going after whatever market is available to us from our customers. But as far as talking about how many tons we've taken from one customer or another or from one producer to another, number one, we don't really know that. Number two, it's inappropriate.

Thanks very much. Good luck.

Shneur Gershuni, UBS.

I was wondering if you can comment a little bit, you had mentioned in your press release about a green shoot in the construction recovery of sorts. I was wondering if you could give us some color on segments res versus nonres and geography and how you expect this to shape out as the year unfolds?

I really don't have a good answer for you on that. John, do you have anything you want to say?

The only thing I would point out is what we said was we see some small signs of improvement. We're not seeing a boom in construction by any stretch of the imagination. We're seeing small indications that it might be getting better across the board, nonresidential construction, some of the infrastructure work we are involved in.

We see a small pick up in that. We see a small, incremental improvement. We're pointing out it's a good sign. It's a good start. It's a good first step. The ABI, for two months in a row was over 50% and that's the first time that's happened in several years. These are all small indicators that things might be just getting just a little bit better as we move forward into 2012.

The other thing is that there's a huge, pent-up demand for a lot of infrastructure work, energy work that needs to be done that's going to take public private partnerships to make these things happen. I was encouraged by what I heard in the State of the Union, of course, words are just that, strong actions are necessary. We look forward to the strong actions actually helping the nonresidential and energy mark construction markets in 2012. But it's too early to tell where that will come from and how strong it will be. But there's no doubt that we are past the time when we have to make these kind of investments and find the money to do it.

Based on that, given the fact that it looks like imports are starting to creep up a little bit and RG restarted and so forth, do you think that there's going to be enough demand in the system to overcome that? Or is it really going to come down to the President delivering on some of the promises during the State of the Union?

The RG doesn't really impact the nonresidential construction that we're talking about, the issues that we're talking about with respect to what the President had to say in that regard and in the energy sector. And imports are always an issue, always a concern, it's something we constantly monitor on a daily basis, not just a monthly basis. We have strategies in place to deal with imports, whether they be proactively in Washington, constantly monitoring the flows and pricing. We hear about it all, nothing gets hidden from us and we will take appropriate action, as necessary, both in the marketplace and through our legal channels in Washington in a proactive manner.

But imports are always an issue and for the year 2011, imports were up fairly strongly, particularly considering the overall capacity utilization rate in our domestic industry. I think they were over 20% of the market. Way too strong, considering where the domestic industry is. And they've added a little bit over the last few months. But, we know that tide comes and goes. And so we would not be surprised to see it strengthen as we go through the year, and also weaken, depending on what ramifications there are and what remedies we take to deal with them in a marketplace or elsewhere.

Right. One final question if I may? Your SG&A was better than what we were looking for in this quarter. Is this a sustainable level that we should be thinking on a go-forward basis?

Our SG&A changes depending upon profitability. Jim, you have anything to add to that?

Yes, that's the biggest single factor. There wasn't anything too unusual to call out in SG&A in the quarter for us.

Bonuses and profit sharing and what have you, all add to that, as we become more profitable going forward.

Okay. Great. Thank you very much, guys.

Timna Tanners, Merrill Lynch.

I was wondering if you could talk a little bit more about your strategic focus. Certainly in 2012, you talk about your balance sheet, but you have quite a bit of restricted cash, big CapEx budget. Is it fair to say you're more focused on internal growth rather than acquisitive growth? Is there a lot more room for you to do things beyond what you have told us? If you could just detail that a little more.

I would have to definitely characterize our current growth mode as being internal, optimizing, broadening our product reach, broadening our quality reach, moving into raw materials more strongly, energy, all those things are true. We are constantly in tune with the M&A opportunities that may or may not exist from time to time. Those are things we always evaluate. I wouldn't say we're any less interested in M&A activity. I just would say there is a lot of that taking place at present, even where people tried to get some things going they didn't pan out too well.

Our major focus and our capital expenditures are going to be as we've already discussed. They will be substantial. They will increase as we continue to go forward through 2013 into '14. We have a lot of projects that we're evaluating and a lot of projects in the works and we will discuss them as they get to the point of becoming reality. And most of those continue to be based upon strengthening our existing footprint, maybe some international growth in certain areas of the world, particularly in the western hemisphere, Central and South America, as well as in North America.

Okay, great. If I could, one more question, just on the construction market since you're so involved there, your downstream businesses especially might be ahead of the cycle. Structural shipments were up pretty sharply, more than we would have seasonally expected, could you give us more color on what might be happening on downstream and in structurals and is there a possibility, I know you are expecting small growth for construction, but is there a possibility that you think that could surprise us better than we expected?

We did see our structural shipments go up. We do expect that to continue going into the first half of the year. Again, as we mentioned earlier, maybe a little bit of construction improvement, infrastructure improvement. We don't see a big jump in that.

Okay. Anything downstream worth pointing out?

The biggest positives on the downstream are the year-over-year improvements that we have seen in virtually all of our downstream businesses in terms of profitability. Where there were some strong negatives, those strong negatives have shrunk dramatically. We believe we'll continue to see that level stay where it is today, with some slight improvements. But again, we've been very cautious to say we expect small improvements. If some other things fall into place, they could be significant improvements.

They are more manufacturing coming back to the country. It's not a flood by any means, but it's happening. We're building things here, other companies are building here because of the special natural gas, game-changing events that are taking place. Chemical companies are building plants that they weren't building for the last 20 years and they're expanding others.

There are some good things taking place in the construction arena and certainly we will be providing a lot of steel to our own growth plans in Louisiana and elsewhere. But there's no robust change in construction. We're still bouncing along the bottom with a slight upward tilt to it. Hopefully, we'll see that improve during the course of the year. We believe it will, but it's yet to be determined.

Okay. Thanks very much.

Richard Garchitorena, Credit Suisse.

My first question, it looks like in Q4, we saw a drop in conversion costs versus the third quarter. Can you talk a little bit about some of components which helped to drive that? How should we look at that going into Q1 and to the rest of 2012?

We did have an improvement in our conversion costs and that's an effort of us focusing, as we always do, on lowering our costs. We are focused on being a low cost producer, we continue to focus on that area. We continue to make improvements in that area. I would also add to that, that some of the incremental organic projects that we've done over the few years, over the last couple of years, have helped us become more efficient in our operations and that's had a positive impact on our conversion costs also.

John, could mix also be a factor since we did more bars and beams and sheet and plate were down a little bit? Could that be a factor?

That could be a factor.

Great. Thank you and my second question, you mentioned on the call earlier that steel mill capacity was about 74%. Can you give us a breakdown of how that is split between the long and sheet mills? And then also, given the strength of the market, if that will change at all, going into 2012?

We don't get into breaking out each individual product lines, capacity utilization rates for competitive reasons. Overall, that's where we were at. And during the course, just looking at the last 12 months, there have been certain product groups. All of them have moved up and down, sometimes in sync, sometimes out of sync. We've seen, as we've mentioned, you can take this as an intuitive comparison, we've told you that we've seen stronger markets in many of our products. Those will be operating at the higher rates than otherwise. But as far as next year goes, as far as 2012 goes, we expect to see improvement in our utilization rates. But it's way too early to tell. Where actually it will move to. I think, over the last year, we changed it by what John? 3% or 4%?

Year-over-year, it's about 5%.

About 5%. We may see something similar to that over the next 12 months, we may not. GDP is getting revised downward, both here and around the world. Pretty much folks are looking at a 2% growth rate in GDP here and that doesn't bode well for big changes, but we didn't have much better growth rate last year and we still were able to improve our utilization rates that certain markets improved by 5% on average. We expect to see something similar next year.

Great. Thank you.

Michael Gambardella, JPMorgan.

Got a question for you on natural gas.

Sure.

On average, just roughly speaking, how many millions of BTUs do you use a year?

In our existing operations?

Yes.

Is that the question?

Yes.

About 30 to 35 billion in our existing operations.

In the steel mills.

In our steel mills, yes.

DRI facility we project will be using 26?

25, 26 billion.

How much of that is hedged?

Right now, in terms of financial hedges, we worked through the last of our hedges recently, so all we have is the new working interest drilling program that's ramping up. And it will, as it cycles up, cover our usage for DRI, 100%.

We do have the long-term contract in our Trinidad facility. 20-year contract with an average cost of about, I think it was about $2.

Yes.

MMBTU.

Just trying to get to how much of a benefit you'll get on your cost structure this year with lower natural gas?

Certainly, we will see a benefit with the way the spot prices are going and the market prices have gone. I don't think we sat down and figured out what that's going to be yet. But it probably will be significant. That's totally unrelated to the drilling program that we have with our partners.

And then, just last question on the DRI side, where are you planning to get the iron ore for the DRI in the new facility?

Same places, we mentioned this in previous calls, Michael. The same people who were supplying us the pellets for our existing operations in Trinidad will pretty much be supplying us for our new operation in New Orleans or Louisiana.

Okay.

John?

I just wanted to make one more point as you were asking about the impact of the lower natural gas. We talked about the direct used gas as being about $35 billion. Don't forget we are a large consumer of electricity and some of our electricity is produced in gas-fired generation, so we expect to see a positive impact from that also.

Is some of your electric tied to the price of natural gas?

Yes, definitely.

Okay.

Some regions of the country more than others and we're not in a position to give you a breakdown on that. But I think, on average in this country, natural gas is about 20% of power generation across the country. That is going to be growing, as we speak, and coal percentages will be coming down. But that's about where it is today. You can probably figure, on average, 20% of our electricity is coming from natural gas-fired facilities and fuel charges and what have you will benefit us to that level.

Thank you, Dan.

I think there was an article, Michael, the other day that came out that said that, the benefit of natural gas, in general, right now, with pricing moves that have taken place to the low side are actually reducing the power rates by 50%, quite significant. That turn is probably going to continue at least for the interim. But keep in mind that the market is going to make adjustments. Natural gas is in a situation today, where technology has created a readily easy abundance. That will drive the market to use more of it. When we look at something like one or two or three DRI plants, we are looking at 20, 30 plus years where we want to maintain a stable supply. That's why we have entered into these drilling programs and partnership, and there is no doubt about it, that you have oil where you have got it at today and projected to be at in the future, that the market's going to take advantage of low priced natural gas and the price of natural gas is going to go up.

When you get to your target for DRI or scrap-based equivalents, 6 or 7 million tons, I think you said, will you have to purchase any pig iron outside?

We won't have to. It will be a matter of opportunity.

Would you possibly locate DRI facilities up in the Midwest? Like closer to Crawfordsville?

Right now, I would say our plans are immediate and medium-term plans are to do this in Louisiana. The site there is significant. It enables the movement in of raw materials and the movement out of product along the river system quite easily for us, where most of the plans consuming it are going to be on the river. Crawfordsville benefits from being in that heartland scrap bread basket, where there's a lot of prime scrap and I don't think they use much pig iron at all. At anytime over the years we've been using pig iron, because of the availability of pricing on the scrap in that market. But the other places on the river system where we have facilities, it is a tremendous benefit for us.

Got it, thanks.

Aldo Mazzaferro, Macquarie.

I just had a question on the DRI facility out in Louisiana, I was tracking trying to get the gas consumption, it seems like you just gave that. When you use the pellets, what do they come in at? About 62%? Or is it a higher iron content?

Higher closer to 68 plus.

hat kind of a ratio then would you be using? Like about 1.3 of pellets to output? Pellets coming in to DRI going out would be what?

1.4.

1.4 to one, right? Yes. How many people do you think you are going to employ down there?

Per unit, 150.

150?

Obviously, there will be many more during the construction phase.

When the place is up and running how many do we have in Trinidad today?

We have about 100 in Trinidad.

100? This will be a bigger facility and so 150 per unit that we build.

The first one will require a flood facility, as we build the second one, it will require less people to operate the second one.

I get you. And then so you have people you have gas expense, you have depreciation, and any other big input costs down there?

I think you have covered it.

Okay. And the only other question I had, Dan, was on the wide and light project at Berkeley, I think I heard you say you're going to add an additional rolling stand. What's the capital cost on that project? And do you have to widen the caster and the rolling mills, also or are they already wide enough to handle that width?

We have had to do some modification on existing stands, okay? Obviously, we've added a stand to get the lighter gauge and higher strength material. In terms of capital, it's north of $100 million.

That's great. Then the final thing I had, rate of return on the SBQ investment, you probably can't tell us exactly. But can you tell me if SBQ today earns you more or less than a hundred bucks a ton?

Yes. Depending on the product.

Mark Parr, KeyBanc.

A couple of things, you've mentioned energy a couple of times, Dan. Was wondering if the OCTG market, tubular operations, is that something that's important enough to you that it would make it difficult to actually own your own OCTG facility?

OCTG covers a wide breadth of products. We supply a lot of product to the pipe and tube industry, including oil country grouping. Some products we would be able to get into without creating any issues, some products would be a little bit more difficult. Every time I ask my team about it, they're cautious but they also believe that, done the right way, we could get into it if we decided we wanted to, so that opportunity is there for us. But it is not one of our, as you can tell, one of our pressing investment strategies at this point in time.

Okay. All right. I appreciate that. Do you have a view on imports for 2012 versus '11? Do you think imports will be --

I'll give you my view. They should be down 20%. Maybe 30%. Now that's my view. My opinion. Exactly what's going to happen? There will be continual import activity the way there has been, imports aren't going to go away. They just need to be traded properly, fairly, and not illegally and we'll deal with it.

Dan, you mentioned earlier we'll deal with it commercially and legally as we have to. I would point out a couple of things relative to imports. With the extended lead times that are required with the imports, that presents a little bit of a challenge. The potential for quality issues, presents a bit of a challenge. And the other thing is the tight inventory levels that we have currently in the service center industry, makes it a little bit more challenging for them to go out on a limb and make those large buys that are going to be delivered three or four months from today when we're not sure what the market will be.

You have seen the imports as a percent of the overall market come in the last three years, so clearly, as the markets become tighter, and also, you've got capacity to give for the domestic market. Import's got to be an awfully compelling opportunity to take that risk. I agree with you. Another thing, I don't think you mentioned export opportunities or anything new along those lines, Dan or John, that in terms of where you were for the full year as far as export mix and whether or not that's going to change in 2012?

We continued to grow our international footprint, our commercial footprint. We are, right now, at about maybe 1% or 2% higher than we were in 2010, but not a large increase. We have established our first steel depot in Columbia and we expect great things out of that facility. That's going to put some product on the ground in a country where our commercial activities have been growing and the economy is strong. We see good things there. We continue to focus on Central and South America and we anticipate continually to grow that. Our exports, we said last year that we'd like to see a goal of 15% of our total products being exported and we haven't changed that goal.

Okay. Appreciate all the color and good luck on the first half.

Michelle Applebaum, Steel Market Intelligence.

On the 72-inch, on that expansion, how much more of the market can you reach now, with that product?

Remember that the expansion that we're doing at Berkeley involves not just width, but also going lighter and it also involves shipping product to some of our other mills like the Decatur mill, where we'll be able to galvanize 72-inch wide. All that you have to take it into account when you're talking about how much more of the market does this open up for you. It's about the width and the thickness benefit. John?

I guess it is hard to pinpoint an exact number on what percentage it opens up to us. Dan mentioned the galvanized product at the utilization of our other facilities. I do want to also point out it's more than -- we keep talking about the width, right? But when you go that narrow, when you go that light and with the extra strand getting the extra strength that it puts into the steel, also opens up other opportunities for us. It's not just in the automotive as a result of the width, but it's also the physical characteristics of the steel itself that will open opportunities for us.

We're not talking about 50 or 60 tons, we're talking about hundreds of thousands of tons of additional market opening up to us.

In high value and high profit, et cetera.

Absolutely. Absolutely.

I'm trying to figure out, there is a sea change here in terms of mix where Nucor's sweet spot has always been to go to the center of the markets. You've left on the, you want to call them more specialty grades and in the last couple of years, it's really been over the decade that accelerated the last few years, whether it's SBQ, whether it's this product, I'm trying to get a handle on how much further downstream you've gone. There is no way to generalize, is there?

Nucor has been doing this since we built the first steel mill. We did it when I was out in Plymouth, Utah. We did it when I was at Nucor-Yamato and we're doing it today and the biggest area that we've been doing it in is the newest product group that we've gotten into over our history and that's flat-rolled and plate. We've moved into the high end of the SBQ business as well. It's been a continual thing. It's been part of our strategy.

The key to it, for us, is that you do that without vacating any of the other spaces that you've occupied. That was a mistake a lot of steel companies made 20, 30 years ago, where they basically let the mini-mills in at the low end and held on to the high end. Our strategy is one based upon learning from that painful lesson and so, we are growing our footprint, not shifting it. That's an important distinction, and you know we are going to continue to grow it. It won't be long before there's not a grade of steel in any of those product lines that we are not capable of making and making on a consistent basis.

Exactly. Forgive me for being greedy, because you're announcing all these different growth kinds of things the last couple of days, but can we get an update on the new maybe potential plate mill?

Plate mill is something that we are continuing to investigate. We've taken a look at sites, and it's an opportunity that as the market continues to develop, we will switch our emphasis from one of exploring to one of actually implementing. We're not at that implementation stage yet.

Great, so more good news coming. Thanks.

Sam Dubinsky, Wells Fargo.

Given that construction markets are showing some signs of life, do you expect the steel products division to break even or even be positive in 2012? Then I have a follow-up.

The magnitude of the improvement from 2010 to 2011 was significant. We don't expect to see the same significant level of improvement, but we do expect to see continued improvement, particularly in the middle to the latter part of 2012.

Okay, great. In terms of pricing through Q2, I know there's not a lot of visibility in the market, but seems like some of the price hikes, at least for long products, have been due to rising scrap costs. With scrap potentially trading lower, do you think pricing can stay at today's levels?

Always keep in mind that while raw materials may be the initiator of pricing moves, it's the market that determines whether or not you can hold on to those pricing moves that you worked to get because your raw materials are going up. It's something that, if the market is strong enough, it will allow us to recoup those costs and in the recent time period, it has and we hope that, that trend continues going through next year. Obviously, a whole host of issues that could impact that and we've talked about some of them today and you guys have brought some of them up. But you always have to keep in mind, just because scrap costs go up or ore costs go up or coal costs go up, doesn't mean you automatically get it back and price increases. The market has to be conducive to it, the demand in the marketplace has to be strong enough to accept it, so it's not a direct result every time. And you've seen us have to move up and down, based upon what the market says we can get for pricing.

Okay. My last one, just for modeling purposes, how should we think about minority interests and equity income going forward?

How should you think about it in terms of absolute terms or general terms?

Yes, on a dollar basis, just because it's been a little volatile.

We won't say an absolute amount, but keep in mind that we took a $7 million charge in the third quarter that made the expense higher and then we got a $7 million benefit in the fourth quarter. I would back those out and then make your judgments from there.

Okay. Great. Thank you very much.

Dave Martin, Deutsche Bank.

Starting with the DRI project, you mentioned the drilling program. What's the CapEx in the budget related to the drilling program? And also, I'm curious if there's any triggers in the agreement in which, if natural gas falls below some price, the drilling stops.

We do have triggers in the program, so that if natural gas falls below a certain level, we can and most likely will stop drilling. As far as the CapEx goes, we're not going to go down that path.

Not in total, but in 2012, we think it's going to be in neighborhood of $100 million out of that $1 billion that we called out for our total spending this year.

Keeping in the energy theme, Dan, you mentioned earlier that for SBQ, energy represented, I believe, as much as 15% of sales. I'd just be curious if you could ballpark what your energy exposure was for your other main products?

As we mentioned earlier on the SBQ, it could be as much as even 20% on the SBQ. The guys are now comparing notes at the other product lines.

We don't have much on structural. But on plate, probably around 10% also and on sheet the same ballpark, about 10%, maybe 10% to 15%.

But those are all growing opportunities.

Yes.

Those numbers will move forward, others the energy activity continues to develop in this country, which it is going to, for that gauge of (inaudible).

Lastly, I had a follow-up for Jim. On the correction of the accrual of $29 million, was that in SG&A and therefore the explanation why SG&A fell so much quarter-over-quarter?

No, it was not. It was in cost of goods sold. One other thing about the quarter-over-quarter move somebody brought up in the background while you were talking is, in the third quarter we did take a charge of about $14 million that was disclosed in the 10-Q regarding a dust recycling facility. Third quarter did have a $14 million higher charge than what we had in the fourth quarter.

Okay. Great, thank you.

There are no more questions. I'd just like to say thank you for your participation and your interest in Nucor and once again, thank all our shareholders and our teammates and our customers and suppliers for helping make Nucor a success. A continuing success. Our best years are truly yet to come. Thank you all.

That concludes today's conference. Thank you for your participation.