Nucor Corporation (NUE) Q4 2011 Earnings Report, Transcript and Summary

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. [Operator Instructions] 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 risk 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 the 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'd like to turn the call over to Mr. Dan DiMicco, Chairman and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Thank you, Marissa. 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 our 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 Fabricated Products; and Joe Stratman, heading up Business Development and our Plate & 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, remained 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 during the periods -- 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 successful 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 team's work growing long-term earnings power and shareholder value is ongoing. Over the 2008 through 2012 period, Nucor will have invested more than $6 billion of capital, with a disciplined execution of our 5-pronged growth strategy. The bottom line is that Nucor is primed and ready for new higher highs in earnings once the sustainable economic recovery inevitably arrives. In 2012, we expect to see continued growth in sales and earnings for Nucor, albeit in a slow-growth U.S. economy, burdened by a challenging regulatory and overall business environment. Uncertainties in Europe's financial sector will weigh on both global and U.S. growth in 2012. But 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 can provide substantial wealth creation is a hugely failed business model that's 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. The U.S.-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 that have the opportunity earn a rising standard of living. This is the path that will create the 30 million net jobs we need over the next 5 to 7 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 multinational manufacturing community, are applying our can-do attitude and energy level to shine a bright light 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 CEO, 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 2 nonrecurring items. The quarter's LIFO charge of $52 million was approximately $27 million less than the estimate used in our mid-December guidance. A noncash 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 and 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 earnings still exceeded our fourth quarter guidance range. Nucor's fourth quarter performance benefited from stronger-than-expected volumes and margins in December. The fourth quarter 2011 effective tax rate, measured as a percent of earnings before taxes and noncontrolling interest, was 29.4%. After adjusting out profits belonging to our noncontrolling interest business partners, the effective tax rate was 32.5%. Full year 2011 earnings per diluted share of $2.45 represent significant improvement from 2010 earnings of $0.42. Nucor's return on 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 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 the 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's 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 strategy's objective 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're 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 Aa2 rating from Moody's and an A rating from Standard & 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 & Poor's, in their January 9 report entitled, North American Metals and Mining Companies, Strongest to Weakest, again ranked new Nucor #1 for credit rating and credit outlook among the 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 & 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 onetime 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're 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'll 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, steelmaking 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 in an unrivaled position of strength, and taking advantage of our strengths is 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, cold- finished 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 bar 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 2 plate mills and 4 sheet mills, which enabled us to improve margins at those facilities. And more value-added plate products are on the way, with the vacuum tank degasser and normalizing line currently being installed at Hertford County. Our Nebraska SBQ mill's 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 metals 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-rolled 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. Startup 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 2/3 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 on our Nucor, Harris Steel, David Joseph, Duferdofin and Steel Technologies teams for working safely, working hard, working smart and working together. You are the reason that I could 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 would be happy to take your questions.

[Operator Instructions] Our first question comes from Sohail Tharani with Goldman Sachs.

Dan, couple of questions. 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 the index of the market price so that your costs also will go down if the natural gas price does remain low by the time this project starts.

Well, we're not locked in to a financial instrument. We are actually involved in drilling and in a joint venture partnership. And the cost per unit 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 up in, actually, January. Is it the flow scrap that you have a 1-month lag that's currently down because you'll be using the December scrap in January?

Well, we always do have a lag between our purchase of scrap and when it shows up in our production of steel. And 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. But 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 is depreciating. So short term, we see sideways to moderately down. Longer term, we see it rebounding.

Our next question comes from Luke Folta with Jefferies. Luke Folta - Jefferies & Company, Inc., Research Division: John, you made a comment about being able to make 72-inch bands at Berkeley and 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.

Well, first of all, just to get the facts straight. We will be making 74-inch of hot band at Berkeley. The finished product, downstream cold-rolled and galvanized will be coming off at 72-inch. Obviously, that opens up many opportunities for us in the market, particularly in 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. I should also point out, 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. So the lighter gauge, the extra mill stand will give us higher strength product to bring into the market. Luke Folta - Jefferies & Company, Inc., Research Division: And then just on the SBQ press release that was out yesterday, it sounds like it's an additional 1 million tons. I shouldn't read that -- first, I shouldn't read that as additional steelmaking capacity, it seems like it's more downstream or finishing capacity. And then also, can you give us a sense of, does this -- I mean, is this basically more of the same products you're producing or does this put you in a different part of that market as well?

Okay, first of all, it will be additional capacity that 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. So 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 2 years will get us in to new products. We're basically expanding our size range and our grade range. The wide block and line upgrading [ph] in South Carolina and 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. And Memphis will 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, that 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 steelmaking 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. So this is really becoming more efficient at our existing operations, taking full advantage of the equipment that we have in place and putting mass [ph] 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. And it's important that you understand that we define a market, and how people define markets may be different from one another because we define the market for this type of product, 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?

Yes, I would add maybe 2 points. One is that, sticking with our focus on having diversity, the products that we will be adding, the 1 million tons that we will be adding, are spread out across many markets, many industries and many customers. So it will not be concentrated in any 1 market, industry or any 1 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.

We'll take our next question from David MacGregor with Longbow Research.

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

This is Jim Frias. This year, there 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're going to ramp up because of the new DRI facility, but it's too early for us to tell what those are going to be. So we'll give you quarter-by-quarter what we're looking at, okay?

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

Well, right now, we're at about 10% of our sheet product goes into automotive. Another couple of percent going into appliances. In our SBQ market, about 5% to 10% also of our SBQ products go into those 2 markets currently. Frankly, with the additions that we're making in our SBQ portfolio and what we're 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. So I'm just trying to get sense of how important those markets might be to you in 2014 or around that point.

Well, they'll obviously be 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, the appliance sector, but in particularly the automotive, will be very important and we'll be able to continue to participate at greater levels and greater percentages with our current growth strategy and with capital that we're going to be spending 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, that just so we're clear. This isn't something new that we're moving into. We've been in the automotive market for several years now, probably going on almost 10 years. And our presence in that market, both from a product diversity, value-added and customer base has been growing every year. So we're ready for this next step. We're excited about this next step. Going to the 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. So we're continuing to diversify.

Last question, if I could. Just with the RG this past quarter, how much tonnage do you think you picked up from that? 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're taking from 1 customer or another, or from 1 producer to another, number 1, we don't really know that; number 2, it's inappropriate.

The next question comes from Shneur Gershuni with UBS.

Just a question here. I was wondering if you can comment a little bit. You had mentioned in your press release about, I guess, a green shoot in the construction recovery of sorts. I was kind of wondering if you can give us some color on segments, res versus non-res and geography and sort of 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?

I guess the only thing I would point out is what we said was we see some signs, some small signs of improvement. Okay? So 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 that we are involved with, we a small pickup in that. So we see a small incremental improvement and that's just, we're pointing out it's a good sign, it's a good start, good first step. The ABI, for 2 months in a row, was over 50%. That's the first time that's happened in several years. So 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, 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 and we look forward to those strong actions actually helping the nonresidential energy construction markets in 2012. But it's too early to tell where that'll come from and how strong it'll be. But there's no doubt that we're past the time when we have to make these kind of investments and find the money to do it.

And sort of based on that, given the fact that it looks like imports are starting to creep up a little bit and RG, I guess, 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?

Well, the RG doesn't really impact the nonresidential construction that we're talking about and 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, something that we constantly monitor on a daily basis. Not just a monthly basis. And we have strategies in place to deal with imports, whether they be proactively in Washington, constantly monitoring the flows, the pricing. And 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 ebbed a little bit over the last few months, but we know that the 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 upon what ramifications there are and what remedies we take to deal with them in the marketplace or elsewhere.

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

Our SG&A changes based upon profitability. Jim, you got anything you want to add to that?

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

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

We'll take our next question from Timna Tanners with Bank of America 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, that you have quite a bit of restricted cash, a big CapEx budget. Are you more -- is it fair to say you're more focused on internal growth than acquisitive growth? Is there a lot more room for you to do things beyond what you've told us? If you could just detail that a little more.

Well, 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, so I wouldn't say we're any less interested in M&A activity. I just would say that there's not a lot of that taking place at present. And even where people tried to get some things going, they didn't pan out too well. And so our major focus in our capital expenditures are going to be as we've already discussed. It 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. And if I could, one more question, just on the construction markets since you're so involved in there. Your Downstream businesses especially might be ahead of the cycle. Structural shipments were up pretty sharply, more than we would have seasonally expected. Can you give us a little bit more color about what might be happening downstream and in structurals? And is there a possibility, I know you're expecting small growth for construction, but is there a possibility that you think that, 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. It's, 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've seen in virtually all of our downstream businesses in terms of profitability. And where there were some strong negatives, those strong negatives have shrunk dramatically. And 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 in saying we expect small improvements. If some other things fall into place that could be significant improvements. There 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. So 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.

We'll take our next question from Richard Garchitorena with Credit Suisse. Richard Garchitorena - Crédit Suisse AG, Research Division: So my first question. It looks like, in Q4, we saw a drop in conversion cost versus the third quarter. Can you talk a little bit about some of the components which helped to drive that and how should we look at that going into Q1 into the rest of 2012?

Well, we did have an improvement in our conversion cost, and that's an effort of us focusing, as we always do, on lowering our costs. That's how we are focused on being the low-cost producer. We continue to focus in 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. Richard Garchitorena - Crédit Suisse AG, Research Division: 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. Richard Garchitorena - Crédit Suisse AG, Research Division: Great. 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'll change at all going into 2012?

Well, we don't get into breaking out each individual product line's capacity utilization rates for competitive reasons. Overall, that's where we're 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. And we've seen, as we've mentioned, and you can take this as an intuitive comparison, we've told you that we've seen stronger markets in many of our products and 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'll move to. I think, over the last year, we've 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 only -- 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 in certain markets improved by 5%, on average. So we expect to see something similar next year.

Our next question comes from Michael Gambardella with JPMorgan. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: I got a question for you on natural gas. On average, just roughly speaking, how many millions of BTUs do you use a year?

In our existing operations? Is that the question? Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Yes.

About 30 billion to 35 billion in our existing operations.

In the steel mills.

In our steel mills.

DRI facility, we project, will be using another 26 billion.

25 billion, 26 billion. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Right, and how much of that is hedged?

Well right now, in terms of financial hedges, we worked through the last of our hedges recently. And 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%.

And we do have the long-term contract in our Trinidad facility, a 20-year contract with an average cost of about -- it was about $2 an MMBtu. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: I was just trying to get to how much of a benefit you'll get on your cost structure this year with lower natural gas.

Well, certainly we will see a benefit with the way that spot prices have going and market prices have gone. I don't think we sat down and figured out what that's going to be at. But it probably will be significant. That's totally unrelated to the drilling program that we have with our partners. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: And then just a last question on the DRI side, where are you planning to get the DRI for the new facility -- I'm sorry, the iron ore for the DRI in the new facility?

Same places we mentioned in some previous calls, Michael. The same people who are 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. 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 large consumer of electricity, and some of that electricity is produced in coal -- excuse me, gas-fired generation. So we expect to see a positive impact from that also. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: So is some of your electric tied to the price of natural gas?

Yes, definitely.

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. So you could probably figure, on average, 20% of our electricity is coming from natural gas-fired facilities, and the fuel charges and what have you will give us, will benefit us to that level. I think there was an article, Michael, the other day that came out and 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 power rates by 50%. Quite significant. And so that trend 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. And when we look at something like 1 or 2 or 3 DRI plants, we're looking at 20, 30-plus years where we want to maintain a stable supply. That's why we have entered into these drilling programs in partnership. And there's no doubt about it that you have oil where you've 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. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: When you get to your target for DRI or scrap-based equivalents, 6 million or 7 million tons, I think you said, will you have to purchase any pig iron outside?

We won't have to. It'll be a matter of opportunity. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Would you possibly locate DRI facilities up in the Midwest, like closer to Crawfordsville?

Right now, I'd say our plans, our 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. Most of the plants consuming it are going to be on the River. Crawfordsville benefits remain in that heartland scrap breadbasket, where there's a lot of prime scrap. And I don't think they use much pig iron at all. At any time, over the years, we've been using pig iron because of the availability in pricing on the low residual scrap in that market. But the other places on the river system where we have facilities, it's a tremendous benefit for us.

We'll take our next question from Aldo Mazzaferro from Macquarie.

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

Close to 68%-plus.

And so what kind of ratio, then, would you be using, like about 1.3% of pellets to output? Pellets coming into DRI coming out would be, what, about...

4 to 1. Excuse me. 1.4

1.4 to 1, right. Yes. And how many people do think you're going to employ down there?

Per unit, 250, is that right? 150.

Yes. Obviously, there'll be many more during the construction phase.

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

We have about 100 in Trinidad.

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

The first one will be cryo flood [ph] facility, so as we build the second one, it'll require less people to operate the second one than the one in Trinidad.

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

Think you've 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 in that project? And do you have to widen the cast during the rolling of those also or are they already wide enough to handle that width?

John?

Yes. Well, we've had to do some modification on our existing stands, okay? Obviously, we've added a stand to get the lighter gauge and higher strength material. And in terms of capital, it'd be about -- it's north of $100 million.

That's great. And 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 $100 a ton?

Yes.

No, I mean at roughly $100 a ton. I think it definitely meets your standards.

It truly is an estimate I've put it on the product.

We'll take our next question from Mark Parr with KeyBanc.

Couple things. You've mentioned energy a couple of times, Dan, and 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?

Well, OCTG covers a wide breadth of products. We supply a lot of product to the pipe and tube industry, including oil country grouping. And 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 teams 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's 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? I mean, do you think imports will be...

A view? 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'll 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 bit of a challenge. 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 3 or 4 months from today when we're not sure what the market will be.

Well, you've seen the imports as a percent of the overall market come in, in the last 3 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. But it's good. Another thing, I don't think you mentioned export opportunities or anything new along those lines, Dan or John, that in terms of kind 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 continue 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 Colombia 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. So we see good things there. We continue to focus on Central and South America, and we anticipate continuing 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.

We'll take our next question from Michelle Applebaum with Steel Market Intelligence.

A couple things. 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. And so with all that you have to take into account when you're talking about how much more of the market does this open up for you, it's both a width and thickness benefit. John, you got any...

I guess it's hard to pinpoint an exact number as what percentage it opens up to us. Dan mentioned the galvanized product with 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. So 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 of hundreds of thousands of tons of additional market opening up to us.

Right and high-value, a high profit and...

Absolutely.

I'm trying to figure out, there's a fee change here in terms of mix where Nucor's sweet spot has always been to go to the center of the market. So you've left on the, you want to call, the more specialty grades. And in the last couple of years -- it's really been over the decade, but 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's no way to generalize, is there?

Well listen, Nucor has been doing this since we bought the first to 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 it to over our history, and that's flat-rolled and plate. And we've moved into the high end of the SBQ business as well. And it's been a continual thing. It's been part of our strategy, and 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 onto 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 we're going to continue to grow it. And it won't be long before there's not a grade of steel in any of those product lines that we're not capable of making on a consistent basis.

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

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

Our next question comes from Sam Dubinsky with Wells Fargo.

Just a couple of quick ones. Given that construction markets are showing some signs of life, do you expect the Steel Products division to breakeven or even be positive in 2012? Then I have a follow-up.

Well, 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. And then in terms of pricing through 2Q, I know there's not a lot of visibility in the market, but it seems like some of the price hikes, at least for Long Products, had been due to rising scrap costs. With scrap potentially trading lower, do you think pricing can stay at today's levels?

Well, always keep in mind that while raw materials maybe the initiator of pricing moves, it's the market that determines whether or not you can hold onto those pricing moves that you worked to get because your raw materials are going up. And it's something that if the market is strong enough, it'll allow us to recoup those costs. In the recent time period it has. And we hope that, that trend continues going through next year. There's obviously a whole host of issues that can 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 that you automatically get it back in price increases. The market has to be conducive to it. The demand in the marketplace has to be strong enough to accept it. And so that is not a direct result every time. And you've seen us have to move up and down based on what the market says we can get for pricing.

Okay. And then just my last one, just for modeling purposes, how should we think about minority interest 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.

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

Our last question comes from Dave Martin with Deutsche Bank.

I had a couple follow-ups. Hopefully, it'll be quick. Starting with the DRI project. You mentioned the drilling program. What's the CapEx and 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?

Well, we do have triggers in the program, so that as 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 the in the neighborhood of $100 million out of that $1 billion that we called out for our total spending this year.

Okay. And then just 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?

Well, as we mentioned earlier, on the SBQ, it could be as much as even 20% on the SBQ. Rick [ph] and the guys are now comparing notes on the other product lines -- the horses are coming in lined up. I think we're ready to give an answer.

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

But those are all growing opportunities. Those numbers will move forward as the energy activity continues to develop in this country, which it is going to for decades to come.

Okay. And then 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 that somebody brought up in the background we were talking is, in the third quarter, we did take a charge of about $14 million that we disclosed in the 10-Q regarding a dust recycling facility. So third quarter did have a $14 million higher charge than what we had in the fourth quarter.

If 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 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.