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2018-06-30

Table of Contents

 

Second Quarter 2019

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 1-4119

 

NUCOR CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-1860817

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1915 Rexford Road, Charlotte, North Carolina

 

28211

(Address of principal executive offices)

 

(Zip Code)

(704) 366-7000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.40 per share

 

NUE

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes        No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

303,157,475 shares of the registrant’s common stock were outstanding at June 29, 2019.

 

 

 


Table of Contents

 

Nucor Corporation

Quarterly Report on Form 10-Q

For the Three Months and Six Months Ended June 29, 2019

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

Part I

 

Financial Information

 

 

 

 

 

 

 

 

 

 

 

Item 1

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Earnings - Three Months (13 Weeks) and Six Months (26 Weeks) Ended June 29, 2019 and June 30, 2018

 

1

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income - Three Months (13 Weeks) and Six Months (26 Weeks) Ended June 29, 2019 and June 30, 2018

 

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets - June 29, 2019 and December 31, 2018

 

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Six Months (26 Weeks) Ended June 29, 2019 and June 30, 2018

 

4

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

 

 

 

 

Item 4

 

Controls and Procedures

 

28

 

 

 

 

 

 

 

Part II

 

Other Information

 

 

 

 

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

29

 

 

 

 

 

 

 

 

 

Item 1A

 

Risk Factors

 

29

 

 

 

 

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

 

 

 

 

 

 

 

Item 6

 

Exhibits

 

30

 

 

 

 

 

 

 

Signatures

 

31

 

 

 

 

 

 

 

 

 

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Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Nucor Corporation Condensed Consolidated Statements of Earnings (Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months (13 Weeks) Ended

 

 

Six Months (26 Weeks) Ended

 

 

 

June 29, 2019

 

 

June 30, 2018

 

 

June 29, 2019

 

 

June 30, 2018

 

Net sales

 

$

5,895,986

 

 

$

6,460,774

 

 

$

11,992,610

 

 

$

12,029,193

 

Costs, expenses and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold

 

 

5,120,492

 

 

 

5,294,184

 

 

 

10,321,224

 

 

 

10,136,197

 

Marketing, administrative and other expenses

 

 

208,980

 

 

 

234,381

 

 

 

389,719

 

 

 

417,341

 

Equity in earnings of unconsolidated affiliates

 

 

(1,138

)

 

 

(10,943

)

 

 

(4,044

)

 

 

(20,523

)

Interest expense, net

 

 

33,030

 

 

 

29,451

 

 

 

61,473

 

 

 

66,565

 

 

 

 

5,361,364

 

 

 

5,547,073

 

 

 

10,768,372

 

 

 

10,599,580

 

Earnings before income taxes and noncontrolling interests

 

 

534,622

 

 

 

913,701

 

 

 

1,224,238

 

 

 

1,429,613

 

Provision for income taxes

 

 

122,345

 

 

 

200,086

 

 

 

281,168

 

 

 

335,886

 

Net earnings

 

 

412,277

 

 

 

713,615

 

 

 

943,070

 

 

 

1,093,727

 

Earnings attributable to noncontrolling interests

 

 

25,794

 

 

 

30,462

 

 

 

54,781

 

 

 

56,395

 

Net earnings attributable to Nucor stockholders

 

$

386,483

 

 

$

683,153

 

 

$

888,289

 

 

$

1,037,332

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.26

 

 

$

2.14

 

 

$

2.89

 

 

$

3.24

 

Diluted

 

$

1.26

 

 

$

2.13

 

 

$

2.88

 

 

$

3.23

 

Average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

305,461

 

 

 

318,467

 

 

 

306,017

 

 

 

318,941

 

Diluted

 

 

305,952

 

 

 

319,391

 

 

 

306,559

 

 

 

319,930

 

 

See notes to condensed consolidated financial statements.

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Nucor Corporation Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

 

 

Three Months (13 Weeks) Ended

 

 

Six Months (26 Weeks) Ended

 

 

 

June 29, 2019

 

 

June 30, 2018

 

 

June 29, 2019

 

 

June 30, 2018

 

Net earnings

 

$

412,277

 

 

$

713,615

 

 

$

943,070

 

 

$

1,093,727

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on hedging derivatives, net of

   income taxes of $(1,700) and $(1,100) for the second

   quarter of 2019 and 2018, respectively, and $(1,500)

   and $(600) for the first six months of 2019 and 2018,

   respectively

 

 

(5,217

)

 

 

(3,647

)

 

 

(4,486

)

 

 

(4,399

)

Reclassification adjustment for settlement of hedging

   derivatives included in net income, net of income

   taxes of $200 and $100 for the second quarter of 2019

   and 2018, respectively, and $0 and $100 for the first

   six months of 2019 and 2018, respectively

 

 

517

 

 

 

447

 

 

 

(114

)

 

 

399

 

Foreign currency translation gain (loss), net of income

   taxes of $0 for the second quarter and first six months

   of 2019 and 2018

 

 

15,727

 

 

 

(43,466

)

 

 

9,087

 

 

 

(37,351

)

 

 

 

11,027

 

 

 

(46,666

)

 

 

4,487

 

 

 

(41,351

)

Comprehensive income

 

 

423,304

 

 

 

666,949

 

 

 

947,557

 

 

 

1,052,376

 

Comprehensive income attributable to noncontrolling

   interests

 

 

(25,794

)

 

 

(30,462

)

 

 

(54,781

)

 

 

(56,395

)

Comprehensive income attributable to Nucor stockholders

 

$

397,510

 

 

$

636,487

 

 

$

892,776

 

 

$

995,981

 

 

See notes to condensed consolidated financial statements.

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Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

 

 

 

June 29, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,431,792

 

 

$

1,398,886

 

Short-term investments

 

 

50,000

 

 

 

-

 

Accounts receivable, net

 

 

2,399,239

 

 

 

2,505,568

 

Inventories, net

 

 

4,268,799

 

 

 

4,553,500

 

Other current assets

 

 

317,369

 

 

 

178,311

 

Total current assets

 

 

8,467,199

 

 

 

8,636,265

 

Property, plant and equipment, net

 

 

5,797,513

 

 

 

5,334,748

 

Goodwill

 

 

2,187,825

 

 

 

2,184,336

 

Other intangible assets, net

 

 

786,406

 

 

 

828,504

 

Other assets

 

 

887,537

 

 

 

936,735

 

Total assets

 

$

18,126,480

 

 

$

17,920,588

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term debt

 

$

60,087

 

 

$

57,870

 

Accounts payable

 

 

1,219,792

 

 

 

1,428,191

 

Salaries, wages and related accruals

 

 

476,255

 

 

 

709,397

 

Accrued expenses and other current liabilities

 

 

624,280

 

 

 

610,842

 

Total current liabilities

 

 

2,380,414

 

 

 

2,806,300

 

Long-term debt due after one year

 

 

4,234,308

 

 

 

4,233,276

 

Deferred credits and other liabilities

 

 

813,750

 

 

 

679,044

 

Total liabilities

 

 

7,428,472

 

 

 

7,718,620

 

EQUITY

 

 

 

 

 

 

 

 

Nucor stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

152,061

 

 

 

152,061

 

Additional paid-in capital

 

 

2,098,809

 

 

 

2,073,715

 

Retained earnings

 

 

10,977,950

 

 

 

10,337,445

 

Accumulated other comprehensive loss,

 

 

 

 

 

 

 

 

net of income taxes

 

 

(297,760

)

 

 

(304,133

)

Treasury stock

 

 

(2,630,343

)

 

 

(2,467,010

)

Total Nucor stockholders' equity

 

 

10,300,717

 

 

 

9,792,078

 

Noncontrolling interests

 

 

397,291

 

 

 

409,890

 

Total equity

 

 

10,698,008

 

 

 

10,201,968

 

Total liabilities and equity

 

$

18,126,480

 

 

$

17,920,588

 

 

See notes to condensed consolidated financial statements.

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Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Six Months (26 Weeks) Ended

 

 

 

June 29, 2019

 

 

June 30, 2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

943,070

 

 

$

1,093,727

 

Adjustments:

 

 

 

 

 

 

 

 

Depreciation

 

 

321,979

 

 

 

316,402

 

Amortization

 

 

42,748

 

 

 

44,573

 

Stock-based compensation

 

 

61,260

 

 

 

51,905

 

Deferred income taxes

 

 

57,052

 

 

 

48,181

 

Distributions from affiliates

 

 

27,405

 

 

 

27,453

 

Equity in earnings of unconsolidated affiliates

 

 

(4,044

)

 

 

(20,523

)

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

112,015

 

 

 

(602,414

)

Inventories

 

 

281,119

 

 

 

(676,266

)

Accounts payable

 

 

(248,671

)

 

 

367,950

 

Federal income taxes

 

 

(122,358

)

 

 

208,996

 

Salaries, wages and related accruals

 

 

(220,946

)

 

 

1,631

 

Other operating activities

 

 

(62,774

)

 

 

8,977

 

Cash provided by operating activities

 

 

1,187,855

 

 

 

870,592

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(649,947

)

 

 

(361,486

)

Investment in and advances to affiliates

 

 

(11,170

)

 

 

(73,427

)

Divestiture of affiliates

 

 

67,591

 

 

 

-

 

Disposition of plant and equipment

 

 

18,396

 

 

 

17,297

 

Acquisitions (net of cash acquired)

 

 

(9,495

)

 

 

-

 

Purchase of investments

 

 

(50,000

)

 

 

-

 

Proceeds from the sale of investments

 

 

-

 

 

 

50,000

 

Other investing activities

 

 

2,176

 

 

 

1,378

 

Cash used in investing activities

 

 

(632,449

)

 

 

(366,238

)

Financing activities:

 

 

 

 

 

 

 

 

Net change in short-term debt

 

 

2,217

 

 

 

6,334

 

Proceeds from long-term debt, net of discount

 

 

-

 

 

 

995,710

 

Repayment of long-term debt

 

 

-

 

 

 

(500,000

)

Bond issuance related costs

 

 

-

 

 

 

(7,625

)

Issuance of common stock

 

 

5,892

 

 

 

12,280

 

Payment of tax withholdings on certain stock-based compensation

 

 

(15,446

)

 

 

(19,508

)

Distributions to noncontrolling interests

 

 

(67,380

)

 

 

(40,130

)

Cash dividends

 

 

(246,474

)

 

 

(243,649

)

Acquisition of treasury stock

 

 

(197,511

)

 

 

(170,315

)

Other financing activities

 

 

(4,346

)

 

 

(3,879

)

Cash (used in) provided by financing activities

 

 

(523,048

)

 

 

29,218

 

Effect of exchange rate changes on cash

 

 

548

 

 

 

3,777

 

Increase in cash and cash equivalents

 

 

32,906

 

 

 

537,349

 

Cash and cash equivalents - beginning of year

 

 

1,398,886

 

 

 

949,104

 

Cash and cash equivalents - end of six months

 

$

1,431,792

 

 

$

1,486,453

 

Non-cash investing activity:

 

 

 

 

 

 

 

 

Change in accrued plant and equipment purchases

 

$

39,862

 

 

$

1,776

 

 

See notes to condensed consolidated financial statements.

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Nucor Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited)

1.

BASIS OF INTERIM PRESENTATION: The information furnished in this Item 1 reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented and are of a normal and recurring nature unless otherwise noted. The information furnished has not been audited; however, the December 31, 2018 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements included in this Item 1 should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Adopted Accounting Pronouncements – In the first quarter of 2019, Nucor adopted new guidance related to lease accounting using the modified retrospective approach, which permits companies to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjusting the comparative periods prior to adoption. The new lease guidance requires all lessees to recognize on the balance sheet right-of-use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months, including operating leases. Expenses are recognized in the statement of earnings in a manner similar to previous accounting guidance.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new lease standard, which, among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and the short-term lease exemption policy such that the new lease guidance was applied to leases greater than one year in duration. The adoption of the new lease standard did not have a material impact on our consolidated financial statements as it resulted in an increase of 0.5% and 1.2% to our total assets and total liabilities, respectively, on our consolidated balance sheet at January 1, 2019. The new lease standard did not materially impact our consolidated net earnings and had no impact on our cash flows. See Note 4 for further information.

In the first quarter of 2019, we also adopted new accounting guidance related to tax effects of the Tax Cuts and Jobs Act of 2017. As a result of the adoption of the new guidance, we elected to reclassify stranded tax effects from accumulated other comprehensive income to retained earnings, effective January 1, 2019. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

2.

INVENTORIES: Inventories consisted of approximately 40% raw materials and supplies and 60% finished and semi-finished products at June 29, 2019 (43% and 57%, respectively, at December 31, 2018). 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.

3.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of $9.46 billion at June 29, 2019 ($9.19 billion at December 31, 2018).

Nucor performed an impairment assessment of its proved producing natural gas well assets in September 2018. One of the main assumptions that most significantly affects the undiscounted cash flows determination is management’s estimate of future pricing of natural gas and natural gas liquids. The pricing used in the impairment assessment was developed by management based on projected natural gas market supply and demand dynamics, in conjunction with a review of projections by market analysts. Management also makes key estimates on the expected reserve levels and on the expected drilling production costs. The impairment assessment was performed on each of Nucor’s three groups (“fields”) of wells, with each field defined by common geographic location.

As a result of the impairment assessment, Nucor recorded an impairment charge of $110.0 million relating to two fields of wells in the third quarter of 2018. The post-impairment combined carrying value of these two fields was $68.6 million at June 29, 2019 ($71.0 million at December 31, 2018). The third field was not impaired and had a carrying value of $49.5 million at June 29, 2019 ($51.8 million at December 31, 2018). Changes in the natural gas industry or a prolonged low price environment beyond what had already been assumed in the assessment could cause management to revise the natural gas and natural gas liquids price assumptions, the estimated reserves or the estimated drilling production costs. Unfavorable revisions to these assumptions or estimates could possibly result in an impairment of some or all of the fields of proved well assets.

 

4.

LEASES: We lease certain equipment, office space and land. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion and we consider these options in determining the lease term used to establish our right-of-use assets and lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or a purchase option reasonably certain of exercise.

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We determine that a contract contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In evaluating whether we have the right to control the use of an identified asset, we assess whether or not we have the right to direct the use of the identified asset and to obtain substantially all of the economic benefit from the use of the identified asset.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.    

Certain of our lease agreements include payments that adjust periodically for consumption of goods provided by the right-of-use asset in excess of contractually determined minimum amounts and for inflation. These variable lease payments are not significant. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Total lease costs included in the condensed consolidated statement of earnings for the second quarter of 2019 were $11.1 million. Finance lease costs were $5.2 million in the second quarter of 2019, with $2.4 million being included in cost of products sold related to amortization of leased assets and $2.8 million being included in interest expense, net related to interest on lease liabilities. Operating lease costs were $5.9 million in the second quarter of 2019, with $5.3 million being included in cost of products sold related to amortization of leased assets and $0.6 million being included in marketing, administrative and other expenses of leased assets.

Total lease costs included in the condensed consolidated statement of earnings for the first six months of 2019 were $22.1 million. Finance lease costs were $10.4 million in the first six months of 2019, with $4.7 million being included in cost of products sold related to amortization of leased assets and $5.7 million being included in interest expense, net related to interest on lease liabilities. Operating lease costs were $11.7 million in the first six months of 2019, with $11.1 million being included in cost of products sold related to amortization of leased assets and $0.6 million being included in marketing, administrative and other expenses of leased assets.

 

Supplemental cash flow information related to our leases are as follows (in thousands):

 

 

 

Six Months

 

 

 

(26 Weeks) Ended

 

 

 

June 29, 2019

 

Cash paid for amounts included in measurement of lease liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

11,687

 

Operating cash flows from finance leases

 

$

5,663

 

Financing cash flows from finance leases

 

$

4,346

 

 

Supplemental balance sheet information related to our leases is as follows (in thousands):

 

 

 

 

 

June 29, 2019

 

Assets:

 

 

 

 

 

 

Operating lease

 

Property, plant and equipment, net

 

$

91,084

 

Finance lease

 

Property, plant and equipment, net

 

 

65,445

 

Total leased

 

 

 

$

156,529

 

Liabilities:

 

 

 

 

 

 

Current operating

 

Accrued expenses and other current liabilities

 

$

17,761

 

Current finance

 

Accrued expenses and other current liabilities

 

 

8,140

 

Non-current operating

 

Deferred credits and other liabilities

 

 

73,714

 

Non-current finance

 

Deferred credits and other liabilities

 

 

71,249

 

Total leased

 

 

 

$

170,864

 

 

Weighted-average remaining lease term and discount rate for our leases are as follows:

 

 

 

June 29, 2019

Weighted-average remaining lease term - operating leases

 

9.3 years

Weighted-average remaining lease term - finance leases

 

10.7 years

Weighted-average discount rate - operating leases

 

3.8%

Weighted-average discount rate - finance leases

 

31.6%

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The reason for the substantial weighted-average discount rate – finance leases, of 31.6%, is due to Nucor’s past accounting for the respective finance leases following the former accounting guidance for capital leases. Pursuant to the former lease accounting guidance, the recognition of a capital lease asset and associated capital lease liability could not exceed the fair market value of the leased asset at the lease commencement. Accordingly, the incremental borrowing rate was adjusted upward so that the present value of the minimum lease payments would equal the fair value of the asset.

Maturities of lease liabilities by fiscal year for our leases are as follows as of June 29, 2019 (in thousands):

 

 

 

Operating Leases

 

 

Finance Leases

 

Maturities of lease liabilities, year ending December 31,

 

 

 

 

 

 

 

 

2019

 

$

11,337

 

 

$

9,493

 

2020

 

 

18,444

 

 

 

18,333

 

2021

 

 

15,836

 

 

 

17,858

 

2022

 

 

14,034

 

 

 

17,064

 

2023

 

 

11,020

 

 

 

15,221

 

Thereafter

 

 

40,924

 

 

 

79,241

 

Total lease payments

 

$

111,595

 

 

$

157,210

 

Less imputed interest

 

 

(20,120

)

 

 

(77,821

)

Present value of lease liabilities

 

$

91,475

 

 

$

79,389

 

 

Prior Period Disclosures - As a result of adopting the new lease accounting guidance on January 1, 2019 under the modified retrospective approach, the Company is required to present future minimum lease commitments for capital leases and operating leases having initial or noncancellable lease terms in excess of one year that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 and accounted for under previous lease guidance.

Total future minimum lease payments related to capital leases at December 31, 2018 were $154.8 million, with the timing of those payments estimated at that date to be made as follows: $17.7 million in 2019; a total of $33.6 million to be paid between 2020 and 2021; a total of $30.0 million to be paid between 2022 and 2023; and $73.4 million to be paid thereafter.

Total future minimum lease payments related to operating leases having initial or noncancellable lease terms in excess of one year at December 31, 2018 were $128.6 million, with the timing of those payments estimated at that date to be made as follows: $31.8 million in 2019; a total of $45.0 million to be paid between 2020 and 2021; a total of $28.4 million to be paid between 2022 and 2023; and $23.5 million to be paid thereafter.

The gross amount of assets recorded under capital leases was $89.4 million as of December 31, 2018, which primarily consisted of buildings and improvements or machinery and equipment.

 

5.

GOODWILL AND OTHER INTANGIBLE ASSETS: The change in the net carrying amount of goodwill for the six months ended June 29, 2019 by segment was as follows (in thousands):

 

 

 

Steel Mills

 

 

Steel Products

 

 

Raw Materials

 

 

Total

 

Balance at December 31, 2018

 

$

591,986

 

 

$

862,773

 

 

$

729,577

 

 

$

2,184,336

 

Translation

 

 

-

 

 

 

3,489

 

 

 

-

 

 

 

3,489

 

Reclassifications

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at June 29, 2019

 

$

591,986

 

 

$

866,262

 

 

$

729,577

 

 

$

2,187,825

 

 

Nucor completed its most recent annual goodwill impairment testing during the fourth quarter of 2018 and concluded that as of such time there was no impairment of goodwill for any of its reporting units.

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The assessment performed in 2018 used forward-looking projections and included significant expected improvements in the future cash flows of one of the Company’s reporting units, Rebar Fabrication. The fair value of this reporting unit exceeded its carrying value by approximately 8% in the most recent assessment. The operating results of this reporting unit declined significantly and remained depressed throughout 2018. Nucor expects the operating results of this reporting unit to improve when the price of steel in relation to the reporting unit’s backlog pricing stabilizes. If our assessment of the relevant facts and circumstances changes, or the actual performance of this reporting unit falls short of expected results, noncash impairment charges may be required. Total goodwill associated with the Rebar Fabrication reporting unit was $356.1 million as of June 29, 2019 ($353.0 million as of December 31, 2018). An impairment of goodwill may also lead us to record an impairment of other intangible assets. Total finite-lived intangible assets associated with the Rebar Fabrication reporting unit were $72.0 million as of June 29, 2019 ($76.7 million as of December 31, 2018). There have been no triggering events requiring an interim assessment for impairment since the most recent annual goodwill impairment testing date.

During the first six months of 2019, the operating results and updated future projections of one of the Company’s reporting units, Grating, decreased from the assumptions used in our most recent impairment assessment. The fair value of this reporting unit exceeded its carrying value by approximately 19% in that assessment. The decline in operating results was determined not to be indicative of a long-term decline representing a triggering event given the amount the fair value of the reporting unit exceeded its carrying amount in the most recent assessment. As of June 29, 2019, total goodwill and finite-lived intangible assets associated with the Grating reporting unit were $36.7 million and $3.5 million, respectively. Management is currently assessing the Grating reporting unit’s business strategy and structure and will continue to monitor the reporting unit for potential triggering events that would require an interim assessment for impairment.

Intangible assets with estimated useful lives of five to 22 years are amortized on a straight-line or accelerated basis and were comprised of the following as of June 29, 2019 and December 31, 2018 (in thousands):

 

 

 

June 29, 2019

 

 

December 31, 2018

 

 

 

Gross Amount

 

 

Accumulated

Amortization

 

 

Gross Amount

 

 

Accumulated

Amortization

 

Customer relationships

 

$

1,421,296

 

 

$

748,899

 

 

$

1,418,250

 

 

$

713,656

 

Trademarks and trade names

 

 

177,663

 

 

 

92,836

 

 

 

176,046

 

 

 

87,680

 

Other

 

 

63,807

 

 

 

34,625

 

 

 

67,820

 

 

 

32,276

 

 

 

$

1,662,766

 

 

$

876,360

 

 

$

1,662,116

 

 

$

833,612

 

 

Intangible asset amortization expense in the second quarter of 2019 and 2018 was $21.2 million and $22.1 million, respectively, and was $42.7 million and $44.6 million in the first six months of 2019 and 2018, respectively. Annual amortization expense is estimated to be $87.1 million in 2019; $84.7 million in 2020; $83.5 million in 2021; $81.2 million in 2022; and $80.0 million in 2023.

6.

EQUITY INVESTMENTS: The carrying value of our equity investments in domestic and foreign companies was $821.2 million at June 29, 2019 ($869.9 million at December 31, 2018) and is recorded in other assets in the condensed consolidated balance sheets.

NUMIT

Nucor owns a 50% economic and voting interest in NuMit LLC (“NuMit”). NuMit owns 100% of the equity interest in Steel Technologies LLC, an operator of 26 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 was $320.3 million at June 29, 2019 ($337.2 million at December 31, 2018). Nucor received distributions of $27.4 million and $27.5 million from NuMit during the first six months of 2019 and 2018, respectively.

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 was $262.0 million at June 29, 2019 ($269.1 million at December 31, 2018). Nucor’s 50% share of the total net assets of Duferdofin Nucor was $111.9 million at June 29, 2019, resulting in a basis difference of $150.1 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 ($87.6 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 $2.3 million

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during the second quarters of both 2019 and 2018, respectively, and was $4.5 million and $4.8 million in the first six months of 2019 and 2018, respectively.

As of June 29, 2019, Nucor had outstanding notes receivable of €35.0 million ($39.8 million) from Duferdofin Nucor (€35.0 million, or $40.2 million, as of December 31, 2018). The notes receivable bear interest at 0.84% and reset annually on September 30 to the 12-month Euro Interbank Offered Rate plus 1% per year. The maturity date of the principal amounts was extended to January 31, 2022 during the first quarter of 2018. As of June 29, 2019 and December 31, 2018, the notes receivable were classified in other assets in the condensed consolidated balance sheets.

Nucor has issued a guarantee for its ownership percentage (50%) of Duferdofin Nucor’s borrowings under Facility A of a Structured Trade Finance Facilities Agreement (“Facility A”). The fair value of the guarantee is immaterial. In April 2018, Duferdofin Nucor amended and extended Facility A to mature on April 16, 2021. The maximum amount Duferdofin Nucor could borrow under Facility A was €160.0 million ($181.9 million) at June 29, 2019. As of June 29, 2019, there was €154.0 million ($175.1 million) outstanding under that facility (€155.0 million, or $178.0 million, as of December 31, 2018). 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.

NUCOR-JFE

Nucor owns a 50% economic and voting interest in Nucor-JFE Steel Mexico, S. de R.L. de C.V. (“Nucor-JFE”), a 50-50 joint venture with JFE Steel Corporation of Japan, to build and operate a galvanized sheet steel plant in central Mexico. Nucor-JFE plant construction has commenced and operations are expected to begin in the second half of 2019. Nucor accounts for the investment in Nucor-JFE (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 Nucor-JFE was $143.4 million at June 29, 2019 ($135.7 million at December 31, 2018).

On January 16, 2019, Nucor entered into an agreement to guarantee a percentage, equal to its ownership percentage (50%), of Nucor-JFE’s borrowings under the General Financing Agreement and Promissory Note (the “Facility”). The fair value of the guarantee is immaterial. Nucor’s guarantee expires on April 30, 2020. Under the Facility, the maximum amount Nucor-JFE could borrow was $65.0 million as of June 29, 2019. The Facility is uncommitted. As of June 29, 2019, there was $65.0 million outstanding under the Facility. If Nucor-JFE fails to pay when due any amounts for which it is obligated under the Facility, Nucor could be required to pay 50% of such amounts pursuant to and in accordance with the terms of its guarantee. Nucor has not recorded any liability associated with this guarantee.

ALL EQUITY INVESTMENTS

Nucor reviews its equity investments for impairment if and when circumstances indicate that a decline in fair value below their carrying amounts may have occurred. Nucor last assessed its equity investment in Duferdofin Nucor for impairment during the fourth quarter of 2017 due to the protracted challenging steel market conditions in Europe. After completing its assessment, the Company determined that the estimated fair value exceeded its carrying amount by a sufficient amount and that there was no need to record an impairment charge. The assumptions that most significantly affect the fair value determination include projected cash flows and the discount rate. It is reasonably possible that material deviation of future performance from the estimates used in our most recent valuation could result in 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 our business strategy.

7.

CURRENT LIABILITIES: Book overdrafts, included in accounts payable in the condensed consolidated balance sheets, were $181.0 million at June 29, 2019 ($89.8 million at December 31, 2018). Dividends payable, included in accrued expenses and other current liabilities in the condensed consolidated balance sheets, were $122.8 million at June 29, 2019 ($123.4 million at December 31, 2018).

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8.

FAIR VALUE MEASUREMENTS: The following table summarizes information regarding Nucor’s financial assets and financial liabilities that were measured at fair value as of June 29, 2019 and December 31, 2018 (in thousands). Nucor does not have any non-financial assets or non-financial liabilities that are measured at fair value on a recurring basis.