Nucor Corporation (NUE) Q4 2013 Earnings Report, Transcript and Summary

John J. Ferriola - Chairman, Chief Executive Officer and President James D. Frias - Chief Financial Officer, Executive Vice President and Treasurer Keith B. Grass - Executive Vice President, Chief Executive Officer of DJJ and President of DJJ R. Joseph Stratman - Executive Vice President of Beam & Plate Products James R. Darsey - Executive Vice President of Bar Products

Sohail Tharani - Goldman Sachs Group Inc., Research Division Meredith H. Bandy - BMO Capital Markets Canada Luke Folta - Jefferies LLC, Research Division Matt Murphy - UBS Investment Bank, Research Division Timna Tanners - BofA Merrill Lynch, Research Division Evan L. Kurtz - Morgan Stanley, Research Division Michael F. Gambardella - JP Morgan Chase & Co, Research Division Brian Yu - Citigroup Inc, Research Division Philip Gibbs - KeyBanc Capital Markets Inc., Research Division Andrew Lane - Morningstar Inc., Research Division David A. Lipschitz - CLSA Limited, Research Division Ignace F. Proot - Sanford C. Bernstein & Co., LLC., Research Division

Good day, and welcome to the Nucor Corporation Fourth Quarter and Year-End 2013 earnings call. As a reminder, today's call is being recorded. [Operator Instructions] Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. The words we expect, believe, anticipate and variations of such words and similar expressions are intended to identify those forward-looking statements, which are based on management's current expectations and information that is currently available. 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 website. 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. For opening remarks and introductions, I'd like to turn the call over to Mr. John Ferriola, Chairman, President and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Good afternoon. This is John Ferriola, Nucor's Chairman, Chief Executive Officer and President. Thank you for joining us for our conference call. As always, we appreciate your interest in Nucor. With me for today's call are Nucor's Executive Vice President Jim Frias, our Chief Financial Officer; Jim Darsey, responsible for our bar mill, Cold Finish and Fastener businesses; Keith Grass, responsible for our scrap business and energy investments; Ladd Hall, responsible for our Sheet Mill and Direct Reduced Iron facilities; Ray Napolitan, responsible for our Fabricated Construction Product businesses; and Joe Stratman, responsible for our beam mills, plate mills, sheet piling and business development work. First and most importantly, we want to thank everyone on our Nucor, Harris Steel, David J. Joseph, Duferdofin, NuMit, Steel Technologies and Skyline Steel teams for your excellent work taking care of all of our customers. Each and every day, the more than 22,000 men and women of the Nucor team are building a stronger Nucor by working safely, working smart and working together, as has been the case since our company was founded nearly 5 decades ago. Nucor's employees, the right people are our company's greatest asset and our greatest competitive advantage. Throughout Nucor, our teammates have been working hard to grow long-term earnings power. We have invested significant capital in recent years that we expect to convert into higher highs in profits over is the next upcycle. Two key drivers to the anticipated profit growth will be reducing our raw materials cost and expanding our product mix to include more value-added, higher-margin offerings. In the fourth quarter, we reached a number of significant milestones implementing these organic growth initiatives. I will discuss these achievements after our CFO, Jim Frias, reviews our fourth quarter results and financial position. Jim?

Thanks, John, and good afternoon. Fourth quarter 2013 earnings of $0.53 per diluted share included favorable out-of-period tax adjustments totaling $0.07 per diluted share. A lower-than-expected LIFO charge also benefited earnings by about $0.03 per share. Excluding these items, our results exceeded our guidance range of between $0.35 to $0.40 per share by approximately $0.03 per diluted share. This performance largely resulted from better-than-expected December profitability at our sheet and plate mills. Nucor continues to benefit from its position as North America's most diversified manufacturer of steel and steel products. A comment about our tax rates can be confusing due to the impact of profits from noncontrolling interests. After adjusting out profits belonging to our business partners and the out-of-period tax adjustment, the effective tax rate was 31% for the fourth quarter and 33% for the full year of 2013. Balance sheet strength remains an important attribute of Nucor's business model. Nucor is the only steel producer in North America to enjoy the extremely important competitive advantage of an investment-grade credit rating. Our financial strength allows us to invest aggressively during the downturn to grow our long-term earnings power. At the end of 2013, Nucor's total debt-to-capital ratio was 36%. Cash, short-term investments and restricted cash totaled $1.5 billion. For[ph] Nucor's strong liquidity, our $1.5 billion unsecured revolving credit facility is undrawn and it does not mature until August 2018. We have no commercial paper outstanding and our next significant debt maturity is not until 2017. Nucor's cash flow generation remained very healthy in 2013's challenging steel market conditions. Cash provided by operating activities last year was approximately $1.1 billion. Our balance sheet, liquidity and cash flow have allowed us to grow stronger during the current downturn. We have invested aggressively for profitable growth. 2013 capital expenditures exceeded $1.2 billion,…

Thanks, Jim. Nucor's fourth quarter of 2013 performance was noteworthy for several important reasons. Our teammates delivered solid profitability in what are still very challenging markets. They achieved this while undertaking significant planned downtime for major capital projects at several of our larger steel mills. Those outages included: 4 weeks at our Nucor Steel Berkeley sheet mill; 2 weeks at our Nucor-Yamato structural steel mill; and 4 weeks at our Nebraska bar mill. We also absorbed the costs of starting production at our new Direct Reduced Iron or DRI plant in Louisiana. Further, I am pleased to report a number of impressive achievements in the ongoing implementation of our capital projects. These initiatives grow Nucor's long-term earnings power by providing us new higher-margin product offerings, cost reductions and quality improvements. Our Nucor Steel Louisiana team began producing DRI on December 24. Within the first 24 hours of operation, output quality reached the world-class levels consistently achieved by our DRI plant in Trinidad that has been running since 2006. In fact, Louisiana's carbon content has recently exceeded Trinidad's best-in-class performance. Most importantly, the initial output from the Louisiana plant has performed very well at the Nucor mills that have consumed it. I would like to thank everyone on our team in Louisiana for their hard work and ongoing commitment to getting the job done. The startup of the Louisiana DRI plant is a huge step forward in the implementation of our raw material strategy. We view our expanded DRI capacity, added with our low-cost and long-term natural gas supply, to be a game changer to Nucor's cost structure for the highly -- high-quality iron units we need to expand our share of the higher-value-added sheet, SBQ bar and plate markets. It is also a game changer by improving Nucor's operating flexibility…

[Operator Instructions] We'll take our first question from Sal Tharani with Goldman Sachs.

I wanted to ask you a couple things. First on how are things going on your automotive strategy and what do you see over the next few years? And the second thing will be on -- a little bit more color on your natural gas. But let's just start with the auto strategy?

Well, as I've mentioned several times in previous calls, Nucor continues to develop and get qualified for advanced high-strength steels in applications in automotive. We particularly are focused on, as I mentioned in the past, unexposed applications. I'm happy to report that the qualification process is continuing and we're doing quite well in both cold-rolled and galvanized. We're moving well into the qualification period and we expect imminent supply contracts. In fact, I can tell you that, as we speak, we do have already in use, in exposed applications, steel products on cars in production and out on the roads today. So on the sheet side, we continue to progress well on the qualification and implementation phase of moving into exposed automotive and other automotive applications. In SBQ, we continue to move up the value chain also. We are currently producing crankshaft steel for several driveshafts. We produce axle steel at our Norfolk, Nebraska plant. And as we mentioned in the script, we've made a lot of investments during the past downturn to continue to get better at that with degassers. Our wide light project at Berkeley will help us continue to move up into the automotive exposed arena. And of course, we have our automotive-rated galvanizing line indicator. So we feel pretty good about Nucor continuing to move into more automotive applications. And that's a focus of ours. Obviously, automotive is very strong now. We continue -- we believe it will continue to be strong for a while. So our focus will be to continue to move into more automotive applications.

John, I was just wondering that this space is getting crowded with aluminum now entering the sheet market on the automotive side, and Thyssen's plant finally going to be sold to somebody who probably will be able to qualify soon. I'm just wondering is this how -- is it worth really pursuing that because, historically, you had shied away from that end market. Of course, this end market is doing very well right now because construction is down. But how much effort and money are you still willing to put in this thing to get where you want -- where you should have a critical mass in your hand?

Well, I'm not sure that we're going after a major component of the business. And frankly, given the investments that we've already made, Sal, we don't see the need to make many more large investments in any of our facilities to move further into automotive. So we're pretty happy with where we're positioned from an equipment perspective. As I mentioned before, the qualification period in automotive is a very long process. It usually runs about 2 years. And given where we are in that process right now, we're pretty happy with the amount of business we've got. We do believe it will continue to grow, but we don't -- we are targeting in 2014 to increase it by about 5%. But -- and I want to comment on your question about aluminum. So let's take a look at aluminum. Yes, we recognize Ford's move into the aluminum arena with the F-150, but we still believe that steel, long-term, will be the material of choice for automotive production. When we compare it to aluminum, aluminum is 2x or 3x the initial cost of the steel. There is significant cost to retool the automotive production facilities. And the repair and insurance costs for car owners with aluminum, we believe, will be significantly higher. So we still see a major role for steel in automotive. And Nucor, frankly, as well as the rest of the industry, continue to focus on developing high -- advanced high-strength steels that will result in light weighting for the vehicles that's similar to aluminum and do it more effectively.

We'll take our next question from Meredith Bandy from BMO Capital Markets.

I wondered if we could just go a little bit bigger picture. There's been a lot of talk in the market, generally, about a manufacturing renaissance in the United States, and I was wondering what your take on that is? And do you see data to support a renaissance or would you say that it's more anecdotal at this point? How do you think about it?

Well, we agree very strongly with the statement that the gas, the shale gas revolution will, in fact, result in a manufacturing renaissance in the United States. And I don't have the data at my fingertips, but there is quite a bit of data out there supporting that position. The amount of investment in manufacturing over the last 2 to 3 years is measured in the billions of new projects. We see it all the time as we visit with our customers and we get in the form of a customer feedback. We -- there's Caterpillar, for one, is moving back into the States, moving some production back into the States. Several of the large equipment manufacturers are moving production facilities back into the States. So we think it is very real. We think it's very significant. And we are investing in our company to be ready for that renaissance when it occurs. That's what the $8 billion of investments we've made over the last couple of years is all about. We believe it's coming. We believe we'll be ready for it and we believe we will be best positioned to take advantage of it.

Okay. And then what is the potential upside to Nucor like if you look at your total -- what's the ability to move in terms of either the number of shipments you can get or perhaps also the widening of margins that I think you talked about in your prepared remarks?

As relates specifically to the renaissance in manufacturing, it's hard to quantify that number. I think I'll leave it with the fact that we've invested heavily. We've grown not only our buying but more importantly, we've grown our value-added offerings to the marketplace. And as manufacturing comes back, you need those higher-valued, qualified steels, advanced strength and others, to fill the needs of the production that will be returning to the United States.

Meredith, this is Jim Frias, I want to comment on that. We've been operating the last few years in the 70% steel mill utilization rate. And historically, normal markets in the past, not just the cyclical peak we saw in 2004 to 2008, we more typically operated in the low- to mid-90s of our capacity utilization. So that would suggest to you that there's a 20% to 25% upside just in the volumes, on top of whatever the margin benefit is.

And I might also just add to Jim's comments that as manufacturing moves back in, it's going to need buildings. Those buildings are going to need foundations. We have rebar, we have the foundation of rebar formation -- forming companies. We have rebar placing companies. We have metal buildings that we could supply to them. So as you see them moving back in, you'll see our downstream businesses benefit from that renaissance also, as well as our steel producing divisions.

Our next question is from Luke Folta with Jefferies & Company.

First question on the DRI plant. It sounds like, I guess, besides the storage tank issue that has gone as good as you can expect, as good as you can hope. Now that, that's starting to ramp, can you give us an idea of when you think you can ramp the plant to full capacity? And also, I thought it was kind of interesting you pointed out that it reduces your supply chain on the iron unit side, that makes full sense. Is there a working capital release that you expect this year as you ramp that plant up?

You want to take the...

I'll take the working capital part and then let John answer the first half of the question. The working capital benefit is going to be relatively small because it depends on how much we shift away from pig iron as the year goes on. And versus, maybe, using less prime scrap. So I shouldn't say small, it's a fairly broad range, is the way I should describe it. We currently carry -- we're going to look up, while we're on the call, how much inventory we carry in pig iron and maybe give you a little tighter answer on that.

Yes. Well, one thing that I would want to remind you of is that one of the real benefits of the DRI facility is flexibility, as well as a shorter supply chain. We will have the ability to switch iron units as pricing changes for the various commodities. Now that's a really important point. And Jim, you'll look that up. But I want to mention a couple things about the startup at the DRI plant. First of all, I want to again thank our team in Louisiana. A great bunch of guys, they did a great job working under very difficult circumstances. We had, as you mentioned, the dome situation, which was a setback. Our team found a workaround for that in the typical Nucor way. We like to say at Nucor, when we have a crisis, we run towards it, we don't run away from it. And certainly, when we had the dome failure, there was a need to run towards that situation and we did it, and the team did a great job coming up with a phenomenal workaround. That DRI facility is the largest DRI facility anywhere in the world. And as such, it's a complex operation, and there'll be some bumps in the road. But I'm happy to say that in addition to the phenomenal quality that I've mentioned earlier, I mean, within 24 hours to be up to quality levels that we've been achieving, world-class quality levels that we're achieving in Trinidad, that's an outstanding performance. We are currently running just slightly above 80% of capacity, that's pretty much right on track with our startup curve that we expected, frankly, probably a little bit ahead of it. And we've had short periods of time when we ramp -- been able to ramp-up for short periods of time to about 90% to 95% of capacity. So all of that gives us a good deal of confidence in the plant technology and in our teammates' ability to run that plant efficiently and effectively.

Okay. I guess, secondly, I mean, it sounds like the experience so far has been really good. Have you gotten any closer to deciding when you might make the decision on the third DRI plant?

Well, you know, I'll say we've gotten a little -- first of all, it would be the second one in Louisiana, our third one in the company, just so we're clear on that. And certainly, we are looking at that. I don't want to say that we're any closer to making that decision. We're just a couple of weeks into the startup. We want to continue to evaluate the HYL technology, although we've been very impressed with it to date. And frankly, as with any plant, we went through this with our facility in Trinidad, during that first year of operation, there's going to be some bumps in the road. And we expect it, you should expect it. It won't come as any surprise to us when it happens. We're confident in our ability to overcome those bumps and continue to move forward. But there are going to be -- there's going to be hiccups in the operation. It's just it's a new facility, a complex operation and there will be some hiccups. So we're continuing to evaluate it, we'll make the decision on the second DRI facility in Louisiana at the appropriate time.

Okay. And just lastly, if I could. On the natural gas drilling partnership, is there an approximate range in terms of what price nat gas has to get to before you think it's worth starting to ramp-up drilling there?

Well, I'll repeat what we said in the script. At last year's pricing, we were able to have a modest profitable return. And so that should give you some indication. I'm not going to go any further than that.

[Operator Instructions] And we'll next go to Matt Murphy with UBS.

Maybe just continuing on the nat gas. How did the decision process work going forward? Is this something you kind of evaluate year-to-year or you need to see the futures curve move to get more -- say, get back to talking about drilling?

Well, as I mentioned, it's something that we'll do jointly with our partners, Encana. I'm not sure that it would be dependent upon the futures curve, as such, per se. But obviously, we would be looking for a sustainable price movement before we would make a decision to begin drilling again. Right now, we believe it's in the best interest of our shareholders and the best return for our capital to suspend the drilling. The key here is to remember that we don't lose any of the gas that's still underground. It'll always be there and we have the same amount of access to it. So as pricing increases, it only gets better. So we'll look at it with a very careful eye before we begin drilling again. We would want to see a sustainable price move in natural gas so that we get a higher return for our investment. It's just common sense. We have nothing to lose and a lot to gain, and that's how we'll approach it.

Got you. Okay. I guess the other question on it would be, given it was modestly profitable in 2013, would you still be needing to disclose it as a separate segment or does that get put off until it becomes more meaningful?

This is Jim Frias, I'll answer that. At 300-and-some wells that we'll have in process, with what's going to be finished drilling through about the middle of this year, that's not enough at that point to require the separate disclosures, it's not material enough. So it's going to be at some point in time, we don't have a specific number of wells that have to be out there producing that crosses over that line. But we're not really anywhere near it with the 300-plus -- small amount that we'll have in 2014.

I would just like to make one more point about the suspension of the drilling. I mentioned it in the script, but it's really a very significant point. And that is that we have covered our needs for the DRI plant in Louisiana. So the -- our desire to hedge our bets on natural gas, which would mean a major risk to our DRI facility, we've got that covered. So we've got that covered right now into 2015. So that would also factor into our decision. As we saw a need to continue or to grow the hedge in Louisiana, that would be a factor we would use in deciding to begin drilling again.

Our next question is from Timna Tanners with Bank of America Merrill Lynch.

So not to go over this $400 million, but when we saw the announcement our first thought was, what's the other better use of that $400 million that you contemplate? Since the CapEx does fall substantially, what kind of other investments or alternatives do you have in mind?

Well, frankly, with the state of the economy and with the challenging market conditions in steel, we've been approached with more opportunities in the last 6 months than we have been in quite a while. I'm not going to state anything specific about where they are or what they are, but there's opportunities out there. Now having said that, that doesn't mean just because we have it, we're going to go out and spend it. If it's not an opportunity that provides a great return on that investment, we're not going to move forward with it. Bear in mind what I mentioned during the last call, and I want to reiterate right now. Our focus is on execution. We've invested $8 billion of our shareholders' valuable capital over the last -- well, since 2008. And our focus this year is going to be on execution. Having said that, if the right opportunity comes along, whether or not we were able to conserve the $400 million on the gas or not, if the right opportunity came along, our financial strength and our balance sheet position would allow us to take advantage of it. But again, it's got to be the right opportunity with the right return on the investment of our shareholders' valuable capital. Other than that, our focus will be on execute -- continuing to focus on being the low-cost producer, driving our costs down and moving up the value chain in our product offerings.

Okay. So we'll just leave that teaser of the lot of opportunities, I guess. That's interesting. I really wanted to probe a little bit more on the guidance, given that you did talk about all of the outages and all the different projects that you kind of finished up in the fourth quarter. I thought most steel mills make the bulk of their money in the first half of the year for the construction season. And so I'm a little bit confused as to how bad the weather you're contemplating would be to offset some of those normal positives and the switch from outages to normal operations?

Well, we're not very effective predictors of the weather, okay. So let me start by saying that. But given the start of the year and the way that it is looking for at least the first quarter, we think there's going to be some whether challenges out there for the next 3 months. And also bear in mind that when we talk about the impact of weather on our business, it's not just the downstream. We always tend to focus on the downstream businesses that are impacted. But remember, we're a fully-integrated company. So when our downstream businesses are impacted, it impacts our steel production. It impacts our scrap operations, our whole raw material chain. So weather, for us, can have an impact on our profitability. And frankly, Timna, we don't know what the weather is going to be. But given our best guess, that's how we see it at this point in time. We'll come back, as we always do, in the middle of the last month of the quarter and give more direct guidance.

If I could, a final piece. On DRI, is it too soon to see the benefit because you're still working down some other inventory, like pig iron that you might have had to have in place as a cushion in case DRI didn't start on time?

Absolutely. That's part of the factor. And again, and I want to be very upfront about this, we're a couple of weeks into production at our Louisiana facility. And we know that during the course of the next 6 to 12 months, there are going to be some bumps in the road, some hiccups in our production. And so we'll factor some of that in. We will have -- we'll keep a little bit more on hand to protect against some of those occurrences that we know are out there. We just haven't found them yet. Having said that, I want to reiterate that we have full confidence in our team in Louisiana. They will overcome those road bumps and continue to bring it online and exceed our expectations, I'm sure.

We'll take our next question from Evan Kurtz with Morgan Stanley.

Just a first question on rebar. We've seen quite a surge in import licenses in January so far. And I know we had critical circumstances kind of floating out there. I was wondering if you could just walk us through the timing of how critical circumstances affects behavior? What you're seeing in your business? Should we expect some sort of big drop-off in inventories in the near-term -- sorry, imports in the near-term here?

Well, as I mentioned, we are working hard with our government to make sure that, that in fact happens. There's no doubt in my mind and in our minds that rebar is being imported and dumped into the United States. It's a really good sign when you get the kind of vote in the preliminary hearing that we were able to get. If I recall, I believe it was 5 to 1, which is outstanding. The ruling is expected on -- towards the end of April. I think it's April 28, is when we'll have the final hearing and the ruling. So we're confident that at this point, we'll get a favorable ruling. We believe that to be the case. And we believe very strongly that it should be the case of critical circumstances and all of the penalties that come along with that. We'll be pushing hard for that. And we've got a great team in Washington, a great team -- government affairs here in Charlotte supporting that team. And we're confident it's going to happen.

Great. And maybe just one on currency. We've seen, obviously, some pretty serious depreciation in a lot of the scrap-consuming countries since the beginning of the year, particularly Turkey. How do you see that impacting the scrap business going forward? And maybe more than that, how do you see it impacting steel in general, and perhaps even DRI?

Well, Keith, do you want to comment on scrap? I do note that we have seen that occur in currency. It's been interesting to see though the amount of exported scrap going to Turkey. It seems to have dropped off in the last couple of weeks.

Yes. Well, certainly, with their currency dropping off, we've seen less activity on the coast. So in terms of how it will impact the scrap market, moving forward, the scrap market will continue to be regional and based on grades, but we're starting to see, certainly, cold weather in one part of the country and less demand from an export standpoint on the East Coast, and that scrap is starting to become a little bit more available to consumers here in the United States. So to answer, maybe, 2 questions. One is, we probably see a little bit of softening in the scrap market as a result of reduced export activity and the recent run-up in scrap prices seems to be satisfying some demand.

And in terms of addressing the steel side, and we're going to watch that situation very carefully. And if we see an increase in the imports of steel products from Turkey that result from that, we'll take the appropriate action.

Our next question is from Michael Gambardella with JPMorgan. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Just wanted to touch base on an earlier question in terms of how much capability, unused capability you really have or earnings power you have with some of the investments that you've made over the years,, and the construction market being very weak compared to what it was at its peak, say. I know it's improving modestly, but how much earnings capability, if you had a decent construction market in the U.S., you think Nucor has with the build up in terms of capital investment and the acquisitions you've made over the years?

Substantial. You need more clarification than that? Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Sure.

Obviously, there's a lot of factors and too many factors to be able to give you a hard and fast number. Again, I'm just going to repeat what I've said. We've made the investments. We've made them to improve not only our volume capabilities, but the value-added product capabilities we can offer to the marketplace. We stand ready and poised to take advantage of the upcycle that's inevitably going to arrive. How quickly it arrives, how quickly the economy and the market ramps up will determine the kind of returns that we see on this investment. Will we see them? Absolutely. When we see them is what's a little bit up in the air and is dependent upon how quickly the economy and the market recovers. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: One of your competitors this morning on their call mentioned that in terms of non-res construction, the joist business, they're doing fairly well. The big-box type of builders, really, consuming, pushing up the joist numbers. Are you seeing anything on the non-res construction side other than the joist activity?

Well, we've seen an increase in our backlogs. We've seen a modest improvement in the pricing that we've been able to -- pricing power we've been able to exercise in those areas. But again, it's been a modest improvement. We -- just as we began to see things improve, we saw the weather get a lot worse, and that's impacted some of that. But we believe that there will be an incremental improvement in the nonresidential construction market during 2014. How quickly it ramps up is unclear. But if you read all the projections, we here -- we read there's anywhere from -- some of the projections are 5% to 10% improvement in 2014 over 2013. So we think that that's probably a reasonable number. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: And the last question, just in terms of the sheet business...

Michael, I'm sorry to interrupt. This is Joe Stratman. Let me also add, I think you asked the question if we've seen it in any other area than joist. We have seen it in backlogs in our structural business as well. We've ended the year with stronger backlog than we've had in quite a while, which is indicative -- all of that goes into nonresidential construction. And the other comment I'll add to that, it's a good balance geographically and by sector of the types of projects we're seeing. So that's a good sign. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: One last question, on the sheet side. How much unused capability do you have on your sheet mills right now?

We're running probably somewhere around the neighborhood of about 80% -- 75% to 80% capacity utilization. It goes up and down a little bit. Now one of the things that we've been a little bit encouraged by is the fact that we have seen some increase in our order book in sheet, particularly in cold-rolled and in galvanized. The hot-rolled market has been a little bit more challenged, but cold-rolled and galvanized, partially being driven by automotive, as well as our heavy machinery, are doing very well. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Do see some opportunities in sheet to pick up some share, given the anticipation you have for scrap pricing or your costs to come down?

We always look for those opportunities. I would say its a combination of those factors, and probably more significantly, the fact that we have a broader offering to the marketplace now. The 72-inch products coming off of Berkeley, that's a big -- we will be able to attack different markets with that. Now we still have a -- balancing against that is there's still overcapacity in the world, and it's coming into the United States in the way of imports. Will we gain market share? We believe we will. It's a factor of new products we can offer, but it's also a factor of our performance. Our quality is outstanding. Our on-time delivery is second to none, and our service that we provide to our customers is excellent. In fact, you've heard me mention several times in our past calls our focus on commercial excellence. And I find it kind of rewarding, to be honest with you, that in listening to some of the other calls from our competitors, the term commercial excellence seems to be coming up more from our competitors today. And I guess I'll just say, imitation is the most sincere form of flattery when I think about that.

The next question is from Brian Yu with Citi.

Congrats on the startup of the DRI. I know it's been a long time in the works. My question is kind of along those lines. So even now that you're having improving success, would you be in a position to help either provide us with the range or guide our thinking in terms of dollar per ton savings you would expect, maybe in the context of Brazilian pig iron at $385 and you've got the pile decks at $125. Just how should we think about the dollar per ton savings?

Well, Brian, to help everyone understand, and we do post a kind of a spreadsheet on our website, and you can go on to that website and work through the numbers based upon your best projection on iron ore cost, iron scrap cost, pig iron cost and all of the rest. So -- now I'll leave that to you to go through it. I'll just answer your question by saying, we're just -- again, we're a couple of weeks into this process. We're just going through the startup now. We're still evaluating what it's going to mean to us. It will change as the pricing of other iron units changes. We've said that many times. In environments where you have a high iron unit pricing, it's going to be a very, very major contributor. In times, in environments where iron costs, iron unit costs are lower, it will be a positive contributor of a lesser amount. So it's a function of many inputs, you're welcome to go on to the website and work through the numbers. You can see them at different levels.

Okay. So it sounds like costs are tracking what you would expect thus far?

I'm sorry, what?

Cost are tracking [indiscernible]...

[indiscernible] tracking cost, yes.

Yes. Our production costs are tracking what we would expect to date.

Your next question is from Phil Gibbs with KeyBanc Capital Markets.

I had a question on your SBQ initiatives as far as new capabilities being brought online, and then just also how your backlogs in that business are progressing as we enter the new year here?

Okay. Well, we kind of gave you a quick update in the script. Jim Darsey heads up our bar mills. Jim, want to give an update?

Okay. Thank you, John. In 2013, our SBQ shipments were up 18% compared to 2012. We're entering 2014 with a solid backlog and we've continued to make progress with the startup of our equipment, particularly at Nucor Steel Nebraska, with the new finishing equipment that improves our quality and packaging. And Memphis has continued to make progress. We just completed the installation and startup of a state-of-the-art offline quality assurance line that will enable us, as John mentioned in the script, will enable us to produce and inspect bar for the most demanding engineered bar applications. And this fits right in with our strategy to grow our SBQ business into the automotive, into the forging industry, into the construction industry, heavy equipment, heavy truck industry and agriculture industry. And we continue to make steady and measured progress in those industries.

I appreciate that. And I've got a follow-up on DRI, and I know you've already answered pieces, parts to this, John. But any sense of magnitude you can give us as far as the startup costs in the fourth quarter. And then I know, looking forward, you said you're going to have reduced startup costs in the first quarter, but getting to a level where you're comfortable, I know you said ups and downs, but comfortable with the profitability and the potential of the assets, when should we be thinking about that sort of contribution?

Well, first, just to pre-operating and startup costs. In the fourth quarter, they were about $16 million and we're expecting them to be lower by about $10 million in the first quarter. And the improvement is largely improvement at Nucor Louisiana, the DRI facility, that's where the improvement is coming from. And I'll let John speak further about what we expect from that point going through the rest of the year.

As I've mentioned several times on the call, we're early in the process. So it's hard for me to give too much color to how we're going to play out during the rest of the year. We're confident in this technology, the initial results are outstanding. Our quality is good, our volume is good, the process is stable. Having said all of that, there will be bumps in the road, as I've mentioned. We're expecting them, we're confident we will overcome them. But it makes it very difficult for me to give any kind of projection at this point on the returns. We'll be better prepared to answer that as we get a little bit further down the road with operating that facility.

We'll take our next question from Andrew Lane with Morningstar.

Along the lines of your comment that imitation is the finest form of flattery, some your peers have discussed an interest in DRI production. So I'm curious, over time, do think they'll be able to replicate the cost advantage you appear to have established via in-house, low-cost DRI production? And if not, what factors will allow you to sustain that competitive advantage?

Well, one of the major factors, obviously, one of the largest costs of DRI production, second to iron ore, is natural gas. And our natural gas working partnership agreement is a major factor for us being able to maintain a very competitive position in the production of DRI. I would also point out to you that we have a lot of facilities that can use the DRI. When you build a DRI plant, if you plan to consume it yourself, it's got to be across a multitude of facilities. There's an investment required at each one of those facilities in heating the material into the furnace, the equipment required to do that. We're in a position where we have the balance sheet to have been able to do that, and do it in the right manner so that we can feed a significant amount of DRI into the furnaces to get the kind of results we are looking to get. So for those reasons, we believe that we -- and frankly, having gotten a head start, it's -- the best way to learn about a process is to work with the equipment. We've been working with it now for a while. We'll continue to work with it. In some way -- if a competitor was to move forward with plans in DRI production, right now, it would take them probably a minimum of 2 to 3 years by the time they gathered all of the permits and went through the ordering of equipment and the construction phase of it. I'm sure they would hit a couple of the bumps that we hit, that would slow them down a bit. So we think we would have a 2- to 3-year time advantage, and with that comes a lot of knowledge and a lot of experience that we think would give us a competitive advantage. So we believe that the way we went into this and being first into it and going into it in a big way as we have done, is going to give us a long-term ability to have a competitive position.

Okay. I appreciate that. And then a follow-up. How do your DRI production costs in Louisiana compare to your DRI production costs in Trinidad on a per-ton basis? And do you anticipate the spread between the 2 to change over time?

Well, again, different factors there that will impact the overall costs. But let me just say this, what you really have to compare is the conversion cost itself, okay. And we think that Louisiana, given the size of the -- and we have an advantage of volume and the technology itself, we think is a little bit better technology. We think we'll be in at least a cost-competitive, if not cost-advantaged position in Louisiana.

We'll take our next question with David Lipschitz with CLSA.

Quick question on the sheet products. Where do we stand on lead times? Where are you out to right now?

Well, let's go by product.

He said sheet. He wants sheet.

Yes. I was going to go by hot-rolled, cold-rolled, or galvanized, Okay. So on hot-rolled, David, we're out to late February, and cold-rolled and galvanized we're well into April. Is that what you were looking for, David?

Exactly what I was looking for.

The last question is from Ignace Proot with Sanford Bernstein. Ignace F. Proot - Sanford C. Bernstein & Co., LLC., Research Division: I have 2 questions. One question is related to your shipments of the fourth quarter, which were actually quite good. They were still above the Q1 to Q2 shipments, which is in contrast to a difficult seasonal effect. I was wondering is this driven by fundamental demand that was there or is this still a bit a market share change that we had throughout the year, given some incidents at competitors. And if it was a market share shift, what part of that could stick? That's the first question. And the second question, going back to DRI. In the environment where still many iron ore producers cannot produce the DRI-grade and several steel makers having more interest in actually buying more, how do you look at the DRI premium, the pellet premium?

Okay. Let me begin with your first question and we'll work into the second question. Maybe I'll address the second question first, while it's fresh in my mind. You gave me a bunch of questions there at one time. So lets start with DRI, it's true that the demand for the pellet is improving, is increasing. But we have multiple sources of the iron ore itself. And in our arrangements with those, we feel confident that we'll be able to get the iron ore pelletized the way[ph] to a DRI level that we need. And we don't see this as a major obstacle going forward. Perhaps you can refresh my memory on all the 2 parts of the first question. Okay. Your question was with our shipments in the fourth quarter... Ignace F. Proot - Sanford C. Bernstein & Co., LLC., Research Division: Yes. So the question is really your shipments in the fourth quarter were still very good. And I was wondering is that still fundamental demands or is it still a bit of the volumes that you took over from some competitors, given some incidents that happened in the third quarter? And if so, do you think a part of that market share shift could stick?

Okay. First of all, certainly, there was a small amount of demand improvement in the fourth quarter. So there certainly was some demand improvement. But we also had a huge opportunity because of some challenges that some of our competitors faced in their production facilities. And that gave us an opportunity to grow our market share. And whenever you have that opportunity, you work hard to keep it going forward. You work hard to keep it going forward through your performance. We know that we serve those customers well. When some of our competitors, because of various situations, let their customers down, we were able to move in quickly, supply high-quality product, on-time, great service, a phenomenal performance, all at a very reasonable price. And we believe that as a result of that and as a result of the new products that we've been introducing to the market, we did pick up market share and we will be able to hold a portion of that market share going forward.

That's all the time we have for questions today. I would now turn the call back over to Mr. John Ferriola for closing remarks.

Thank you, Jamie. And let me just wrap up by saying thank you to our shareholders. We appreciate your confidence and your support. Thank you to our customers. We really do appreciate your business. And I want to say thank you to my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders and building a sustainable future for all of us. And most importantly, thank you, all, for doing it safely. Thanks for your interest in Nucor. Have a great day.

Thank you for your participation. This does conclude today's call.