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MarketScreener Homepage  >  Equities  >  Nyse  >  Nucor    NUE

NUCOR

(NUE)
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NUCOR : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/12/2020 | 04:26pm EST
Certain statements made in this Quarterly Report on Form 10-Q, or in other
public filings, press releases, or other written or oral communications made by
Nucor, which are not historical facts are forward-looking statements subject to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve risks and uncertainties which we
expect will or may occur in the future and may impact our business, financial
condition and results of operations. The words "anticipate," "believe,"
"expect," "project," "may," "will," "should," "could" and similar expressions
are intended to identify those forward-looking statements. These forward-looking
statements reflect the Company's best judgment based on current information,
and, although we base these statements on circumstances that we believe to be
reasonable when made, there can be no assurance that future events will not
affect the accuracy of such forward-looking information. As such, the
forward-looking statements are not guarantees of future performance, and actual
results may vary materially from the projected results and expectations
discussed in this report. Factors that might cause the Company's actual results
to differ materially from those anticipated in forward-looking statements
include, but are not limited to: (1) competitive pressure on sales and pricing,
including pressure from imports and substitute materials; (2) U.S. and foreign
trade policies affecting steel imports or exports; (3) the sensitivity of the
results of our operations to prevailing market steel prices and changes in the
supply and cost of raw materials, including pig iron, iron ore and scrap steel;
(4) the availability and cost of electricity and natural gas which could
negatively affect our cost of steel production or result in a delay or
cancellation of existing or future drilling within our natural gas drilling
programs; (5) critical equipment failures and business interruptions; (6) market
demand for steel products, which, in the case of many of our products, is driven
by the level of nonresidential construction activity in the United States, as
well as prevailing domestic prices for oil and gas; (7) impairment in the
recorded value of inventory, equity investments, fixed assets, goodwill or other
long-lived assets; (8) uncertainties surrounding the global economy, including
excess world capacity for steel production; (9) fluctuations in currency
conversion rates; (10) significant changes in laws or government regulations
affecting environmental compliance, including legislation and regulations that
result in greater regulation of greenhouse gas emissions that could increase our
energy costs and our capital expenditures and operating costs or cause one or
more of our permits to be revoked or make it more difficult to obtain permit
modifications; (11) the cyclical nature of the steel industry; (12) capital
investments and their impact on our performance; (13) our safety performance;
(14) the impact of the COVID-19 pandemic; and (15) the risks discussed in "Item
1A. Risk Factors" of the Company's Annual Report on Form 10-K for the year ended
December 31, 2019 and in "Item 1A. Risk Factors" of this report and elsewhere
herein.

Caution should be taken not to place undue reliance on the forward-looking
statements included in this report. We assume no obligation to update any
forward-looking statements except as may be required by law. In evaluating
forward-looking statements, these risks and uncertainties should be considered,
together with the other risks described from time to time in our reports and
other filings with the Securities and Exchange Commission.

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto and "Item 1A. Risk
Factors" included elsewhere in this report, as well as the audited consolidated
financial statements and the notes thereto, "Item 1A. Risk Factors" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Nucor's Annual Report on Form 10-K for the year ended
December 31, 2019.

Overview

Nucor and its affiliates manufacture steel and steel products. Nucor also
produces DRI for use in its steel mills. Through DJJ, the Company also processes
ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig
iron, hot briquetted iron and DRI. Most of Nucor's operating facilities and
customers are located in North America. Nucor's operations include international
trading and sales companies that buy and sell steel and steel products
manufactured by the Company and others. Nucor is North America's largest
recycler, using scrap steel as the primary raw material in producing steel and
steel products.

Nucor reports its results in the following segments: steel mills, steel products
and raw materials. The steel mills segment includes carbon and alloy steel in
sheet, bars, structural and plate; steel trading businesses; rebar distribution
businesses; and Nucor's equity method investments in Duferdofin Nucor, NuMit and
Nucor-JFE. The steel products segment includes steel joists and joist girders,
steel deck, fabricated concrete reinforcing steel, cold finished steel,
precision castings, steel fasteners, metal building systems, steel grating,
tubular products businesses, piling products business, and wire and wire mesh.
The raw materials segment includes DJJ, primarily a scrap broker and processor;
Nu-Iron Unlimited and NSLA, two facilities that produce DRI used by the steel
mills; and our natural gas production operations.

The average utilization rates of all operating facilities in the steel mills,
steel products and raw materials segments were approximately 80%, 71% and 65%,
respectively, in the first nine months of 2020 compared with approximately 85%,
71% and 70%, respectively, in the first nine months of 2019.

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COVID-19 Update

The COVID-19 pandemic continues to impact Nucor's operations and we believe it
is currently the most significant ongoing event impacting almost all aspects of
our business. Our most important value is the health and safety of our
teammates, their families and the communities where we operate. We have formed
several internal task forces to closely monitor developments related to the
pandemic and provide guidance to Nucor facilities. Our facilities around the
country are each taking steps to respond to COVID-19 based on the nature of
their operations and the actions being taken by their state and local
governments. We have restricted travel, upgraded the cleaning practices at our
facilities and offices, implemented remote work arrangements for teammates
wherever possible, and instituted social distancing measures throughout the
Company. Across Nucor, we remain committed to protecting our teammates while
minimizing disruptions to our customers and supply chain.

Results of Operations




Nucor reported net earnings of $193.4 million, or $0.63 per diluted share, for
the third quarter of 2020 and $322.6 million, or $1.06 per diluted share, for
the first nine months of 2020. These are significant decreases when compared to
the respective prior year periods in which we reported net earnings of $275.0
million, or $0.90 per diluted share, for the third quarter of 2019 and $1.16
billion, or $3.78 per diluted share, for the first nine months of 2019. The
major factor driving the decreased 2020 performance has been the ongoing
COVID-19 pandemic that began to impact the domestic economy and our business
late in the first quarter of 2020.



Third quarter of 2020 net earnings of $193.4 million, or $0.63 per diluted
share, is an increase compared to the second quarter of 2020 net earnings of
$108.9 million, or $0.36 per diluted share. Utilization rates rebounded in the
third quarter of 2020 as compared to the second quarter of 2020. The average
utilization rates of all operating facilities in the steel mills, steel products
and raw materials segments were approximately 83%, 75% and 69%, respectively, in
the third quarter of 2020 compared with approximately 68%, 66% and 51%,
respectively, in the second quarter of 2020. Nonresidential construction markets
have been resilient during the pandemic and remained strong in the third quarter
of 2020. The strength of nonresidential construction markets in the third
quarter of 2020 benefited our bar and structural mills in the steel mills
segment and spurred our steel products segment to another strong quarter. Market
conditions for our sheet and plate mills in the steel mills segment remained
challenged in the third quarter of 2020, but we currently expect improved
performance in the fourth quarter of 2020 due to positive pricing momentum in
sheet and plate markets.


The following discussion will provide greater quantitative and qualitative analysis of Nucor's performance in the third quarter and first nine months of 2020 as compared to the respective prior year periods.

Net Sales

Net sales to external customers by segment for the third quarter and first nine months of 2020 and 2019 were as follows (in thousands):




                                Three Months (13 Weeks) Ended               

Nine Months (39 Weeks) Ended

                           Oct. 3, 2020   Sept. 28, 2019   % Change   Oct. 3, 2020   Sept. 28, 2019   % Change
Steel mills                  $2,842,625$3,244,473       -12%     $8,875,856$10,897,322       -19%
Steel products                1,738,004        1,820,359        -5%      4,988,026        5,225,064        -5%
Raw materials                   347,331          399,670       -13%      1,015,721        1,334,726       -24%
Total net sales              $4,927,960$5,464,502       -10%    $14,879,603$17,457,112       -15%




Net sales for the third quarter of 2020 decreased 10% from the third quarter of
2019. Average sales price per ton decreased 7% from $834 in the third quarter of
2019 to $774 in the third quarter of 2020. Total tons shipped to outside
customers in the third quarter of 2020 were 6,367,000 tons, a 3% decrease from
the third quarter of 2019.



Net sales for the first nine months of 2020 decreased 15% from the first nine
months of 2019. Average sales price per ton decreased 10% from $871 in the first
nine months of 2019 to $782 in the first nine months of 2020. Total tons shipped
to outside customers in the first nine months of 2020 were 19,033,000 tons, a 5%
decrease from the first nine months of 2019.

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In the steel mills segment, sales tons for the third quarter and first nine months of 2020 and 2019 were as follows (in thousands):



                             Three Months (13 Weeks) Ended         Nine Months (39 Weeks) Ended
                                           Sept.                                Sept.
                           Oct. 3, 2020   28, 2019   % Change   Oct. 3, 2020   28, 2019   % Change
Outside steel shipments           4,442      4,559        -3%         13,382     14,013        -5%
Inside steel shipments            1,184      1,229        -4%          3,511      3,564        -1%
Total steel shipments             5,626      5,788        -3%         16,893     17,577        -4%




Net sales for the steel mills segment decreased 12% in the third quarter of 2020
from the third quarter of 2019, due primarily to a 10% decrease in the average
sales price per ton from $711 to $639 and a 3% decrease in tons sold to outside
customers. Average selling prices decreased across all product groups within the
steel mills segment in the third quarter of 2020 as compared to the third
quarter of 2019.



Net sales for the steel mills segment decreased 19% in the first nine months of
2020 from the first nine months of 2019, due to a 14% decrease in the average
sales price per ton and a 5% decrease in tons sold to outside customers.

Outside sales tonnage for the steel products segment for the third quarter and first nine months of 2020 and 2019 was as follows (in thousands):




                             Three Months (13 Weeks) Ended         Nine Months (39 Weeks) Ended
                                           Sept.                                Sept.
                           Oct. 3, 2020   28, 2019   % Change   Oct. 3, 2020   28, 2019   % Change
Joist                               153        133        15%            406        359        13%
Deck                                129        132        -2%            365        354         3%
Cold finish                          99        116       -15%            300        390       -23%
Rebar fabrication                   328        342        -4%            948        929         2%
Piling products                     186        160        16%            522        462        13%
Tubular products                    280        272         3%            816        780         5%
Other steel products                 92        107       -14%            278        303        -8%
Total steel products              1,267      1,262          -          3,635      3,577         2%




Net sales for the steel products segment decreased 5% in the third quarter of
2020 compared to the third quarter of 2019, due to a 5% decrease in the average
sales price per ton from $1,442 to $1,371. Average selling prices decreased
across all businesses within the steel products segment in the third quarter of
2020 as compared to the third quarter of 2019.



Net sales for the steel products segment decreased 5% in the first nine months
of 2020 compared to the first nine months of 2019, due primarily to a 6%
decrease in the average sales price per ton from $1,461 to $1,372 which was
partially offset by a 2% increase in tons sold to outside customers. Average
selling prices decreased across most businesses within the steel products
segment in the first nine months of 2020 as compared to the first nine months of
2019, with the exception being our rebar fabrication business.

Net sales for the raw materials segment decreased 13% and 24% in the third
quarter and first nine months of 2020, respectively, from the same prior year
periods. The decreases were primarily due to decreased average selling prices at
DJJ's brokerage operations and decreased volumes at both DJJ's scrap processing
and brokerage operations. In the third quarter of 2020, approximately 89% of
outside sales for the raw materials segment were from the brokerage operations
of DJJ, and approximately 9% of outside sales were from the scrap processing
operations of DJJ (89% and 10%, respectively, in the third quarter of 2019). In
the first nine months of 2020, approximately 89% of outside sales for the raw
materials segment were from the brokerage operations of DJJ, and approximately
9% of outside sales were from the scrap processing operations of DJJ (90% and
9%, respectively, in the first nine months of 2019).

Gross Margins

Nucor recorded gross margins of $502.2 million (10%) in the third quarter of 2020 and $572.5 million (10%) in the third quarter of 2019.

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• The primary driver for the decrease in gross margins in the third quarter

of 2020 as compared to the third quarter of 2019 was decreased metal

margin in the steel mills segment. Metal margin is the difference between

the selling price of steel and the cost of scrap and scrap substitutes.

        The average scrap and scrap substitute cost per gross ton used in the
        third quarter of 2020 was $277, a 7% decrease compared to $299 in the
        third quarter of 2019. Despite the decrease in average scrap and scrap
        substitute cost per gross ton used, metal margin in the steel mills

segment decreased due to lower volumes and lower average selling prices.

Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. As we begin the fourth quarter of 2020, we currently expect a stable outlook for scrap prices.

• Pre-operating and start-up costs of new facilities decreased to

approximately $22 million in the third quarter of 2020 from approximately

$28 million in the third quarter of 2019. Pre-operating and start-up costs

in the third quarter of 2020 primarily related to the bar mill being built

        in Florida, the plate mill being built in Kentucky, the sheet mill
        expansion in Kentucky and the merchant bar quality mill expansion at our
        bar mill in Illinois. In the third quarter of 2019, pre-operating and
        start-up costs related primarily to the cold mill expansion at our sheet

mill in Arkansas, the bar mill in Missouri, the sheet mill expansion in

        Kentucky, the upgrades at our Louisiana DRI facility and the bar mill
        being built in Florida. Nucor defines pre-operating and start-up costs,
        all of which are expensed, as the losses attributable to facilities or
        major projects that are either under construction or in the early stages
        of operation. Once these facilities or projects have attained a

utilization rate that is consistent with our similar operating facilities,

they are no longer considered by Nucor to be in start-up.

• Gross margins in the steel products segment increased in the third quarter

of 2020 as compared to the third quarter of 2019. The primary driver was

the large increases in margins from our rebar fabrication and joist

products businesses as demand in the nonresidential construction market

        remains resilient. These large increases were partially offset by
        decreased margins at our building systems business.

• Gross margins in the raw materials segment increased in the third quarter

of 2020 as compared to the third quarter of 2019, primarily due to

improved performance at our DRI facilities that resulted in lower losses.

        The improved performance was partially offset by decreased margins at
        DJJ's brokerage operations.


Nucor recorded gross margins of $1.51 billion (10%) in the first nine months of
2020, which was a decrease compared with $2.24 billion (13%) in the first nine
months of 2019.

• The primary driver for the decrease in gross margins in the first nine

months of 2020 as compared to the first nine months of 2019 was decreased

        metal margin in the steel mills segment. The average scrap and scrap
        substitute cost per gross ton used in the first nine months of 2020 was
        $285, a 13% decrease compared to $328 in the first nine months of 2019.
        Despite the decrease in average scrap and scrap substitute cost per gross
        ton used, metal margin in the steel mills segment decreased due to lower
        average selling prices and lower volumes.


    •   Pre-operating and start-up costs of new facilities increased to
        approximately $73 million in the first nine months of 2020 from
        approximately $68 million in the first nine months of 2019.


• Gross margins in the steel products segment increased in the first nine

months of 2020 as compared to the first nine months of 2019, primarily due

        to increased margins across most of our steel product businesses, most
        notably at our rebar fabrication and tubular products businesses, which
        were partially offset by decreased margins at our building systems and
        cold finish businesses.

• Gross margins in the raw materials segment decreased in the first nine

months of 2020 as compared to the first nine months of 2019, primarily due

to decreased margins at DJJ's brokerage and scrap processing operations,

as well as margin contraction at our DRI facilities.

Marketing, Administrative and Other Expenses


A major component of marketing, administrative and other expenses is profit
sharing and other incentive compensation costs. These costs, which are based
upon and fluctuate with Nucor's financial performance, decreased by $9.8 million
in the third quarter of 2020 as compared to the third quarter of 2019, and
decreased by $121.0 million in the first nine months of 2020 as compared to the
first nine months of 2019. These decreases were due to Nucor's decreased
profitability in the third quarter and first nine months of 2020 as compared to
the respective prior year periods, which resulted in significantly decreased
accruals related to profit sharing.

Included in marketing, administrative and other expenses in the first nine
months of 2020 was $18.2 million of restructuring charges related to the
realignment of Nucor's metal buildings business in the steel products segment.
Of that amount, $16.4 million was recorded in the third quarter of 2020.
Included in marketing, administrative and other expenses in the first nine
months of 2019 was a benefit of $33.7 million related to the gain on the sale of
an equity method investment in the raw materials segment.

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Equity in Losses (Earnings) of Unconsolidated Affiliates


Equity in losses (earnings) of unconsolidated affiliates was $(0.5) million and
$1.6 million in the third quarter of 2020 and 2019, respectively. The increase
in equity method investment earnings was primarily due to the improved results
of NuMit.

Equity in losses (earnings) of unconsolidated affiliates was $14.4 million and
$(2.5) million in the first nine months of 2020 and 2019, respectively. The
decrease in equity method investment earnings was primarily due to decreased
results of NuMit and Nucor-JFE.

Losses on Assets




Included in the first nine months of 2020 earnings were losses on assets of
$299.5 million related to our equity method investment in Duferdofin Nucor.
Nucor determined that a triggering event occurred in the first quarter of 2020
due to adverse developments in the joint venture's commercial outlook, which
have been exacerbated by the COVID­19 pandemic, which have negatively impacted
the joint venture's strategic direction.



As a part of the losses on assets, Nucor recorded a non­cash impairment charge
of $261.6 million on its equity method investment in Duferdofin Nucor that is
included in the steel mills segment earnings. Additionally, the Company recorded
a $37.9 million charge to fully reserve its outstanding note receivable from
Duferdofin Nucor. This impact is recorded in the Corporate/eliminations line.

Interest Expense (Income)


Net interest expense for the third quarter and first nine months of 2020 and 2019 was as follows (in thousands):



                                              Three Months (13 Weeks) Ended             Nine Months (39 Weeks) Ended
                                            Oct. 3, 2020        Sept. 28, 2019       Oct. 3, 2020        Sept. 28, 2019
Interest expense                           $       42,281$        40,721$      128,726$       119,736
Interest income                                    (2,142 )              (9,435 )          (11,870 )             (26,977 )
Interest expense, net                      $       40,139$        31,286$      116,856$        92,759




Interest expense increased in the third quarter of 2020 compared to the third
quarter of 2019 due to increased average debt outstanding. Interest expense
increased in the first nine months of 2020 compared to the first nine months of
2019 due to decreased capitalized interest and increased average debt
outstanding.



Interest income decreased in the third quarter and first nine months of 2020 as
compared to the third quarter and first nine months of 2019 due to a decrease in
average interest rates on investments.



Earnings (Loss) Before Income Taxes and Noncontrolling Interests




The following table presents earnings (loss) before income taxes and
noncontrolling interests by segment for the third quarter and first nine months
of 2020 and 2019 (in thousands). The changes between periods were driven by the
quantitative and qualitative factors previously discussed.



                                      Three Months                             Nine Months
                                    (13 Weeks) Ended                        (39 Weeks) Ended
                            Oct. 3, 2020       Sept. 28, 2019       Oct. 3, 2020       Sept. 28, 2019
Steel mills                $      205,152$        309,939$      512,082$      1,578,257
Steel products                    186,976              170,214            502,409              363,731
Raw materials                       6,232              (10,599 )           (3,068 )             64,333
Corporate/eliminations           (107,942 )            (89,215 )         (393,651 )           (401,744 )
                           $      290,418$        380,339$      617,772$      1,604,577




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Noncontrolling Interests

Noncontrolling interests represent the income attributable to the noncontrolling
partners of Nucor's joint ventures, primarily Nucor-Yamato Steel Company
(Limited Partnership) ("NYS") of which Nucor owns 51%. The increase in earnings
attributable to noncontrolling interests in the third quarter and first nine
months of 2020 as compared to the third quarter and first nine months of 2019
was mainly the result of the higher earnings of NYS, which was due to increased
sales volume in the first nine months of 2020 as compared to the first nine
months of 2019. Under the NYS limited partnership agreement, the minimum amount
of cash to be distributed each year to the partners is the amount needed by each
partner to pay applicable U.S. federal and state income taxes. In the first nine
months of 2020, the amount of cash distributed to noncontrolling interest
holders exceeded the earnings attributable to noncontrolling interests based on
mutual agreement of the general partners; however, the cumulative amount of cash
distributed to partners was less than the cumulative net earnings of the
partnership.

Provision for Income Taxes


The effective tax rate for the third quarter of 2020 was 23.3% as compared to
22.8% for the third quarter of 2019. The expected effective tax rate for the
full year of 2020 is approximately 31.5% as compared to 23.1% for the full year
of 2019. The increase in the expected effective tax rate for the full year of
2020 as compared to the rate for the full year of 2019 is primarily due to the
$261.6 million financial statement impairment of our equity method investment in
Duferdofin Nucor in the first nine months of 2020. The impairment has no
corresponding impact to the provision for income taxes.

We estimate that in the next 12 months our gross unrecognized tax benefits,
which totaled $51.1 million at October 3, 2020, exclusive of interest, could
decrease by as much as $6.2 million as a result of the expiration of the statute
of limitations and closures of examinations, substantially all of which would
impact the effective tax rate.

Nucor has concluded U.S. federal income tax matters for years through 2016,
except for 2015. The tax years 2015 and 2017 through 2019 remain open to
examination by the Internal Revenue Service. The 2015 Canadian income tax
returns for Harris Steel Group Inc. and certain related affiliates are currently
under examination by the Canada Revenue Agency. The tax years 2013 through 2019
remain open to examination by other major taxing jurisdictions to which Nucor is
subject (primarily Canada and other state and local jurisdictions). From time to
time in the ordinary course of business, Nucor is involved in tax disputes with
federal, state and local taxing jurisdictions, which are, individually and in
the aggregate, immaterial to Nucor.

Net Earnings Attributable to Nucor Stockholders and Return on Equity


Nucor reported consolidated net earnings of $193.4 million, or $0.63 per diluted
share, in the third quarter of 2020 as compared to consolidated net earnings of
$275.0 million, or $0.90 per diluted share, in the third quarter of 2019. Net
earnings attributable to Nucor stockholders as a percentage of net sales were 4%
and 5% in the third quarter of 2020 and 2019, respectively.

Nucor reported consolidated net earnings of $322.6 million, or $1.06 per diluted
share, in the first nine months of 2020 as compared to consolidated net earnings
of $1.16 billion, or $3.78 per diluted share, in the first nine months of 2019.
Net earnings attributable to Nucor stockholders as a percentage of net sales
were 2% and 7% in the first nine months of 2020 and 2019, respectively.
Annualized return on average stockholders' equity was 4% and 15% in the first
nine months of 2020 and 2019, respectively.


Outlook


The ongoing COVID-19 pandemic continues to cause uncertainty, making it
difficult to accurately forecast future market conditions and demand trends.
While many of the markets Nucor serves have typically experienced a seasonal
slowdown in the fourth quarter, the Company expects higher earnings in the
fourth quarter of 2020 as compared to the third quarter of 2020 due primarily to
improved pricing at our sheet and plate mills. Nucor also expects the raw
materials segment's earnings to increase in the fourth quarter of 2020 as
compared to the third quarter of 2020 due to the improved margins at the
Company's DRI facilities.

Nucor's largest exposure to market risk is via our steel mills and steel
products segments. Our largest single customer in the third quarter of 2020
represented approximately 5% of sales and has consistently paid within terms. In
the raw materials segment, we are exposed to price fluctuations related to the
purchase of scrap and scrap substitutes, pig iron and iron ore. Our exposure to
market risk is mitigated by the fact that our steel mills use a significant
portion of the products of the raw materials segment.

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Liquidity and Capital Resources

As a result of the COVID-19 pandemic and the significant uncertainty it will continue to have on Nucor and our stakeholders, we have instituted enterprise-wide efforts to enhance our liquidity and support our teammates, which include, among other things:

• Capital Expenditures - We began the year with a capital expenditures

budget of $2.00 billion. We reviewed our capital expenditures budget and

          decided to delay certain capital projects that had not begun, briefly
          paused a few of our larger projects and continued with certain projects

that were either close to completion or where work had been scheduled.

As a result, our 2020 capital expenditures estimate is approximately

$1.70 billion.

• Working Capital - Our net working capital position has contracted to

provide a source of incremental liquidity as business activity has

slowed. In addition, we are maintaining reduced raw material inventory

levels in line with our anticipated near-term production requirements, a

          change we believe is sustainable and we intend to maintain after the
          pandemic.

• Pay & Benefits - We expect a significant decrease in compensation

          expense in 2020 as almost all of our remuneration plans are heavily
          weighted toward incentive compensation which rewards productivity and
          profitability. We implemented a temporary compensation floor for
          production and non-production hourly teammates and have committed to
          offering at least their normal benefits during the crisis. Nucor's
          executive compensation program intentionally sets base salaries below

the market median for similar size industrial and materials companies.

          With much lower profitability expected in 2020, we anticipate our
          executive leadership will incur a significant reduction in earned
          incentive compensation on an absolute dollar and percentage basis
          compared to compensation attributable to 2019 performance.


To further enhance our liquidity, Nucor took advantage of attractive market
conditions during the second quarter of 2020 to issue low coupon debt in the
form of long-term notes. In May, Nucor issued $500.0 million of 2.000% Notes due
2025 and $500.0 million of 2.700% Notes due 2030. Additionally, in July, Nucor
became an obligor with respect to $162.6 million in 40-year variable-rate Green
Bonds to partially fund the capital costs associated with the construction of
our plate mill located in Brandenburg, Kentucky. Our credit ratings of an A-
long-term rating from Standard & Poor's and a Baa1 long-term rating from Moody's
were unchanged by these debt issuances.

Nucor operates a capital-intensive business in highly cyclical markets. We
therefore utilize conservative financial practices that maximize our financial
strength during economic downturns like the one we are currently experiencing
that was caused by the COVID-19 pandemic. Our liquidity position, consisting of
cash and cash equivalents, short-term investments and restricted cash and cash
equivalents, remained strong at $3.41 billion as of October 3, 2020.
Additionally, Nucor has no significant debt maturities until September 2022.

Nucor's strong liquidity position maximizes our flexibility for prudent
deployment of our capital. We have three priorities to allocating our capital.
Nucor's highest capital allocation priority is to reinvest in our business to
ensure our continued profitable growth over the long term. We have historically
done this by investing to optimize our existing operations, initiate greenfield
expansions and make acquisitions. Our second priority is to provide our
stockholders with cash dividends that are consistent with our success in
delivering long-term earnings growth. Our third priority is to supplement our
base dividend with additional returns of capital to our stockholders when both
our earnings and financial condition are strong. We still currently intend to
return a minimum of 40% of our net earnings to our stockholders while
maintaining a debt-to-capital ratio that supports a strong investment grade
credit rating. We will use stock repurchases or supplemental dividends to reach
this 40% return level when our base dividend is not sufficient to meet this
goal. The primary factor we will use to decide between share repurchases and
supplemental dividends will be our assessment of the intrinsic value of a Nucor
share. In September 2018, Nucor's Board of Directors approved a new share
repurchase program which authorized the Company to repurchase up to
$2.00 billion of its common stock. As of October 3, 2020, the Company had
approximately $1.16 billion remaining available for share repurchases under the
program.

Cash provided by operating activities was $2.21 billion in the first nine months
of 2020 as compared to $2.12 billion in the first nine months of 2019. Net
earnings declined by $826.5 million over the prior year period, which included a
$299.5 million non-cash loss on assets related to our equity method investment
in Duferdofin Nucor. The decrease in net earnings in the first nine months of
2020 as compared to the first nine months of 2019 was partially offset by a
$528.3 million increase in cash provided by operating assets and operating
liabilities in the same period. Changes in operating assets and liabilities
(exclusive of acquisitions) provided cash of $693.2 million in the first nine
months of 2020 as compared to $165.0 million in the prior year period. The
funding of our working capital in the first nine months of 2020 decreased as
compared to the first nine months of 2019 mainly due to decreases in inventory
and other current assets, specifically the federal income tax receivable, and an
increase in other non-current liabilities, but also due to more moderate
fluctuations in accounts receivable and accounts payable from year-end 2019 to
the end of the third quarter of 2020 as compared to the same prior year period.
Inventory reduction, especially scrap, was a particular focus due to uncertainty
from the COVID-19 pandemic

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beginning in the second quarter of 2020, and our investment in inventory at the
end of the third quarter of 2020 continued to decline from prior quarter-end
levels. As a result, inventories decreased by over 1.2 million tons, or 17%, in
the third quarter of 2020 from the fourth quarter of 2019. The decrease in
federal income tax receivable was mainly a function of the timing of federal tax
payments. The increase in other non-current liabilities was mainly driven by an
increase in deferred Social Security tax accruals permitted under the CARES Act.
Also contributing to the increase in cash provided by operating assets and
operating liabilities when comparing the first nine months of 2020 to the same
prior year period was the more moderate cash outflow related to salaries, wages,
and related accruals. The decrease in cash used to fund salaries, wages and
related accruals in the first nine months of 2020 as compared to the first nine
months of 2019 was due to the timing of incentive compensation payments and
lower current year profit sharing accruals due to the decreased profitability of
the Company. Cash provided by accounts receivable was more moderate in the first
nine months of 2020 than in the first nine months of 2019. Accounts receivable
decreased in the first nine months of 2019 from year-end 2018 due to an 11%
decrease in composite sales price per ton, while composite sales price dropped
only 2% from year-end 2019 to the end of the third quarter of 2020. Similarly,
accounts payable provided cash of $15.4 million in the first nine months of 2020
as opposed to using cash of $180.4 million in the same prior year period.
Accounts payable decreased from year-end 2018 to the end of the third quarter of
2019 due to an 18% decline in average scrap and scrap substitutes cost per gross
ton in inventory and an 8% decline in total inventory tons on hand, whereas
accounts payable was flat from year-end 2019 to the end of the third quarter of
2020.

The current ratio was 3.8 at the end of the third quarter of 2020 and 3.3 at
year-end 2019. The current ratio was positively impacted by the 79% increase in
cash and cash equivalents and short-term investments and the 15% decrease in
salaries, wages and related accruals, partially offset by the 15% decrease in
inventory previously discussed. The increase in cash and cash equivalents and
short-term investments was a result of the debt issuance and robust cash
provided by operations during the first nine months of 2020. The decrease in
salaries, wages and related accruals was due to the reasons cited above. In the
first nine months of 2020, accounts receivable turned approximately every 5.5
weeks and inventories turned approximately every 10 weeks, compared to
approximately every 5.5 weeks and 11 weeks, respectively, in the first nine
months of 2019.

Cash used in investing activities during the first nine months of 2020 was
$1.33 billion as compared to $1.17 billion in the prior year period. Cash used
for capital expenditures in the first nine months of 2020 increased by 20%, or
$194.4 million, from the same period in 2019. The higher levels of capital
expenditures were primarily related to the new micro mill greenfield expansion
in Frostproof, Florida, the flex galvanizing line at Nucor Steel Arkansas, and
the sheet mill expansion at Nucor Steel Gallatin. Also impacting cash used in
investing activities in the first nine months of 2020 was the purchase of $402.0
million of investments, as opposed to $249.6 million in the prior year period,
offset by proceeds from the sale of investments of $301.2 million. Additionally,
the first nine months of 2019 benefited from cash provided by the divestiture of
an affiliate of $67.6 million related to the sale of an equity method
investment.

Cash provided by financing activities during the first nine months of 2020 was
$596.6 million as compared to cash used in financing activities of $664.5
million in the prior year period. The majority of this change related to the
issuance of $500.0 million of 2.000% Notes due 2025 and $500.0 million of 2.700%
Notes due 2030, as well as Nucor becoming an obligor with respect to $162.6
million in 40-year variable-rate Green Bonds as discussed previously. In
addition, there were approximately $39.5 million of treasury stock repurchases
in the first nine months of 2020 (none in the second or third quarter of 2020)
as compared to $197.5 million in the first nine months of 2019. In the first
quarter of 2020, one of the remarketing agents for Nucor's industrial
development revenue bonds ("IDRBs") put a portion of two bonds to us, resulting
in repayment of $32.0 million in long-term debt. We subsequently remarketed the
bonds and received $32.0 million in proceeds. Nucor's IDRBs are variable-rate,
tax-exempt bonds which have interest rates that reset on a weekly basis through
an ongoing remarketing process. We expect our bonds to be successfully placed
with investors at the market driven rates in the future. However, there have
been times in severe economic downturns, as was the case during the first
quarter of 2020 as a result of the economic impacts of COVID-19, that a
remarketing agent is unable to remarket Nucor's bonds successfully and is
unwilling to temporarily hold the bonds. In that situation, which has been rare
in our experience, it is possible that the bonds could be put back to us in the
future. In this instance during the first quarter of 2020, the IDRBs were
remarketed successfully in a short period of time. However, in the event of a
prolonged failed remarketing, we have, among other options, availability under
our $1.50 billion revolver credit facility to repurchase the IDRBs until they
are remarketed successfully. In general, Nucor has the ability and intent to
refinance the IDRB debt on a long-term basis, therefore we classify the IDRBs as
a long-term liability. The remaining $65.2 million of debt that was repaid
during the first nine months of 2020 was related to a different tranche of
Nucor's IDRBs that was repurchased as part of our investment strategy and the
payoff of a series of IDRBs that matured during the third quarter.

Nucor's$1.50 billion revolving credit facility is undrawn and was amended and
restated in April 2018 to extend the maturity date to April 2023. We believe our
financial strength is a key strategic advantage among domestic steel producers,
particularly during recessionary business cycles. We believe this was
demonstrated with the second quarter of 2020 issuance of $500.0 million of
2.000% Notes due 2025 and $500.0 million of 2.700% Notes due 2030, the coupon
rates of which were the lowest in Nucor's history for fixed-rate debt of those
durations. We currently carry the highest credit ratings of

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any steel producer headquartered in North America, with an A- long-term rating
from Standard & Poor's and a Baa1 long-term rating from Moody's. Our credit
ratings are dependent, however, upon a number of factors, both qualitative and
quantitative, and are subject to change at any time. The disclosure of our
credit ratings is made in order to enhance investors' understanding of our
sources of liquidity and the impact of our credit ratings on our cost of funds.

Our credit facility includes only one financial covenant, which is a limit of
60% on the ratio of funded debt to total capitalization. In addition, the credit
facility contains customary non-financial covenants, including a limit on
Nucor's ability to pledge the Company's assets and a limit on consolidations,
mergers and sales of assets. As of October 3, 2020, our funded debt to total
capital ratio was 34% and we were in compliance with all non-financial covenants
under our credit facility. No borrowings were outstanding under the credit
facility as of October 3, 2020.

Although our business is capital intensive, we maintain a number of capital
preservation options. Nucor's robust capital investment and maintenance
practices give us the flexibility to reduce spending by prioritizing our capital
projects, potentially rescheduling certain projects and selectively allocating
capital to investments with the greatest impact on our long-term earnings power.
We have taken advantage of this flexibility in the current environment. Nucor
originally estimated its 2020 capital expenditures to be $2.00 billion, adjusted
it to less than $1.50 billion at the end of the first quarter, and now estimates
2020 capital expenditures to be $1.70 billion. As previously mentioned, Nucor
reviewed its capital spending budget and decided delay capital projects that had
not begun, briefly pause a few of our larger projects and continue with certain
projects that are either close to completion or where work had been scheduled.
We have made the decision to reaccelerate our investment in the Brandenburg,
Kentucky plate mill and the expansion and modernization of our Gallatin,
Kentucky sheet mill. We are taking this step after a thorough review of these
projects and their compelling projected economic returns as well as our strong
cash flow performance in the first nine months of 2020. We expect these
projects, as well as the flex galvanizing line at Nucor Steel Arkansas and the
micro mill greenfield expansion in Frostproof, Florida, will have the largest
capital expenditures in 2020.

In September 2020, Nucor's Board of Directors declared a quarterly cash dividend
on Nucor's common stock of $0.4025 per share payable on November 10, 2020 to
stockholders of record on September 30, 2020. This dividend is Nucor's 190th
consecutive quarterly cash dividend.

Funds provided from operations, cash and cash equivalents, short-term
investments, restricted cash and cash equivalents and new borrowings under our
existing credit facilities are expected to be adequate to meet future capital
expenditure and working capital requirements for existing operations for at
least the next 24 months.

© Edgar Online, source Glimpses

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