EX-13 3 d71252dex13.htm EX-13 EX-13

Exhibit 13

 

 

FINANCIAL HIGHLIGHTS    

 

    

 

      3      

 

 

FINANCIAL HIGHLIGHTS

 

 

(dollar and share amounts in thousands, except per share data)

 

               

 

2015

 

              

 

2014

 

   

 

% CHANGE

 

 

FOR THE YEAR

                     
     

Net sales

          $ 16,439,276              $ 21,105,141        -22%   
     

Earnings:

                     
     

Earnings before income taxes and noncontrolling interests

            709,238                1,204,577        -41%   
     

Provision for income taxes

            213,154                388,787        -45%   
         

 

 

           

 

 

   
     

Net earnings

            496,084                815,790        -39%   
     

Earnings attributable to noncontrolling interests

            138,425                101,844        36%   
         

 

 

           

 

 

   
     

Net earnings attributable to Nucor stockholders

            357,659                713,946        -50%   
     

Per share:

                     
     

Basic

            1.11                2.22        -50%   
     

Diluted

            1.11                2.22        -50%   
     

Dividends declared per share

            1.4925                1.4825        1%   
     

Percentage of net earnings to net sales

            2.2%                3.4%     
     

Return on average stockholders’ equity

            4.7%                9.3%     
     

Capital expenditures

            364,768                568,867        -36%   
     

Depreciation

            625,757                652,000        -4%   
     

Acquisitions (net of cash acquired)

            19,089                768,581        not meaningful   
     

Sales per employee

 

             

 

690

 

  

 

             

 

921

 

  

 

   

 

-25%

 

  

 

AT YEAR END

                     
     

Working capital

          $ 4,369,207              $ 4,344,112        1%   
     

Property, plant and equipment, net

            4,891,153                5,287,639        -7%   
     

Long-term debt (including current maturities)

            4,360,600                4,376,935          
     

Total Nucor stockholders’ equity

            7,416,878                7,772,470        -5%   
     

Per share

            23.33                24.36        -4%   
     

Shares outstanding

            317,962                319,033          
     

Employees

 

             

 

23,700

 

  

 

             

 

23,600

 

  

 

   

 

 

  

 

FORWARD-LOOKING STATEMENTS Certain statements made in this annual report are forward-looking statements that involve risks and uncertainties. The words “believe,” “expect,” “project,” “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 steel prices and changes in the supply and cost of raw materials, including pig iron, iron ore and scrap steel; (4) availability and cost of electricity and natural gas which could negatively affect our cost of steel production or could result in a delay or cancelation of existing or future drilling within our natural gas working interest 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 U.S.; (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 the severe economic downturn in construction markets and 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; and (13) our safety performance.


 

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    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

    OPERATIONS

 

 

 

 

OVERVIEW

STEEL INDUSTRY CONDITIONS

In spite of extremely turbulent global economic and steel industry conditions, the economy in the United States continues to experience modest growth, and steel demand in this country is stronger than in many parts of the world. After several years of growth in nonresidential construction markets (the sector to which we are most closely tied and the largest end market for steel), there was a small decrease in nonresidential building demand in 2015. The domestic automotive market, which is the second largest end market for steel, had a record year, with 17.5 million vehicles sold. This eclipsed the previous record set back in the year 2000. With an improved labor market and low gasoline prices, vehicle sales are expected to continue to be strong in 2016. A steep drop in oil prices in 2015 had a significant negative impact on demand for energy-related steel, which is the third largest end market for steel in the United States. Oil prices are expected to remain low in 2016 due to significant oil inventories globally, which will likely keep demand depressed for energy-related steel products. Long-term, we believe that the domestic economy can benefit from globally competitive energy prices.

Nucor’s earnings decreased in 2015, impacted significantly by continued extremely high levels of steel imports. Our industry remains greatly constrained by the impact of global overcapacity. Weak economic conditions in Europe, slow growth in China and a strong dollar relative to other foreign currencies have made the U.S. markets a prime target for foreign imports. While the steel industry has historically been characterized by periods of overcapacity and intense competition for sales among producers, we are currently experiencing an era of global overcapacity that is unprecedented. Despite the bankruptcies of numerous domestic steel companies and ongoing global steel industry consolidation, the extraordinary increase in China’s steel production in the last decade, together with the excess capacity from other countries that have state-owned enterprises (SOEs) or export-focused steel industries, have exacerbated this overcapacity issue domestically as well as globally. According to the American Iron and Steel Institute, global steel overcapacity in 2015 was estimated at approximately 700 million tons per year, with China’s overcapacity being the largest piece at over 370 million tons. The Chinese overcapacity alone is estimated to be three times greater than the entire U.S. annual demand for steel.

Imported steel and steel products continue to present unique challenges for us because foreign producers often benefit from government subsidies, either directly through SOEs or indirectly through government-owned or controlled financial institutions. Foreign imports of finished and semi-finished steel were down slightly compared to 2014, but still remain 27% higher than they were in 2013. Total imports captured 34% market share in 2015, matching a record level set in 2014, despite significant unused cost-competitive domestic capacity. The surge comes from numerous countries and cuts across all product lines. Our products that experience the greatest amount of imports include: semi-finished steel, reinforcing bar, plate and hot-rolled, cold-rolled and galvanized sheet steel. Countries that contribute most significantly to the import total include South Korea, Turkey and China.

China continues to pose a major challenge in particular. It is the world’s largest producer and exporter of steel, accounting for approximately 50% of the steel produced globally. China exported a record 123 million net tons of steel in 2015, a 20% increase over a previous record set in 2014. We believe Chinese producers, many of which are government-owned in whole or in part, continue to benefit from their government’s manipulation of foreign currency exchange rates and from the receipt of government subsidies, which allow them to sell steel into our markets at artificially low prices.

China is not only selling steel at artificially low prices into our domestic market but also across the globe. When it does so, steel products that would otherwise have been consumed by the local steel customers in other countries are displaced into global markets, compounding the issue. In a more indirect manner, but still significant, is the import of fabricated steel products, such as oil country tubular goods, wind towers and other construction components that were produced in China.

The steel industry has always been cyclical in nature, but North American producers of steel and steel products have been facing and are continuing to face some of the most arduous global market conditions they have experienced in history. The average capacity utilization rate of U.S. steel mills was at a historically unprecedented low of 52% in 2009. The average industry capacity utilization rate increased to approximately 77% in both 2014 and 2013, but dropped to 71% in 2015. These rates compare unfavorably to capacity utilization rates that reached as high as 87% in 2007. Although domestic demand for steel and steel products is expected to remain healthy in 2016, it is unlikely that average capacity utilization rates will increase significantly due to the continued flood of steel imports into the U.S. The average utilization rates of all operating facilities in our steel mills, steel products and raw materials segments were approximately 68%, 63% and 56%, respectively, in 2015, compared with 78%, 64% and 63%, respectively, in 2014. In spite of challenging market conditions and lower utilization rates in 2015, several of our product groups realized improved performance over the prior year, including our bar and structural steel divisions as well as our steel products group. Unfortunately, our sheet and plate divisions did not fare as well compared to 2014.

Macro-level uncertainties in world markets should continue to weigh on global and domestic growth in 2016. We believe our net sales and financial results will continue to be adversely affected by these general global economic factors as well as the global steel production overcapacity issue.


    

 

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OUR CHALLENGES AND RISKS

Sales of many of our products are largely dependent upon capital spending in the nonresidential construction markets in the United States, including in the industrial and commercial sectors, as well as capital spending on infrastructure that is publicly funded, such as bridges, schools, prisons and hospitals. Unlike recoveries from past recessions, the recovery from the recession of 2008-2009 has not yet included a strong recovery in the severely depressed nonresidential construction market. While we have experienced a continued slightly positive trajectory in capital spending on nonresidential construction projects since 2009, we do not expect to see strong growth in our net sales until we see a more sustained increase in spending on these types of construction projects. Congress did pass a five-year surface transportation funding bill at the end of 2015, providing $305 billion for highway and public transportation projects. This is the first major transportation funding bill Congress has passed in a decade.

The continued onslaught of artificially cheap exports by some of our major foreign competitors into the United States and elsewhere reduces our net sales and adversely impacts our financial results. Aggressive enforcement of trade rules by the World Trade Organization to limit unfairly traded imports remains uncertain, although it is critical to our ability to remain competitive. In 2015, the U.S. Congress and the president approved legislation strengthening domestic trade laws. These updates to the country’s trade laws, the first update in more than 20 years, will give the U.S. government stronger trade enforcement mechanisms. We have been encouraged by preliminary findings in three flat-rolled trade cases involving corrosion-resistant, cold-rolled and hot-rolled steel products. All three cases are expected to be finalized in 2016. We continue to believe that assertive enforcement of world trade rules must be one of the highest priorities of the United States government.

Another important trade issue in 2016 is China’s continued treatment as a non-market economy in trade disputes. China was a government-run, non-market economy in 2001 when it entered its Protocol of Accession to the World Trade Organization (Protocol), and China remains a government-run, non-market economy today. The main objective of the Protocol was to encourage, and in some cases to require, China to make market-based economic reforms. However, over the past 15 years, China has failed to take the required steps to establish that it is a market economy under U.S. law. Therefore, the U.S. has no reason to change its treatment of China as a non-market economy when only one of the relevant provisions of the Protocol expires in December 2016. By treating China as a non-market economy in antidumping cases, the Commerce Department can assume that Chinese prices and costs are distorted, and uses other methodologies to calculate antidumping duties. This often results in appropriately higher duties against Chinese products, in order to offset its unfair trade practices.

A major uncertainty we continue to face in our business is the price of our principal raw material, ferrous scrap, which is volatile and often increases or decreases rapidly in response to changes in domestic demand, unanticipated events that affect the flow of scrap into scrap yards and changes in foreign demand for scrap. In periods of rapidly increasing raw material prices in the industry, which is often also associated with periods of strong or rapidly improving steel market conditions, being able to increase our prices for the products we sell quickly enough to offset increases in the prices we pay for ferrous scrap is challenging but critical to maintaining our profitability. We attempt to mitigate the scrap price risk by managing scrap inventory levels at the steel mills to match the anticipated demand over the next couple of weeks. Certain scrap substitutes, including pig iron, have longer lead times for delivery than scrap, which can make this inventory management strategy difficult to achieve. Continued successful implementation of our raw material strategy, including key investments in direct reduced iron (DRI) production coupled with the scrap brokerage and processing services performed by our team at the David J. Joseph Company (DJJ), give us greater control over our metallic inputs and thus also help us to mitigate this risk.

During periods of stronger or improving steel market conditions, we are more likely to be able to pass through to our customers, relatively quickly, the increased costs of ferrous scrap and scrap substitutes and to protect our gross margins from significant erosion. During weaker or rapidly deteriorating steel market conditions, including the global steel market environment of the past several years, weak steel demand, low industry utilization rates and the impact of imports create an even more intensified competitive environment. All of those factors, to some degree, impact pricing, which increases the likelihood that Nucor will experience lower gross margins.

Although the majority of our steel sales are to spot market customers who place their orders each month based on their business needs and our pricing competitiveness compared to both domestic and global producers and trading companies, we also sell contract tons, primarily in our sheet operations. Approximately 60% of our sheet sales were to contract customers in 2015 (50% and 65% in 2014 and 2013, respectively), with the balance in the spot market at the prevailing prices at the time of sale. Steel contract sales outside of our sheet operations are not significant. The amount of tons sold to contract customers depends on the overall market conditions at the time, how the end-use customers see the market moving forward and the strategy that Nucor management believes is appropriate to the upcoming period. Nucor management considerations include maintaining an appropriate balance of spot and contract tons based on market projections and appropriately supporting our diversified customer base. The percentage of tons that is placed under contract also depends on the overall market dynamics and customer negotiations. In years of strengthening demand, we typically see an increase in the percentage of sheet sales sold under contract as our customers have an expectation that transaction prices will rapidly rise and available capacity will quickly be sold out. To mitigate this risk, customers prefer to enter into contracts in order to obtain committed volumes of supply from the mills. Our contracts include a method of adjusting prices on a periodic basis to reflect changes in the market pricing for steel and/or scrap. Market indices for steel generally trend with scrap pricing changes but during periods of steel market weakness, including the market conditions of the past several years, the more intensified competitive steel market environment can cause the sales


 

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price indices to result in reduced gross margins and profitability. Furthermore, since the selling price adjustments are not immediate, there will always be a timing difference between changes in the prices we pay for raw materials and the adjustments we make to our contract selling prices. Generally, in periods of increasing scrap prices, we experience a short-term margin contraction on contract tons. Conversely, in periods of decreasing scrap prices, we typically experience a short-term margin expansion. Contract sales typically have terms ranging from six to twelve months.

Another significant uncertainty we face is the cost of energy. The availability and prices of electricity and natural gas are influenced today by many factors, including changes in supply and demand, advances in drilling technology and, increasingly, by changes in public policy relating to energy production and use. Proposed regulation of greenhouse gas emissions from new and refurbished power plants could increase our cost of electricity in future years, particularly if they are adopted in a form that requires deep reductions in greenhouse gas emissions. Adopting these regulations in an onerous form could lead to foreign producers that are not affected by them gaining a competitive advantage over us. We are monitoring these regulatory developments closely and will seek to educate public policy makers during the adoption process about their potential impact on our business and the U.S. manufacturing base.

Finally, due to our natural gas working interest drilling programs with Encana, a substantial or extended decline in natural gas prices could have a material adverse effect on the value of Nucor’s investment in these programs. In the fourth quarter of 2013, we announced a joint decision with Encana to temporarily suspend drilling new wells until there is a sustained improvement in natural gas pricing. A substantial or extended decline in the price of natural gas could result in further delays or cancelation of existing or future drilling programs or curtailment in production at some properties which could have an adverse effect on our revenues, profitability and cash flows. In addition, natural gas drilling and production are subject to intense federal and state regulation as well as to public interest in environmental protection. Such regulation and interest, when coupled, could result in these drilling programs being forced to comply with certain future regulations, resulting in unknown impacts on the programs’ ability to achieve the cost and hedge benefits we expect from the programs.

OUR STRENGTHS AND OPPORTUNITIES

We are North America’s most diversified steel producer. As a result, our short-term performance is not tied to any one market. Since 2009, we have made investments of more than $6 billion on projects that are not only diversifying our product offerings but also the markets that we serve. These investments will grow our long-term earnings power by expanding our product portfolio into higher value-added offerings that are less vulnerable to imports, improving our cost structure and further building upon our market leadership positions. The pie chart below shows the diversity of our product mix by total tons sold to outside customers in 2015.

 

LOGO

Nucor’s raw material supply chain is another important strength. Our investment in DRI production facilities and scrap brokerage and processing businesses provides Nucor with significant flexibility in optimizing our raw materials costs. Additionally, having a significant portion of our raw materials supply under our control minimizes risk associated with the global sourcing of raw materials, particularly since a good deal of scrap substitutes comes from regions of the world that have historically experienced greater political turmoil.

Our highly variable, low-cost structure, combined with our financial strength and liquidity, has allowed us to successfully navigate cyclical severely depressed steel industry market conditions in the past. In such times, our incentive-based pay system reduces our payroll costs, both hourly and salary, which helps to offset lower selling prices. Our pay-for-performance system that is closely tied to our levels of production also allows us to keep our work force intact and to continue operating our facilities when some of our competitors with greater fixed costs are forced to shut down some of their facilities. Because we use electric arc furnaces to produce our steel, we can easily vary our production levels to match short-term changes in demand, unlike our blast furnace-based integrated competitors. We believe these strengths also provide us further opportunities to gain market share during such times.


    

 

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EVALUATING OUR OPERATING PERFORMANCE

We report our results of operations in three segments: steel mills, steel products and raw materials. Most of the steel we produce in our mills is sold to outside customers, but a significant percentage is used internally by some of the facilities in our steel products segment.

We begin measuring our performance by comparing our net sales, both in total and by individual segment, during a reporting period with our net sales in the corresponding period in the prior year. In doing so, we focus on changes in and the reasons for such changes in the two key variables that have the greatest influence on our net sales: average sales price per ton during the period and total tons shipped to outside customers.

We also focus on both dollar and percentage changes in gross margins, which are key drivers of our profitability, and the reasons for such changes. There are many factors from period to period that can affect our gross margins. One consistent area of focus for us is changes in “metal margins,” which is the difference between the selling price of steel and the cost of scrap and scrap substitutes. Increases in the cost of scrap and scrap substitutes that are not offset by increases in the selling price of steel can quickly compress our margins and reduce our profitability.

Another factor affecting our gross margins in any given period is the application of the last-in, first-out (LIFO) method of accounting to a substantial portion of our inventory (48% of total inventories as of December 31, 2015). LIFO charges or credits for interim periods are based on management’s interim period-end estimates, after considering current and anticipated market conditions, of both inventory costs and quantities at fiscal year end. The actual year end amounts may differ significantly from these estimated interim amounts. Annual LIFO charges or credits are largely based on the relative changes in cost and quantities year over year, primarily with raw material inventory in the steel mills segment.

Because energy is a key input to our manufacturing processes, material changes in energy costs per ton can significantly affect our gross margins as well. Lower energy costs per ton increase our gross margins. Generally, our energy costs per ton are lower when the average utilization rates of all operating facilities in our steel mills segment are higher.

Changes in marketing, administrative and other expenses, particularly profit sharing costs, can have a material effect on our results of operations for a reporting period as well. Profit sharing costs vary significantly from period to period as they are based upon changes in our pre-tax earnings and are a reflection of our pay-for-performance system that is closely tied to our levels of production.

EVALUATING OUR FINANCIAL CONDITION

We evaluate our financial condition each reporting period by focusing primarily on the amounts of and reasons for changes in cash provided by operating activities, our current ratio, the turnover rate of our accounts receivable and inventories, the amount and reasons for changes in cash used in or provided by investing activities and financing activities and our cash and cash equivalents and short-term investments position at period end. Our conservative financial practices have served us well in the past and are serving us well today. As a result, our financial position remains strong despite the negative effects on our business of global overcapacity and the continued weakness in the global economy.

 

 

COMPARISON OF 2015 TO 2014

RESULTS OF OPERATIONS

NET SALES

Net sales to external customers by segment for 2015 and 2014 were as follows:

 

       (in thousands)

 

  Year Ended December 31,

 

    

 

2015

 

    

 

2014

 

    

 

    % Change 

 

 

   

Steel mills

     $ 11,084,331       $ 14,723,642       -25% 

Steel products

       3,966,895         4,032,385       -2% 

Raw materials

       1,388,050         2,349,114       -41% 
    

 

 

    

 

 

    

Total net sales to external customers

     $ 16,439,276       $ 21,105,141       -22% 
    

 

 

    

 

 

    
   
                          


 

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Net sales for 2015 decreased 22% from the prior year. The average sales price per ton decreased 13% from $830 in 2014 to $725 in 2015, while total tons shipped to outside customers decreased 11% from 25.4 million tons in 2014 to 22.7 million tons in 2015.

 

LOGO

In the steel mills segment, production and sales tons were as follows:

 

       (in thousands)
   Year Ended December 31,     

 

            2015

 

    

 

            2014

 

    

 

    % Change 

 

   

Steel production

       19,294         21,135       -9% 
   

Outside steel shipments

       17,006         18,681       -9% 

Inside steel shipments

         2,854           3,286       -13% 

Total steel shipments

       19,860         21,967       -10% 
   
                          

Net sales to external customers in the steel mills segment decreased 25% due to a 17% decrease in the average sales price per ton from $788 in 2014 to $651 in 2015 and a 9% decrease in tons sold to outside customers.

Market conditions for the steel mills segment were much more challenging in 2015 than they were in 2014. Volumes decreased in 2015 compared to 2014 for all product groups within the steel mills segment, particularly bar, structural and plate. Average sales prices also decreased for all product groups within the steel mills segment in 2015 compared to 2014, with the largest decreases in sheet and plate. These trends caused decreased sales for the steel mills segment in each quarter of 2015 when compared to the respective quarter in the prior year. Negative pricing trends and low volumes are due to continued deterioration in global steel markets amplified by global excess capacity and historically high import levels. Imports accounted for an estimated 34% of the finished and semi-finished steel market in 2015. The collapse in oil prices that began in late 2014 and continued through 2015 significantly weakened energy markets. In addition, agricultural and heavy equipment markets were weak in 2015. The automotive market remains strong. Demand in nonresidential construction markets decreased slightly in 2015 as compared to 2014.


    

 

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Tonnage data for the steel products segment is as follows:

 

       (in thousands)  

 

  Year Ended December 31,

 

    

 

          2015

 

    

 

          2014

 

    

 

% Change

 

 
   

Joist sales

       427         421         1%   

Deck sales

       401         396         1%   

Cold finished sales

       449         504         -11%   

Fabricated concrete reinforcing steel sales    

       1,190         1,185           
   
                              

Net sales to external customers in the steel products segment decreased 2% from 2014 due to a 1% decrease in tons sold to outside customers and a 1% decrease in the average sales price per ton from $1,383 in 2014 to $1,374 in 2015. Sales during 2015 followed the typical seasonal pattern that was also experienced in 2014. Total sales and volumes were lowest in the first quarter as winter weather conditions had their greatest impact on nonresidential construction markets. Conditions improved in the second and third quarters, and then decreased in the fourth quarter as weather conditions transitioned back to winter. Volumes and average selling prices for our cold finish operations decreased in 2015 as compared to 2014 due to decreased demand in agricultural and heavy equipment markets. Nonresidential construction markets experienced a slight decrease in demand in 2015 as nonresidential building construction starts decreased compared to 2014.

Sales for the raw materials segment decreased 41% from 2014 primarily due to decreased volumes in DJJ’s brokerage and processing businesses and lower scrap and metallic commodity prices. Approximately 88% of outside sales in the raw materials segment in 2015 were from brokerage operations of DJJ and approximately 8% of the outside sales were from the scrap processing facilities (81% and 12%, respectively, in 2014).

GROSS MARGIN

In 2015, Nucor recorded gross margins of $1.58 billion (10%) compared to $1.91 billion (9%) in 2014. The year-over-year dollar decrease was primarily the result of the 13% decrease in the average sales price per ton and 11% decrease in tons shipped to outside customers. Gross margin during 2015 was also affected by the following factors:

 

·

 

 

In the steel mills segment, the average scrap and scrap substitute cost per ton used decreased 29% from $381 in 2014 to $270 in 2015; however, overall metal margin decreased in 2015 due to lower sales volumes. Scrap prices were volatile and decreased significantly during 2015, as the average cost of scrap and scrap substitute used in December 2015 decreased 41% when compared to the average cost of scrap and scrap substitute used in January 2015. The overall metal margin in the fourth quarter of 2015 decreased from the fourth quarter of 2014 and the third quarter of 2015 due to decreased metal margin per ton and decreased sales volumes.

 

 

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 2016, we expect to see scrap prices stabilize after the downward trend in pricing continued in the fourth quarter of 2015.

  LOGO

 

·  

 

 

Nucor’s gross margins are significantly impacted by the application of the LIFO method of accounting. LIFO charges or credits are largely based on the relative changes in cost and quantities year over year, primarily within raw material inventory in the steel mills segment. The average scrap and scrap substitute cost per ton in ending inventory within our steel mills segment at December 31, 2015 decreased 42% as compared to December 31, 2014. As a result, Nucor recorded a LIFO credit of $466.8 million in 2015 (a LIFO credit of $57.3 million in 2014). The decreases in cost per ton were driven by market conditions at the end of 2015, which experienced significantly weaker demand for steel and raw materials than market conditions at the end of 2014.

 

 

·  

 

 

Total steel mill energy costs decreased approximately $3 per ton from 2014 to 2015 primarily due to lower natural gas and electricity unit costs. Due to the efficiency of Nucor’s steel mills, energy costs were approximately 6% of the sales dollar in 2015 and 2014.

 
   
   
   


 

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·

 

 

Nucor’s 2014 gross margins were negatively impacted by $8.9 million in inventory-related purchase accounting adjustments associated with our acquisition of Nucor Steel Gallatin in the fourth quarter of 2014 (none in 2015).

 

·

 

 

Gross margins in the steel products segment for 2015 increased significantly compared to 2014 primarily due to improved performance in our joist, deck, rebar and building systems operations. These operations experienced margin expansion in 2015 due to lower input costs caused by decreased steel prices and the successful execution of cost reduction strategies. Also contributing to the gross margin improvement of this segment is the ongoing investment to expand our offerings of value-added products, services and technologies.

 

·

 

 

Gross margins in the raw material segment in 2015 were adversely affected by the performance of our direct reduced iron (DRI) businesses and our natural gas drilling programs. Nucor Steel Louisiana experienced an equipment failure related to the process gas heater in the fourth quarter of 2014 that suspended production operations until late in the first quarter of 2015. As a result of the shutdown, the Louisiana DRI facility’s margins in 2015 were negatively impacted by working through higher-cost iron ore that was purchased at the end of 2014 but was unable to be used until the facility resumed operations. Following a planned maintenance outage that occurred in the fourth quarter of 2015, Nucor Steel Louisiana did not initially resume operations due to market conditions. During the extended shutdown following completion of the planned maintenance outage, we observed increases in market prices for scrap and pig iron that we believe were due in part to the Louisiana DRI facility’s extended suspension of operations. The Louisiana DRI facility resumed operations in late January 2016. We believe there is a positive impact on our steel mills’ overall iron unit costs, including scrap and pig iron costs, when Nucor Steel Louisiana is producing high quality DRI.

 

 

The depressed level of pricing for alternative raw materials in 2015 has had an adverse impact on the performance and margins of our DRI facilities. Gross margins for our natural gas drilling programs decreased significantly due to a significant decrease in natural gas prices.

 

·

 

 

Gross margins related to DJJ’s scrap processing and brokerage operations decreased during 2015 compared to 2014 due to weaker demand for scrap and other metallic commodities as steel mill utilization decreased. The resulting decline in prices and volumes caused margin compression for the scrap processing business that was partially offset by lower expenses and a continued focus on expense reduction and operational efficiencies.

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 from 2014 to 2015 due to lower profitability in the current year. In 2015, profit sharing costs consisted of $60.5 million of contributions, including the Company’s matching contribution, made to the Company’s Profit Sharing and Retirement Savings Plan for qualified employees ($110.1 million in 2014). Other bonus costs also fluctuate based on Nucor’s achievement of certain financial performance goals, including comparisons of Nucor’s financial performance to peers in the steel industry and other companies. Stock-based compensation included in marketing, administrative and other expenses decreased by 3% to $21.3 million in 2015 compared with $21.9 million in 2014 and includes costs associated with vesting of stock awards granted in prior years.

Marketing, administrative and other expenses decreased in the fourth quarter of 2015 as compared to the fourth quarter of 2014 and third quarter of 2015 due to lower profit sharing and other incentive compensation costs as the Company reported a net loss in the fourth quarter of 2015.

EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES

Equity method investment earnings, including amortization expense, were $5.3 million in 2015 and $13.5 million in 2014. The decrease in equity method investment earnings from 2015 to 2014 is primarily due to decreased earnings at NuMit and 2015 losses at Hunter Ridge compared to earnings in 2014, partially offset by a decrease in losses at Duferdofin Nucor.

IMPAIRMENTS AND LOSSES ON ASSETS

In 2015, Nucor recorded $244.8 million in charges for impairments and losses on assets compared with $25.4 million in 2014. During the fourth quarter of 2015, Nucor assessed its equity investment in Duferdofin Nucor for impairment due to unfavorable operating performance and deterioration in financial projections caused by increased global overcapacity in 2015. After completing its assessment, Nucor determined that the carrying amount exceeded its estimated fair value and was other than temporary. Nucor recorded a $153.0 million impairment charge against the Company’s investment in Duferdofin Nucor (see Note 10 to the Consolidated Financial Statements). The $153.0 million impairment charge is included in the steel mills segment.


    

 

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Also during the fourth quarter of 2015, Nucor determined that certain assets, the majority of which were engineering and equipment related to a blast furnace project at our St. James Parish, Louisiana site, will not be utilized, resulting in an $84.1 million impairment charge (see Note 7 to the Consolidated Financial Statements). Additionally, one of three iron ore storage domes collapsed at Nucor Steel Louisiana in 2013. During 2015, Nucor finalized its assessment process related to the utility of the two remaining storage domes and determined that those domes would no longer be utilized. The Company recorded an associated net write-down of property, plant and equipment of $7.7 million on the two domes (see Note 7 to the Consolidated Financial Statements). These charges are included in the raw materials segment.

The $25.4 million of expense recorded in 2014 primarily relates to a $9.0 million charge on the disposal of assets and a $12.5 million charge related to the partial write-down of assets, both in the steel mills segment.

INTEREST EXPENSE (INCOME)

Net interest expense is detailed below:

 

       (in thousands)

  Year Ended December 31,

 

    

 

2015

 

      

 

2014

 

 
 

Interest expense

     $ 177,543         $ 174,142   

Interest income

       (4,012        (4,886
    

 

 

      

 

 

 

Interest expense, net

     $ 173,531         $ 169,256   
    

 

 

      

 

 

 
 
                       

Gross interest expense increased in 2015 as compared to 2014 due primarily to lower capitalized interest in the current year. The decrease in 2015 as compared to 2014 in gross interest income is attributable to lower interest income received on credit facilities that Nucor extended to a joint venture as the joint venture fully repaid its credit facilities in 2014.

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

Earnings before income taxes and noncontrolling interests by segment for 2015 and 2014 are as follows:

 

     (in thousands)

  Year Ended December 31,

 

    

 

2015

 

      

 

2014

 

 
 

Steel mills

     $ 629,793         $ 1,594,352   

Steel products

       276,048           166,323   

Raw materials

       (283,938        (29,053

Corporate/eliminations

       87,335           (527,045
    

 

 

      

 

 

 

Earnings before income taxes and

     noncontrolling interests

     $ 709,238         $ 1,204,577   
    

 

 

      

 

 

 
 
                       

Earnings before income taxes and noncontrolling interests in the steel mills segment for 2015 decreased significantly from 2014 due to lower sales volume and lower average sales prices resulting from factors discussed above. The $153.0 million impairment charge related to Duferdofin Nucor significantly impacted the steel mills segment and caused the segment to report a loss before income taxes and noncontrolling interests in the fourth quarter of 2015. The steel mills segment’s profitability in 2014 was impacted by the $9.0 million charge on the disposal of assets and a $12.5 million charge related to the partial write-down of assets within the segment. Historically high levels of imports caused by global excess capacity continue to be the greatest challenge the steel mills segment faces. Energy, heavy equipment and agricultural markets remain weak. The automotive market remains strong. Demand in nonresidential construction markets decreased slightly in 2015 compared to 2014.

In the steel products segment, earnings before income taxes and noncontrolling interests increased significantly in 2015 compared to 2014. Nonresidential construction markets experienced a slight decrease in demand as nonresidential building construction starts were lower in 2015 as compared to 2014. Despite this slight decrease in demand and only modest increases in volumes for our joist, deck, rebar fabrication and building systems operations, the steel products segment was able to expand its margins in 2015 due to lower steel costs. The biggest factor driving the growth in profitability of the segment is the effective execution of our strategically important five drivers to profitable growth. These include market leadership, being an effective channel to market for our steel mills, lowering our costs, expanding our offerings of value-added products, services and technologies and our focus on commercial excellence to better take care of our customers’ needs.


 

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Earnings before income taxes and noncontrolling interests in the raw materials segment for 2015 decreased significantly from 2014. DJJ’s brokerage and scrap processing operations had lower sales volumes and average selling prices in 2015 compared to 2014. Falling scrap and metallic commodity prices throughout 2015 caused margin compression at our scrap processing businesses. The raw materials segment was also impacted by the decreased performance of our DRI facilities in 2015, in which depressed levels of pricing for alternative raw materials has had an adverse impact on both facilities’ profitability. Nucor Steel Louisiana’s performance was affected by the suspension of operations that began in late 2014 due to the equipment failure related to the process gas heater. Though the facility resumed operations late in the first quarter of 2015, it had to work through higher-cost iron ore that was purchased at the end of 2014 but was unable to be used until the facility resumed operations. Our DRI facility in Trinidad had a planned 20-day outage in the second quarter of 2015, and our Louisiana DRI facility completed a planned maintenance outage in the fourth quarter of 2015. Due to market conditions, the Louisiana DRI facility did not resume operations for the remainder of 2015 (the facility did resume operations in late January 2016). Also negatively impacting the profitability of the raw materials segment in 2015 was the $84.1 million impairment charge for assets related to a blast furnace project at our St. James Parish site and the net $7.7 million write-down of property, plant and equipment related to the two remaining iron ore storage domes at Nucor Steel Louisiana (see Note 7 to the Consolidated Financial Statements). The performance of our natural gas drilling programs decreased significantly in 2015 due to a significant decrease in natural gas prices.

NONCONTROLLING INTERESTS

Noncontrolling interests represent the income attributable to the minority interest partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (NYS) of which Nucor owns 51%. The 36% increase in earnings attributable to noncontrolling interests was primarily due to increased metal margins as a result of lower raw material costs, a more favorable product mix and the impact of a planned three-week outage associated with a capital project in the second quarter of 2014, partially offset by decreased volumes. 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.

PROVISION FOR INCOME TAXES

The effective tax rate in 2015 was 30.1% compared with 32.3% in 2014. The decrease in the rate between 2014 and 2015 is primarily due to the change in the relative proportions of net earnings attributable to noncontrolling interests to total pre-tax earnings between the periods. The effective tax rate in 2015 also benefited from lower state income taxes caused by state tax credits and the reversal of previously unrecognized tax benefits. These decreases in the rate are somewhat offset by an increase as a result of the $153.0 million financial statement impairment of an investment in a foreign joint venture. Nucor has substantially concluded U.S. federal income tax matters for years through 2012. The 2013 and 2014 tax years remain open to examination by the Internal Revenue Service. The Canada Revenue Agency is examining the 2012 Canadian returns for Harris Steel Group Inc. and certain related affiliates. The tax years 2009 through 2014 remain open to examination by other major taxing jurisdictions to which Nucor is subject (primarily Canada and other state and local jurisdictions).

 

NET EARNINGS AND RETURN ON EQUITY

Nucor reported net earnings of $357.7 million, or $1.11 per diluted share, in 2015, compared to net earnings of $713.9 million, or $2.22 per diluted share, in 2014. Net earnings attributable to Nucor stockholders as a percentage of net sales was 2% and 3% in 2015 and 2014, respectively. Return on average stockholders’ equity was 5% and 9% in 2015 and 2014, respectively.

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COMPARISON OF 2014 TO 2013

RESULTS OF OPERATIONS

NET SALES

Net sales to external customers by segment for 2014 and 2013 were as follows:

 

                                                           
                         (in thousands)  
  Year Ended December 31,      2014        2013        % Change    
     

Steel mills

     $ 14,723,642         $ 13,311,948           11%     

Steel products

       4,032,385           3,607,333           12%     

Raw materials

       2,349,114           2,132,765           10%     
    

 

 

      

 

 

      

Total net sales to external customers

     $ 21,105,141         $ 19,052,046           11%     
    

 

 

      

 

 

      
     
                                  

Net sales for 2014 increased 11% from the prior year. The average sales price per ton increased 3% from $803 in 2013 to $830 in 2014, while total tons shipped to outside customers increased 7% in 2014 to 25.4 million tons as compared to 23.7 million tons 2013.

In the steel mills segment, production and sales tons were as follows:

 

                                                           
                         (in thousands)  
  Year Ended December 31,      2014        2013        % Change    
     

Steel production

       21,135           19,900           6%     
     

Outside steel shipments

       18,681           17,733           5%     

Inside steel shipments

         3,286             2,917           13%     

Total steel shipments

       21,967           20,650           6%     
     
                                  

Net sales to external customers in the steel mills segment increased 11% due to a 5% increase in the average sales price per ton from $751 in 2013 to $788 in 2014 and a 5% increase in tons sold to outside customers.

Tonnage data for the steel products segment is as follows:

 

                                                           
                         (in thousands)  
  Year Ended December 31,      2014        2013        % Change    
     

Joist sales

       421           342           23%     

Deck sales

       396           334           19%     

Cold finished sales

       504           474           6%     

Fabricated concrete reinforcing steel sales

      

 

1,185

 

  

 

      

 

1,065

 

  

 

      

 

11%  

 

  

 

Net sales to external customers in the steel products segment increased 12% from 2013 due to an 11% increase in tons sold to outside customers and a 1% increase in the average sales price per ton from $1,375 in 2013 to $1,383 in 2014.

Sales for the raw materials segment increased 10% from 2013 primarily due to increased volumes in DJJ’s brokerage and recycling businesses and our natural gas drilling activities, partially offset by decreased pricing at DJJ. Approximately 81% of outside sales in the raw materials segment in 2014 were from brokerage operations of DJJ and approximately 12% of the outside sales were from the scrap processing facilities (83% and 12%, respectively, in 2013).


 

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GROSS MARGIN

In 2014, Nucor recorded gross margins of $1.91 billion (9%) compared to $1.41 billion (7%) in 2013. The year-over-year dollar and gross margin percentage increases were primarily the result of the 3% increase in the average sales price per ton and 7% increase in tons shipped to outside customers, along with the following factors:

 

·

 

 

In the steel mills segment, the average scrap and scrap substitute cost per ton used increased 1% from $376 in 2013 to $381 in 2014; however, metal margins also increased for our sheet, bar, structural and plate products from 2013.

 

·

 

 

The average scrap and scrap substitute cost per ton in ending inventory within our steel mills segment at December 31, 2014 decreased 11% as compared to December 31, 2013. As a result, Nucor recorded a LIFO credit of $57.3 million in 2014 (a LIFO charge of $17.4 million in 2013).

 

·

 

 

Nucor’s 2014 gross margins were negatively impacted by $8.9 million in inventory-related purchase accounting adjustments associated with our acquisition of Nucor Steel Gallatin in the fourth quarter of 2014 (none in 2013).

 

·

 

 

Total steel mill energy costs increased approximately $2 per ton from 2013 to 2014 primarily due to higher unit costs for natural gas and electricity.

 

·

 

 

Gross margins in the steel products segment increased significantly in 2014 compared to 2013 due in large part to the improving conditions in the nonresidential construction markets. Our joist, deck, rebar, cold finish and building systems operations all experienced margin improvement in 2014 compared to 2013.

 

·

 

 

Our Nucor Steel Louisiana DRI facility, which began operations in December 2013, experienced significant operational losses in the first three quarters of 2014 primarily due to yield loss, which in our experience is not unusual in the early stage of production. An equipment failure related to the process gas heater occurred in the fourth quarter of 2014. There were no injuries, no environmental impact and no damage to any other part of the facility as a result of this incident. Production operations were suspended for the remainder of 2014 after the equipment failure as the necessary repairs and adjustments were being made, leading to further losses in the fourth quarter of 2014.

 

·

 

 

Gross margins related to DJJ’s scrap processing and brokerage operations increased in 2014 compared to 2013. The brokerage group benefited from stronger domestic scrap sales and gross margins for the scrap processing group improved during 2014 compared to 2013.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

Profit sharing costs increased from 2013 to 2014. In 2014, profit sharing costs consisted of $110.1 million of contributions, including the Company’s matching contribution, made to the Company’s Profit Sharing and Retirement Savings Plan for qualified employees ($71.7 million in 2013). Stock-based compensation included in marketing, administrative and other expenses decreased 4% to $21.9 million in 2014 compared with $22.9 million in 2013 and includes costs associated with vesting of stock awards granted in prior years.

EQUITY EARNINGS OF UNCONSOLIDATED AFFILIATES

Equity method investment earnings, including amortization expense, were $13.5 million in 2014 and $9.3 million in 2013. The increase in equity method investment earnings from 2014 to 2013 is primarily due to greater equity method earnings at NuMit and a decrease in losses at Duferdofin Nucor.

IMPAIRMENTS AND LOSSES ON ASSETS

In 2014, Nucor recorded $25.4 million of impairments and losses on assets primarily related to a $9.0 million charge on the disposal of assets and a $12.5 million charge related to the partial write-down of assets, both in the steel mills segment. During the third quarter of 2013, one of three iron ore storage domes collapsed at Nucor Steel Louisiana. Nucor recorded a partial write-down of property, plant and equipment and inventories at the facility, resulting in a $14.0 million net charge (see Note 7 to the Consolidated Financial Statements).


    

 

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INTEREST EXPENSE (INCOME)

Net interest expense is detailed below:

 

       (in thousands)
  Year Ended December 31,      2014        2013  
   

Interest expense

     $ 174,142         $ 151,986   

Interest income

       (4,886        (5,091
    

 

 

      

 

 

 

Interest expense, net

     $ 169,256         $ 146,895   
    

 

 

      

 

 

 
   
                       

The 15% increase in gross interest expense from 2013 is primarily attributable to a 13% increase in average debt outstanding. Gross interest income decreased 4% due to a 13% decrease in average investments, partially offset by an increase in the average interest rate on investments.

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

Earnings before income taxes and noncontrolling interests by segment for 2014 and 2013 are as follows:

 

       (in thousands)
  Year Ended December 31,      2014        2013  
   

Steel mills

     $ 1,594,352         $ 1,156,715   

Steel products

       166,323           82,129   

Raw materials

       (29,053        13,686   

Corporate/eliminations

       (527,045        (461,407
    

 

 

      

 

 

 

Earnings before income taxes and noncontrolling interests

     $ 1,204,577         $ 791,123   
    

 

 

      

 

 

 
   
                       

Earnings before income taxes and noncontrolling interests in the steel mills segment for 2014 increased significantly from 2013 due to higher sales volume, higher average sales prices and higher metal margins resulting from factors discussed above. Negatively impacting the steel mills segment profitability in 2014 were the $12.5 million charge related to the partial write-down of assets, the $9.0 million charge related to the disposal of assets and $8.9 million of inventory-related purchase accounting adjustments at newly acquired Nucor Steel Gallatin. The steel mills segment benefited from improved results at NuMit and Duferdofin Nucor.

In the steel products segment, earnings before income taxes and noncontrolling interests increased significantly in 2014 compared to 2013. The largest increases in profitability in 2014 compared to 2013 were at our joist, deck and building systems operations, while the profitability of our rebar and cold finish operations also increased. The steel products segment benefited from improving conditions in nonresidential construction markets and market leadership positions held by our joist, deck, building systems, rebar and cold finish operations.

The decrease in profitability of our raw materials segment for 2014 as compared to 2013 is due primarily to operating losses at our Louisiana DRI facility as discussed above. Earnings before income taxes and noncontrolling interest in the raw materials segment in 2013 was impacted by the charges related to the net $14.0 million write-down of inventory and property, plant and equipment as a result of the dome collapse at Nucor Steel Louisiana that occurred in the third quarter of 2013. Partially offsetting the losses at the Louisiana DRI plant was increased profitability from DJJ’s brokerage and scrap processing operations due to increased volumes and margin improvement, and increased profitability from our natural gas working interest drilling investment. The DRI facility in Trinidad also experienced an increase in profitability.

NONCONTROLLING INTERESTS

The 4% increase in noncontrolling interests from 2013 to 2014 was primarily attributable to Nucor-Yamato Steel’s increased average sales prices and increased metal margins, partially offset by decreased volumes and the impact of a planned three-week outage associated with a capital project in the second quarter of 2014.


 

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PROVISION FOR INCOME TAXES

The effective tax rate in 2014 was 32.3% compared with 26.0% in 2013. The increase in the rate between 2013 and 2014 was primarily due to a $21.3 million favorable non-cash out-of-period adjustment to deferred tax balances in 2013 compared to a $13.2 million favorable non-cash out-of-period adjustment to tax balances in 2014, and the change in the relative proportions of net earnings attributable to noncontrolling interests and the foreign rate differential to total pre-tax earnings between the periods.

NET EARNINGS AND RETURN ON EQUITY

Nucor reported net earnings of $713.9 million, or $2.22 per diluted share, in 2014 compared to net earnings of $488.0 million, or $1.52 per diluted share, in 2013. Net earnings attributable to Nucor stockholders as a percentage of net sales were 3% in both 2014 and 2013. Return on average stockholders’ equity was 9% and 6% in 2014 and 2013, respectively.

 

 

LIQUIDITY AND CAPITAL RESOURCES

Nucor’s cash and cash equivalents and short-term investments position nearly doubled, increasing from $1.12 billion at the end of 2014 to $2.04 billion at the end of 2015. Approximately $360.6 million and $156.1 million of the cash and cash equivalents position at December 31, 2015 and December 31, 2014, respectively, was held by our majority-owned joint ventures. Cash flows provided by operating activities provide us with a significant source of liquidity. When needed, we have external short-term financing sources available, including the issuance of commercial paper and borrowings under our bank credit facilities. We also issue long-term debt from time to time.

Nucor has a $1.5 billion revolving credit facility that matures in August 2018 and was undrawn at December 31, 2015. We believe our financial strength is a key strategic advantage among domestic steel producers, particularly during recessionary business cycles. We carry the highest credit ratings of any metals and mining company headquartered in North America, with an A- rating from Standard and Poor’s and a Baa1 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.

Based upon these factors, we expect to continue to have adequate access to the capital markets at a reasonable cost of funds for liquidity purposes when needed. This was evidenced when, during the fourth quarter of 2014, we issued approximately $300 million of commercial paper to partially fund the acquisition of Gallatin Steel Company. That commercial paper borrowing was extinguished during the first quarter of 2015, and no commercial paper was outstanding at the end of 2015. The next significant debt maturity is not until December 2017.

 

Selected Measures of Liquidity and Capital Resources              
              (dollars in thousands)
  December 31,      2015        2014  
   

Cash and cash equivalents

       $1,939,469           $1,024,144   

Short-term investments

       100,000           100,000   

Working capital

       4,369,207           4,344,112   

Current ratio

       4.2           3.1   
   
                       

The current ratio was 4.2 at year end 2015 compared with 3.1 at year end 2014. The current ratio was positively impacted by an 82% increase from 2014 in cash and cash equivalents and short-term investments. The increase in cash and cash equivalents and short-term investments was primarily due to the robust $2.16 billion of cash generated by operating activities during 2015. This increase in cash and cash equivalents was partially offset by cash used for capital expenditures, dividends and the decrease in short-term debt which was mainly the repayment of commercial paper used to fund the 2014 acquisition of Nucor Steel Gallatin. The current ratio also benefited from a 43% decrease in accounts payable as compared to year end 2014, which was mainly attributable to the dramatic decrease in scrap and iron ore prices during 2015. The value of scrap and scrap substitutes on hand decreased by 25% from year end 2014.


    

 

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The current ratio was negatively impacted by large decreases in working capital, including decreases in accounts receivable, inventories and other current assets. Accounts receivable decreased by 33% from 2014 due primarily to the 31% decrease in net sales in the fourth quarter of 2015 compared with the prior year fourth quarter. This decrease is the result of an 18% decrease in average sales price per ton and a 16% decrease in outside shipments in the fourth quarter of 2015 as compared with the fourth quarter of 2014. In addition, inventories decreased by 22% from 2014 due to a 4% decrease in tons on hand and the sharp decline in scrap and scrap substitute pricing. We also experienced a 63% decrease in other current assets, mainly due to the reclassification of deferred tax balances included within other current assets to deferred credits and other liabilities in connection with our early adoption of new accounting guidance requiring all deferred tax assets and liabilities to be classified as non-current on the balance sheet.

In 2015, total accounts receivable turned approximately every five weeks and inventories turned approximately every nine weeks. These ratios compare with accounts receivable turnover of every five weeks and inventory turnover of approximately every seven weeks in 2014. The 2015 inventory turnover calculation was negatively impacted by year end 2014 inventory balances, which were significantly higher than those balances at the end of 2015 due to the rapid decrease in raw materials costs, lower shipment volumes and decreased production in 2015.

Funds provided by operations, cash and cash equivalents, short-term investments and new borrowings under 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.

We have a simple capital structure with no off-balance sheet arrangements or relationships with unconsolidated special purpose entities that we believe could have a material impact on our financial condition or liquidity.

CAPITAL ALLOCATION STRATEGY

Nucor’s strong cash and cash equivalents and short-term investments position provides many opportunities for prudent deployment of our capital. We have three approaches to allocating our capital. Nucor’s highest capital allocation priority is to reinvest those funds in order to profitably grow our business through capital projects at our existing operations, greenfield expansion or acquisitions. Our second objective is to provide our shareholders with a robust return of capital through a strong base dividend reflective of our earnings. The company’s third capital allocation objective is to strategically repurchase stock when our cash position is strong and our stock is attractively priced. In September 2015, Nucor’s Board of Directors authorized the repurchase of up to $900 million of the Company’s common stock. For the first time since 2008, Nucor repurchased approximately 1.7 million shares of stock for $66.5 million in December 2015.

 

OPERATING ACTIVITIES

 

Cash provided by operating activities was $2.16 billion, an increase of 61% compared with cash provided by operating activities of $1.34 billion in 2014. The primary reason for the change is increased cash generated from changes in operating assets and liabilities of $743.0 million in 2015 compared with cash used by changes in operating assets and liabilities of ($400.2) million in 2014. The funding of working capital decreased from the prior year period due mainly to decreases in accounts receivable, inventories and federal income taxes, partially offset by an increase in cash used to fund accounts payable and salaries, wages and related accruals. Decreased average sales prices per ton and outside shipments from the prior year led to the decrease in accounts receivable, while the decline in scrap and scrap substitute pricing from year end 2014 caused the decrease in inventories. Federal income tax payments have decreased due to Nucor’s decreased profitability. The increase in cash used to fund accounts payable is due to the timing of payments. The increase in cash used for salaries, wages and related accruals is primarily attributable to the payout of accrued profit sharing and other incentive compensation costs in the first quarter of 2015. This payout was based upon Nucor’s financial performance in 2014, which had improved significantly over the prior year period. The increase in cash generated from changes in operating assets and liabilities was partially offset by decreased net earnings in 2015 from prior year levels.

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INVESTING ACTIVITIES

Our business is capital intensive; therefore, cash used in investing activities primarily represents capital expenditures for new facilities, the expansion and upgrading of existing facilities and the acquisition of other companies. Nucor invested $374.1 million in new facilities and expansion or upgrading of existing facilities in 2015 compared with $668.0 million in 2014. The decrease in capital expenditures is due to the reduced spending with our natural gas working interest drilling programs, reduced spending at our Louisiana DRI facility which was substantially completed in 2014 and reduced spending at our steel mills following significant capital expansion projects that were completed in 2014. Additionally, Nucor invested $768.6 million in the acquisition of other companies in 2014, primarily Nucor Steel Gallatin, compared with acquisitions of only $19.1 million in 2015. Another factor contributing to the decrease in cash used in investing activities was an increase in proceeds from the sale of investments over the prior year period. These positive factors were partially offset by the $122.0 million of repayment of advances to affiliates in 2014 (none in 2015) as our Steel Technologies LLC joint venture obtained external financing and repaid all debts outstanding to Nucor in the prior year period.

FINANCING ACTIVITIES

Cash used in financing activities in 2015 was $789.8 million compared with cash used in financing activities of $359.0 million in 2014. The majority of the change was due to the first quarter 2015 repayment of approximately $151 million of commercial paper that was issued in 2014 and outstanding at year end 2014 to partially fund the acquisition of Nucor Steel Gallatin. Additionally, cash used to repurchase treasury stock was $66.5 million in 2015 (none in 2014).

In 2015, Nucor increased its quarterly base dividend, resulting in dividends paid of $479.4 million in 2015 compared with $475.1 million in 2014.

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. Our funded debt to total capital ratio was 36% at the end of 2015 and 2014, and we were in compliance with all other covenants under our credit facility.

MARKET RISK

Nucor’s largest exposure to market risk is in our steel mills and steel products segments. Our utilization rates for the steel mills and steel products facilities for the fourth quarter of 2015 were 63% and 61%, respectively. A significant portion of our steel and steel products segments sales are into the commercial, industrial and municipal construction markets. These markets continue to be depressed when compared to historical levels, and the domestic steel industry continues to be negatively affected by imported steel. Our largest single customer in 2015 represented approximately 5% of sales and consistently pays within terms. In the raw materials segment, we are exposed to price fluctuations related to the purchase of scrap steel 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 this segment.

Nucor’s tax-exempt industrial revenue bonds (IDRBs), including the Gulf Opportunity Zone bonds, have variable interest rates that are adjusted weekly. These IDRBs represent 23% of Nucor’s long-term debt outstanding at December 31, 2015. The remaining 77% of Nucor’s long-term debt is at fixed rates. Future changes in interest rates are not expected to significantly impact earnings. From time to time, Nucor makes use of interest rate swaps to manage interest rate risk. As of December 31, 2015, there were no such contracts outstanding. Nucor’s investment practice is to invest in securities that are highly liquid with short maturities. As a result, we do not expect changes in interest rates to have a significant impact on the value of our investment securities recorded as short-term investments.

Nucor also uses derivative financial instruments from time to time to partially manage its exposure to price risk related to natural gas purchases used in the production process as well as scrap, copper and aluminum purchased for resale to its customers. In addition, Nucor uses forward foreign exchange contracts from time to time to hedge cash flows associated with certain assets and liabilities, firm commitments and anticipated transactions. Nucor generally does not enter into derivative instruments for any purpose other than hedging the cash flows associated with specific volumes of commodities that will be purchased and processed or sold in future periods and hedging the exposures related to changes in the fair value of outstanding fixed-rate debt instruments and foreign currency transactions. Nucor recognizes all derivative instruments in the consolidated balance sheets at fair value.

The Company is exposed to foreign currency risk primarily through its operations in Canada, Europe and Trinidad. We periodically use derivative contracts to mitigate the risk of currency fluctuations.


    

 

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CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

The following table sets forth our contractual obligations and other commercial commitments as of December 31, 2015 for the periods presented:

(in thousands) 

      

 

Payments Due By Period

  Contractual Obligations      Total      2016      2017 - 2018      2019 - 2020   2021 and thereafter    
         

Long-term debt

       $ 4,360,600          $          $ 1,100,000          $ 20,000       $ 3,240,600  

Estimated interest on long-term debt(1)

         2,157,793            179,564            304,691            231,604         1,441,934  

Capital leases

         24,576            3,072            6,144            6,144         9,216  

Operating leases

         92,871            23,674            34,558            17,625         17,014  

Raw material purchase commitments(2)

         1,369,789            550,902            582,514            106,201         130,172  

Utility purchase commitments(2)

         953,330            223,923            200,529            132,867         396,011  

Natural gas drilling commitments

         4,853,807                       679,755            724,860         3,449,192  

Other unconditional purchase obligations(3)

         140,320            112,815            14,703            4,412         8,390  

Other long-term obligations(4)

              471,494               311,930                41,571               20,461         97,532  
      

 

 

        

 

 

        

 

 

        

 

 

     

 

 

 

Total contractual obligations

       $ 14,424,580          $ 1,405,880          $ 2,964,465          $ 1,264,174       $ 8,790,061  
      

 

 

        

 

 

        

 

 

        

 

 

     

 

 

 
         
                                                               

 

(1)   Interest is estimated using applicable rates at December 31, 2015 for Nucor’s outstanding fixed and variable rate debt.
(2)   Nucor enters into contracts for the purchase of scrap and scrap substitutes, iron ore, electricity, natural gas and other raw materials and related services. These contracts include multi-year commitments and minimum annual purchase requirements and are valued at prices in effect on December 31, 2015, or according to the contract language. These contracts are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such commitments will adversely affect our liquidity position.
(3)   Purchase obligations include commitments for capital expenditures on operating machinery and equipment.
(4)   Other long-term obligations include amounts associated with Nucor’s early-retiree medical benefits, management compensation and guarantees.
Note:   In addition to the amounts shown in the table above, $50.5 million of unrecognized tax benefits have been recorded as liabilities, and we are uncertain as to if or when such amounts may be settled. Related to these unrecognized tax benefits, we have also recorded a liability for potential penalties and interest of $21.2 million at December 31, 2015.

DIVIDENDS

Nucor has increased its base cash dividend every year since it began paying dividends in 1973. Nucor paid dividends of $1.49 per share in 2015, compared with $1.48 per share in 2014. In December 2015, the Board of Directors increased the base quarterly dividend to $0.375 per share. The base quarterly dividend has increased five-fold over the past ten years. In February 2016, the Board of Directors declared Nucor’s 172nd consecutive quarterly cash dividend of $0.375 per share payable on May 11, 2016 to stockholders of record on March 31, 2016.

OUTLOOK

In 2016, we expect to take advantage of our position of strength to grow Nucor’s long-term earnings power and shareholder value despite a U.S. economy burdened by a challenging regulatory and overall business environment. We have invested significant capital into our business since the last cyclical peak in 2008. We have done so over a broad range of strategic investments that will further enhance our ability to grow Nucor’s long-term earnings power by expanding our product portfolios into higher value-added offerings that are less vulnerable to imports, improving our highly variable low-cost structure and building upon our market leadership positions. With many of these capital projects completed and ready to yield results, we will focus on execution in order to generate strong returns on these investments. We will also utilize our strong liquidity position to seek investment opportunities to further grow our long-term earnings capacity.

Although macro-level uncertainties in world markets will almost certainly affect both global and domestic growth, we anticipate sales and profitability on par with 2015, excluding the LIFO credit and the Duferdofin Nucor and blast furnace assets impairment charges that we recorded in the fourth quarter of 2015. Utilization rates, which fell significantly in 2015 compared to 2014, have remained depressed in early 2016. Due to lower industry output, reduced inventory levels at our service center customers and slight decreases in import volumes, we have been able to realize modest price increases for certain products within our steel segment early in 2016. We expect that our downstream steel products segment will continue to build on their positive results after the typical seasonal slow-down in construction that the winter season brings. We anticipate some slight improvement in the performance of the raw materials segment due to the anticipated absence of lengthy outages at Nucor Steel Louisiana and improved margins at our scrap recycling businesses. However, market conditions within that segment will continue to be extremely challenging because of depressed and volatile pricing of raw materials.


 

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Although we expect the first quarter operating results to be somewhat similar to the fourth quarter 2015 results excluding the LIFO credit and the impairment charges recorded in the fourth quarter, they will be in the face of continued significant headwinds that weighed heavily on the steel industry throughout 2015. The collapse in global oil prices triggered inventory reductions among pipe and tube producers serving energy markets, an important customer group for Nucor as well as the domestic steel industry. With oil prices continuing to languish and additional supply entering the market, it is hard to predict when growth in energy markets will return. Also, given the relative health of the domestic steel markets, imports increased dramatically in 2014 and this trend carried through 2015. We are anticipating a more positive trend in earnings as we enter into the second quarter of 2016 and then into the second half of the year. We are therefore cautiously optimistic regarding full-year volume, pricing and profitability. Backlogs in both the steel and steel products segments have remained consistent and we believe several end-use markets such as automotive and nonresidential construction will experience some demand improvement that may gain momentum throughout 2016. However, the effect this improvement in demand will have on our operating rates will be challenged by excess foreign steel capacity and the threat of continued increases in imported steel. We are aggressively fighting to stem the tide of unfairly traded imports and are encouraged by recent trade legislation that puts our nation in a much stronger position to hold foreign governments accountable when violating U.S. trade laws. We expect that scrap prices will increase slightly over the balance of 2016 and that we will continue to experience fluctuations in raw material costs throughout the year. We have made significant investments in our raw materials segment and will continue to utilize our unmatched global supply chain to optimize our raw material costs.

We are committed to executing on the opportunities we see ahead to reward Nucor stockholders with very attractive long-term returns on their valuable capital invested in our company. Nucor is the only steel producer headquartered in North America with the extremely important competitive advantage of an investment-grade credit rating. Our industry-leading financial strength allows us to support investments in our facilities that will prepare us for increased profitability as we enter into more favorable market conditions. In 2016, as we have in our past, we will allocate capital to investments that build our long-term earnings power. Capital expenditures are currently projected to be approximately $500 million in 2016, considerably higher than our spending in 2015 and more in line with 2014. Included in this $500 million total are primarily investments in our core operations to expand our product offerings and keep them state-of-the-art and globally cost-competitive.

 

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year end and the reported amount of revenues and expenses during the year. On an ongoing basis, we evaluate our estimates, including those related to the valuation allowances for receivables, the carrying value of non-current assets, reserves for environmental obligations and income taxes. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accordingly, actual costs could differ materially from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements.

ALLOWANCES FOR DOUBTFUL ACCOUNTS

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

INVENTORIES

Inventories are stated at the lower of cost or market. All inventories held by the parent company and Nucor-Yamato Steel Company are valued using the LIFO method of accounting except for supplies that are consumed indirectly in the production process, which are valued using the first-in, first-out (FIFO) method of accounting. All inventories held by the parent company’s other subsidiaries are valued using the FIFO method of accounting. The Company records any amount required to reduce the carrying value of inventory to net realizable value as a charge to cost of products sold.


    

 

      39      

 

 

If steel selling prices were to decline in future quarters, write-downs of inventory could result. Specifically, the valuation of raw material inventories purchased during periods of peak market pricing held by subsidiaries valued using the FIFO method of accounting would most likely be impacted. Low utilization rates at our steel mills or raw materials facilities could hinder our ability to work through high-priced scrap and scrap substitutes (particularly pig iron and iron ore), leading to period-end exposure when comparing carrying value to net realizable value.

LONG-LIVED ASSET IMPAIRMENTS

We evaluate our property, plant and equipment and finite-lived intangible assets for potential impairment on an individual asset basis or at the lowest level asset grouping for which cash flows can be independently identified. Asset impairments are assessed whenever circumstances indicate that the carrying amounts of those productive assets could exceed their projected undiscounted cash flows. In developing estimated values for assets that we currently use in our operations, we utilize judgments and assumptions of future undiscounted cash flows that the assets will produce. When it is determined that an impairment exists, the related assets are written down to estimated fair market value.

Certain long-lived asset groupings were tested for impairment during the fourth quarter of 2015. Undiscounted cash flows for each asset grouping were estimated using management’s long-range estimates of market conditions associated with each asset grouping over the estimated useful life of the principal asset within the group. Our undiscounted cash flow analysis indicated that those long-lived asset groupings were recoverable as of December 31, 2015; however, if our projected cash flows are not realized, either because of an extended recessionary period or other unforeseen events, impairment charges may be required in future periods. A 5% decrease in the projected cash flows of each of our asset groupings would not result in an impairment.

In the fourth quarter of 2015, we determined that certain assets, the majority of which are engineering and equipment related to the current blast furnace project at our St. James Parish, Louisiana site, will not be utilized. As a result of this determination, Nucor recorded an $84.1 million impairment charge for the entire balance of those assets, which are included in the raw materials segment. The impairment charge is included in impairments and losses on assets in the consolidated statements of earnings. The assets that were impaired, the majority of which were acquired in 2008, were a viable option that were anticipated to be utilized up until the decision was made that such assets would not be utilized. The decision about whether or not to move forward with construction of the blast furnace utilizing these assets was delayed to focus on the construction of the DRI plant at the site. The decision was further delayed because of challenging conditions in domestic and global steel industries, particularly increased excess capacity, both domestically and globally. In the meantime, technology advances and supply and demand in the raw materials market led management to reconsider its plans for the previously proposed blast furnace. If we decide to proceed with a blast furnace at the site in the future, the project design will be evaluated at that time utilizing new equipment and engineering.

Due to the current natural gas pricing environment, Nucor performed an impairment assessment of its producing natural gas well assets in December 2015. One of the main assumptions that most significantly affects the undiscounted cash flows determination is management’s estimate of future natural gas prices. The pricing used in this impairment assessment was developed by management based on natural gas market supply and demand dynamics, in conjunction with a review of projections by numerous sources of market data. This analysis was performed on each of Nucor’s three groups of wells, with each group defined by common geographic location. Each of Nucor’s three groups of wells passed the impairment test. One of the groups of wells had estimated undiscounted cash flows that were noticeably closer to its carrying value of $87.2 million as of December 31, 2015. Changes in the natural gas industry or a prolonged low price environment beyond what had already been assumed in the analysis could cause management to revise the natural gas price assumption, which could possibly result in an impairment of a portion or all of the groups of wells assets.

GOODWILL

Goodwill is tested annually for impairment and whenever events or circumstances change that would make it more likely than not that an impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each year. The evaluation of impairment involves comparing the current estimated fair value of each reporting unit to the recorded value, including goodwill.

When appropriate, Nucor performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For certain reporting units it is necessary to perform a quantitative analysis. In these instances, a discounted cash flow model is used to determine the current estimated fair value of these reporting units. Key assumptions used to determine the fair value of each reporting unit as part of our annual testing (and any required interim testing) include: (a) expected cash flow for the five-year period following the testing date (including market share, sales volumes and prices, costs to produce and estimated capital needs); (b) an estimated terminal value using a terminal year growth rate determined based on the growth prospects of the reporting unit; (c) a discount rate based on management’s best estimate of the after-tax weighted


 

      40      

 

    

 

average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to certain scenarios based on the likelihood of occurrence. Management considers historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and all available information at the time the fair values of its reporting units are estimated.

Our fourth quarter 2015 annual goodwill impairment analysis did not result in an impairment charge. Management does not believe that future impairment of these reporting units is probable. However, the performance of certain businesses that comprise our reporting units requires continued improvement. An increase of approximately 50 basis points in the discount rate, a critical assumption in which a minor change can have a significant impact on the estimated fair value, would not result in an impairment charge.

Nucor will continue to monitor operating results within all reporting units throughout the upcoming year in an effort to determine if events and circumstances warrant further interim impairment testing. Otherwise, all reporting units will again be subject to the required annual impairment test during our fourth quarter of 2016. Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including expected future operating cash flows and discount rate, could decrease the estimated fair value of our reporting units in the future and could result in an impairment of goodwill.

EQUITY METHOD INVESTMENTS

Investments in joint ventures in which Nucor shares control over the financial and operating decisions but in which Nucor is not the primary beneficiary are accounted for under the equity method. Each of the Company’s equity method investments is subject to a review for impairment if, and when, circumstances indicate that an other-than-temporary decline in value below its carrying amount may have occurred. Examples of such circumstances include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee; missed financial projections; a significant adverse change in the regulatory, tax, economic or technological environment of the investee; a significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates; and recurring negative cash flows from operations. If management considers the decline to be other than temporary, the Company would write down the investment to its estimated fair market value. An other-than-temporary decline in carrying value is determined to have occurred when, in management’s judgment, a decline in fair value below carrying value is of such length of time and/or severity that it is considered long-term.

In the event that an impairment review is necessary, we calculate the estimated fair value of our equity method investments using a probability-weighted multiple-scenario income approach. Management’s analysis includes three discounted cash flow scenarios (best case, base case and recessionary case), which contain forecasted near-term cash flows under each scenario. Generally, (i) the best case scenario contains estimates of future results ranging from slightly higher than recent operating performance to levels that are consistent with historical operating and financial performance (i.e., results experienced prior to the onset of the recessionary period that began in 2008); (ii) the base case scenario has estimates of future results ranging from generally in line with recent operating performance to levels that are more conservative than historical operating and financial performance; and (iii) the worst case scenario has estimates of future results which include limited growth resulting only from operational cost improvements and limited benefits of new higher-value product offerings. Management determines the probability that each cash flow scenario will come to fruition based on the specific facts and circumstances of each of the preceding scenarios, with the base case typically receiving the majority of the weighting.

Key assumptions used to determine the fair value of our equity method investments include: (a) expected cash flow for the six-year period following the testing date (including market share, sales volumes and prices, costs to produce and estimated capital needs); (b) an estimated terminal value using a terminal year growth rate determined based on the growth prospects of the reporting unit; (c) a discount rate based on management’s best estimate of the after-tax weighted average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to certain scenarios based on the likelihood of occurrence. While the assumptions that most significantly affect the fair value determination include projected revenues, metal margins and discount rate, the assumptions are often interdependent and no single factor predominates in determining the estimated fair value. Management considers historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and all available information at the time the fair values of its investments are estimated. Those estimates and judgments may or may not ultimately prove appropriate.

In the fourth quarter of 2015, Nucor assessed its equity investment in Duferdofin Nucor for impairment due to the protracted challenging steel market conditions caused by excess global overcapacity, which increased in 2015, and the difficult economic environment in Europe. Our assessment was negatively impacted by unfavorable operating performance and deterioration in financial projections due to the increased global oversupply in 2015. After completing its assessment, Nucor determined that the carrying amount exceeded its estimated fair value. The impairment condition was considered to be other than temporary, and therefore the Company recorded a $153.0 million impairment charge against the Company’s investment in Duferdofin Nucor in the fourth quarter of 2015. This charge is included in


    

 

      41      

 

 

impairments and losses on assets in the consolidated statements of earnings. The assumptions that most significantly affect the fair value determination include projected revenues, metal margins and the discount rate. Steel market conditions in Europe have continued to be challenging through the fourth quarter of 2015, and, therefore, it is reasonably possible that material deviation of future performance from the estimates used in our most recent valuation could result in further impairment of our investment in Duferdofin Nucor. We will continue to monitor for potential triggering events that could affect the carrying value of our investment in Duferdofin Nucor as a result of future market conditions and any changes in business strategy.

ENVIRONMENTAL REMEDIATION

We are subject to environmental laws and regulations established by federal, state and local authorities, and we make provisions for the estimated costs related to compliance. Undiscounted remediation liabilities are accrued based on estimates of known environmental exposures. The accruals are reviewed periodically and, as investigations and remediation proceed, adjustments are made as we believe are necessary. Our measurement of environmental liabilities is based on currently available facts, present laws and regulations and current technology.

INCOME TAXES

We utilize the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Potential accrued interest and penalties related to unrecognized tax benefits within operations are recognized as a component of interest expense and other expenses.

 

 

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our consolidated financial statements for a discussion of new accounting pronouncements adopted by Nucor during 2015 and the expected financial impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.

 

 

RECLASSIFICATIONS

During the first six months of 2015, the Company performed certain internal reorganization activities. In connection with this process, the financial information utilized by the Chief Operating Decision Maker when assessing segment performance and making resource allocations was adjusted in a way that affected how certain assets are grouped. This resulted in certain assets being reclassified between the steel mills segment, steel products segment, raw materials segment and corporate/eliminations in the segment footnote in order to align with the approach management uses to assess the performance of those segments. The segment data for the comparable periods has also been reclassified in order to conform to the current period presentation. These reclassifications did not have any impact on the consolidated asset balances nor did they impact any segment income statement amounts. The steel mills, steel products and raw materials segments are consistent with the way Nucor manages its business, which is primarily based upon the similarity of the types of products produced and sold by each segment.


 

FIVE-YEAR FINANCIAL REVIEW    

 

    

 

      45      

 

 

    

(dollar and share amounts in thousands, except per share data)

 

 
      2015     2014     2013     2012      2011  

 

 

FOR THE YEAR

           
         

Net sales

   $ 16,439,276      $ 21,105,141      $ 19,052,046      $ 19,429,273       $ 20,023,564   
         

Costs, expenses and other:

           
         

Cost of products sold

     14,858,014        19,198,615        17,641,421        17,915,735         18,142,144   
         

Marketing, administrative and other expenses

     458,989        520,805        467,904        437,337         439,528   
         

Equity in (earnings) losses of unconsolidated affiliates

     (5,329     (13,505     (9,297     13,323         10,043   
         

Impairments and losses on assets

     244,833        25,393        14,000        47,563         13,943   
         

Interest expense, net

     173,531        169,256        146,895        162,375         166,094   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
         
     15,730,038        19,900,564        18,260,923        18,576,333         18,771,752   
         

Earnings before income taxes and noncontrolling interests

     709,238        1,204,577        791,123        852,940         1,251,812   
         

Provision for income taxes

     213,154        388,787        205,594        259,814         390,828   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
         

Net earnings

     496,084        815,790        585,529        593,126         860,984   
         

Earnings attributable to noncontrolling interests

     138,425        101,844        97,504        88,507         82,796   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
         

Net earnings attributable to Nucor stockholders

     357,659        713,946        488,025        504,619         778,188   
         

Net earnings per share:

           
         

Basic

     1.11        2.22        1.52        1.58         2.45   
         

Diluted

     1.11        2.22        1.52        1.58         2.45   
         

Dividends declared per share

     1.4925        1.4825        1.4725        1.4625         1.4525   
         

Percentage of net earnings to net sales

     2.2%        3.4%        2.6%        2.6%         3.9%   
         

Return on average stockholders’ equity

     4.7%        9.3%        6.4%        6.7%         10.7%   
         

Capital expenditures

     364,768        568,867        1,230,418        1,019,334         450,627   
         

Acquisitions (net of cash acquired)

     19,089        768,581               760,833         3,959   
         

Depreciation

     625,757        652,000        535,852        534,010         522,571   
         

Sales per employee

 

    

 

690

 

  

 

   

 

921

 

  

 

   

 

859

 

  

 

   

 

906

 

  

 

    

 

974

 

  

 

 

AT YEAR END

           
         

Current assets

   $ 5,754,380      $ 6,441,888      $ 6,410,046      $ 5,661,364       $ 6,708,081   
         

Current liabilities

     1,385,173        2,097,776        1,960,216        2,029,568         2,396,059   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
         

Working capital

     4,369,207        4,344,112        4,449,830        3,631,796         4,312,022   
         

Cash provided by operating activities

     2,157,043        1,342,898        1,077,949        1,200,385         1,031,053   
         

Current ratio

     4.2        3.1        3.3        2.8         2.8   
         

Property, plant and equipment, net

     4,891,153        5,287,639        4,917,024        4,283,056         3,755,604   
         

Total assets

     14,250,399        15,615,927        15,203,283        14,152,059         14,570,350   
         

Long-term debt (including current maturities)

     4,360,600        4,376,935        4,380,200        3,630,200         4,280,200   
         

Percentage of debt to capital(1)

     35.9%        35.2%        35.6%        31.5%         35.7%   
         

Total Nucor stockholders’ equity

     7,416,878        7,772,470        7,645,769        7,641,571         7,474,885   
         

Per share

     23.33        24.36        24.02        24.06         23.60   
         

Shares outstanding

     317,962        319,033        318,328        317,663         316,749   
         

Employees

 

    

 

23,700

 

  

 

   

 

23,600

 

  

 

   

 

22,300

 

  

 

   

 

22,200

 

  

 

    

 

20,800

 

  

 

(1) Long-term debt divided by total equity plus long-term debt.


 

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    MANAGEMENT’S REPORT

 

 

 

 

MANAGEMENTS REPORT on internal control over financial reporting

 

 

Nucor’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Nucor’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013).

Based on its assessment, management concluded that Nucor’s internal control over financial reporting was effective as of December 31, 2015. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of Nucor’s internal control over financial reporting as of December 31, 2015, as stated in their report which is included herein.


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    

 

    

 

      47      

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors

Nucor Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Nucor Corporation and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 and Note 20 to the consolidated financial statements, the Company has prospectively adopted new accounting guidance which changes the classification of deferred tax assets and liabilities in the consolidated balance sheet.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

LOGO

PricewaterhouseCoopers LLP

Charlotte, NC

February 26, 2016


 

      48      

 

    

 

    CONSOLIDATED BALANCE SHEETS

 

 

  CONSOLIDATED BALANCE SHEETS

 

              

(in thousands)

 

 
  December 31,      2015        2014  
 

ASSETS

           
 

CURRENT ASSETS:

           
 

Cash and cash equivalents (Note 15)

     $ 1,939,469         $     1,024,144   
 

Short-term investments (Notes 4 and 15)

       100,000           100,000   
 

Accounts receivable, net (Note 5)

       1,383,823           2,068,298   
 

Inventories, net (Note 6)

       2,145,444           2,745,032   
 

Other current assets (Notes 14 and 20)

       185,644           504,414   
    

 

 

      

 

 

 
 

Total current assets

       5,754,380           6,441,888   
 

PROPERTY, PLANT AND EQUIPMENT, NET (Note 7)

       4,891,153           5,287,639   
 

GOODWILL (Note 9)

       2,011,278           2,068,664   
 

OTHER INTANGIBLE ASSETS, NET (Note 9)

       770,672           862,093   
 

OTHER ASSETS (Note 10)

       822,916           955,643   
    

 

 

      

 

 

 
 

TOTAL ASSETS

     $ 14,250,399         $   15,615,927   
    

 

 

      

 

 

 
 
                       
 

LIABILITIES AND EQUITY

           
 

CURRENT LIABILITIES:

           
 

Short-term debt (Notes 12 and 15)

     $ 51,315         $        207,476   
 

Long-term debt due within one year (Notes 12 and 15)

                 16,335   
 

Accounts payable (Note 11)

       566,527           993,872   
 

Salaries, wages and related accruals (Notes 11 and 18)

       289,004           352,488   
 

Accrued expenses and other current liabilities (Notes 7, 11, 14, 16 and 20)

       478,327           527,605   
    

 

 

      

 

 

 
 

Total current liabilities

       1,385,173           2,097,776   
 

LONG-TERM DEBT DUE AFTER ONE YEAR (Notes 12 and 15)

       4,360,600           4,360,600   
 

DEFERRED CREDITS AND OTHER LIABILITIES (Notes 7, 14, 16, 18 and 20)

       718,613           1,082,433   
    

 

 

      

 

 

 
 

TOTAL LIABILITIES

       6,464,386           7,540,809   
    

 

 

      

 

 

 
 

COMMITMENTS AND CONTINGENCIES (Notes 14 and 16)

           
 

EQUITY

           
 

NUCOR STOCKHOLDERS’ EQUITY (Notes 13 and 17):

           
 

Common stock (800,000 shares authorized; 378,566 and 378,092 shares issued, respectively)

       151,426           151,237   
 

Additional paid-in capital

       1,918,970           1,883,356   
 

Retained earnings

       7,255,972           7,378,214   
 

Accumulated other comprehensive loss, net of income taxes (Notes 2, 14 and 21)

       (351,362        (145,708
 

Treasury stock (60,604 and 59,059 shares, respectively)

       (1,558,128        (1,494,629
    

 

 

      

 

 

 
 

Total Nucor stockholders’ equity

       7,416,878           7,772,470   
 

NONCONTROLLING INTERESTS

       369,135           302,648   
    

 

 

      

 

 

 
 

TOTAL EQUITY

       7,786,013           8,075,118   
    

 

 

      

 

 

 
 

TOTAL LIABILITIES AND EQUITY

     $ 14,250,399         $   15,615,927   
    

 

 

      

 

 

 
 
                       

See notes to consolidated financial statements.

 


 

CONSOLIDATED STATEMENTS OF EARNINGS    

 

    

 

      49      

 

 

   CONSOLIDATED STATEMENTS OF EARNINGS

 

    

(in thousands, except per share data)

 

 
Year Ended December 31,      2015        2014        2013  
     
NET SALES      $ 16,439,276         $ 21,105,141         $ 19,052,046   
      

 

 

      

 

 

      

 

 

 
     
COSTS, EXPENSES AND OTHER:                   
     

  Cost of products sold (Notes 6, 14 and 18)

       14,858,014           19,198,615           17,641,421   
     

  Marketing, administrative and other expenses (Note 21)

       458,989           520,805           467,904   
     

  Equity in earnings of unconsolidated affiliates (Note 10)

       (5,329        (13,505        (9,297
     

  Impairments and losses on assets (Notes 7, 10 and 24)

       244,833           25,393           14,000   
     

  Interest expense, net (Notes 7, 19 and 20)

       173,531           169,256           146,895   
      

 

 

      

 

 

      

 

 

 
     
         15,730,038           19,900,564           18,260,923   
      

 

 

      

 

 

      

 

 

 
     

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

       709,238           1,204,577           791,123   
     
PROVISION FOR INCOME TAXES (Note 20)        213,154           388,787           205,594   
      

 

 

      

 

 

      

 

 

 
     
NET EARNINGS        496,084           815,790           585,529   
     
EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS        138,425           101,844           97,504   
      

 

 

      

 

 

      

 

 

 
     
NET EARNINGS ATTRIBUTABLE TO NUCOR STOCKHOLDERS      $ 357,659         $ 713,946         $      488,025   
      

 

 

      

 

 

      

 

 

 
     
NET EARNINGS PER SHARE (Note 22):                   
     

  Basic

       $1.11           $2.22           $1.52   
     

  Diluted

 

      

 

$1.11

 

  

 

      

 

$2.22

 

  

 

      

 

$1.52

 

  

 

See notes to consolidated financial statements.

 


 

      50      

 

    

 

    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

      

(in thousands)

 

 
  Year Ended December 31,      2015         2014         2013   
   

NET EARNINGS

     $ 496,084         $ 815,790         $ 585,529   
    

 

 

      

 

 

      

 

 

 
   

OTHER COMPREHENSIVE (LOSS) INCOME:

                  
   

Net unrealized loss on hedging derivatives,
net of income taxes of ($5,600), ($4,900) and $0
for 2015, 2014 and 2013, respectively

       (9,498        (8,542          
   

Reclassification adjustment for loss on settlement
of hedging derivatives included in net earnings,
  net of income taxes of $3,500, $200 and $0
    for 2015, 2014 and 2013, respectively

       5,798           542             
   

Foreign currency translation loss,
net of income taxes of $0, $400 and ($600)
  for 2015, 2014 and 2013, respectively

       (205,397        (141,530        (53,619
   

Adjustment to early retiree medical plan,
net of income taxes of $127, ($1,921) and $2,547
  for 2015, 2014 and 2013, respectively

       1,485           (4,228        5,938   
   

Reclassification adjustment for gain on early
retiree medical plan included in net earnings,
  net of income taxes of ($414), ($557) and $0
    for 2015, 2014 and 2013, respectively

       (742        (1,030          
   

Other, net of income taxes of $1,500, $0 and $0
for 2015, 2014 and 2013, respectively

       2,700                       
    

 

 

      

 

 

      

 

 

 
   
       (205,654        (154,788        (47,681
    

 

 

      

 

 

      

 

 

 
   

COMPREHENSIVE INCOME

       290,430           661,002           537,848   
   

COMPREHENSIVE INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS

       (138,425        (101,844        (97,504
    

 

 

      

 

 

      

 

 

 
   

COMPREHENSIVE INCOME ATTRIBUTABLE TO
NUCOR STOCKHOLDERS

     $ 152,005         $ 559,158         $ 440,344   
    

 

 

      

 

 

      

 

 

 
   
                                  

See notes to consolidated financial statements.


 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY    

 

    

 

      51      

 

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

      

(in thousands, except per share data)

 

          COMMON STOCK     ADDITIONAL 
PAID-IN
  RETAINED  

 ACCUMULATED 
OTHER

 COMPREHENSIVE 

 

TREASURY STOCK

(AT COST)

  TOTAL
NUCOR
 STOCKHOLDERS’ 
  NON-
 CONTROLLING 
     TOTAL    SHARES     AMOUNT    CAPITAL   EARNINGS   INCOME (LOSS)    SHARES     AMOUNT    EQUITY   INTERESTS
           

BALANCES, December 31, 2012

 

 

$7,885,374  

 

 

377,013 

 

 

$150,805 

 

 

$1,811,459 

 

 

$7,124,523 

 

 

$  56,761  

 

 

59,350  

 

 

($1,501,977)  

 

 

$7,641,571  

 

 

$243,803  

 

           
Net earnings in 2013   585,529               488,025              488,025     97,504  
           
Other comprehensive income (loss)   (47,681)                (47,681)          (47,681)   
           
Stock option expense   8,576           8,576                8,576    
           
Issuance of stock under award plans, net of forfeitures   26,565     512    205    22,497          (153)    3,863     26,565    
           
Amortization of unearned compensation   821           821                821    
           
Cash dividends ($1.4725 per share)   (472,108)              (472,108)              (472,108)   
           
Distributions to noncontrolling interests   (76,798)                                    (76,798) 
           

BALANCES, December 31, 2013

 

 

7,910,278  

 

 

377,525 

 

 

151,010 

 

 

1,843,353 

 

 

7,140,440  

 

 

9,080  

 

 

59,197  

 

 

(1,498,114) 

 

 

7,645,769  

 

 

264,509  

 

           
Net earnings in 2014   815,790               713,946               713,946     101,844  
           
Other comprehensive income (loss)   (154,788)                (154,788)          (154,788)   
           
Stock options exercised   5,614     136    54    5,560                5,614    
           
Stock option expense   7,716           7,716                7,716    
           
Issuance of stock under award plans, net of forfeitures   29,667     431    173    26,009          (138)    3,485     29,667    
           
Amortization of unearned compensation   718           718                718    
           
Cash dividends ($1.4825 per share)   (476,172)              (476,172)              (476,172)   
           
Distributions to noncontrolling interests   (63,705)                                    (63,705) 
           

BALANCES, December 31, 2014

 

 

8,075,118  

 

 

378,092 

 

 

151,237 

 

 

1,883,356 

 

 

7,378,214  

 

 

(145,708) 

 

 

59,059  

 

 

(1,494,629) 

 

 

7,772,470  

 

 

302,648  

 

           
Net earnings in 2015   496,084               357,659               357,659     138,425  
           
Other comprehensive income (loss)   (205,654)                (205,654)          (205,654)   
           
Stock options exercised   424     10      420                424    
           
Stock option expense   7,433           7,433                7,433    
           
Issuance of stock under award plans, net of forfeitures   30,120     464    185    26,929          (119)    3,006     30,120    
           
Amortization of unearned compensation   832           832                832    
           
Treasury stock acquired   (66,505)                    1,664     (66,505)    (66,505)   
           
Cash dividends ($1.4925 per share)   (479,901)              (479,901)              (479,901)   
           
Distributions to noncontrolling interests   (71,938)                                    (71,938) 
           

BALANCES, December 31, 2015

 

 

$7,786,013  

 

 

378,566 

 

 

$151,426 

 

 

$1,918,970 

 

 

$7,255,972  

 

 

($351,362) 

 

 

60,604  

 

 

($1,558,128) 

 

 

$7,416,878  

 

 

$369,135  

 

See notes to consolidated financial statements.


 

      52      

 

    

 

    CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

        

(in thousands)

 

     
Year Ended December 31,           2015             2014             2013      
OPERATING ACTIVITIES:                       
     

Net earnings

       $ 496,084           $ 815,790           $ 585,529     
     

Adjustments:

                      
     

Depreciation

         625,757             652,000             535,852     
     

Amortization

         74,260             72,423             74,356     
     

Stock-based compensation

         45,794             46,384             47,450     
     

Deferred income taxes

         (82,518          90,864             56,564     
     

Distributions from affiliates

         15,132             53,738             8,708     
     

Equity in earnings of unconsolidated affiliates

         (5,329          (13,505          (9,297  
     

Impairments and losses on assets

         244,833             25,393             14,000     
     

Changes in assets and liabilities (exclusive of acquisitions and dispositions): 

                      
     

Accounts receivable

         655,489             (179,181          (103,649  
     

Inventories

         593,830             (45,963          (298,074  
     

Accounts payable

         (438,788          (111,859          39,489     
     

Federal income taxes

         62,656             (111,687          77,950     
     

Salaries, wages and related accruals

         (56,267          67,973             7,155     
     

Other operating activities

         (73,890          (19,472          41,916     
      

 

 

        

 

 

        

 

 

   
     

Cash provided by operating activities

           2,157,043               1,342,898               1,077,949     
INVESTING ACTIVITIES:                       
     

Capital expenditures

         (374,123          (667,982          (1,196,952  
     

Investment in and advances to affiliates

         (80,409          (97,841          (85,053  
     

Repayment of advances to affiliates

                     122,000             54,500     
     

Disposition of plant and equipment

         29,390             36,563             34,097     
     

Acquisitions (net of cash acquired)

         (19,089          (768,581              
     

Purchases of investments

         (111,927          (100,000          (19,349  
     

Proceeds from the sale of investments

         111,452             27,529             92,761     
     

Proceeds from the sale of restricted investments

                                 148,725     
     

Changes in restricted cash

                                 126,438     
     

Other investing activities

         3,010             10,250             4,863     
      

 

 

        

 

 

        

 

 

   
     

Cash used in investing activities

           (441,696            (1,438,062            (839,970  
FINANCING ACTIVITIES:                       
     

Net change in short-term debt

         (155,816          178,308             (671  
     

Repayment of long-term debt

         (16,300          (5,358          (250,000  
     

Proceeds from issuance of long-term debt, net of discount

                                 999,100     
     

Bond issuance costs

                                 (7,625  
     

Issuance of common stock

         424             5,614                 
     

Excess tax benefits from stock-based compensation

         2,000             3,400             2,955     
     

Distributions to noncontrolling interests

         (71,938          (63,705          (76,798  
     

Cash dividends

         (479,432          (475,123          (471,028  
     

Acquisition of treasury stock

         (66,505                          
     

Other financing activities

         (2,184          (2,183          111     
      

 

 

        

 

 

        

 

 

   
     

Cash (used in) provided by financing activities

           (789,751            (359,047            196,044     

Effect of exchange rate changes on cash

         (10,271          (4,897          (3,633  
      

 

 

        

 

 

        

 

 

   
     

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

         915,325             (459,108          430,390     
     

CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR

         1,024,144             1,483,252             1,052,862     
      

 

 

        

 

 

        

 

 

   
     

CASH AND CASH EQUIVALENTS — END OF YEAR

       $ 1,939,469           $ 1,024,144           $ 1,483,252     
      

 

 

        

 

 

        

 

 

   

NON-CASH INVESTING ACTIVITY:

                                              
     

Change in accrued plant and equipment purchases

       $ (9,355        $ (99,115        $ 33,467     
      

 

 

        

 

 

        

 

 

   
                                                

See notes to consolidated financial statements.


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    

 

    

 

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YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations Nucor is principally a manufacturer of steel and steel products, as well as a scrap broker and processor, with operating facilities and customers primarily located in North America.

Principles of Consolidation The consolidated financial statements include Nucor and its controlled subsidiaries, including Nucor-Yamato Steel Company, a limited partnership of which Nucor owns 51%. All intercompany transactions are eliminated.

Distributions are made to noncontrolling interest partners in Nucor-Yamato Steel Company in accordance with the limited partnership agreement by mutual agreement of the general partners. At a minimum, sufficient cash is distributed so that each partner may pay their U.S. federal and state income taxes.

Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Reclassifications During the first six months of 2015, the Company performed certain internal reorganization activities. In connection with this process, the financial information utilized by the Chief Operating Decision Maker when assessing segment performance and making resource allocations was adjusted in a way that affected how certain assets are grouped. This resulted in certain assets being reclassified between the steel mills segment, steel products segment, raw materials segment and corporate/eliminations in the segment footnote in order to align with the approach management uses to assess the performance of those segments. The segment data for the comparable periods has also been reclassified in order to conform to the current period presentation. These reclassifications did not have any impact on the consolidated asset balances nor did they impact any segment income statement amounts. The steel mills, steel products and raw materials segments are consistent with the way Nucor manages its business, which is based primarily upon the similarity of the types of products produced and sold by each segment (see Note 23).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents Cash equivalents are recorded at cost plus accrued interest, which approximates fair value, and have original maturities of three months or less at the date of purchase. Cash and cash equivalents are maintained primarily with a few high-credit quality financial institutions.

Short-term Investments Short-term investments are recorded at cost plus accrued interest, which approximates fair value. Unrealized gains and losses on investments classified as available-for-sale are recorded as a component of accumulated other comprehensive income (loss). Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination at each balance sheet date.

Inventories Valuation Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first-out (LIFO) method of accounting represent approximately 48% of total inventories as of December 31, 2015 (43% as of December 31, 2014). All inventories held by the parent company and Nucor-Yamato Steel Company are valued using the LIFO method of accounting except for supplies that are consumed indirectly in the production process, which are valued using the first-in, first-out (FIFO) method of accounting. All inventories held by other subsidiaries of the parent company are valued using the FIFO method of accounting. The Company records any amount required to reduce the carrying value of inventory to net realizable value as a charge to cost of products sold.

Property, Plant and Equipment Property, plant and equipment are stated at cost, except for property, plant and equipment acquired through acquisitions which are recorded at acquisition date fair value. With the exception of our natural gas wells, depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Depletion of all capitalized costs associated with our natural gas producing properties is expensed on a unit-of-production basis by individual field as the gas from the proved developed reserves is produced. The costs of planned major maintenance activities are capitalized as part of other current assets and amortized over the period until the next scheduled major maintenance activity. All other repairs and maintenance activities are expensed when incurred.

Goodwill and Other Intangibles Goodwill is the excess of cost over the fair value of net assets of businesses acquired. Goodwill is not amortized but is tested annually for impairment and whenever events or circumstances change that would make it more likely than not that an impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each year. The evaluation of impairment involves comparing the current estimated fair value of each reporting unit, which is a level below the reportable segment, to the recorded value, including goodwill. When appropriate, Nucor performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For certain reporting units, it is necessary to perform a quantitative analysis. In these instances, a discounted cash flow model is used to determine the current estimated fair value of these reporting units. A number of significant assumptions and estimates are involved in the application


 

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of the discounted cash flow model to forecast operating cash flows, including market growth and market share, sales volumes and prices, costs to produce, discount rate and estimated capital needs. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. Changes in assumptions and estimates may affect the fair value of goodwill and could result in impairment charges in future periods.

Finite-lived intangible assets are amortized over their estimated useful lives.

Long-Lived Asset Impairments We evaluate our property, plant and equipment and finite-lived intangible assets for potential impairment on an individual asset basis or at the lowest level asset grouping for which independent cash flows can be separately identified. Asset impairments are assessed whenever circumstances indicate that the carrying amounts of those productive assets could exceed their projected undiscounted cash flows. When it is determined that impairment exists, the related assets are written down to their estimated fair market value.

Equity Method Investments Investments in joint ventures in which Nucor shares control over the financial and operating decisions but in which Nucor is not the primary beneficiary are accounted for under the equity method. Each of the Company’s equity method investments is subject to a review for impairment if, and when, circumstances indicate that a decline in value below its carrying amount may have occurred. Examples of such circumstances include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee; missed financial projections; a significant adverse change in the regulatory, economic or technological environment of the investee; a significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates; and recurring negative cash flows from operations. If management considers the decline to be other than temporary, the Company would write down the investment to its estimated fair market value.

Derivative Financial Instruments Nucor uses derivative financial instruments from time to time primarily to partially manage its exposure to price risk related to natural gas purchases used in the production process and to changes in interest rates on outstanding debt instruments. Nucor also uses derivatives to hedge a portion of our scrap, copper and aluminum purchases and sales. In addition, Nucor periodically uses forward foreign exchange contracts to hedge cash flows associated with certain assets and liabilities, firm commitments and anticipated transactions.

Nucor recognizes all derivative instruments in the consolidated balance sheets at fair value. Amounts included in accumulated other comprehensive income (loss) related to cash flow hedges are reclassified into earnings when the underlying transaction is recognized in net earnings. Changes in fair value hedges are reported in earnings along with changes in the fair value of the hedged items. When cash flow and fair value hedges affect net earnings, they are included on the same financial statement line as the underlying transaction (cost of products sold or interest expense). If these instruments do not meet hedge accounting criteria or contain ineffectiveness, the change in fair value (or a portion thereof) is recognized immediately in earnings in the same financial statement line as the underlying transaction.

Revenue Recognition Nucor recognizes revenue when persuasive evidence of a contractual arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is reasonably assured. Product is considered delivered to the customer once it has been shipped and title and risk of loss has been transferred.

Income Taxes Nucor utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

Nucor recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of interest expense.

Nucor’s intention is to permanently reinvest the earnings of certain foreign investments. Accordingly, no provisions have been made for taxes that may be payable upon remittance of such earnings.

Stock-Based Compensation The Company recognizes the cost of stock-based compensation as an expense using fair value measurement methods. The assumptions used to calculate the fair value of stock-based compensation granted are evaluated and revised, as necessary, to reflect market conditions and experience.


    

 

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Foreign Currency Translation For Nucor’s operations where the functional currency is other than the U.S. dollar, assets and liabilities have been translated at year-end exchange rates and income and expenses translated using average exchange rates for the respective periods. Adjustments resulting from the process of translating an entity’s financial statements into the U.S. dollar have been recorded in accumulated other comprehensive income (loss) and are included in net earnings only upon sale or liquidation of the underlying investments. Foreign currency transaction gains and losses are included in net earnings in the period they occur.

Recently Adopted Accounting Pronouncements In the first quarter of 2015, Nucor adopted new accounting guidance which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This standard is applied prospectively for the Company beginning January 1, 2015. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In November 2015, new accounting guidance was issued that requires entities to present deferred tax assets and deferred tax liabilities, along with any related valuation allowance, as noncurrent in a balance sheet. The standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We have early adopted this new guidance prospectively beginning with the consolidated balance sheet at December 31, 2015. Prior periods were not retrospectively adjusted.

Recently Issued Accounting Pronouncements In May 2014, new accounting guidance was issued that will supersede nearly all existing accounting guidance related to revenue recognition. The new guidance provides that an entity recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, additional accounting guidance was issued that deferred the effective date of this new accounting guidance by one year. As a result, the amendments are effective for the Company for annual and interim reporting periods beginning after December 15, 2017. The Company is evaluating adoption methods and the impact the amendments will have on its consolidated financial statements.

In August 2014, new accounting guidance was issued that specifies the responsibility that an entity’s management has to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern. The standard is effective for the Company for annual and interim periods beginning after December 15, 2016, and is not expected to have an effect on the Company’s consolidated financial statements.

In April 2015, new accounting guidance was issued that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This new guidance is effective for the Company for annual and interim periods beginning after December 15, 2015, and is not expected to have a material effect on the Company’s consolidated financial statements.

In September 2015, new accounting guidance was issued that requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The standard is effective for the Company for annual and interim periods beginning after December 15, 2015, and is not expected to have a material effect on the Company’s consolidated financial statements.

In January 2016, new accounting guidance was issued regarding the recognition and measurement of financial assets and financial liabilities. Changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the Financial Accounting Standards Board clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities and financial liabilities is largely unchanged. The standard is effective for the Company for annual and interim periods beginning after December 15, 2017, and is not expected to have a material effect on the Company’s consolidated financial statements.


 

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3. ACQUISITIONS AND DISPOSITIONS

On October 8, 2014, Nucor acquired the entire equity interest in Gallatin Steel Company (Gallatin) for a cash purchase price of $779.1 million, including working capital adjustments. The acquisition was partially funded by the issuance of approximately $300 million of commercial paper with the remaining funds coming from cash on hand. Located on the Ohio River in Ghent, Kentucky, Gallatin has an annual sheet steel production capacity of approximately 1,800,000 tons. This acquisition is strategically important as it expands Nucor’s footprint in the Midwestern United States market, and it will broaden Nucor’s product offerings. Gallatin’s financial results are included as part of the steel mills segment (see Note 23).

We have allocated the purchase price for Gallatin to its individual assets acquired and liabilities assumed.

The following table summarizes the fair values of the assets acquired and liabilities assumed of Gallatin as of the date of acquisition:

 

(in thousands)          

 

Cash

     $ 48,957   

Accounts receivable

       82,291   

Inventory

       101,692   

Other current assets

       5,117   

Property, plant and equipment

       483,007   

Goodwill

       94,737   

Other intangible assets

       67,150   

Other assets

       2,529   
    

 

 

 

Total assets acquired

       885,480   
    

 

 

 
 

Current liabilities

       104,315   

Long-term debt

       2,093   
    

 

 

 

Total liabilities assumed

       106,408   
    

 

 

 
 

Net assets acquired

     $ 779,072   
    

 

 

 
 
            

The following table summarizes the purchase price allocation to the identifiable intangible assets of Gallatin as of the date of acquisition:

 

    

(in thousands, except years)

 

 
                     Weighted-       
  Average Life     
 
   

Customer relationships

       $ 58,250        20 years   

Trademarks and trade names

         8,900        5 years   
      

 

 

   
       $ 67,150     
      

 

 

   
                        

The goodwill of $94.7 million is primarily attributed to the synergies expected to arise after the acquisition and has been allocated to the steel mills segment (see Note 9). Goodwill recognized for tax purposes was $98.1 million, all of which is deductible for tax purposes.

Other minor acquisitions, exclusive of purchase price adjustments of acquisitions made and net of cash acquired, totaled $19.1 million in 2015, $38.5 million in 2014, and none in 2013.


    

 

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4. SHORT-TERM INVESTMENTS

Nucor held $100.0 million of short-term investments, which consisted of fixed term deposits and certificates of deposit (CDs), as of December 31, 2015, and December 31, 2014. These investments are classified as available-for-sale. The interest rates on the fixed term deposits and CDs are fixed at inception and interest income is recorded as earned.

No realized or unrealized gains or losses were incurred in 2015, 2014 or 2013.

The contractual maturities of all of the fixed term deposits and CDs outstanding at December 31, 2015 are before December 31, 2016.

5. ACCOUNTS RECEIVABLE

An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of our customers to make required payments. Accounts receivable are stated net of the allowance for doubtful accounts of $43.2 million at December 31, 2015 ($65.4 million at December 31, 2014, and $58.3 million at December 31, 2013).

6. INVENTORIES

Inventories consist of approximately 38% raw materials and supplies and 62% finished and semi-finished products at December 31, 2015 (40% and 60%, respectively, at December 31, 2014). Nucor’s manufacturing process consists of a continuous, vertically integrated process from which products are sold to customers at various stages throughout the process. Since most steel products can be classified as either finished or semi-finished products, these two categories of inventory are combined.

If the FIFO method of accounting had been used, inventories would have been $100.6 million higher at December 31, 2015 ($567.4 million higher at December 31, 2014). Use of the lower of cost or market method reduced inventories by $5.1 million at December 31, 2015 ($2.7 million at December 31, 2014).

7. PROPERTY, PLANT AND EQUIPMENT

 

(in thousands)             

 

  December 31,      2015        2014  
   

Land and improvements

     $ 585,057         $ 576,511   

Buildings and improvements

       1,033,610           1,018,342   

Machinery and equipment

       10,229,602           10,080,640   

Proved oil and gas properties

       586,362           584,466   

Construction in process and equipment deposits

       197,278           193,594   
    

 

 

      

 

 

 
       12,631,909           12,453,553   

Less accumulated depreciation

       (7,740,756        (7,165,914
    

 

 

      

 

 

 
     $ 4,891,153         $ 5,287,639   
    

 

 

      

 

 

 
   
                       

The estimated useful lives primarily range from 5 to 25 years for land improvements, 4 to 40 years for buildings and improvements and 2 to 15 years for machinery and equipment. The useful life for proved oil and gas properties is based on the unit-of-production method and varies by well.

Included within property, plant and equipment, net at December 31, 2015, is $20.3 million of assets, net of accumulated depreciation, under a capital lease agreement ($22.8 million at December 31, 2014). The gross amount of property, plant and equipment acquired in 2014 under the capital lease was $25.4 million, which was not included in capital expenditures on the condensed consolidated statement of cash flows in 2014. Total obligations associated with this capital lease agreement were $21.0 million at December 31, 2015 ($23.2 million at December 31, 2014), of which $2.3 million was classified in accrued expenses and other current liabilities ($2.2 million at December 31, 2014) and $18.7 million was classified in deferred credits and other liabilities ($21.0 million at December 31, 2014) in the consolidated balance sheets.

In 2013, one of three iron ore storage domes collapsed at Nucor Steel Louisiana in St. James Parish. At that time, Nucor initially recorded a partial write-down of assets at the facility, including $21.0 million of property, plant and equipment and $7.0 million of inventory, offset by a $14.0 million insurance receivable that was based on management’s best estimate of probable insurance recoveries. As of December 31, 2015, Nucor has received initial payments of $10.3 million related to the insurance receivable. Nucor finalized its assessment process related to the two remaining storage domes during the third quarter of 2015 and determined


 

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that those domes would no longer be utilized. The Company recorded an associated write-down of property, plant and equipment of $19.4 million, offset by an $11.7 million insurance receivable that was based on management’s best estimate of probable insurance recoveries. As of December 31, 2015, the insurance receivable related to the three iron ore storage domes totaled $15.4 million. The net charge of $7.7 million associated with the write-down of the two remaining domes in 2015 and the net charge of $14.0 million related to the write-down of the first dome and inventory in 2013 are included in impairments and losses on assets in the consolidated statements of earnings.

In the fourth quarter of 2015, we determined that certain assets, the majority of which are engineering and equipment related to the current blast furnace project at our St. James Parish, Louisiana site, will not be utilized. As a result of this determination, Nucor recorded an $84.1 million impairment charge for the entire balance of those assets, which are included in the raw materials segment. The impairment charge is included in impairments and losses on assets in the consolidated statements of earnings. The assets that were impaired, the majority of which were acquired in 2008, were a viable option that were anticipated to be utilized up until the decision was made that such assets would not be utilized. The decision about whether or not to move forward with construction of the blast furnace utilizing these assets was delayed to focus on the construction of the DRI plant at the site. The decision was further delayed because of challenging conditions in domestic and global steel industries, particularly increased excess capacity, both domestically and globally. In the meantime, technology advances and supply and demand in the raw materials market led management to reconsider its plans for the previously proposed blast furnace. If we decide to proceed with a blast furnace at the site in the future, the project design will be evaluated at that time utilizing new equipment and engineering.

Due to the current natural gas pricing environment, Nucor performed an impairment assessment of its producing natural gas well assets in December 2015. One of the main assumptions that most significantly affects the undiscounted cash flows determination is management’s estimate of future natural gas prices. The pricing used in this impairment assessment was developed by management based on natural gas market supply and demand dynamics, in conjunction with a review of projections by numerous sources of market data. This analysis was performed on each of Nucor’s three groups of wells, with each group defined by common geographic location. Each of Nucor’s three groups of wells passed the impairment test. One of the groups of wells had estimated undiscounted cash flows that were noticeably closer to its carrying value of $87.2 million as of December 31, 2015. Changes in the natural gas industry or a prolonged low price environment beyond what had already been assumed in the analysis could cause management to revise the natural gas price assumption, which could possibly result in an impairment of a portion or all of the groups of wells assets.

Nucor capitalized $0.3 million of interest expense in 2015 ($2.9 million in 2014 and $10.9 million in 2013) related to the borrowing costs associated with various construction projects.

8. RESTRICTED CASH AND INVESTMENTS

There were no restricted cash or investments as of December 31, 2015 or December 31, 2014. In November 2010, Nucor issued $600.0 million in 30-year Gulf Opportunity Zone bonds, the net proceeds of which were accounted for as restricted cash and investments. The restricted cash and investments were held in a trust account and were used to partially fund the capital costs associated with the construction of Nucor’s DRI facility in St. James Parish, Louisiana. Funds were disbursed as qualified expenditures for the construction of the facility were made ($275.3 million in 2013).


    

 

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9. GOODWILL AND OTHER INTANGIBLE ASSETS

The change in the net carrying amount of goodwill for the years ended December 31, 2015 and 2014 by segment is as follows:

 

(in thousands)            
        Steel Mills          Steel  
    Products    
    Raw
  Materials  
    Total  
     
Balance, December 31, 2013     $495,897        $774,486        $703,225        $1,973,608   
Acquisitions     98,505                      98,505   
Translation            (30,112                —        (30,112
Other                    —                    311               26,352                  26,663   
Balance, December 31, 2014     594,402             744,685        729,577        2,068,664   
Translation            (53,618            (53,618
Other              (3,768                    —                       —                   (3,768
Balance, December 31, 2015         $590,634            $691,067            $729,577            $2,011,278   
     
                                 

The majority of goodwill is not tax deductible.

Goodwill increased by $26.4 million in the third quarter of 2014 due to a correction of deferred taxes related to purchase accounting for the acquisition of The David J. Joseph Company in 2008. This correction did not have an impact on the consolidated statements of earnings, consolidated statements of comprehensive income or the consolidated statements of cash flows in the year of correction or any prior period. Also, this correction had no impact on the results of the goodwill impairment assessments performed in prior periods and is not material to the year of correction or any prior period.

Intangible assets with estimated lives of 5 to 22 years are amortized on a straight-line or accelerated basis and are comprised of the following:

 

(in thousands)            
  December 31,   

 

2015

 

    

 

2014

 

 
    

 

Gross
Amount

 

    

 

Accumulated  
Amortization  

 

    

 

Gross
Amount

 

    

 

Accumulated
Amortization

 

 
   

Customer relationships

     $1,185,299         $517,817         $1,199,942         $454,353   

Trademarks and trade names

     155,864         57,756         158,584         48,356   

Other

            23,025             17,943                22,823            16,547   
     $1,364,188         $593,516         $1,381,349         $519,256   
   
                                     

Intangible asset amortization expense was $74.3 million in 2015 ($72.4 million in 2014 and $74.4 million in 2013). Annual amortization expense is estimated to be $70.9 million in 2016, $68.7 million in 2017, $65.9 million in 2018, $63.4 million in 2019 and $61.0 million in 2020.

The Company completed its annual goodwill impairment testing as of the first day of the fourth quarters of 2015, 2014 and 2013 and concluded that as of such dates there was no impairment of goodwill for any of its reporting units. We do not believe there are any reporting units at significant risk of goodwill impairment in the next twelve months. However, assumptions in estimating reporting unit fair values are subject to a high degree of judgment and complexity. Changes in assumptions and estimates may affect the estimated reporting unit fair values and could result in impairment charges in future periods.

There are no significant historical accumulated impairment charges, by segment or in the aggregate, related to goodwill.


 

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10. EQUITY INVESTMENTS

The carrying value of our equity investments in domestic and foreign companies was $746.6 million at December 31, 2015 ($872.5 million at December 31, 2014), and is recorded in other assets in the consolidated balance sheets.

Duferdofin Nucor Nucor owns a 50% economic and voting interest in Duferdofin Nucor S.r.l. (Duferdofin Nucor), an Italian steel manufacturer, and accounts for the investment (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the members.

Nucor’s investment in Duferdofin Nucor at December 31, 2015, was $258.2 million ($412.9 million at December 31, 2014). Nucor’s 50% share of the total net assets of Duferdofin Nucor was $93.0 million at December 31, 2015, resulting in a basis difference of $165.2 million due to the step-up to fair value of certain assets and liabilities attributable to Duferdofin Nucor as well as the identification of goodwill ($84.1 million) and finite-lived intangible assets. This basis difference, excluding the portion attributable to goodwill, is being amortized based on the remaining estimated useful lives of the various underlying net assets, as appropriate. Amortization expense associated with the fair value step-up was $8.8 million in 2015 ($10.5 million in 2014 and $11.2 million in 2013).

As of December 31, 2015, Nucor had outstanding notes receivable of 35.0 million ($38.2 million) from Duferdofin Nucor (35.0 million, or $42.5 million, as of December 31, 2014). The notes receivable bear interest at 1.14% and will reset annually on September 30 to the twelve-month Euro Interbank Offered Rate (Euribor) plus 1% per year. The principal amounts are due on January 31, 2019. As of December 31, 2015, and December 31, 2014, the note receivable was classified in other assets in the consolidated balance sheets.

Nucor has issued a guarantee, the fair value of which is immaterial, for its ownership percentage (50%) of Duferdofin Nucor’s borrowings under Facility A of a Structured Trade Finance Facilities Agreement. The maximum amount Duferdofin Nucor could borrow under Facility A was 122.5 million ($133.6 million) at December 31, 2015. As of December 31, 2015, there was 119.0 million ($129.8 million) outstanding under that facility (107.0 million, or $129.9 million, at December 31, 2014). Facility A was recently amended to extend the maturity date to October 12, 2018. Nucor previously had also issued a guarantee for its ownership percentage (50%) of Duferdofin Nucor’s borrowing under the Standby Medium Long Term Loan Credit Facility. During the fourth quarter of 2015, Nucor and its joint-venture partner provided capital contributions to Duferdofin Nucor that were used to pay the outstanding balance of the Standby Medium Long Term Loan Credit Facility, which was terminated. Duferdofin Nucor had the maximum borrowing amount outstanding under the facility of 60.0 million ($72.8 million) at December 31, 2014. The fair value of the guarantee related to the Standby Medium Long Term Loan Credit Facility was immaterial at December 31, 2014. If Duferdofin Nucor fails to pay when due any amounts for which it is obligated under Facility A, Nucor could be required to pay 50% of such amounts pursuant to and in accordance with the terms of its guarantee. Any indebtedness of Duferdofin Nucor to Nucor is effectively subordinated to the indebtedness of Duferdofin Nucor under Facility A. Nucor has not recorded any liability associated with this guarantee.

NuMit Nucor has a 50% economic and voting interest in NuMit LLC (NuMit). NuMit owns 100% of the equity interest in Steel Technologies LLC, an operator of 25 sheet processing facilities located throughout the United States, Canada and Mexico. Nucor accounts for the investment in NuMit (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the members. Nucor’s investment in NuMit at December 31, 2015, was $314.5 million ($301.5 million as of December 31, 2014). Nucor received distributions of $13.1 million, $52.7 million, and $6.7 million from NuMit during 2015, 2014, and 2013, respectively.

Hunter Ridge Nucor has a 50% economic and voting interest in Hunter Ridge Energy Services LLC (Hunter Ridge). Hunter Ridge provides services for the gathering, separation and compression of energy products including natural gas produced by Nucor’s working interest drilling programs. Nucor accounts for the investment (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the members. Nucor’s investment in Hunter Ridge at December 31, 2015, was $135.9 million ($138.6 million at December 31, 2014).

Recent declines in natural gas pricing have led to reduced natural gas drilling activity. Sustained or further reductions in natural gas production activity could lead to reduced utilization of the Hunter Ridge assets. We will continue to monitor for potential triggering events that could affect the carrying value of our investment in Hunter Ridge as a result of future market conditions and any changes in business strategy.


    

 

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All Equity Investments Nucor reviews its equity investments for impairment if and when circumstances indicate that a decline in value below their carrying amounts may have occurred. In the fourth quarter of 2015, Nucor assessed its equity investment in Duferdofin Nucor for impairment due to the protracted challenging steel market conditions caused by excess global overcapacity, which increased in 2015, and the difficult economic environment in Europe. Our assessment was negatively impacted by unfavorable operating performance and deterioration in financial projections due to the increased global oversupply in 2015. After completing its assessment, Nucor determined that the carrying amount exceeded its estimated fair value. The impairment condition was considered to be other than temporary and therefore the Company recorded a $153.0 million impairment charge against the Company’s investment in Duferdofin Nucor in the fourth quarter of 2015. This charge is included in impairments and losses on assets in the consolidated statements of earnings. The assumptions that most significantly affect the fair value determination include projected revenues, metal margins and the discount rate. The Company-specific inputs for measuring fair value are considered “Level 3” or unobservable inputs that are not corroborated by market data under applicable fair value authoritative guidance, as quoted market prices are not available. Steel market conditions in Europe have continued to be challenging through the fourth quarter of 2015, and, therefore, it is reasonably possible that material deviation of future performance from the estimates used in our most recent valuation could result in further impairment of our investment in Duferdofin Nucor. We will continue to monitor for potential triggering events that could affect the carrying value of our investment in Duferdofin Nucor as a result of future market conditions and any changes in business strategy.

It is possible that the future performance of Duferdofin Nucor could affect the recorded value of the note receivable the Company has with Duferdofin Nucor and any potential liability associated with the Company’s guarantees of the indebtedness of Duferdofin Nucor as discussed above.

11. CURRENT LIABILITIES

Book overdrafts, included in accounts payable in the consolidated balance sheets, were $62.8 million at December 31, 2015 ($107.9 million at December 31, 2014). Accrued vacation and holiday pay, included in salaries, wages and related accruals in the consolidated balance sheets, was $80.4 million at December 31, 2015 ($75.3 million at December 31, 2014). Dividends payable, included in accrued expenses and other current liabilities in the consolidated balance sheets, were $120.2 million at December 31, 2015 ($119.7 million at December 31, 2014).

12. DEBT AND OTHER FINANCING ARRANGEMENTS

 

(in thousands)  
December 31,           2015             2014  
Industrial revenue bonds:            

0.17% to 0.42%, variable,
due from 2015 to 2040

     $ 1,010,600         $ 1,026,935   
Notes, 5.75%, due 2017        600,000           600,000   
Notes, 5.85%, due 2018        500,000           500,000   
Notes, 4.125%, due 2022        600,000           600,000   
Notes, 4.0%, due 2023                      500,000                         500,000   
Notes, 6.40%, due 2037        650,000           650,000   
Notes, 5.20%, due 2043        500,000           500,000   
      

 

 

      

 

 

 
         4,360,600           4,376,935   
Less current maturities                  (16,335
      

 

 

      

 

 

 
Total long-term debt due after one year      $ 4,360,600         $ 4,360,600   
      

 

 

      

 

 

 
   
                                   

Annual aggregate long-term debt maturities are: none in 2016, $600.0 million in 2017, $500.0 million in 2018, none in 2019, $20.0 million in 2020 and $3.241 billion thereafter.

In October 2014, Nucor issued approximately $300 million of commercial paper to partially fund the acquisition of Gallatin. All commercial paper instruments matured within 90 days. The balance outstanding and presented in short-term debt in the consolidated balance sheet at December 31, 2014, was $151.4 million. As of December 31, 2015, no commercial paper was outstanding.


 

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Nucor has a $1.50 billion unsecured revolving credit facility that matures in August 2018. The unsecured revolving credit facility provides up to $1.50 billion in revolving loans and allows up to $500.0 million in additional commitments at Nucor’s election in accordance with the terms set forth in the credit agreement. Up to the equivalent of $850.0 million of the credit facility is available for foreign currency loans, up to $500.0 million is available for the issuance of letters of credit and up to $500.0 million is available for the issuance of revolving loans for Nucor subsidiaries in accordance with terms set forth in the credit agreement. The credit facility provides for a pricing grid based upon the credit rating of Nucor’s senior unsecured long-term debt and, alternatively, interest rates quoted by lenders in connection with competitive bidding. The credit facility includes customary financial and other covenants, including a limit on the ratio of funded debt to capital of 60%, a limit on Nucor’s ability to pledge the Company’s assets and a limit on consolidations, mergers and sales of assets. As of December 31, 2015, Nucor’s funded debt to total capital ratio was 36%, and Nucor was in compliance with all covenants under the credit facility. No borrowings were outstanding under the credit facility as of December 31, 2015 and 2014.

Harris Steel has credit facilities totaling approximately $25.1 million, with no outstanding borrowings at December 31, 2015 ($1.5 million at December 31, 2014). In addition, the business of Nucor Trading S.A. is financed by uncommitted trade credit arrangements with a number of European banking institutions. As of December 31, 2015, Nucor Trading S.A. had outstanding borrowings of $51.3 million, which is presented in short-term debt in the consolidated balance sheets ($54.6 million at December 31, 2014).

Letters of credit totaling $58.0 million were outstanding as of December 31, 2015 ($42.2 million as of December 31, 2014), related to certain obligations, including workers’ compensation, utilities deposits and credit arrangements by Nucor Trading S.A. for commitments to purchase inventories.

13. CAPITAL STOCK

The par value of Nucor’s common stock is $0.40 per share and there are 800 million shares authorized. In addition, 250,000 shares of preferred stock, par value of $4.00 per share, are authorized, with preferences, rights and restrictions as may be fixed by Nucor’s Board of Directors. There are no shares of preferred stock issued or outstanding.

In September 2015, Nucor’s Board of Directors approved the repurchase of up to $900 million of the Company’s common stock. The Board of Directors also terminated any previously authorized repurchase programs. The Company repurchased $66.5 million of common stock in 2015 (no repurchases in 2014 or 2013).


    

 

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14. DERIVATIVE FINANCIAL INSTRUMENTS

The following tables summarize information regarding Nucor’s derivative instruments:

 

Fair Value of Derivative Instruments

 

 

              (in thousands)  
               Fair Value  
December 31,        Consolidated Balance Sheet Location                2015           2014  
     
Asset derivatives not designated
as hedging instruments:
              

Commodity contracts

   Other current assets      $         $ 1,856   

Foreign exchange contracts

   Other current assets        909           372   
         

 

 

      

 

 

 

Total asset derivatives

        $ 909         $ 2,228   
         

 

 

      

 

 

 
     
Liability derivatives designated
as hedging instruments:
              

Commodity contracts

  

Accrued expenses and other current liabilities 

     $ (15,700      $ (6,400

Commodity contracts

   Deferred credits and other liabilities        (2,800        (6,300
         

 

 

      

 

 

 

Total liability derivatives
designated as hedging instruments 

          (18,500        (12,700
         

 

 

      

 

 

 
     
Liability derivatives not designated
as hedging instruments:
              

Commodity contracts

  

Accrued expenses and other current liabilities 

       (353          
         

 

 

      

 

 

 

Total liability derivatives not
designated as hedging instruments 

          (353          
         

 

 

      

 

 

 
     

Total liability derivatives

        $ (18,853)         $ (12,700
         

 

 

      

 

 

 
     
                                

 

The Effect of Derivative Instruments on the Consolidated Statements of Earnings

   

 

Derivatives Designated as Hedging Instruments                     (in thousands)  

Derivatives 

in Cash 

Flow Hedging 

Relationships 

  

Statement of  
Earnings 

Location 

  

Amount of Gain or (Loss),

net of tax, Recognized

in OCI on Derivatives
(Effective Portion)

   

Amount of Gain or (Loss),

net of tax, Reclassified from
Accumulated OCI into Earnings
on Derivatives (Effective Portion)

    

Amount of Gain or (Loss),
net of tax, Recognized
in Earnings on Derivatives

(Ineffective Portion)

 
            2015     2014     2013     2015     2014     2013      2015      2014      2013  
                   

Commodity  
contracts

   Cost of products sold    $ (9,498   $ (8,542   $       —      $ (5,798   $ (542   $       —       $       $         —       $         —   
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
                   
                                                                                  

 

Derivatives Not Designated as Hedging Instruments                        (in thousands)  

Derivatives Not Designated  

as Hedging Instruments

       

Statement of Earnings

Location

         Amount of Gain or (Loss) Recognized
in Earnings on Derivatives
 
                       2015            2014            2013  
       

Commodity contracts

       Cost of products sold                   $ 2,894                      $ 1,890                      $ 4,622   

Foreign exchange contracts

       Cost of products sold       2,392          748          112   
            

 

 

     

 

 

     

 

 

 

Total

             $ 5,286        $ 2,638        $ 4,734   
            

 

 

     

 

 

     

 

 

 
       
                                                          

At December 31, 2015, natural gas swaps covering approximately 13.8 million MMBTUs (extending through June 2017) were outstanding.


 

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15. FAIR VALUE MEASUREMENTS

The following table summarizes information regarding Nucor’s financial assets and liabilities that are measured at fair value as of December 31, 2015 and 2014. Nucor does not have any non-financial assets or liabilities that are measured at fair value on a recurring basis.

 

                (in thousands)
         Fair Value Measurements at Reporting Date Using
December 31,  

Carrying

Amount in

Consolidated

  Balance Sheets  

 

Quoted Prices 

in Active Markets 

for Identical Assets 

(Level 1)

 

Significant

 Other Observable  

Inputs

(Level 2)

 

  Significant
  Unobservable
  Inputs

  (Level 3)

       
2015              
Assets:              

Cash equivalents

  $1,668,567     $1,668,567    $           —    

Short-term investments

  100,000     100,000    —    

Foreign exchange contracts

              909                   —               909               —  
Total assets   $1,769,476     $1,768,567    $         909               —  
Liabilities:              

Commodity contracts

  $   (18,853                 —    $   (18,853             —  
       
                 
       
2014              
Assets:              

Cash equivalents

  $   861,656     $   861,656    $           —    

Short-term investments

  100,000     100,000    —    

Foreign exchange and commodity contracts  

           2,228                   —            2,228               —  
Total assets   $   963,884     $   961,656    $      2,228               —  
Liabilities:              

Commodity contracts

  $   (12,700                 —    $   (12,700             —  
       
                 

Fair value measurements for Nucor’s cash equivalents and short-term investments are classified under Level 1 because such measurements are based on quoted market prices in active markets for identical assets. Fair value measurements for Nucor’s derivatives are classified under Level 2 because such measurements are based on published market prices for similar assets or are estimated based on published market prices for similar assets or are estimated based on observable inputs such as interest rates, yield curves, credit risks, spot and future commodity prices and spot and future exchange rates. There were no transfers between levels in the fair value hierarchy for the periods presented.

The fair value of short-term and long-term debt, including current maturities, was approximately $4.47 billion at December 31, 2015 ($4.97 billion at December 31, 2014). The debt fair value estimates are classified under Level 2 because such estimates are based on readily available market prices of our debt at December 31, 2015 and 2014, or similar debt with the same maturities, ratings and interest rates.

Disclosures are required for certain assets and liabilities that are measured at fair value, but are recognized and disclosed on a nonrecurring basis in periods subsequent to initial recognition. For Nucor, our equity investment in Duferdofin Nucor was measured at fair value as a result of the impairment recorded in 2015 (see Note 10).

16. CONTINGENCIES

Nucor is subject to environmental laws and regulations established by federal, state and local authorities and, accordingly, makes provision for the estimated costs of compliance. Of the undiscounted total of $21.1 million of accrued environmental costs at December 31, 2015 ($27.2 million at December 31, 2014), $9.7 million was classified in accrued expenses and other current liabilities ($11.3 million at December 31, 2014) and $11.4 million was classified in deferred credits and other liabilities ($15.9 million at December 31, 2014). Inherent uncertainties exist in these estimates primarily due to unknown conditions, evolving remediation technology and changing governmental regulations and legal standards.


    

 

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Nucor has been named, along with other major steel producers, as a co-defendant in several related antitrust class-action complaints filed by Standard Iron Works and other steel purchasers in the United States District Court for the Northern District of Illinois. The majority of these complaints were filed in September and October of 2008, with two additional complaints being filed in July and December of 2010. Two of these complaints have been voluntarily dismissed and are no longer pending. The plaintiffs allege that from April 1, 2005, through December 31, 2007, eight steel manufacturers, including Nucor, engaged in anticompetitive activities with respect to the production and sale of steel. The plaintiffs seek monetary and other relief on behalf of themselves and a putative class of all purchasers of steel products from the defendants in the U.S. between April 1, 2005, and December 31, 2007. Five of the eight defendants have reached court approved settlements with the plaintiffs. On September 9, 2015, the District Court entered an order ruling on issues of class certification. The Court granted in part, and denied in part, the plaintiffs’ motion, certifying a class solely on the issue of whether defendants engaged in a conspiracy in violation of the antitrust laws, and declining to certify a class on the issues of antitrust impact and damages. We continue to believe the plaintiffs’ claims are without merit and will continue to vigorously defend against them, but we cannot at this time predict the outcome of this litigation or estimate the range of Nucor’s potential exposure and, consequently, have not recorded any reserves or contingencies related to this lawsuit.

On March 25, 2014, a jury in the U.S. District Court for the Southern District of Texas returned a verdict against Nucor and its co-defendants in an antitrust lawsuit brought by plaintiff MM Steel, LP, a steel plate service center located in Houston. The jury returned a verdict of $52.0 million in damages against all defendants jointly and severally. On June 1, 2014, pursuant to antitrust laws providing for treble damages, the court awarded a judgment to MM Steel jointly and severally against the defendants in an amount totaling $160.8 million after including costs and attorneys’ fees. As a result of post-verdict developments, including settlements reached by various other parties, the Company’s practical estimable exposure was reduced to approximately $40.0 million. The Company appealed the judgment to the U.S. Court of Appeals for the Fifth Circuit, and on November 25, 2015, the Fifth Circuit reversed the verdict against Nucor finding that there was not sufficient evidence to support liability against the Company, thereby reducing our current practical estimate exposure to zero.

We are from time to time a party to various other lawsuits, claims and legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows. Nucor maintains liability insurance for certain risks that is subject to certain self-insurance limits.

17. STOCK-BASED COMPENSATION

Stock Options Stock options may be granted to Nucor’s key employees, officers and non-employee directors with exercise prices at 100% of the market value on the date of the grant. The stock options granted are generally exercisable at the end of three years and have a term of 10 years. New shares are issued upon exercise of stock options.

A summary of activity under Nucor’s stock option plans is as follows:

 

                                                    (shares in thousands)  
Year Ended December 31,   2015     2014     2013  
     Shares     Weighted-
Average
Exercise
Price
    Shares     Weighted-
Average
Exercise
Price
    Shares     Weighted-
Average
Exercise
Price
 

Number of shares under option:

                                 

Outstanding at beginning of year

             2,422               $42.39                 2,089               $40.47          1,543                 $39.03   

Granted

      700          $47.59          469          $50.63          546          $44.51   

Exercised

      (10       $42.34          (136       $41.30                     

Canceled

      (20       $50.63                                       
     

 

 

           

 

 

           

 

 

     

Outstanding at end of year

      3,092          $43.51          2,422          $42.39          2,089          $40.47   
     

 

 

           

 

 

           

 

 

     
           

Options exercisable at end of year

      1,531          $39.35          1,263          $40.40          1,012          $39.75   
     

 

 

           

 

 

           

 

 

     
           
                                                                         


 

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The shares reserved for future grants as of December 31, 2015, 2014 and 2013 are reflected in the restricted stock units table below. The total intrinsic value of options (the amount by which the stock price exceeded the exercise price of the option on the date of exercise) that were exercised during 2015 was $0.1 million ($2.0 million in 2014 and none in 2013).

The following table summarizes information about stock options outstanding at December 31, 2015:

 

                                      (shares in thousands)  
     Options Outstanding  
Exercise Price  

Options

        Outstanding        

 

Options

    Exercisable    

 

Weighted-Average Remaining

Contractual Life

 
     
$35.76       689              689            6.4 years     
$41.43       242              242            4.4 years     
$42.34       520              520            5.4 years     
$44.51       506              80            7.4 years     
$47.59       700                         9.4 years     
$50.63          435                   —            8.4 years     
$35.76 – $ 50.63       3,092              1,531            7.2 years     
                                         

As of December 31, 2015, the total aggregate intrinsic value of both options outstanding and options exercisable was $3.1 million. Options for which the exercise price exceeded the closing market price of a share of the Company’s common stock at December 31, 2015 were excluded from the calculation of aggregate intrinsic value.

The grant date fair value of options granted was $11.71 per share in 2015 ($17.48 per share in 2014 and $15.03 per share in 2013). The fair value was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

           2015           2014           2013  
     
Exercise price        $47.59                   $50.63           $44.51   
Expected dividend yield        3.13        2.92        3.30
Expected stock price volatility        33.32        45.00        46.94
Risk-free interest rate        1.86        2.03        1.51
Expected life (in years)        6.5           6.5           6.5   
     
                                        

Stock options granted to employees who are eligible for retirement on the date of grant are expensed immediately since these awards vest upon retirement from the Company. Retirement, for purposes of vesting in these stock options, means termination of employment after satisfying age and years of service requirements. Similarly, stock options granted to employees who will become retirement-eligible prior to the end of the vesting term are expensed over the period through which the employee will become retirement-eligible. Compensation expense for stock options granted to employees who are not retirement-eligible is recognized on a straight-line basis over the vesting period. Compensation expense for stock options was $7.4 million in 2015 ($7.7 million in 2014 and $8.6 million in 2013). As of December 31, 2015, unrecognized compensation expense related to stock options was $1.3 million, which is expected to be recognized over 2.2 years.

Restricted Stock Units Nucor annually grants restricted stock units (RSUs) to key employees, officers and non-employee directors. The RSUs typically vest and are converted to common stock in three equal installments on each of the first three anniversaries of the grant date. A portion of the RSUs awarded to an officer vest upon the officer’s retirement. Retirement, for purposes of vesting in these units only, means termination of employment with approval of the Compensation and Executive Development Committee of the Board of Directors after satisfying age and years of service requirements. RSUs granted to non-employee directors are fully vested on the grant date and are payable to the non-employee director in the form of common stock after the termination of the director’s service on the Board of Directors.


    

 

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RSUs granted to employees who are eligible for retirement on the date of grant are expensed immediately, and RSUs granted to employees who will become retirement-eligible prior to the end of the vesting term are expensed over the period through which the employee will become retirement-eligible since these awards vest upon retirement from the Company. Compensation expense for RSUs granted to employees who are not retirement-eligible is recognized on a straight-line basis over the vesting period.

Cash dividend equivalents are paid to holders of RSUs each quarter. Dividend equivalents paid on units expected to vest are recognized as a reduction in retained earnings.

The fair value of the RSUs is determined based on the closing stock price of Nucor’s common stock on the date of grant. A summary of Nucor’s restricted stock unit activity is as follows:

 

                                          (shares in thousands)  
  Year Ended December 31,   2015     2014     2013  
          Shares     Grant Date
Fair Value
         Shares     Grant Date
Fair Value
         Shares     Grant Date
Fair Value
 

 

Restricted stock units:

                 

Unvested at beginning of year

      1,012        $45.98          1,122        $42.51          1,106        $40.80   

Granted

      790        $47.59          655        $50.63          789        $44.51   

Vested

      (756     $44.99          (752     $44.90          (762     $42.15   

Canceled

      (15     $46.61          (13     $42.66          (11     $39.08   
   

 

 

       

 

 

       

 

 

   

Unvested at end of year

      1,031        $47.93          1,012        $45.98          1,122        $42.51   
   

 

 

       

 

 

       

 

 

   
           

Shares reserved for future grants

(stock options and RSUs)

   

 

10,349

  

     

 

11,851

  

     

 

10,486

  

 
   

 

 

       

 

 

       

 

 

   
                                                             

Compensation expense for RSUs was $34.8 million in 2015 ($32.6 million in 2014 and 2013). The total fair value of shares vested during 2015 was $35.8 million ($38.1 million in 2014 and $34.1 million in 2013). As of December 31, 2015, unrecognized compensation expense related to unvested RSUs was $31.3 million, which is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock Awards Nucor’s Senior Officers Long-Term Incentive Plan (the LTIP) and Annual Incentive Plan (the AIP) authorize the award of shares of common stock to officers subject to certain conditions and restrictions.

The LTIP provides for the award of shares of restricted common stock at the end of each LTIP performance measurement period at no cost to officers if certain financial performance goals are met during the period. One-third of the LTIP restricted stock award vests upon each of the first three anniversaries of the award date or, if earlier, upon the officer’s attainment of age 55 while employed by Nucor. Although participants are entitled to cash dividends and may vote such awarded shares, the sale or transfer of such shares is limited during the restricted period.

The AIP provides for the payment of annual cash incentive awards. An AIP participant may elect, however, to defer payment of up to one-half of an annual incentive award. In such event, the deferred AIP award is converted into common stock units and credited with a deferral incentive, in the form of additional common stock units, equal to 25% of the number of common stock units attributable to the deferred AIP award. Common stock units attributable to deferred AIP awards are fully vested. Common stock units credited as a deferral incentive vest upon the AIP participant’s attainment of age 55 while employed by Nucor. Vested common stock units are paid to AIP participants in the form of shares of common stock following their termination of employment with Nucor.


 

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A summary of Nucor’s restricted stock activity under the AIP and the LTIP is as follows:

 

                                        (shares in thousands)  
  Year Ended December 31,        2015                2014                    2013          
    

    Shares    

   

  Grant Date  

Fair Value

    Shares    

  Grant Date  

Fair Value

    Shares    

  Grant Date  

Fair Value

 
           

  Restricted stock awards and units:

                 

Unvested at beginning of year

      65        $48.20          73        $45.49          72        $43.72   

Granted

      136        $47.07          127        $50.35          122        $47.36   

Vested

      (138     $47.15          (135     $48.76          (121     $46.32   

Canceled

                                               
   

 

 

       

 

 

       

 

 

   

Unvested at end of year

      63        $48.07          65        $48.20          73        $45.49   
   

 

 

       

 

 

       

 

 

   
           

  Shares reserved for future grants

      975            1,111            1,238     
   

 

 

       

 

 

       

 

 

   
           
                                                             

Compensation expense for common stock and common stock units awarded under the AIP and the LTIP is recorded over the performance measurement and vesting periods based on the anticipated number and market value of shares of common stock and common stock units to be awarded. Compensation expense for anticipated awards based upon Nucor’s financial performance, exclusive of amounts payable in cash, was $3.4 million in 2015 ($6.1 million in 2014 and $6.3 million in 2013). The total fair value of shares vested during 2015 was $6.5 million ($6.8 million in 2014 and $5.7 million in 2013). As of December 31, 2015, unrecognized compensation expense related to unvested restricted stock awards was $0.8 million, which is expected to be recognized over a weighted-average period of 1.6 years.

18. EMPLOYEE BENEFIT PLANS

Nucor makes contributions to a Profit Sharing and Retirement Savings Plan for qualified employees based on the profitability of the Company. Nucor’s expense for these benefits totaled $60.5 million in 2015 ($110.1 million in 2014 and $71.7 million in 2013). The related liability for these benefits is included in salaries, wages and related accruals.

Nucor also has a medical plan covering certain eligible early retirees. The unfunded obligation, included in deferred credits and other liabilities in the consolidated balance sheets, totaled $15.6 million at December 31, 2015 ($14.1 million at December 31, 2014). The expense associated with this early retiree medical plan totaled $1.1 million in 2015 (benefits of $0.6 million in 2014 and 2013.)

The discount rate used was 4.4% in 2015 (3.8% in 2014 and 4.6% in 2013). The health care cost increase trend rate used was 7.1% in 2015 (6.5% in 2014 and 6.6% in 2013). The health care cost increase in the trend rate is projected to decline gradually to 4.5% by 2037.

19. INTEREST EXPENSE (INCOME)

The components of net interest expense are as follows:

 

                          (in thousands)  
  Year Ended December 31,         2015           2014           2013  
     

Interest expense

     $ 177,543         $ 174,142         $ 151,986   

Interest income

       (4,012        (4,886        (5,091
    

 

 

      

 

 

      

 

 

 

Interest expense, net

     $ 173,531         $ 169,256         $ 146,895   
    

 

 

      

 

 

      

 

 

 
     
                                        

Interest paid was $180.0 million in 2015 ($180.5 million in 2014 and $141.2 million in 2013).


    

 

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20. INCOME TAXES

Components of earnings (losses) from continuing operations before income taxes and noncontrolling interests are as follows:

 

                                                                                               
                        (in thousands)  
Year Ended December 31,        2015          2014          2013  
     

United States

    $ 875,038        $ 1,161,953        $ 755,921   

Foreign

      (165,800       42,624          35,202   
     

 

 

     

 

 

     

 

 

 
      $ 709,238        $ 1,204,577        $ 791,123   
     

 

 

     

 

 

     

 

 

 
     
                                     

The provision for income taxes consists of the following:

 

                                                                                         
                        (in thousands)  
Year Ended December 31,        2015          2014          2013  
     
Current:                

Federal

    $ 285,856        $ 247,898        $ 138,343   

State

      4,618          30,790          223   

Foreign

      5,198          19,235          10,464   
     

 

 

     

 

 

     

 

 

 

Total current

      295,672          297,923          149,030   
     

 

 

     

 

 

     

 

 

 
     
Deferred:                

Federal

      (64,482       94,991          36,157   

State

      (6,041       3,958          (39

Foreign

      (11,995       (8,085       20,446   
     

 

 

     

 

 

     

 

 

 

Total deferred

      (82,518       90,864          56,564   
     

 

 

     

 

 

     

 

 

 
     
Total provision for income taxes     $ 213,154        $ 388,787        $ 205,594   
     

 

 

     

 

 

     

 

 

 
     
                                     

A reconciliation of the federal statutory tax rate (35%) to the total provision is as follows:

 

                                               
Year Ended December 31,        2015          2014          2013  
     

Taxes computed at statutory rate

                         35.00                          35.00                          35.00
     

State income taxes, net of federal income tax benefit

      (0.32       3.32          0.02   
     

Federal research credit

      (0.50       (0.27       (0.79
     

Domestic manufacturing deduction

      (3.40       (2.27       (1.74
     

Equity in losses of foreign joint venture

      0.98          0.85          1.36   
     

Impairment on investment in foreign joint venture

      7.55                     
     

Foreign rate differential

      (1.72       (0.93       (2.35
     

Noncontrolling interests

      (6.84       (2.96       (4.32
     

Out-of-period correction

      (1.37       (1.10       (2.57
     

Other, net

      0.67          0.64          1.38   
     

 

 

     

 

 

     

 

 

 
     

Provision for income taxes

      30.05       32.28       25.99
     

 

 

     

 

 

     

 

 

 
     
                                     


 

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The 2015 provision included a $9.7 million out-of-period non-cash gain related to a correction to tax balances. The 2014 and 2013 provisions included out-of-period non-cash gains related to corrections to tax balances of $13.2 million and $21.3 million, respectively. These out-of-period adjustments were not material to the period of correction or any previously reported periods.

Deferred tax assets and liabilities resulted from the following:

 

       (in thousands)  
  December 31,      2015                2014  
 

Deferred tax assets:

                

 Accrued liabilities and reserves

     $ 209,854