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2014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

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)

Registrant’s telephone number, including area code: (704) 366-7000

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

 

Title of each class

 

Name of each exchange

     on which registered     

Common stock, par value $0.40 per share   New York Stock Exchange

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

 

Large accelerated filer  x   Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller reporting company  ¨

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

Aggregate market value of common stock held by non-affiliates was approximately $16.04 billion based upon the closing sales price of the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter, July 5, 2014.

319,046,902 shares of the registrant’s common stock were outstanding at February 20, 2015.

Documents incorporated by reference include: Portions of the registrant’s 2014 Annual Report (Parts I, II and IV), and portions of the registrant’s Proxy Statement for its 2015 Annual Meeting of Stockholders (Part III) to be filed within 120 days after the registrant’s fiscal year end.


Table of Contents

Nucor Corporation

Table of Contents

 

PART I      
   Item 1.    Business    1
   Item 1A.    Risk Factors    8
   Item 1B.    Unresolved Staff Comments    13
   Item 2.    Properties    14
   Item 3.    Legal Proceedings    15
   Item 4.    Mine Safety Disclosures    15
   Executive Officers of the Registrant    15
PART II      
   Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities    17
   Item 6.    Selected Financial Data    17
   Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    17
   Item 7A.    Quantitative and Qualitative Disclosures About Market Risk    17
   Item 8.    Financial Statements and Supplementary Data    18
   Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure    19
   Item 9A.    Controls and Procedures    19
   Item 9B.    Other Information    19
PART III      
   Item 10.    Directors, Executive Officers and Corporate Governance    20
   Item 11.    Executive Compensation    20
   Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    20
   Item 13.    Certain Relationships and Related Transactions, and Director Independence    20
   Item 14.    Principal Accountant Fees and Services    20
PART IV      
   Item 15.    Exhibits and Financial Statement Schedules    21
SIGNATURES    25
Index to Financial Statement Schedule    27

 

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PART I

 

Item 1. Business

Overview

Nucor Corporation and its affiliates (“Nucor,” the “Company” or “we”) manufacture steel and steel products. The Company also produces direct reduced iron (“DRI”) for use in the Company’s steel mills. Through The David J. Joseph Company and its affiliates (“DJJ”), the Company also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (“HBI”) and DRI. Most of the Company’s operating facilities and customers are located in North America, but Nucor is doing business outside of North America as well. The Company’s operations include several international trading companies that buy and sell steel and steel products manufactured by the Company and others.

Nucor is North America’s largest recycler, using scrap steel as the primary raw material in producing steel and steel products. In 2014, we recycled approximately 19.0 million tons of scrap steel.

General Development of our Business in Recent Years

Nucor has invested significant capital in recent years to improve our cost structure and expand our product portfolios to include more value-added, higher margined offerings. Our investments total nearly $6 billion during the last six years, with approximately two-thirds going to capital expenditures and one-third going to acquisitions. The Company believes that this focus on lowering cost will enable us to execute on our strategy of delivering profitable growth and expanding our product mix and market diversity will make us less susceptible to imports.

A major emphasis of our cost improvement plan is on reducing our raw materials cost. We have a goal of controlling between six and seven million tons of annual capacity in high-quality scrap substitutes so that we can better control both the cost and reliable sourcing of these raw materials. Our 2,500,000 metric tons-per-year DRI facility in St. James Parish, Louisiana began production in December 2013. Between the DRI plant in Trinidad with an annual capacity of 2,000,000 metric tons and our new facility in Louisiana, we will be approximately two-thirds of the way towards that goal when the Louisiana facility is fully operational. Our DRI plant in St. James Parish, Louisiana produced excellent quality DRI through the first ten months of 2014. However, the plant experienced operational challenges in 2014 as it went through several outages to make changes intended to improve consistency in the production process and yield performance. In November, the plant’s process gas heater experienced a failure, leading to the immediate suspension of production operations. Due to the lead times on the specialty steel pipes that must be replaced, we estimate that the Louisiana DRI plant will be operational again late in the first quarter of 2015.

The DRI production process requires significant volumes of natural gas. To ensure the DRI plant in Louisiana has a sustained advantage from lower natural gas costs, Nucor entered into two long-term, onshore natural gas working interest drilling programs in U.S.-based proven reserves with Encana Oil & Gas (USA) Inc. (“Encana”) that allow us to better manage our exposure to natural gas pricing volatility and our overall energy demand for our operations. The natural gas produced by these two programs is sold to third parties to offset our exposure to the volatility of the price of natural gas consumed by the Louisiana DRI facility and our other operations. In December 2013, Nucor made a joint decision with Encana to temporarily suspend drilling new natural gas wells. The joint decision was made due to the then-current expectation that the natural gas pricing environment would be weak in 2014. In the fourth quarter of 2014, Nucor and Encana agreed to further suspend drilling through calendar year 2015, except for a de minimis number of wells that are necessary in order to retain leasehold rights. We believe this joint decision demonstrates the flexibility of our partnership with Encana to react to market conditions to the mutual benefit of both parties while still allowing us to better manage our exposure to natural gas pricing volatility at our operating divisions that consume natural gas.

Of the approximately $4 billion that has been spent since 2009 on capital expenditures, the main focus of that spending has been on projects that further our raw materials and value-added product diversification

 

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strategies. Within the steel mills segment, Nucor has deployed significant amounts of capital to expand our product offerings, enhance productivity and improve costs at our existing operations. At our Hertford County, North Carolina plate mill, the heat treat line became operational in 2011, which has allowed Nucor to grow its presence in higher-margin products where greater strength and abrasion resistance is required. The heat treat line allows us to improve the product mix allocation between our two plate mills and five sheet mills to improve margins at those facilities. Also at the Hertford County mill, we commissioned a vacuum tank degasser in 2012, and we began operating a normalizing line in 2013. Collectively, these investments have positioned the Hertford County mill to increase the diversity of our product offerings that are less exposed to imports. Nucor’s $290 million project at our Tennessee, Nebraska and South Carolina bar mills to expand our special bar quality (“SBQ”) and wire rod production capabilities by approximately one million tons is nearing completion. Production has begun on the new wire rod mill located in South Carolina, and our Nebraska mill successfully started up the fifth strand at its melt shop caster and its upgraded rolling mill. Our Tennessee mill added a second ladle metallurgy furnace, a fourth strand at its melt shop caster and a new quality assurance line. The SBQ projects, which we expect to be completed in 2015, will allow us to produce engineered bar for more demanding applications that are less exposed to imports while maintaining our position as a low-cost commodity bar producer by shifting production to our other bar mills. In 2014, our Berkeley County, South Carolina mill successfully started up its nearly $100 million capital project that allows us to produce wider and thinner high-strength steel grades that can be used in lightweight automotive applications.

Nucor’s steel mills segment has also grown significantly in recent years through the acquisitions of Gallatin Steel Company (“Gallatin”) and Skyline Steel LLC (“Skyline”). Nucor acquired Gallatin in 2014 for a cash purchase price of $779 million. 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 broadens Nucor’s product offerings in the pipe and tube market. The acquisition of Skyline in 2012 for $675 million was an important strategic investment as it paired Skyline’s leadership position in the steel piling distribution market with our Nucor-Yamato Steel Company (“Nucor-Yamato”) joint venture’s position as the market leader in steel piling manufacturing. To build upon the synergies in the piling market serviced by Skyline, Nucor-Yamato has invested $115 million in a project to broaden its range of hot-rolled piling products. Completed in the second half of 2014, this project added several new sheet piling sections, which expanded our product offerings to include wider piling sections that are lighter and stronger, covering more area at a lower installed cost.

Segments

Nucor reports its results in three segments: steel mills, steel products and raw materials. Net sales to external customers, intercompany sales, depreciation expense, amortization expense, earnings before income taxes and noncontrolling interests, assets and capital expenditures by segment for each of the three fiscal years in the three-year period ended December 31, 2014 are set forth in Note 23 of the Notes to Consolidated Financial Statements included in Nucor’s 2014 Annual Report, which is incorporated by reference. The steel mills are Nucor’s largest segment, representing approximately 70% of the Company’s sales to external customers in the fiscal year ended December 31, 2014.

Principal Products Produced

In the steel mills segment, Nucor produces and distributes sheet steel (hot-rolled, cold-rolled and galvanized), plate steel, structural steel (wide-flange beams, beam blanks, H-piling and sheet piling) and bar steel (blooms, billets, concrete reinforcing bar, merchant bar, wire rod and SBQ). Nucor manufactures steel principally from scrap steel and scrap steel substitutes using electric arc furnaces, continuous casting and automated rolling mills. Nucor’s equity method investments in Duferdofin Nucor S.r.l. and NuMit LLC are included in the steel mills segment. Also included in the steel mills segment are our distribution and international trading companies that buy and sell steel and steel products that Nucor and other steel producers have manufactured. In the steel products segment, Nucor produces steel joists and joist girders, steel deck, fabricated concrete reinforcing steel,

 

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cold finished steel, steel fasteners, metal building systems, steel grating and expanded metal, and wire and wire mesh. In the raw materials segment, the Company produces DRI; brokers ferrous and nonferrous metals, pig iron, HBI and DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap metal. The raw materials segment also includes our natural gas working interest drilling programs with Encana and Nucor’s equity method investment in Hunter Ridge Energy Services LLC.

Markets and Marketing

The steel mills segment sells its products primarily to steel service centers, fabricators and manufacturers located throughout the United States, Canada, Mexico and elsewhere in the world. Nucor produces hot-rolled, cold-rolled and galvanized sheet steel in standard grades and to customers’ specifications while maintaining inventories to fulfill anticipated orders. We estimate that approximately 50% of our sheet steel sales in 2014 were to contract customers. The balance of our sheet steel sales was made in the spot market at prevailing prices at the time of sale. The proportion of tons sold to contract customers at any given time depends on a variety of factors, including our consideration of current and future market conditions, our strategy to appropriately balance spot and contract tons to maximize profitability, our desire to sustain a diversified customer base, and our end-use customers’ perceptions about future market conditions. These sheet sales contracts permit price adjustments to reflect changes in the current market-based indices and/or raw material costs near the time of shipment. These sheet sales contracts typically have terms ranging from six to twelve months. Steel contract sales outside of our sheet operations are not significant.

Our plate, structural, reinforcing and merchant bar steel come in standard sizes and grades, which allows us to maintain inventory levels of these products to meet our customers’ expected orders. In addition, our bar mill group manufactures hot-rolled SBQ products to exacting specifications primarily servicing the automotive, energy, agricultural, heavy equipment and transportation sectors. Almost all of our plate, structural, rebar, merchant bar and SBQ steel sales occur in the spot market at prevailing market prices.

In 2014, approximately 85% of the shipments made by our steel mills segment were to external customers. The balance of the steel mills segment’s shipments went to our piling distributor and our downstream joist, deck, rebar fabrication, fastener, metal buildings and cold finish operations.

In the steel products segment, we sell steel joists and joist girders, and steel deck to general contractors and fabricators located throughout the United States and Canada. We make these products to the customers’ specifications and do not maintain inventories of these finished steel products. The majority of these contracts are firm, fixed-price contracts that are in most cases competitively bid against other suppliers. Longer-term supply contracts may or may not permit us to adjust our prices to reflect changes in prevailing raw materials costs. We sell and install fabricated reinforcing products only on a construction contract bid basis. These products are used by contractors in constructing highways, bridges, reservoirs, utilities, hospitals, schools, airports, stadiums and high-rise buildings. We manufacture cold finished steel, steel fasteners, steel grating, wire and wire mesh in standard sizes and maintain inventories of these products to fulfill anticipated orders. We sell cold finished steel and steel fasteners primarily to distributors and manufacturers located throughout the United States and Canada.

We market products from the steel mills and steel products segments mainly through in-house sales forces. We also utilize our internal distribution and trading companies to market our products abroad. The markets for these products are largely tied to capital and durable goods spending and are affected by changes in general economic conditions.

In the raw materials segment, we process ferrous and nonferrous scrap metal for use in our steel mills and for sale to various domestic and international external customers. We also broker ferrous and nonferrous metals and scrap substitutes, supply ferro-alloys, and provide transportation, material handling and other services to users of scrap metals. Our primary external customers for ferrous scrap are electric arc furnace steel mills and foundries that use ferrous scrap as a raw material in their manufacturing process. External customers purchasing nonferrous scrap metal include aluminum can producers, secondary aluminum smelters, steel mills and other

 

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processors and consumers of various nonferrous metals. We market scrap metal products and related services to our external customers through in-house sales forces. In 2014, approximately 14% of the ferrous and nonferrous metals and scrap substitutes tons we processed were sold to external customers. We used the balance in our steel mills.

Also within the raw materials segment are our DRI plants in Trinidad and Louisiana that produce iron inputs exclusively for use in the Nucor mills, as well as our natural gas working interest drilling programs. All natural gas produced by the working interest drilling programs is and will be sold to outside parties, and as a result the revenues from these sales are a small but increasing amount of our revenues.

Backlog

In the steel mills segment, Nucor’s backlog of orders was approximately $1.56 billion and $1.77 billion at December 31, 2014 and 2013, respectively. Order backlog for the steel mills segment includes only orders from external customers and excludes orders from our downstream businesses. Nucor’s backlog of orders in the steel products segment was approximately $1.49 billion and $1.27 billion at December 31, 2014 and 2013, respectively. The majority of these orders will be filled within one year. Order backlog within our raw materials segment is not significant because the majority of the raw materials that segment produces are used internally.

Sources and Availability of Raw Materials

The primary raw materials for our steel mills segment are ferrous scrap and scrap substitutes such as pig iron, DRI and HBI. On average, it takes approximately 1.1 tons of scrap and scrap substitutes to produce a ton of steel. As of December 31, 2014, DJJ operated over 70 scrap recycling facilities, and our annual scrap processing capability exceeded five million tons. DJJ acquires ferrous scrap from numerous sources including manufacturers of products made from steel, industrial plants, scrap dealers, peddlers, auto wreckers and demolition firms. We purchase pig iron as needed from a variety of sources and operate DRI plants in Trinidad and Louisiana with respective capacities of 2,000,000 and 2,500,000 metric tons annually. The primary raw material for our DRI facilities is iron ore, which we purchase from various international suppliers. Our newly constructed Louisiana DRI facility is the first phase of a multi-phase site development plan opportunity in Louisiana.

In 2010, Nucor entered into an agreement with Encana that involves drilling and completing onshore natural gas wells in U.S.-based proven reserves over an approximate seven-year period that began in June 2010. Nucor entered into a second and more extensive drilling agreement with Encana in late 2012 that is projected to span more than 20 years. Natural gas produced by these working interest drilling programs is being sold to offset our exposure to the volatility of the price of natural gas consumed by our Louisiana DRI facility and our other operations. In December 2013, Nucor and Encana announced an agreement to temporarily suspend drilling new natural gas wells due to the then-current expectations that the natural gas pricing environment would be weak in 2014. In the fourth quarter of 2014, Nucor and Encana agreed to extend our drilling suspension through the end of 2015. The 2015 capital expenditures for drilling will consist of drilling a de minimis number of wells required to maintain leasehold rights. Under the agreement with Encana, Nucor maintains the right to resume drilling at any point should natural gas prices change. In addition to our natural gas needs at the Louisiana DRI facility, Nucor is also a substantial consumer of natural gas at our steel mill operations. The drilling of natural gas wells under the two agreements is expected to be sufficient in the future to cover Nucor’s demand at all of its steel mills in the United States plus the demand of two DRI plants or, alternatively, at three DRI plants, if additional capacity were to be added.

The primary raw material for our steel products segment is steel produced by Nucor’s steel mills.

DJJ generally purchases ferrous and nonferrous scrap for sale to external customers from the same variety of sources it purchases ferrous scrap for use as a raw material in Nucor’s steel mills. DJJ does not purchase a significant amount of scrap metal from a single source or from a limited number of major sources. The

 

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availability and price of ferrous scrap are affected by changes in the global supply and demand for steel and steel products. Ferrous scrap and scrap substitutes are our single largest cost of products sold. A key part of our business strategy is to control a significant portion of the supply of high quality metallics needed to operate our steel mills.

Energy Consumption and Costs

Our steel mills are large consumers of electricity and natural gas. Our DRI facilities in Trinidad and Louisiana are also large consumers of natural gas. Consequently, we use a variety of strategies to manage our exposure to price risk of natural gas, including cash flow hedges and our natural gas working interest drilling programs.

Historically, manufacturers in the United States have benefited from relatively stable and competitive energy costs that have allowed them to compete on an equal footing in the increasingly global marketplace. The availability and prices of electricity and natural gas are influenced today, however, by many factors including changes in supply and demand, advances in drilling technology and, increasingly, changes in public policy relating to energy production and use. Because energy is such a significant cost of products sold for Nucor, we strive continually to make our operations in all three of our business segments more energy efficient. We also closely monitor developments in public policy relating to energy production and consumption. When appropriate, we work to shape those developments in ways that we believe will allow us to continue to be a competitive producer of steel and steel products in an increasingly competitive global marketplace.

Competition

We compete in a variety of steel and metal markets, including markets for finished steel products, unfinished steel products and raw materials. These markets are highly competitive with many domestic and foreign firms participating, and, as a result of this highly competitive environment, we find that we primarily compete on price and service.

Our electric arc furnace steel mills face many different forms of competition, including integrated steel producers (who use iron ore converted into liquid form in a blast furnace as their basic raw material instead of scrap steel), other electric arc furnace mills, foreign imports and alternative materials. Large integrated steel producers have the ability to manufacture a wide variety of products but face significantly higher energy costs and are often burdened with higher capital and fixed operating costs. Electric arc furnace mill producers such as Nucor are sensitive to increases in scrap prices but tend to have lower capital and fixed operating costs compared with integrated steel producers.

Overproduction in global steelmaking capacity continues to be a significant challenge for Nucor and the entire U.S. steel industry. With the U.S. economy performing better than most other economies around the world, the U.S. steel market is the destination of choice for global steel producers. In 2014, total steel imports increased 38% compared with 2013, and imports of finished and semi-finished steel products accounted for 34% of U.S. market share last year. Imports increased from nearly every steel-producing country and in virtually every category of steel products. These imports, which are sometimes artificially-priced, make it very difficult for Nucor to maintain sales prices and profit levels.

Competition from foreign steel and steel product producers presents unique challenges for us. Imported steel and steel products often benefit from government subsidies, either directly or indirectly through government-owned enterprises or government-owned or controlled financial institutions. China, which accounts for almost half of the steel produced annually in the world, is the prime example of how foreign governments impact the global steel market. Nucor believes that Chinese producers, many of which are government-owned in whole or in part, benefit from their government’s manipulation of foreign currency exchange rates and from the receipt of government subsidies, which allow them to sell their products below cost. Other foreign governments utilize similar tactics to artificially lower their steel production costs. These distorting trade practices are widely

 

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recognized as being unfair and have been challenged successfully as violating world trade rules. The U.S. government recently completed several successful trade enforcement actions, including terminating its suspension agreement with Russia for hot-rolled steel imports; assessing duties on oil country tubular goods from South Korea and five other countries; and ruling that the domestic rebar industry has been materially injured as a result of dumped and subsidized rebar imports from Turkey and Mexico.

Aggressive trade practices, left unchallenged, seriously undermine the ability of Nucor and other domestic producers to compete on price. Competition from countries with subsidized production costs has significantly contributed to the exodus of manufacturing jobs from the United States. When such an exodus occurs, the U.S. economy is weakened and Nucor’s customer base is diminished. Rigorous trade law enforcement is critical to our ability to maintain our competitive position against foreign producers that engage in unlawful trade practices. Nucor has been active in calling on policymakers to enforce global trade agreements.

We also experience competition from other materials. Depending on our customers’ end use of our products, there are sometimes other materials, such as concrete, aluminum, plastics, composites and wood that compete with our steel products. When the price of steel relative to other raw materials rises, these alternatives become more attractive to our customers.

Competition in our scrap and raw materials business is also vigorous. The scrap metals market consists of many firms and is highly fragmented. Firms typically compete on price and geographic proximity to the sources of scrap metal.

Environmental Laws and Regulations

Our business operations are subject to numerous federal, state and local laws and regulations intended to protect the environment. The principal federal environmental laws include the Clean Air Act (“CAA”) that regulates air emissions; the Clean Water Act (“CWA”) that regulates water discharges; the Resource Conservation and Recovery Act (“RCRA”) that addresses solid and hazardous waste treatment, storage and disposal; and the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) that governs releases of, and remediation of, sites contaminated by hazardous substances. Our operations are also subject to state laws and regulations that are patterned on these and other federal laws.

We believe that we are in substantial compliance with the provisions of all federal and state environmental laws and regulations applicable to our business operations. However, both federal and state laws and regulations are becoming increasingly stringent, making compliance with them increasingly expensive and burdensome. In many instances the total costs of compliance are not readily quantifiable because compliance is so engrained in our operating philosophy that these costs are simply considered part of our standard operating procedures.

The United States Environmental Protection Agency (“USEPA”) has proposed or promulgated many new national ambient air quality standards and toxic air emissions rules for which it has recently or not yet issued guidance or compliance deadlines. While we begin immediately to plan for compliance with such standards and rules, we cannot fully assess their impact on our operations until the guidance has been fully developed or issued and compliance deadlines have been established. In other cases where environmental regulations are proposed or promulgated that may regulate previously unregulated aspects of our operations, it is impossible for us to fully determine the impact of these regulations until protracted legal challenges have been concluded and USEPA or other regulatory agencies have developed and issued technical guidance. Despite this atmosphere of regulatory uncertainty, at this time we do not believe that compliance with these new environmental regulations will have a material adverse effect on our results of operations, cash flows or financial condition.

The CAA imposes stringent limits on air emissions with a federally mandated operating permit program administered by the states with civil and criminal enforcement sanctions. Each of our steel mills is required to operate in compliance with its permit or potentially incur sanctions for failing to do so. Because of the size of our steelmaking operations, they are subject to new “Greenhouse Gasses” (“GHGs”) regulations and are required to

 

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do GHG Best Available Control Technology (“BACT”) evaluations when their permits are modified. There is still uncertainty and very little guidance from USEPA as to what is or may be considered GHG BACT for steelmaking operations. Our operations are currently properly permitted, and we will not need to make these determinations unless and until these permits are modified. Based on current guidance, we do not expect these requirements to have a material adverse effect on our results of operations, cash flows or financial condition.

Nucor uses electric arc furnaces (“EAF”) to recycle scrap metal into new steel products. These EAFs use electricity as their primary source of energy. As the new GHG regulations, air toxics rules and new emissions standards recently imposed on electric utilities are fully implemented it is reasonable to expect that the cost of electricity produced by these utilities will increase. See Item 1A “Risk Factors” for more information about the potential impact of GHG regulations on Nucor’s business.

The CWA regulates water discharges and withdrawals. Nucor maintains discharge and withdrawal permits as appropriate at its facilities under the national pollutant discharge elimination system program of the CWA and conducts its operations in compliance with those permits. Nucor also maintains permits from local governments for the discharge of water into publicly owned treatment works where available.

RCRA establishes standards for the management of solid and hazardous wastes. RCRA also addresses the environmental impact of contamination from waste disposal activities and from recycling of and storage of most wastes. While Nucor believes it is in substantial compliance with these regulations, past waste disposal activities that were legal when conducted but now may pose a contamination threat are periodically discovered. These and off-site properties that USEPA has determined are contaminated, for which Nucor may be potentially responsible at some level, are quickly evaluated and corrected. While Nucor has conducted and is in the final stages of completing some cleanups under RCRA, these liabilities either are identified already and being resolved or have been fully resolved.

Because Nucor long ago implemented environmental practices that have resulted in the responsible disposal of waste materials, Nucor is also not presently considered a major contributor to any major cleanups under CERCLA for which Nucor has been named a potentially responsible party. Nucor continually evaluates these types of potential liabilities and, if appropriate, maintains reserves sufficient to remediate the identified liabilities. Under RCRA, private citizens may also bring an action against the operator of a regulated facility for potential damages and payment of cleanup costs. Nucor is confident that its system of internal evaluation and due diligence has sufficiently identified these types of potential liabilities so that compliance with these regulations will not have a material adverse effect on our results of operations, cash flows or financial condition beyond that already reflected in the reserves established for them.

The primary raw material of Nucor’s steelmaking operations is scrap metal. The process of recycling scrap metal brings with it many contaminants such as paint, zinc, chrome and other metals that produce air emissions which are captured in specialized emission control equipment. This filtrant (EAF dust) is classified as a listed hazardous waste under the RCRA. Because these contaminants contain valuable metals, this filtrant is recycled to recover those metals. Nucor sends all but a small fraction of the EAF dust it produces to recycling facilities that recover the zinc, lead, chrome and other valuable metals from this dust. By recycling this material, Nucor is not only acting in a sustainable, responsible manner but is also substantially limiting its potential for future liability under both CERCLA and RCRA.

Nucor operates an aggressive and sustainable environmental program that incorporates the concept of individual employee as well as management responsibility for environmental performance. All of Nucor’s steelmaking operations are ISO 14001 certified. Achieving ISO 14001 certification means that each of Nucor’s steel mills has put an environmental management system in place with measurable targets and objectives, such as reducing the use of oil and grease and minimizing electricity use, and has implemented site-wide recycling programs. These environmental management systems make environmental commitment each Nucor teammate’s responsibility. Nucor’s environmental program maintains a high level of training, commitment, outreach and visibility.

 

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Capital expenditures at our facilities that are associated with environmental regulation compliance for 2015 and 2016 are estimated to be less than $100 million per year.

Employees

Nucor has a simple, streamlined organizational structure to allow our employees to make quick decisions and to innovate. Our organization is highly decentralized, with most day-to-day operating decisions made by our division general managers and their staff. We have slightly more than 100 employees in our executive office. The vast majority of Nucor’s 23,600 employees are not represented by labor unions.

Available Information

Nucor’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, are available on our website at www.nucor.com, as soon as reasonably practicable after Nucor files these reports electronically with, or furnishes them to, the Securities and Exchange Commission (“SEC”). Except as otherwise stated in these reports, the information contained on our website or available by hyperlink from our website is not incorporated into this Annual Report on Form 10-K or other documents we file with, or furnish to, the SEC.

 

Item 1A. Risk Factors

Many of the factors that affect our business and operations involve risk and uncertainty. The factors described below are some of the risks that could materially negatively affect our business, financial condition and results of operations.

Our industry is cyclical and both recessions and prolonged periods of slow economic growth could have an adverse effect on our business.

Demand for most of our products is cyclical in nature and sensitive to general economic conditions. Our business supports cyclical industries such as the commercial construction, energy, metals service centers, appliance and automotive industries. As a result, downturns in the United States economy or any of these industries could materially adversely affect our results of operations, financial condition and cash flows. Five years removed from the worst recession the United States has experienced in decades, we have begun to see some improvement in general economic and manufacturing activity. However, the slow pace of recovery, coupled with ongoing uncertainties in Europe and other regions of the world, continue to weigh on global and domestic growth. These situations continue to contribute to weaker end-markets and depressed demand, resulting in extraordinary volatility in our financial results.

Although we experienced increased profitability in 2014 from the previous year, the economic outlook remains uncertain both in the United States and globally. While we believe that the long-term prospects for the steel industry remain bright, we are unable to predict the duration of the current economic conditions that are contributing to reduced demand for our products compared to pre-recession levels. Future economic downturns or a prolonged slow-growth or stagnant economy could materially adversely affect our business, results of operations, financial condition and cash flows.

Overcapacity in the global steel industry could increase the level of steel imports, which may negatively affect our business, results of operations and cash flows.

Global steelmaking capacity exceeds global consumption of steel products. During periods of global economic weakness this overcapacity is amplified because of weaker global demand. This excess capacity often results in manufacturers in certain countries exporting significant amounts of steel and steel products at prices that are at or below their costs of production. In some countries the steel industry is subsidized or owned in whole or in part by the government, giving imported steel from those countries certain cost advantages. These imports, which are also affected by demand in the domestic market, international currency conversion rates and

 

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domestic and international government actions, can result in downward pressure on steel prices, which could materially adversely affect our business, results of operations, financial condition and cash flows. Overcapacity has also led to greater protectionism as is evident in raw material and finished product border tariffs put in place by China, Brazil and other countries.

In particular, steel production in China, the world’s largest producer and consumer of steel, continues to exceed Chinese demand. This rising overcapacity in China has resulted in a further increase in imports of artificially low-priced steel and steel products to the United States and world steel markets. Steel and steel products which would otherwise have been consumed by the local steel customers could then be displaced into global markets, putting our steel and steel products at a competitive disadvantage. A continuation of this unbalanced growth trend or a significant decrease in China’s rate of economic expansion could result in increasing steel exports from China.

Producers in the world steel market could pursue additional export opportunities as a result of the current abundance of ocean freight capacity and lower fuel costs. However, the domestic steel market could experience a contraction in exports at the same time as imports grow due to weakening conditions in Europe and policies of foreign governments that result in overvaluing the U.S. dollar against other foreign currencies. Furthermore, the planned addition of new capacity in the United States could exacerbate the issue of overcapacity domestically as well as globally.

Competition from other producers, imports or alternative materials may adversely affect our business.

We face strong competition from other steel producers and imports that compete with our products on price and service. The steel markets are highly competitive and a number of firms, domestic and foreign, participate in the steel and raw materials markets. Depending on a variety of factors, including raw materials cost and availability, energy, technology, labor and capital costs, government control of currency exchange rates and government subsidies of foreign steel producers, our business may be materially adversely affected by competitive forces.

In many applications, steel competes with other materials, such as concrete, aluminum, composites, plastic and wood. Increased use of these materials in substitution for steel products could have a material adverse effect on prices and demand for our steel products.

Since 2011, automobile producers have begun taking steps towards complying with new Corporate Average Fuel Economy mileage requirements for new cars and light trucks that they produce. As automobile producers work to produce vehicles in compliance with these new standards, they may reduce the amount of steel or begin utilizing alternative materials in cars and trucks to improve fuel economy, thereby reducing demand for steel and resulting in further over-supply of steel in North America. Certain automakers have begun to use greater amounts of aluminum and smaller proportions of steel in some 2015 and 2016 models.

The results of our operations are sensitive to volatility in steel prices and the cost of raw materials, particularly scrap steel.

We rely to an extent on outside vendors to supply us with raw materials, including both scrap and scrap substitutes that are critical to the manufacture of our products. Although we have further vertically integrated our business by constructing our DRI facilities in Trinidad and Louisiana and also acquiring DJJ, we still must purchase most of our primary raw material, steel scrap, from numerous other sources located throughout the United States. Although we believe that the supply of scrap and scrap substitutes is adequate to operate our facilities, prices of these critical raw materials are volatile and are influenced by changes in scrap exports in response to changes in the scrap demands of our global competitors. At any given time, we may be unable to obtain an adequate supply of these critical raw materials with price and other terms acceptable to us. The availability and prices of raw materials may also be negatively affected by new laws and regulations, allocation by suppliers, interruptions in production, accidents or natural disasters, changes in exchange rates, worldwide price fluctuations, and the availability and cost of transportation. Many countries that export steel into our

 

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markets restrict the export of scrap, protecting the supply chain of some foreign competitors. This trade practice creates an artificial competitive advantage for foreign producers that could limit our ability to compete in the U.S. market.

If our suppliers increase the prices of our critical raw materials, we may not have alternative sources of supply. In addition, to the extent that we have quoted prices to our customers and accepted customer orders for our products prior to purchasing necessary raw materials, we may be unable to raise the price of our products to cover all or part of the increased cost of the raw materials. Also, if we are unable to obtain adequate and timely deliveries of our required raw materials, we may be unable to timely manufacture sufficient quantities of our products. This could cause us to lose sales, incur additional costs and suffer harm to our reputation.

Changes in the availability and cost of electricity and natural gas are subject to volatile market conditions that could adversely affect our business.

Our steel mills are large consumers of electricity and natural gas. In addition, our DRI facilities are also large consumers of natural gas. We rely upon third parties for our supply of energy resources consumed in the manufacture of our products. The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by weather, political and economic factors beyond our control, and we may be unable to raise the price of our products to cover increased energy costs. Disruptions in the supply of our energy resources could temporarily impair our ability to manufacture our products for our customers. Increases in our energy costs resulting from regulations that are not equally applicable across the entire global steel market could materially adversely affect our business, results of operations, financial condition and cash flows.

A substantial or extended decline in natural gas prices could have a material adverse effect on our natural gas working interest drilling programs.

The financial performance and condition of our natural gas working interest drilling programs are substantially dependent on the prevailing prices of natural gas and liquids. Fluctuations in natural gas or liquids prices could have an adverse effect on the Company’s natural gas operations and financial condition and the value and recovery of its reserves in the working interest drilling programs. Prices for natural gas and liquids fluctuate in response to changes in the supply and demand for natural gas and oil, market uncertainty and a variety of additional factors beyond the Company’s control. A substantial or extended decline in the price of natural gas could result in further delay or cancellation of existing or future drilling programs or curtailment in production at some properties, all of which could have an adverse effect on the Company’s revenues, profitability and cash flows.

Our steelmaking processes, DRI processes, and the manufacturing processes of many of our suppliers, customers and competitors are energy intensive and generate carbon dioxide and other GHGs. The regulation of these GHGs through new regulations or legislation in an onerous form could have a material adverse impact on our results of operations, financial condition and cash flows.

Carbon is an essential raw material in Nucor’s production processes. As a carbon steel producer, Nucor will be increasingly affected both directly and indirectly if GHG regulations are further implemented. Because our operations are subject to most of these new GHG regulations, we have already begun to feel the impact in the permit modification and reporting processes. Both GHG regulations and recently promulgated National Ambient Air Quality Standards (“NAAQS”), which are more restrictive than previous standards, make it significantly more difficult to obtain new permits and to modify existing permits.

These same regulations have indirectly increased the costs to manufacture our products as they have and continue to increase the cost of energy, primarily electricity, which we use extensively in the steelmaking process. The discovery of new natural gas reserves utilizing the practice of horizontal drilling and hydraulic fracturing is dampening some of this indirect impact, as some utilities switch fuels to natural gas from coal

 

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thereby reducing their emissions significantly. However, because some generating facilities when faced with new regulations are idling facilities instead of converting to natural gas, the resulting reduction in capacity can and will create further pressure on electrical energy prices. To the extent that these regulations cause either directly or indirectly an increase in the cost of energy, they will have an impact on Nucor’s ability to compete.

The USEPA continues to press forward with new regulations that control GHG and other NAAQS pollutants. Court challenges regarding many of these regulations have diminished to some extent their impact on various operations. Nucor operations have not, however, experienced any relief from these legal actions. Further court challenges to some of the NAAQS revisions may affect our operations, but the impact is likely to be minimal. Because some foreign steel producers are not subject to these same indirect and direct regulatory burdens and their associated cost increases, our products could be at a further competitive disadvantage. In addition to increased costs of production, we could also incur costs to defend and resolve legal claims and other litigation related to new air and water quality regulations and the alleged impact of our operations on the environment.

Environmental compliance and remediation could result in substantially increased costs and materially adversely impact our competitive position.

Our operations are subject to numerous federal, state and local laws and regulations relating to protection of the environment, and we accordingly, make provision in our financial statements for the estimated costs of compliance. These laws are becoming increasingly stringent, resulting in inherent uncertainties in these estimates. To the extent that competitors, particularly foreign steel producers and manufacturers of competitive products, are not subject to similar regulation and required to incur equivalent costs, our competitive position could be materially adversely impacted. If one of our permits is revoked or if we were to experience significant delays in obtaining a permit modification or a new permit, this could result in operational delays at one or more of our facilities, causing a negative impact on our results of operations and cash flows.

Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

Various legislative efforts, at all levels, are in process that are intended to further regulate the hydraulic fracturing process used by the oil and gas industry. Hydraulic fracturing is an important and commonly used process in the completion of natural gas wells in shale and tight sand formations, including all of those in our natural gas working interest drilling programs. This process involves the injection of water, chemicals and, at times, sand under pressure into rock formations to stimulate the release of natural gas, oil and natural gas liquids. Sponsors of these proposals and regulations have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies and/or that hydraulic fracturing could pose a variety of other risks. The practitioners of fracking are adamant that these claims are false and to date the USEPA has not attempted to further regulate the practice. Any onerous governmental regulations could lead to operational delays, increased operating costs that could make it more difficult to perform hydraulic fracturing and possibly even the cessation of drilling.

We acquire businesses from time to time and we may encounter difficulties in integrating businesses we acquire.

We plan to continue to seek attractive opportunities to acquire businesses, enter into joint ventures and make other investments that strengthen Nucor. Realizing the anticipated benefits of acquisitions or other transactions will depend on our ability to operate these businesses and integrate them with our operations and to cooperate with our strategic partners. Our business, results of operations, financial condition and cash flows could be materially adversely affected if we are unable to successfully integrate these businesses.

 

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Our operations are subject to business interruptions and casualty losses.

The steelmaking business is subject to numerous inherent risks, particularly unplanned events such as explosions, fires, other accidents, natural disasters such as floods or earthquakes, unplanned critical equipment failures, acts of terrorism, inclement weather and transportation interruptions. While our insurance coverage could offset losses relating to some of those types of events, our results of operations and cash flows could be adversely impacted to the extent any such losses are not covered by our insurance.

We are subject to information technology and cyber security threats which could have an adverse effect on our business.

We utilize various information technology systems to efficiently address business functions ranging from the operation of our production equipment to administrative computation to the storage of data such as intellectual property and proprietary business information. Despite efforts to assure secure and uninterrupted operations, threats from increasingly sophisticated cyber-attacks or system failures could result in materially adverse operational disruptions or security breaches. While decentralization tends to compartmentalize exposure, these risks could result in disclosure or destruction of key proprietary information and reputational damage that could adversely affect our results of operations.

Our business requires substantial capital investment and maintenance expenditures, and our capital resources may not be adequate to provide for all of our cash requirements.

Our operations are capital intensive. For the five-year period ended December 31, 2014, our total capital expenditures, excluding acquisitions, were approximately $3.61 billion. Our business also requires substantial expenditures for routine maintenance. Although we expect requirements for our business needs, including the funding of capital expenditures, debt service for financings and any contingencies, will be financed by internally generated funds or from borrowings under our $1.5 billion unsecured revolving credit facility, we cannot assure you that this will be the case. Additional acquisitions or unforeseen events could require financing from additional sources.

Risks associated with operating in international markets could adversely affect our business, financial position and results of operations.

Certain of our businesses are located outside of the United States, in Europe and in emerging markets. There are a number of risks inherent in doing business in such markets. These include but are not limited to: unfavorable political or economic factors; local labor and social issues; changes in regulatory requirements; fluctuations in foreign currency exchange rates; and complex foreign laws, treaties including tax laws and the United States Foreign Corrupt Practices Act of 1977. These risks could restrict our ability to operate our international businesses profitably and therefore have a negative impact on our financial position and results of operations. In addition, our reported results of operations and financial position could also be negatively affected by exchange rates when the activities and balances of our foreign operations are translated into U.S. dollars for financial reporting purposes.

The accounting treatment of equity method investments, goodwill and other long-lived assets could result in future asset impairments, which would reduce our earnings.

We periodically test our equity method investments, goodwill and other long-lived assets to determine whether their estimated fair value is less than their value recorded on our balance sheet. The results of this testing for potential impairment may be adversely affected by the continuing uncertain market conditions for the steel industry, as well as changes in interest rates and general economic conditions. If we determine that the fair value of any of these assets is less than the value recorded on our balance sheet, and in the case of equity method investments the decline is other than temporary, we would likely incur a non-cash impairment loss that would negatively impact our results of operations.

 

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Tax increases and changes in tax rules could adversely affect our financial results.

The steel industry and our business are sensitive to changes in taxes. As a company based in the U.S., Nucor is more exposed to the effects of changes in U.S. tax laws than some of our major competitors. Our provision for income taxes and cash tax liability in the future could be adversely affected by changes in U.S. tax laws. Potential changes that would adversely affect us include, but are not limited to, current proposals for corporate tax reform which would lower tax rates and eliminate most tax deductions [repealing LIFO (last-in, first-out treatment of inventory), accelerated depreciation, and the domestic production activity deduction] and decrease the ability of U.S. companies to receive a tax credit for foreign taxes paid or to defer the U.S. deduction of expenses in connection with investments made in other countries.

We are subject to legal proceedings and legal compliance risks.

We spend substantial resources ensuring that we comply with domestic and foreign regulations, contractual obligations and other legal standards. Notwithstanding this, we are subject to a variety of legal proceedings and compliance risks in respect of various issues, including regulatory, safety, environmental, employment, transportation, intellectual property, contractual, import/export, international trade and governmental matters that arise in the course of our business and in our industry. For information regarding our current significant legal proceedings, see Item 3. “Legal Proceedings.” A negative outcome in an unusual or significant legal proceeding or compliance investigation could adversely affect our financial condition and results of operations. While we believe that we have adopted appropriate risk management and compliance programs, the nature of our operations means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time.

 

Item 1B. Unresolved Staff Comments

None.

 

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Item 2. Properties

We own all of our principal operating facilities. These facilities, by segment, are as follows:

 

Location

   Approximate
square footage
of facilities
    

Principal products

Steel mills:

     

Blytheville, Arkansas

     2,560,000       Steel shapes, flat-rolled steel

Berkeley County, South Carolina

     2,180,000       Flat-rolled steel, steel shapes

Decatur, Alabama

     2,000,000       Flat-rolled steel

Crawfordsville, Indiana

     1,900,000       Flat-rolled steel

Norfolk, Nebraska

     1,480,000       Steel shapes

Hickman, Arkansas

     1,450,000       Flat-rolled steel

Hertford County, North Carolina

     1,220,000       Steel plate

Plymouth, Utah

     1,200,000       Steel shapes

Jewett, Texas

     1,080,000       Steel shapes

Darlington, South Carolina

     980,000       Steel shapes

Seattle, Washington

     640,000       Steel shapes

Memphis, Tennessee

     570,000       Steel shapes

Ghent, Kentucky

     560,000       Flat-rolled steel

Auburn, New York

     450,000       Steel shapes

Marion, Ohio

     440,000       Steel shapes

Kankakee, Illinois

     430,000       Steel shapes

Jackson, Mississippi

     420,000       Steel shapes

Kingman, Arizona

     380,000       Steel shapes

Tuscaloosa, Alabama

     370,000       Steel plate

Birmingham, Alabama

     280,000       Steel shapes

Wallingford, Connecticut

     260,000       Steel shapes

Steel products:

     

Norfolk, Nebraska

     1,080,000       Joists, deck, cold finished bar

Brigham City, Utah

     730,000       Joists, cold finished bar

Grapeland, Texas

     680,000       Joists, deck

St. Joe, Indiana

     550,000       Joists, deck

Chemung, New York

     550,000       Joists, deck

Florence, South Carolina

     540,000       Joists, deck

St. Joe, Indiana

     530,000       Fasteners

Fort Payne, Alabama

     470,000       Joists, deck

The steel mills segment also includes Skyline, our steel foundation distributor with U.S. manufacturing facilities in eight states and one facility in Canada, the majority of which are owned. Additionally, we have a distribution center in Pompano Beach, Florida and in Mexico.

In the steel products segment, we have 79 additional operating facilities in 36 states and 28 operating facilities in Canada. Our affiliate, Harris Steel Inc., also operates multiple sales offices in Canada and certain other foreign locations.

In the raw materials segment, DJJ has 78 operating facilities in 16 states along with multiple brokerage offices in the U.S. and certain other foreign locations. Nucor’s raw materials segment also includes our DRI facilities. Nucor has DRI facilities in Point Lisas, Trinidad and St. James Parish, Louisiana. A significant portion of the DRI production process occurs outdoors. The Trinidad site, including leased land, is approximately 1.84 million square feet. The Louisiana site, which began operations in December 2013, has approximately 174.2 million square feet of owned land with buildings that total approximately 72,000 square feet.

 

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During 2014, the average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 78%, 64% and 63% of production capacity, respectively.

We also own our principal executive office in Charlotte, North Carolina.

 

Item 3. Legal Proceedings

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. Five of the eight defendants have reached court approved settlements with the plaintiffs. Although we believe the plaintiffs’ claims are without merit and will vigorously defend against them, we cannot at this time predict the outcome of this litigation or estimate the range of Nucor’s potential exposure. Nucor has not recorded any reserves or contingencies related to this legal matter.

On April 19, 2012, MM Steel LP filed an action against Nucor and its co-defendants in the U.S. District Court for the Southern District of Texas and has asserted violations of federal antitrust law. On March 25, 2014, the jury returned a verdict of $52.0 million in damages against all defendants jointly and severally, which amount was subject to trebling under the federal antitrust laws. On June 1, 2014, the court awarded a judgment jointly and severally against the defendants totaling $160.8 million after trebling and including costs and attorneys’ fees. Although the Company has filed an appeal with the U.S. Court of Appeals for the Fifth Circuit and believes that it has valid grounds to have the judgment vacated or reversed, the ultimate resolution of the case is uncertain. Nucor has not recorded any reserves or contingencies related to this legal matter.

Nucor is from time to time a party to various lawsuits, claims, and other 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.

 

Item 4. Mine Safety Disclosures

Not applicable.

Executive Officers of the Registrant

James R. Darsey (59), Executive Vice President of Merchant and Rebar Products, was named EVP in September 2010. Prior to that, he served as President of the Vulcraft/Verco Group from 2007 and was elected Vice President of Nucor in 1996. He began his Nucor career in 1979 as Design Engineer at Vulcraft-Texas, later serving as Engineering Manager at Vulcraft-Utah and Vulcraft-Texas. He then served as General Manager of Vulcraft-Texas and General Manager of Nucor Steel-Texas.

John J. Ferriola (62) has served as Chairman of the Board of Directors of Nucor since January 2014, as Chief Executive Officer since January 2013 and as President since January 2011. Previously, Mr. Ferriola served as President and Chief Operating Officer from January 2011 to December 2012 and, prior to that, as Chief Operating Officer of Steelmaking Operations from 2007 to 2010, Executive Vice President from 2002 to 2007 and Vice President from 1996 to 2001. He has also been a director of Nucor since January 2011. Mr. Ferriola joined Nucor in 1991 as the Manager of Maintenance and Engineering at Nucor Steel-Texas. He later served as General Manager of Vulcraft-Texas, Nucor Steel-Nebraska and Nucor Steel-Indiana.

 

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James D. Frias (58) has been Chief Financial Officer, Treasurer and Executive Vice President since January 2010. Prior to that, Mr. Frias was Vice President of Finance from 2006 to 2009. Mr. Frias joined Nucor in 1991 as Controller of Nucor Building Systems-Indiana. He also served as Controller of Nucor Steel-Indiana and as Corporate Controller. Mr. Frias joined the board of directors of Carlisle Companies Incorporated in February 2015.

Ladd R. Hall (58), Executive Vice President of Flat-Rolled Products, was named EVP in September 2007, having previously served as Vice President of Nucor since 1994. He began his Nucor career in Inside Sales at Nucor Steel-Utah in 1981. He later served as Sales Manager of Vulcraft-Utah, and General Manager of Vulcraft-Texas, Vulcraft-Utah, Nucor Steel-South Carolina and Nucor Steel-Berkeley County.

Raymond S. Napolitan, Jr. (57) was named Executive Vice President of Fabricated Construction Products in June 2013, having previously served as President of Nucor’s Vulcraft/Verco group from 2010 to 2013 and President of American Buildings Company from 2007 to 2010. He was elected Vice President of Nucor in 2007. He began his Nucor career in 1996 as Engineering Manager of Nucor Building Systems-Indiana, and later served as General Manager of Nucor Building Systems-Texas.

R. Joseph Stratman (58), Executive Vice President of Raw Materials, was named EVP in September 2007, having previously served as Vice President of Nucor since 1999. He joined Nucor in 1989 as Controller of Nucor Building Systems-Indiana. He then served as Controller of Nucor-Yamato Steel Company, General Manager of Nucor Steel-Nebraska and General Manager of Nucor-Yamato Steel Company.

David A. Sumoski (48) was named Executive Vice President of Engineered Bar Products in September 2014. He had previously served as General Manager of Nucor Steel Marion, Inc. from 2008 to 2012 and as General Manager of Nucor Steel Memphis, Inc. from 2012 to September 2014. He was named Vice President of Nucor in 2010. He began his career with Nucor as an electrical supervisor at Nucor Steel-Berkeley in 1995, later serving as Maintenance Manager.

D. Chad Utermark (46) was named Executive Vice President of Beam and Plate Products in May 2014. He had previously served as General Manager of Nucor Steel-Texas from 2008 to 2011 and as General Manager of Nucor-Yamato Steel Company from 2011 to May 2014. He was named Vice President of Nucor in 2009. He began his Nucor career as a utility operator at Nucor Steel-Arkansas in 1992, subsequently serving as shift supervisor and Hot Mill Manager at that division as well as Roll Mill Manager at Nucor Steel-Texas.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Nucor has increased its base cash dividend every year since the Company began paying dividends in 1973. Nucor paid a total dividend of $1.48 per share in 2014 compared with $1.47 per share in 2013. In December 2014, the board of directors increased the base quarterly cash dividend on Nucor’s common stock to $0.3725 per share from $0.37 per share. In February 2015, the board of directors declared Nucor’s 168th consecutive quarterly cash dividend of $0.3725 per share payable on May 11, 2015 to stockholders of record on March 31, 2015.

Additional information regarding the market for Nucor’s common stock, quarterly market price ranges, the number of stockholders and dividend payments is incorporated by reference to Nucor’s 2014 Annual Report, page 78. Additional information regarding securities authorized for issuance under stock-based compensation plans is incorporated by reference to Nucor’s 2014 Annual Report, pages 63 through 66.

 

Item 6. Selected Financial Data

Historical financial information is incorporated by reference to Nucor’s 2014 Annual Report, page 43.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information required by this item is incorporated by reference to Nucor’s 2014 Annual Report, page 3 (Forward-looking Statements) and pages 22 through 39.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of business, Nucor is exposed to a variety of market risks. We continually monitor these risks and develop strategies to manage them.

Interest Rate Risk—Nucor manages interest rate risk by using a combination of variable-rate and fixed-rate debt. At December 31, 2014, 23% of Nucor’s long-term debt was in industrial revenue bonds that have variable interest rates that are adjusted weekly. The remaining 77% of Nucor’s long-term debt was at fixed rates. Future changes in interest rates are not expected to significantly impact earnings. Nucor also occasionally makes use of interest rate swaps to manage net exposure to interest rate changes. As of December 31, 2014, 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.

Commodity Price Risk—In the ordinary course of business, Nucor is exposed to market risk for price fluctuations of raw materials and energy, principally scrap steel, other ferrous and nonferrous metals, alloys and natural gas. We attempt to negotiate the best prices for our raw materials and energy requirements and to obtain prices for our steel products that match market price movements in response to supply and demand. In periods of strong or stable demand for our products, we are more likely to be able to effectively reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand for our products is weaker, this becomes more challenging.

Natural gas produced by Nucor’s working interest drilling programs is being sold to third parties to offset our exposure to changes in the price of natural gas consumed by our Louisiana DRI facility. In addition to the future natural gas needs at the Louisiana DRI facility that began operations in the fourth quarter of 2013, Nucor is also a substantial consumer of natural gas at our steel mill operations. Natural gas produced through the working interest drilling programs is expected to be sufficient in the future to cover Nucor’s demand at all of its steel mills in the United States plus the demand of two DRI plants or, alternatively, at three DRI plants. However,

 

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the natural gas production from the working interest drilling programs currently does not completely cover the natural gas usage at our operating facilities due to the temporary cessation of drilling discussed below. For the year ended December 31, 2014, the volume of natural gas sold from our natural gas working interest drilling programs was approximately 66% of the volume of natural gas purchased for consumption in our domestic steelmaking and DRI facilities.

Our natural gas working interest drilling programs are affected by changes in natural gas prices in an inverse manner to natural gas costs at our DRI and steel mill operations. As natural gas prices increase, our increased energy costs at our DRI and steel mill operations is somewhat mitigated by increased profit from sales of natural gas to third party customers from our natural gas drilling programs. Likewise, as natural gas prices decrease, we experience decreased energy costs at our DRI and steel mill operations, but we also experience decreased profit from our natural gas drilling programs.

The impact of low natural gas prices associated with our drilling programs is limited by the existence of a drilling suspension clause. Nucor is contractually obligated to drill a minimum number of wells per year under the terms of our original agreements with Encana; however, we have the right to suspend drilling of new wells if market pricing falls below a pre-established threshold. In the fourth quarter of 2013, we announced a joint decision with Encana to temporarily suspend drilling new natural gas wells until there is a sustained improvement in natural gas pricing. In the fourth quarter of 2014 Nucor and Encana agreed to further suspend drilling through calendar year 2015, except for a de minimis number of wells that are necessary in order to retain leasehold rights. We believe that this pause demonstrates the flexibility of our partnership with Encana to react to market conditions to the mutual benefit of both parties while still allowing us to better manage our exposure to natural gas pricing volatility at our operating divisions that consume natural gas.

Nucor also periodically uses derivative financial instruments to hedge a portion of our exposure to price risk related to natural gas purchases used in the production process and to hedge a portion of our scrap, aluminum and copper purchases and sales. Gains and losses from derivatives designated as hedges are deferred in accumulated other comprehensive income (loss) on the consolidated balance sheets and recognized into earnings in the same period as the underlying physical transaction. At December 31, 2014, accumulated other comprehensive income (loss) included $8.0 million in unrealized net-of-tax losses for the fair value of these derivative instruments. Changes in the fair values of derivatives not designated as hedges are recognized in earnings each period. The following table presents the negative effect on pre-tax earnings of a hypothetical change in the fair value of derivative instruments outstanding at December 31, 2014, due to an assumed 10% and 25% change in the market price of each of the indicated commodities (in thousands):

 

Commodity Derivative

   10% Change      25% Change  

Natural gas

   $ 5,600       $ 13,900   

Aluminum

     2,061         5,153   

Copper

     76         190   

Any resulting changes in fair value would be recorded as adjustments to other comprehensive income (loss), net of tax, or recognized in net earnings, as appropriate. These hypothetical losses would be partially offset by the benefit of lower prices paid or higher prices received for the physical commodities.

Foreign Currency Risk—Nucor 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. Open foreign currency derivative contracts at December 31, 2014 and 2013 were insignificant.

 

Item 8. Financial Statements and Supplementary Data

Information required by this item is incorporated by reference to Nucor’s 2014 Annual Report, pages 44 through 74.

 

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

 

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures—As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the evaluation date.

Changes in Internal Control Over Financial Reporting—There were no changes in our internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Report on Internal Control Over Financial Reporting—Management’s report on internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 and the attestation report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, on the effectiveness of Nucor’s internal control over financial reporting as of December 31, 2014 are incorporated by reference to Nucor’s 2014 Annual Report, pages 44 through 45.

 

Item 9B. Other Information

None.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item about Nucor’s executive officers is contained in the section captioned Executive Officers of the Registrant in Part I of this Form 10-K. The other information required by this item is incorporated by reference to Nucor’s Proxy Statement for the 2015 Annual Meeting of Stockholders (the “Proxy Statement”) under the headings Election of Directors; Information Concerning Experience, Qualifications, Attributes and Skills of the Nominees; Section 16(a) Beneficial Ownership Reporting Compliance and Corporate Governance and Board of Directors.

Nucor has adopted a Code of Ethics for Senior Financial Professionals (“Code of Ethics”) that applies to the Company’s Chief Executive Officer, Chief Financial Officer, Corporate Controller and other senior financial professionals, as well as Corporate Governance Principles for our Board of Directors and charters for our board committees. These documents are publicly available on our website, www.nucor.com. If we make any substantive amendments to the Code of Ethics or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website.

 

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the Proxy Statement under the headings Executive Officer Compensation, Director Compensation and Report of the Compensation and Executive Development Committee.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the Proxy Statement under the headings Security Ownership of Management and Certain Beneficial Owners and Equity Compensation Plan Information.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the Proxy Statement under the heading Corporate Governance and Board of Directors.

 

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Proxy Statement under the heading Fees Paid to Independent Registered Public Accounting Firm.

 

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PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements:

The following consolidated financial statements and notes thereto, management’s report on internal control over financial reporting and the report of independent registered public accounting firm are incorporated by reference to Nucor’s 2014 Annual Report, pages 44 through 74:

 

   

Management’s Report on Internal Control Over Financial Reporting

 

   

Report of Independent Registered Public Accounting Firm

 

   

Consolidated Balance Sheets—December 31, 2014 and 2013

 

   

Consolidated Statements of Earnings—Years ended December 31, 2014, 2013 and 2012

 

   

Consolidated Statements of Comprehensive Income—Years ended December 31, 2014, 2013, and 2012

 

   

Consolidated Statements of Stockholders’ Equity—Years ended December 31, 2014, 2013 and 2012

 

   

Consolidated Statements of Cash Flows—Years ended December 31, 2014, 2013 and 2012

 

   

Notes to Consolidated Financial Statements

Financial Statement Schedules:

The following financial statement schedule is included in this report as indicated:

 

     Page  
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule      28   
Schedule II—Valuation and Qualifying Accounts—Years ended December 31, 2014, 2013 and 2012      29   

All other schedules are omitted because they are not required, not applicable, or the information is furnished in the consolidated financial statements or notes.

Exhibits:

 

3

   Restated Certificate of Incorporation (incorporated by reference to Form 8-K filed September 14, 2010)

3(i)

   Bylaws as amended and restated September 11, 2012 (incorporated by reference to Form 8-K filed September 13, 2012)

4

   Indenture, dated as of January 12, 1999, between Nucor Corporation and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (incorporated by reference to Form S-4 filed December 13, 2002)

4(i)

   Indenture, dated as of August 19, 2014, between Nucor Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Form S-3 filed August 20, 2014)

4(ii)

   Second Supplemental Indenture, dated October 1, 2002, between Nucor Corporation and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (incorporated by reference to Form S-4 filed December 13, 2002)

4(iii)

   Third Supplemental Indenture, dated December 3, 2007, between Nucor Corporation and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (incorporated by reference to Form 8-K filed December 4, 2007)

 

21


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4(iv)

   Fourth Supplemental Indenture, dated June 2, 2008, between Nucor Corporation and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (incorporated by reference to Form 8-K filed June 3, 2008)

4(v)

   Fifth Supplemental Indenture, dated September 21, 2010, between Nucor Corporation and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (incorporated by reference to Form 8-K filed September 21, 2010)

4(vi)

   Sixth Supplemental Indenture, dated July 29, 2013, between Nucor Corporation and The Bank of New York Mellon, as trustee (incorporated by reference to Form 8-K filed July 29, 2013)

4(vii)

   Seventh Supplemental Indenture, dated December 10, 2014, between Nucor Corporation and The Bank of New York Mellon, as prior trustee, and U.S. Bank National Association, as successor trustee (incorporated by reference to Form 8-K filed December 11, 2014)

4(viii)

   Form of 5.75% Notes due December 2017 (included in Exhibit 4(iii) above) (incorporated by reference to Form 8-K filed December 4, 2007)

4(ix)

   Form of 6.40% Notes due December 2037 (included in Exhibit 4(iii) above) (incorporated by reference to Form 8-K filed December 4, 2007)

4(x)

   Form of 5.85% Notes due June 2018 (included in Exhibit 4(iv) above) (incorporated by reference to Form 8-K filed June 3, 2008)

4(xi)

   Form of 4.125% Notes due September 2022 (included in Exhibit 4(v) above) (incorporated by reference to Form 8-K filed September 21, 2010)

4(xii)

   Form of 4.000% Notes due August 2023 (included in Exhibit 4(vi) above) (incorporated by reference to Form 8-K filed September July 29, 2013)

4(xiii)

   Form of 5.200% Notes due August 2043 (included in Exhibit 4(vi) above) (incorporated by reference to Form 8-K filed July 29, 2013)

10

   2005 Stock Option and Award Plan (incorporated by reference to Form 8-K filed May 17, 2005) (#)

10(i)

   2005 Stock Option and Award Plan, Amendment No. 1 (incorporated by reference to Form 10-Q for quarter ended September 29, 2007) (#)

10(ii)

   2010 Stock Option and Award Plan (incorporated by reference to Form 10-Q for quarter ended July 3, 2010) (#)

10(iii)

   Nucor Corporation 2014 Omnibus Incentive Compensation Plan (incorporated by reference to Appendix A of the Proxy Statement on Schedule 14A filed March 25, 2014) (#)

10(iv)

   Form of Restricted Stock Unit Award Agreement—time-vested awards (incorporated by reference to Form 10-K for year ended December 31, 2005) (#)

10(v)

   Form of Restricted Stock Unit Award Agreement—retirement-vested awards (incorporated by reference to Form 10-K for year ended December 31, 2005) (#)

10(vi)

   Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated by reference to Form 10-Q for quarter ended April 1, 2006) (#)

10(vii)

   Form of Award Agreement for Annual Stock Option Grants used for awards granted prior to May 8, 2014 (incorporated by reference to Form 10-Q for quarter ended June 30, 2012) (#)

10(viii)

   Form of Award Agreement for Annual Stock Option Grants used for awards granted after May 7, 2014 (incorporated by reference to Form 10-Q for quarter ended July 5, 2014) (#)

 

22


Table of Contents

10(ix)

   Employment Agreement of James D. Frias (incorporated by reference to Form 10-K for year ended December 31, 2009) (#)

10(x)

   Employment Agreement of John J. Ferriola (incorporated by reference to Form 10-K for year ended December 31, 2001) (#)

10(xi)

   Amendment to Employment Agreement of John J. Ferriola (incorporated by reference to Form 10-K for year ended December 31, 2007) (#)

10(xii)

   Employment Agreement of Ladd R. Hall (incorporated by reference to Form 10-Q for quarter ended September 29, 2007) (#)

10(xiii)

   Employment Agreement of R. Joseph Stratman (incorporated by reference to Form 10-Q for quarter ended September 29, 2007) (#)

10(xiv)

   Employment Agreement of Keith B. Grass (incorporated by reference to Form 10-K for the year ended December 31, 2011) (#)

10(xv)

   Retirement, Separation, Waiver and Release Agreement of Keith B. Grass (incorporated by reference to Form 10-Q for quarter ended October 4, 2014) (#)

10(xvi)

   Employment Agreement of James R. Darsey (incorporated by reference to Form 10-K for year ended December 31, 2010) (#)

10(xvii)

   Employment Agreement of Raymond S. Napolitan, Jr. (incorporated by reference to Form 10-Q for quarter ended June 29, 2013) (#)

10(xviii)

   Employment Agreement of Chad Utermark (incorporated by reference to Form 10-Q for quarter ended July 5, 2014) (#)

10(xix)

   Employment Agreement of David A. Sumoski (incorporated by reference to Form 10-Q for quarter ended October 4, 2014) (#)

10(xx)

   Severance Plan for Senior Officers and General Managers as Amended and Restated Effective February 18, 2009 (incorporated by reference to Form 10-Q for quarter ended April 4, 2009) (#)

10(xxi)

   Senior Officers Annual Incentive Plan, As Amended and Restated Effective January 1, 2013 (incorporated by reference to Appendix A of the Proxy Statement on Schedule 14A filed March 27, 2013) (#)

10(xxii)

   Senior Officers Long-Term Incentive Plan, As Amended and Restated Effective January 1, 2013 (incorporated by reference to Appendix B of the Proxy Statement on Schedule 14A filed March 27, 2013) (#)

10(xxiii)

   Underwriting Agreement, dated July 24, 2013, among Nucor Corporation, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Form 8-K filed July 29, 2013)

10(xxiv)

   BJU Carry and Earning Agreement dated October 31, 2012, among Nucor Corporation, Nucor Energy Holdings Inc. and Encana Oil & Gas (USA) Inc. (incorporated by reference to Form 10-K for year ended December 31, 2012) †

10(xxv)*

   First Amendment to BJU Carry and Earning Agreement dated October 21, 2014, among Nucor Corporation, Nucor Energy Holdings Inc. and Encana Oil & Gas (USA) Inc. †

12 *

   Computation of Ratio of Earnings to Fixed Charges

13*

   2014 Annual Report (portions incorporated by reference)

21*

   Subsidiaries

 

23


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23*

   Consent of Independent Registered Public Accounting Firm

24*

   Power of Attorney (included on signature page)

31*

   Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(i)*

   Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32**

   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32(i)**

   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*

   Nucor Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders’ Equity, and (vi) the Notes to Consolidated Financial Statements.

 

* Filed herewith.
** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.
Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with Securities and Exchange Commission.
(#) Indicates a management contract or compensatory plan or arrangement.

 

24


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NUCOR CORPORATION
By:  

/S/ JOHN J. FERRIOLA

  John J. Ferriola
 

Chairman, Chief Executive Officer and

President

Dated: February 27, 2015

POWER OF ATTORNEY

KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James D. Frias and A. Rae Eagle, or either of them, his or her attorney-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/S/ JOHN J. FERRIOLA

   

/S/ PETER C. BROWNING

John J. Ferriola

Chairman, Chief Executive Officer and President

(Principal Executive Officer)

   

Peter C. Browning

Director

/S/ JAMES D. FRIAS

   

/S/ HARVEY B. GANTT

James D. Frias

Chief Financial Officer, Treasurer and

Executive Vice President

(Principal Financial Officer)

   

Harvey B. Gantt

Director

/S/ MICHAEL D. KELLER

   

/S/ GREGORY J. HAYES

Michael D. Keller

Vice President and Corporate Controller

(Principal Accounting Officer)

   

Gregory J. Hayes

Director

   

/S/ VICTORIA F. HAYNES

   

Victoria F. Haynes

Director

   

/S/ BERNARD L. KASRIEL

   

Bernard L. Kasriel

Director

   

/S/ CHRISTOPHER J. KEARNEY

   

Christopher J. Kearney

Director

 

25


Table of Contents
   

/S/ RAYMOND J. MILCHOVICH

   

Raymond J. Milchovich

Lead Director

   

/S/ JOHN H. WALKER

   

John H. Walker

Director

Dated: February 27, 2015

 

26


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NUCOR CORPORATION

Index to Financial Statement Schedule

 

     Page  

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

     28   

Schedule II—Valuation and Qualifying Accounts—Years ended December  31, 2014, 2013 and 2012

     29   

 

27


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Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

To the Board of Directors and Stockholders of

Nucor Corporation:

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 27, 2015 appearing in the 2014 Annual Report to Stockholders of Nucor Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Charlotte, North Carolina

February 27, 2015

 

28


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NUCOR CORPORATION

Financial Statement Schedule

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (in thousands)

 

Description

   Balance at
beginning of
year
     Additions
charged to
costs and
expenses
     Deductions     Balance at
end of year
 

Year ended December 31, 2014
LIFO Reserve

   $ 624,685       $ —         $ (57,289   $ 567,396   

Year ended December 31, 2013
LIFO Reserve

   $ 607,240       $ 17,445       $ —        $ 624,685   

Year ended December 31, 2012
LIFO Reserve

   $ 763,176       $ —         $ (155,936   $ 607,240   

 

29


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NUCOR CORPORATION

List of Exhibits to Form 10-K—December 31, 2014

 

Exhibit
      No.      

  

Description of Exhibit

10(xxv)†

   First Amendment to BJU Carry and Earning Agreement dated October 21, 2014, among Nucor Corporation, Nucor Energy Holdings Inc. and Encana Oil & Gas (USA) Inc. †

12

   Computation of Ratio of Earnings to Fixed Charges

13

   2014 Annual Report (portions incorporated by reference)

21

   Subsidiaries

23

   Consent of Independent Registered Public Accounting Firm

24

   Power of Attorney (included on signature page)

31

   Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(i)

   Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32(i)

   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

   Nucor Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders’ Equity, and (vi) the Notes to Consolidated Financial Statements.

 

Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with Securities and Exchange Commission.

 

30

EX-10(XXV)

Exhibit 10(xxv)

[ENCANA LETTERHEAD]

October 21, 2014

Nucor Energy Holdings Inc.

1915 Rexford Road

Charlotte, North Carolina 28211

Attn: Chief Financial Officer

Attn: Mr. Brad True

 

  RE:

First Amendment to the BJU Carry and Earning Agreement (“Agreement”) effective

      

November 1, 2012 by and among Encana Oil & Gas (USA) Inc. (“Encana”), Nucor

      

Energy Holdings Inc. and Nucor Corporation (collectively, “Nucor”)

Dear Brad:

Pursuant to our recent discussions, Encana and Nucor (collectively, the “Parties”) have agreed to amend the Agreement to revise the drilling schedule for 2015 and provide for an optional Head’s Up Well drilling program in calendar year 2016.

In light of the foregoing, and in consideration of the mutual covenants and agreements herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

AGREEMENT

 

  1.

Defined Terms.    Each capitalized term used in this first amendment (“First Amendment”), to the extent not expressly defined herein, shall have the same meaning ascribed to such term in the Agreement.

 

  2.

Amendment to Section 2.2A of the Agreement.    The second sentence in Section 2.2A is hereby deleted and replaced with the following two sentences:

During calendar year 2015, the Parties agree that drilling operations will be limited to [***] total Carry Wells on the [***] of the Big Jimmy Unit, which comprises a portion of the Property. For the calendar year 2016 and thereafter, Encana shall spud a minimum of [***] and a maximum of [***] Carry Wells in each calendar year until such time as the Carry Well Threshold has been met.

 

  3.

Addition of Section 2.4G to the Agreement.    The following provisions are hereby incorporated into the Agreement as Section 2.4G and subsections:

 

      

2.4G. Optional HUW Program.

(i)     On or before September 1, 2015, Encana will offer to Nucor in writing (“Optional HUW Program Notice”) the opportunity to participate in an optional Head’s Up Well program (“Optional HUW Program”)

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.


whereby [***] of the drilling rigs that would otherwise be dedicated to drilling Carry Wells in calendar year 2016 would instead be dedicated to drilling only Head’s Up Wells in calendar year 2016. The location of the Head’s Up Wells to be drilled pursuant to the Optional HUW Program would be determined in a manner consistent with Section 2.1B. Nucor shall have fifteen (15) days from receipt of the Optional HUW Program Notice to make a one-time election in writing (“Nucor Election”) to participate in the Optional HUW Program. If Nucor elects to participate in the Optional HUW Program, Encana shall have fifteen (15) days from receipt of the Nucor Election to advise Nucor in writing whether Encana elects to participate in the Optional HUW Program (“Encana Election”). If Encana elects not to participate in the Optional HUW Program, Nucor shall have fifteen (15) days after receipt of the Encana Election to reaffirm the Nucor Election in writing to Encana. Each Party shall be deemed to have elected not to participate in the Optional HUW Program if it fails to timely provide its Election or affirmation of its Election, as applicable, as required by this Section 2.4G(i). If a Party elects to participate in the Optional HUW Program, it has elected to participate in the entirety of the Program and may not decline to participate in any Head’s Up Well drilled pursuant to the Optional HUW Program. If both Parties decline to participate in the Optional HUW Program, Encana may, in its sole discretion, release or redeploy the designated Head’s Up Well drilling rig to non-Nucor drilling activity. The Parties expressly agree that Encana may simultaneously drill Head’s Up Wells pursuant to the Optional HUW Program and Carry Wells. The Parties further agree that any Head’s Up Wells drilled pursuant to the Optional HUW Program shall (1) count toward satisfaction of the minimum number of wells required to be drilled pursuant to Section 2.2A and (2) be excluded from the number of Carry Wells used to determine the HUW Restriction for calendar year 2017.

(ii)     So long as both Parties elect to participate, each Head’s Up Well drilled pursuant to the Optional HUW Program shall be counted as one well toward the Well Limit. If only Nucor participates, each Head’s Up Well drilled pursuant to the Optional HUW Program shall be counted as two wells toward the Well Limit.

(iii)     If both Parties elect to participate in the Optional HUW Program, each Party shall bear fifty percent (50%) of the costs of the Program. If Encana elects not to participate in an Optional HUW Program and Nucor elects to proceed with such Optional HUW Program, the Parties shall proceed in accordance with Section 4.2.

 

  4.

Amendment to Section 2.1(H)(i) of the Agreement. Section 2.1(H)(i) of the Agreement is hereby amended by adding the following sentence immediately after the first sentence of such Section:

Notwithstanding anything to the contrary set forth herein, in the event any changes in Applicable Law or interpretations thereof by any Governmental Authorities have the effect of making the form of wellbore assignment attached hereto as Exhibit C insufficient to grant to Nucor rights to Nucor Wells (whether existing or subsequently completed), oil

 

[***] This confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.


and gas production therefrom and equipment related thereto, in each case as contemplated in this Agreement or in the New Operating Agreement, the Parties agree to amend any existing Wellbore Assignments as well as the form of wellbore assignment to the extent necessary to preserve and maintain Nucor’s rights in the foregoing as contemplated in this Agreement or in the New Operating Agreement.

 

  5.

Amendment to Exhibit C of the Agreement.    The Exhibit C attached to the Agreement is hereby deleted in its entirety and replaced with the Form of Wellbore Assignment and Conveyance attached hereto as Exhibit C.

 

  6.

Execution.    This First Amendment may be executed in one or more counterparts, each of which shall be deemed an original and when taken together shall constitute one and the same document. Facsimile and/or electronically transmitted copies of signatures shall be binding.

 

  7.

Effect of Amendment.    Except as specifically amended by this First Amendment, the terms and provisions stated in the Agreement, including all exhibits thereto, remain in full force and effect as amended hereby and constitute the entire agreement between the Parties relating to this matter and supersede all prior and contemporaneous agreements and understandings of the Parties. In the event of any inconsistency, the terms and provisions of this First Amendment shall control over and modify the inconsistent terms and provisions of the Agreement.

 

  8.

Binding Effect.    This First Amendment shall be binding upon and inure to the benefit of the Parties’ permitted heirs, successors and assigns.

Sincerely,

Encana Oil & Gas (USA) Inc.

by its authorized agent,

Encana Services Company Ltd.

/s/ Jeffrey S. Balmer

Jeffrey S. Balmer

Vice President and General Manager

Western Operations

 

AGREED AND ACCEPTED, this 21st

day of October, 2014

AGREED AND ACCEPTED, this 21st

day of October, 2014

Nucor Energy Holdings Inc.

Nucor Corporation

By: /s/ Bradford G. True By: /s/ Bradford G. True

Bradford G. True

Vice President

Bradford G. True

General Manager


EXHIBIT C

Attached to and made a part of the BJU Carry & Earning Agreement executed October 31, 2012 but effective

November 1, 2012 by and between Encana Oil & Gas (USA) Inc. and Nucor Energy Holdings Inc.

Form of Wellbore Assignment and Conveyance

 

THE STATE OF COLORADO §
§ KNOW ALL MEN BY THESE PRESENTS:
§

THAT Encana Oil & Gas (USA) Inc., whose address is 370 17th Street, Suite 1700, Denver, CO 80202 (hereinafter referred to as “Assignor”) for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, does hereby GRANT, BARGAIN, SELL, TRANSFER, ASSIGN, AND CONVEY unto Nucor Energy Holdings Inc., whose address is 1915 Rexford Road, Charlotte, NC 28211 (hereinafter referred to as “Assignee”) an undivided fifty percent (50.00%) of Assignor’s right, title, interest, and estate in and to the following, subject to the limitations below (collectively, the “Assigned Interests”):

 

  a.

The wells and their associated wellbores described on Exhibit A or, subject to the terms and conditions of that certain unrecorded New Operating Agreement dated effective November 1, 2012 by and between Assignor and Assignee, (i) any plugging back, reworking or recompletion thereof through or from such wells and their associated wellbores, and (ii) any perforation or stimulation of any of the foregoing (each, individually, a “Well” and collectively, the “Wells”):

 

  b.

The rights in and to the oil and gas leases described on the attached Exhibit B (“Leases”), and all pooled, communitized or unitized acreage which includes any part of the Leases insofar and only insofar as said Leases and pooled, communitized or unitized acreage are necessary to operate, maintain, produce and plug and abandon the Wells.

 

  c.

All personal property and fixtures associated with the Wells, including without limitation the following: all tubing, casing and other equipment in the wellbore, wellhead equipment and surface production facilities.

 

  d.

All oil, gas, gas condensate, casinghead gas and/or all other liquid or gaseous hydrocarbons and other substances produced therewith from the Wells.

Assignor and Assignee further agree as follows:

 

  1.

This Assignment is made and accepted subject to, and Assignee hereby assumes, any and all overriding royalties, payments out of production, and other burdens or encumbrances of record as of November 1, 2012 to the extent the same cover and affect the Assigned Interests.


  2.

Assignee accepts the Assigned Interests subject to all of the express and implied covenants and obligations of the Leases, insofar as they relate to the Assigned Interests.

 

  3.

This Assignment is made by Assignor and accepted by Assignee without any warranty whatsoever and without warranty of title, either express or implied, and without recourse, except that Assignor warrants title as against all parties claiming an interest in the Assigned Interests by, through or under Assignor. This Assignment is made with full substitution and subrogation of Assignee in and to all covenants and warranties heretofore made or given by others.

 

  4.

This Assignment is made in accordance with, and is subject to all the terms, provisions, and conditions of, that certain BJU Carry and Earning Agreement effective November 1, 2012, between Assignor and Assignee (“Carry and Earning Agreement”) which is incorporated by this reference the same as though fully set out herein. However, this assignment is neither intended as, nor shall it be deemed to accomplish, a merger of the terms and provisions directly set out herein and the terms and provisions of said Carry and Earning Agreement. Should there be any conflict between this Assignment and the Carry and Earning Agreement, the terms and conditions set out in the Carry and Earning Agreement shall prevail.

 

  5.

This Assignment is subject to that certain unrecorded New Operating Agreement effective November 1, 2012.

 

  6.

The Assigned Interests do not include, and Assignor does not intend to assign and Assignee does not intend to receive, any interest in the following to the extent that such items do not directly relate to the operation of, and production oil, gas, gas condensate, casinghead gas and/or all other liquid and gaseous hydrocarbons and other substances produced therewith from, a Well: all lands, minerals, oil and gas leases and lands pooled therewith, units, working interests, executory interests, reversionary interests, net profits interests, net revenue interests, term interests, royalty and overriding royalty interests, fee interests, surface interests, and any other interests of a similar nature, all contracts, agreements, licenses, and servitudes, all easements, leases, surface use, and right-of-way agreements, all other property and equipment not directly used in connection with the operation and production of the Wells and any and all rights not expressly herein conveyed as part of the Assigned Interests.

 

  7.

The Assigned Interests do not include, and Assignor does not intend to assign and Assignee does not intend to receive, any overriding royalty interest owned by Assignor in existence as of November 1, 2012, except as may be otherwise provided in the Carry and Earning Agreement.

 

  8.

The Assigned Interest is hereby limited from the surface to the deepest depth drilled in each Well.

TO HAVE AND TO HOLD the Assigned Interests unto Assignee and its successors and assigns, subject to all the express and implied covenants and obligations of the Leases and this Assignment.


EXECUTED this ___ day of ____2014, but effective as of the date of first production for each Well as set forth on Exhibit A.

 

ENCANA OIL & GAS (USA) INC.

by its authorized agent,

Encana Services Company Ltd.

By:    
  Constance D. Heath
  Director, Land Negotiation, Western Operations

 

NUCOR ENERGY HOLDINGS INC.
By:    
  Bradford G. True
  Vice President


ACKNOWLEDGEMENTS

 

STATE OF COLORADO

§
§

CITY AND COUNTY OF DENVER

§

BEFORE ME, the undersigned authority, on this day personally appeared Constance D. Heath, Director, Land Negotiation, Western Operations for Encana Services Company Ltd, authorized agent for ENCANA OIL & GAS (USA) INC. known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and consideration therein expressed and in the capacity therein stated.

GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE on this ____ day of __________, 2014.

 

MY COMMISSION EXPIRES:
   
Notary Public in and for the State of Colorado

 

STATE OF    _________________________________

§

§

COUNTY OF    _______________________________

§

BEFORE ME, the undersigned authority, on this day personally appeared, Bradford G. True, Vice President for NUCOR ENERGY HOLDINGS INC. known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated.

GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE on this ____ day of __________, 2014.

 

MY COMMISSION EXPIRES:
   
Notary Public

Recording Requested and when Recorded

EX-12

Exhibit 12

Nucor Corporation

2014 Form 10-K

Computation of Ratio of Earnings to Fixed Charges

 

     Year-ended December 31,  
     2010     2011     2012     2013     2014  
     (In thousands, except ratios)  

Earnings

          

Earnings before income taxes and noncontrolling interests

   $ 267,115      $ 1,251,812      $ 852,940      $ 791,123      $ 1,204,577   

Plus: (earnings)/losses from equity investments

     32,082        10,043        13,323        (9,297     (13,505

Plus: fixed charges (includes interest expense and amortization of bond issuance costs and settled swaps and estimated interest on rent expense)

  

 

163,626

  

 

 

183,541

  

 

 

179,169

  

 

 

164,128

  

 

 

178,240

  

Plus: amortization of capitalized interest

     2,332        2,724        2,550        3,064        4,166   

Plus: distributed income of equity investees

     4,923        3,883        9,946        8,708        53,738   

Less: interest capitalized

     (940     (3,509     (4,715     (10,913     (2,946

Less: pre-tax earnings in noncontrolling interests in subsidiaries that have not incurred fixed charges

  

 

(73,110

 

 

(83,591

 

 

(88,507

 

 

(97,504

 

 

(101,844

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total earnings before fixed charges

   $ 396,028      $ 1,364,903      $ 964,706      $ 849,309      $ 1,322,426   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed charges

          

Interest cost and amortization of bond issuance and settled swaps

   $ 162,213      $ 182,321      $ 178,218      $ 162,899      $ 177,088   

Estimated interest on rent expense

     1,413        1,220        951        1,229        1,152   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed charges

   $ 163,626      $ 183,541      $ 179,169      $ 164,128      $ 178,240   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratio of earnings to fixed charges

     2.42        7.44        5.38        5.17        7.42   
EX-13

Exhibit 13

 

 

FINANCIAL HIGHLIGHTS    

 

 

      3      

 

 

FINANCIAL HIGHLIGHTS

 

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

 

     

 

2014

 

    

 

2013

 

 

 

% CHANGE

 

 

 

FOR THE YEAR

     

Net sales

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

Earnings:

     

Earnings before income taxes and noncontrolling interests

  1,204,577      791,123      52%   
     

Provision for income taxes

  388,787      205,594      89%   
         

 

 

           

 

 

   
     

Net earnings

  815,790      585,529      39%   
     

Earnings attributable to noncontrolling interests

  101,844      97,504      4%   
         

 

 

           

 

 

   
     

Net earnings attributable to Nucor stockholders

  713,946      488,025      46%   
     

Per share:

     

Basic

  2.22      1.52      46%   
     

Diluted

  2.22      1.52      46%   
     

Dividends declared per share

  1.4825      1.4725      1%   
     

Percentage of net earnings to net sales

  3.4%      2.6%   
     

Return on average stockholders’ equity

  9.3%      6.4%   
     

Capital expenditures

  568,867      1,230,418      -54%   
     

Depreciation

  652,000      535,852      22%   
     

Acquisitions (net of cash acquired)

  768,581           not meaningful    
     

Sales per employee

 

   

 

921

 

  

 

   

 

859

 

  

 

 

 

7%

 

  

 

 

AT YEAR END

     

Working capital

$ 4,344,112    $ 4,449,830      -2%   
     

Property, plant and equipment, net

  5,287,639      4,917,024      8%   
     

Long-term debt (including current maturities)

  4,376,935      4,380,200        
     

Total Nucor stockholders’ equity

  7,772,470      7,645,769      2%   
     

Per share

  24.36      24.02      1%   
     

Shares outstanding

  319,033      318,328        
     

Employees

 

   

 

23,600

 

  

 

   

 

22,300

 

  

 

 

 

6%

 

  

 

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) 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; (2) 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; (3) critical equipment failures and business interruptions; (4) 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.; (5) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (6) impairment in the recorded value of inventory, equity investments, fixed assets, goodwill or other long-lived assets; (7) uncertainties surrounding the global economy, including the severe economic downturn in construction markets and excess world capacity for steel production; (8) fluctuations in currency conversion rates; (9) U.S. and foreign trade policies affecting steel imports or exports; (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.


 

      22      

 

 

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

    OPERATIONS

 

 

 

OVERVIEW

STEEL INDUSTRY CONDITIONS

After five years of recession, the worst the United States had experienced in decades, we began to see modest improvement in general economic indicators and manufacturing activity during 2014. There have been some recent positive trends in nonresidential construction markets (the sector to which we are most closely tied and the largest end market for steel), most likely due to a rise in consumer spending and the cautious realization of previously postponed business investment. The domestic automotive market, which is the second largest end market for steel, experienced its strongest year since the recession with over 16 million cars and light trucks sold in 2014 and further growth anticipated in 2015. Also contributing to the improvement in recent years was significant growth in domestic energy-related steel, which is the third largest end market for steel in the United States. With the global collapse in oil prices in the fourth quarter of 2014, activity in the energy sector has slowed dramatically. Long-term, we believe that lower energy prices will be good for the domestic economy.

Although both Nucor’s earnings and the markets we serve improved in 2014, we remain greatly constrained by the impact of global overcapacity. Weakening conditions in Europe, slowing growth in China and the strengthening of the dollar against 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 2014 was estimated at over 630 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 increased 38% over 2013 and now account for approximately 34% of the U.S. steel market, despite significant unused cost-competitive domestic capacity. Products that we produce that experienced the most significant increases in imports by percentage include: cold-rolled and galvanized sheet, plate in coils and cut lengths and heavy structural shapes. Countries that had the largest increase in imports in 2014 include Russia, Turkey, China and South Korea.

China continues to pose a major challenge in particular. It is the world’s largest producer and exporter of steel, making more than 49% of the steel produced globally. 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 allows 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.

Domestic steel industry markets are improving, allowing Nucor to deliver solid improvement in our performance in 2014. 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. Since then, the average industry capacity utilization rate increased to approximately 77% in both 2014 and 2013. These rates, though improved, still compare unfavorably to capacity utilization rates of 81% and 87% in 2008 and 2007, respectively. Although domestic demand for steel and steel products is expected to improve further in 2015, it is unlikely that average capacity utilization rates will increase significantly due to the onslaught 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 78%, 64% and 63%, respectively, in 2014, compared with 74%, 58% and 62%, respectively, in 2013.

Macro-level uncertainties in world markets will almost certainly continue to weigh on global and domestic growth in 2015. We believe our net sales and financial results will be similar to 2014, but they will continue to be adversely affected by these general global economic factors as well as the global steel production overcapacity issue.

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. Only recently has capital spending on nonresidential construction projects shown any real signs of life. We do not expect to see strong growth in our net sales until we see a more sustained increase in capital spending on these types of construction projects.


 

      23      

 

 

The significant recent surge in 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. We have been encouraged by recent trade enforcement actions the U.S. government recently completed, including terminating its suspension agreement with Russia for hot-rolled steel imports, assessing duties on oil country tubular goods from South Korea and five other countries and ruling that the domestic rebar industry has been materially injured as a result of dumped and subsidized rebar imports from Turkey and Mexico. We continue to believe that assertive enforcement of world trade rules must be one of the highest priorities of the United States government.

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 several weeks for various steel products. 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 50% of our sheet sales were to contract customers in 2014 (65% in both 2013 and 2012), 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 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 these programs and, by extension, us. 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. In the fourth quarter of 2014, Nucor and Encana agreed to further suspend drilling through calendar 2015 except for a de minimis number of wells that are necessary in order to retain leasehold rights. 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, all of which could have an adverse


 

      24      

 

 

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 nearly $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 2014.

 

 

LOGO

Nucor’s raw material supply chain is another important strength. Our investment in DRI production facilities and scrap yards, as well as our access to international raw materials markets, 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 integrated competitors. We believe these strengths also provide us further opportunities to gain market share during such times.

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 (43% of total inventories as of December 31, 2014). 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.


 

      25      

 

 

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 we are such a large user of energy, 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 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 as compared to 2013.

 

LOGO


 

      26      

 

 

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.

The sheet, bar, structural and plate product groups all experienced an increase in average sales price per ton compared with 2013 due to stronger demand and new product offerings. The strongest markets for the steel mills segment were manufactured goods, including automotive, energy and heavy truck. Steel mills segment sales were positively impacted by favorable trends in nonresidential construction markets during 2014. Energy markets were strong for the steel mills segment for 2013 and most of 2014. However, the collapse in oil prices in late 2014 triggered inventory reductions among pipe and tube producers which negatively impacted volumes and pricing at our sheet mills late in the year. Though average sales prices increased for the steel mills segment in 2014 compared with 2013, high levels of finished and semi-finished steel imports, which increased 38% compared to 2013, continued to apply pressure on pricing during 2014.

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. Particularly strong volume growth was achieved in our joist, decking and rebar fabrication products. Shipments to external customers decreased 17% in the fourth quarter of 2014 from the third quarter of 2014 because of typical seasonality in nonresidential construction markets. The increase in the quantity of steel products sold in 2014 as compared to 2013 is largely due to the continued improvement in nonresidential construction markets. As measured by square footage, U.S. nonresidential construction activity increased by approximately 7% 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). Sales for DJJ in the fourth quarter of 2014 decreased from the third quarter of 2014 due primarily to decreased volumes at our brokerage and processing businesses. Sales in the fourth quarter of 2014 decreased from the fourth quarter of 2013 due to decreased average sales prices and volumes at the brokerage and processing businesses.


 

      27      

 

 

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 increase in metal margins more than offset the increase in the average scrap and scrap substitute cost per ton used in 2014 compared to 2013. Metal margins in the fourth quarter of 2014 were higher than in the fourth quarter of 2013, but were lower compared to the third quarter of 2014.

 

Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. We experienced more quarterly volatility in scrap costs during 2014 than in 2013. We believe that the current domestic scrap market is significantly overpriced compared with iron ore and global scrap markets. Based on increased imported steel penetration, slack international demand for domestic scrap, the strength of the U.S. dollar and moderating domestic demand for scrap, we expect scrap prices to fall significantly in early 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, 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). The decreases in cost per ton were driven by market conditions at the end of 2014, which experienced weaker demand for steel and raw materials than market conditions at the end of 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. Total steel mill energy costs per ton for the year reached a peak in the first quarter of 2014 due to harsh winter weather conditions that drove up energy demand and costs. Due to the efficiency of Nucor’s steel mills, energy costs remained less than 6% of the sales dollar in 2014 and 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).

 

·  

 

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 production operations in December 2013, experienced significant operational losses, including start-up costs of $87.8 million in 2014 and $35.2 million in 2013, that negatively impacted gross margins.

 

The start-up costs in 2013 and the first three quarters of 2014 were primarily due to yield loss, which in our experience is not unusual when a new facility is in the early stage of production. Although Nucor Steel Louisiana has had significant operational losses, it achieved excellent quality and volume levels.

 

In the fourth quarter of 2014, an equipment failure occurred at Nucor Steel Louisiana related to the process gas heater. There were no injuries, no environmental impact and no damage to any other part of the DRI facility as a result of this incident. Production operations were suspended after the failure and have not restarted. As Nucor Steel Louisiana was not operational for almost the entire fourth quarter of 2014, we classified the facility’s fourth quarter operating loss of approximately $35 million, the majority of which impacts gross margin, as start-up costs. We are in the process of making the necessary repairs and adjustments to the process gas heater. Nucor Steel Louisiana is estimated to resume operations late in the first quarter of 2015. We expect a small reduction in the operating loss of Nucor Steel Louisiana in the first quarter of 2015 as compared to the fourth quarter of 2014.

 

·  

 

Gross margins related to DJJ’s scrap processing and brokerage operations increased during 2014 compared to 2013. The brokerage group benefited from stronger domestic scrap sales. Though the gross margin for the scrap processing group improved during 2014 compared to 2013, the group experienced a decline in gross margin from the third quarter of 2014 to the fourth quarter of 2014.


 

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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, 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). 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 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.

Included in marketing, administrative and other expenses in 2014 is a $9.0 million charge related to the disposal of assets and a $12.5 million charge related to the partial write-down of assets, both in the steel mills segment.

In the third quarter of 2013, one of three iron ore storage domes collapsed at Nucor Steel Louisiana in St. James Parish. As a result, Nucor 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. The associated net charge of $14.0 million was included in marketing, administrative and other expenses in 2013. As of December 31, 2014, Nucor has received initial payments of $10.3 million related to the insurance receivable. The two remaining storage domes have a carrying value of approximately $20 million. Nucor continues to assess these two domes and the assets associated with them. As a result of the ongoing assessment, it is possible that Nucor will make operational decisions that could impact the carrying value of the domes and the associated assets and the amount of insurance proceeds claimed by and payable to us.

EQUITY IN (EARNINGS) LOSSES OF UNCONSOLIDATED AFFILIATES

Equity method investment earnings, including amortization expense and other purchase accounting adjustments, 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.

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   
    

 

 

      

 

 

 
 
                       


 

      29      

 

 

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. Our recent capital project expansions have allowed us to broaden our product offerings and market share, particularly in the special bar quality, cold-rolled and galvanized sheet and plate steel products. These higher-value product offerings, which tend to be less vulnerable to imports, benefited the profitability of the steel mills segment in 2014. The improved results of the steel mills segment were achieved despite imports being at levels not seen since 2006. The strongest markets for the steel mills segment continued to be manufactured goods, including automotive, energy and heavy truck. Energy markets were strong for the steel mills segment for 2013 and most of 2014. However, the collapse in oil prices in late 2014 triggered inventory reductions among pipe and tube producers that negatively impacted volumes and pricing at our sheet mills late in the year. The steel mills segment profitability in 2014 also benefited from improving conditions in nonresidential construction markets. Negatively impacting the steel mills segment profitability in 2014 were the $12.5 million charge related to the partial write-down of assets, $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 profitability 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 has benefited from improving conditions in nonresidential construction markets. However, 2014 nonresidential construction starts, a measure of nonresidential building activity, represented only about 56% of 2007’s peak activity level. Backlog tons for the steel products segment were approximately 10% higher at the end of 2014 than at the end of 2013, including a record level of backlog tons since 2008 for our rebar fabrication businesses at the end of 2014.

The decrease in profitability of our raw materials segment for 2014 as compared to 2013 is due primarily to operating losses, which include start-up costs, of approximately $135 million at our Louisiana DRI facility (production did not begin at the facility until late December 2013). Production operations at the Louisiana DRI facility were suspended in the fourth quarter of 2014 due to an equipment failure related to the process gas heater. Prior to that, production outages in June, July and September of 2014 were necessary to implement changes intended to improve consistency in the production process and yield performance at Nucor Steel Louisiana. An additional factor affecting the performance of Nucor Steel Louisiana in 2014 was the impact of consuming higher-cost iron ore purchased earlier in the year under a quarterly lag pricing mechanism. 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

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 4% increase in earnings attributable to noncontrolling interests was primarily due to 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. 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 2014 was 32.3% compared with 26.0% in 2013. The increase in the rate between 2013 and 2014 is 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, 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. The out-of-period items did not have a material impact to periods in which the corrections were recorded or in any previously reported period individually and in the aggregate. The Internal Revenue Service (IRS) is examining Nucor’s 2012 federal income tax return. Management believes that the Company has adequately provided for any adjustments that may arise from this audit. The 2011 and 2013 tax years are also open to examination by the IRS. U.S. federal income tax matters have been concluded for years through 2010. The Canada Revenue Agency is examining the 2012 Canadian returns for Harris Steel Group Inc. and certain related affiliates. Tax years 2009 through 2013 remain open to examination by other major taxing jurisdictions to which Nucor is subject (primarily Canada and other state and local jurisdictions).


 

      30      

 

 

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.

 

LOGO

 

 

COMPARISON OF 2013 TO 2012

RESULTS OF OPERATIONS

NET SALES

Net sales to external customers by segment for 2013 and 2012 were as follows:

 

                         (in thousands)  
  Year Ended December 31,      2013        2012        % Change    
     

Steel mills

       $13,311,948           $13,781,797           -3%     

Steel products

       3,607,333           3,738,381           -4%     

Raw materials

       2,132,765           1,909,095           12%     
    

 

 

      

 

 

      

Total net sales to external customers

  $19,052,046      $19,429,273      -2%     
    

 

 

      

 

 

      
     
                                  

Net sales for 2013 decreased 2% from the prior year. The average sales price per ton decreased 5% from $841 in 2012 to $803 in 2013, while total tons shipped to outside customers increased 3% in 2013 as compared to 2012.

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

 

                         (in thousands)  
  Year Ended December 31,      2013        2012        % Change    
     

Steel production

       19,900           19,865           —     
    

 

 

      

 

 

      
     

Outside steel shipments

  17,733      17,473      1%     

Inside steel shipments

  2,917      2,769      5%     
    

 

 

      

 

 

      

Total steel shipments

  20,650      20,242      2%     
    

 

 

      

 

 

      
     
                                  

Net sales to external customers in the steel mills segment decreased 3% due to a 5% decrease in the average sales price per ton from $792 in 2012 to $751 in 2013, partially offset by a 1% increase in tons sold to outside customers.


 

      31      

 

 

Tonnage data for the steel products segment is as follows:

 

                       (in thousands)  
  Year Ended December 31,      2013        2012      % Change    
     

Joist sales

       342           291         18%     

Deck sales

       334           308         8%     

Cold finished sales

       474           492         -4%     

Fabricated concrete reinforcing steel sales

      

 

  1,065

 

  

 

      

 

  1,180

 

  

 

    

 

-10%  

 

  

 

Net sales to external customers in the steel products segment decreased 4% from 2012 due to a 3% decrease in tons sold to outside customers and a 1% decrease in the average sales price per ton from $1,393 in 2012 to $1,375 in 2013.

Sales for the raw materials segment increased 12% from 2012 primarily due to increased volumes in DJJ’s brokerage and processing operations, partially offset by decreased pricing experienced by DJJ as well as increased volumes at our natural gas drilling working interests. Approximately 83% of outside sales in the raw materials segment in 2013 were from brokerage operations of DJJ and approximately 12% of the outside sales were from the scrap processing facilities (85% and 13%, respectively, in 2012).

GROSS MARGIN

In 2013, Nucor recorded gross margins of $1.41 billion (7%) compared to $1.51 billion (8%) in 2012. The year-over-year dollar and gross margin percentage decreases were primarily the result of the 5% decrease in the average sales price per ton, partially offset by the 3% increase in tons shipped to outside customers. Additionally, gross margins were impacted by the following factors:

 

·    

 

In the steel mills segment, the average scrap and scrap substitute cost per ton used decreased 8% from $407 in 2012 to $376 in 2013; however, metal margins also decreased for our sheet, bar and plate products from 2012.

·    

 

The average scrap and scrap substitute cost per ton in ending inventory within our steel mills segment at December 31, 2013 increased 3% as compared to December 31, 2012. Ending inventory quantities also increased as compared to December 31, 2012. As a result of these factors, Nucor recorded a LIFO charge of $17.4 million in 2013 (a LIFO credit of $155.9 million in 2012).

·    

 

Nucor’s 2012 gross margins were negatively impacted by $48.8 million in inventory-related purchase accounting adjustments associated with our acquisition of Skyline (none in 2013).

·    

 

Gross margins at our rebar fabrication businesses increased significantly in 2013 as compared to 2012 due to higher average sales prices and the effects of management initiatives that resulted in lower costs, better selling strategies and improved supplier relationships.

·    

 

Total steel mill energy costs decreased approximately $1 per ton from 2012 to 2013 primarily due to the negative impact of natural gas hedge settlements on our overall natural gas costs in 2012.

·    

 

Gross margins related to DJJ’s scrap processing operations decreased significantly during 2013 compared to 2012 due to excess shredding capacity increasing DJJ’s cost of scrap purchases and weather-related effects in the first quarter of 2013 that reduced the flow of scrap into our scrap processing operations.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

Profit sharing costs decreased from 2012 to 2013. In 2013, profit sharing costs consisted of $71.7 million of contributions, including the Company’s matching contribution, made to the Company’s Profit Sharing and Retirement Savings Plan for qualified employees ($77.7 million in 2012). Stock-based compensation included in marketing, administrative and other expenses decreased 8% to $22.9 million in 2013 compared with $25.0 million in 2012 and includes costs associated with vesting of stock awards granted in prior years.

Of the $27.0 million increase in marketing, administrative and other expenses in 2013 as compared to 2012, $15.3 million was due to the inclusion of Skyline’s results for the entire year in 2013 as compared to only being included after its June 2012 acquisition date during 2012. Additionally, in the third quarter of 2013, a storage dome collapsed at Nucor Steel Louisiana in St. James Parish. As a result, Nucor recorded a partial write-down of assets at the facility, including $7.0 million of inventory and $21.0 million of property, plant and equipment, offset by a $14.0 million insurance receivable that was based on management’s best estimate of probable insurance recoveries. Included in marketing, administrative and other expenses in 2012 was a $17.6 million loss on the sale of the assets of Nucor Wire Products Pennsylvania, Inc.


 

      32      

 

 

EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES

Nucor recorded equity method investment earnings of $9.3 million in 2013 and losses of $13.3 million in 2012. The improvement in the equity method investment earnings from 2013 to 2012 is primarily due to greater equity method earnings at NuMit, a decrease in losses at Duferdofin Nucor, and earnings at Hunter Ridge (acquired in November 2012).

IMPAIRMENT OF NON-CURRENT ASSETS

In 2013, Nucor incurred no charges for impairment of non-current assets compared to $30.0 million in 2012. In the second quarter of 2012, Nucor recorded a $30.0 million impairment charge related to its equity method investment in Duferdofin Nucor (see Note 10 to the Consolidated Financial Statements).

INTEREST EXPENSE (INCOME)

Net interest expense is detailed below:

 

      

(in thousands)

  Year Ended December 31,      2013        2012  
   

Interest expense

     $ 151,986         $ 173,503   

Interest income

       (5,091        (11,128
    

 

 

      

 

 

 

Interest expense, net

$ 146,895    $ 162,375   
    

 

 

      

 

 

 
   
                       

The 12% decrease in gross interest expense from 2012 is primarily attributable to a 6% decrease in average debt outstanding and a 2% decrease in the average interest rate. Gross interest income decreased 54% due to a 50% decrease in average investments and a 45% decrease in the average interest rate on investments.

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

Earnings before income taxes and noncontrolling interests by segment for 2013 and 2012 are as follows:

 

      

(in thousands)

  Year Ended December 31,      2013        2012  
   

Steel mills

     $ 1,156,715         $ 1,162,270   

Steel products

       82,129           (17,140

Raw materials

       13,686           55,264   

Corporate/eliminations

       (461,407        (347,454
    

 

 

      

 

 

 

Earnings before income taxes and noncontrolling interests

$ 791,123    $ 852,940   
    

 

 

      

 

 

 
   
                       

Earnings before income taxes and noncontrolling interests in the steel mills segment in 2013 decreased slightly from 2012. Gross margin was negatively affected in 2013 by lower metal margin dollars resulting from factors discussed above. The steel mills segment’s profitability in 2013 benefited from improved results from the NuMit and Duferdofin Nucor equity method investments as compared to 2012. Other factors impacting the profitability of the steel mills segment in 2012 that did not occur in 2013 were the $30.0 million impairment charge related to Duferdofin Nucor and the $48.8 million of inventory-related purchase accounting adjustments related to Skyline.

The steel products segment had earnings before income taxes and noncontrolling interests in 2013 as compared to a loss in 2012. Although the average sales price and volume for the segment were lower in 2013 than 2012, profitability in our joist, cold finish and rebar fabrication businesses improved from 2012. The steel products segment’s 2012 loss was impacted by the $17.6 million loss on the sale of assets of Nucor Wire Products Pennsylvania, Inc. in the third quarter of 2012. The steel products segment’s 2013 profitability was the first profitable year since 2008.

The profitability of our raw materials segment decreased significantly from 2012. Difficult conditions in the scrap processing industry had a negative impact on the profitability of the scrap processing operations of DJJ since the first quarter of 2012. During this time, excess shredding capacity increased competition for raw materials while the selling price of scrap decreased in 2013 as compared to 2012. Also negatively affecting profitability in the raw materials segment in 2013 were the charges related to the net $14.0 million write-down of


 

      33      

 

 

inventory and property, plant and equipment as a result of the dome collapse at Nucor Steel Louisiana. Nucor Steel Louisiana also had increased start-up costs in 2013 over 2012 as it began production in late December. An unplanned 18-day outage at our Trinidad DRI facility in early 2013 also contributed to lower profitability for the raw materials segment in 2013 as compared to 2012.

The decrease in results in Corporate/eliminations in 2013 was primarily due to a LIFO charge of $17.4 million in 2013 compared to a $155.9 million LIFO credit in 2012.

NONCONTROLLING INTERESTS

The 10% increase in noncontrolling interests from 2012 to 2013 was primarily attributable Nucor-Yamato Steel’s increased margins, which were primarily due to changes in product mix.

PROVISION FOR INCOME TAXES

The effective tax rate in 2013 was 26.0% compared with 30.5% in 2012. The change in the rate between 2012 and 2013 was primarily due to a $21.3 million out-of-period adjustment to the deferred tax balances recorded in 2013.

NET EARNINGS AND RETURN ON EQUITY

Nucor reported net earnings of $488.0 million, or $1.52 per diluted share, in 2013 compared to net earnings of $504.6 million, or $1.58 per diluted share, in 2012. Net earnings attributable to Nucor stockholders as a percentage of net sales were 3% in both 2013 and 2012. Return on average stockholders’ equity was 6% and 7% in 2013 and 2012, respectively.

 

 

LIQUIDITY AND CAPITAL RESOURCES

Nucor’s cash and cash equivalents and short-term investments position remained strong at $1.12 billion at the end of 2014. Approximately $156.1 million and $173.2 million of the cash and cash equivalents position at December 31, 2014 and December 31, 2013, 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.

In 2013, Nucor’s $1.5 billion revolving credit facility was amended and restated to extend the maturity date to August 2018, and the facility was undrawn at December 31, 2014. 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 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. By the end of 2014, we had reduced the amount of commercial paper outstanding to approximately $151 million. Drawing from Nucor’s strong cash provided by operations, we expect to retire the remaining commercial paper in 2015. The next significant debt maturity is not until December 2017.

 

Selected Measures of Liquidity and Capital Resources

                 
      

(dollars in thousands)

 
    December 31,      2014        2013    
   

  Cash and cash equivalents

     $ 1,024,144         $ 1,483,252     

  Short-term investments

       100,000           28,191     

  Working capital

       4,344,112           4,449,830     

  Current ratio

       3.1           3.3     
   
                       


 

      34      

 

 

The current ratio was 3.1 at year end 2014 compared with 3.3 at year end 2013. The current ratio was negatively impacted by a 26% decrease from 2013 in cash and cash equivalents and short-term investments. The decrease in cash and cash equivalents and short-term investments was primarily due to cash paid for acquisitions of other companies, capital expenditures and dividends, partially offset by increased cash generated by operations. In addition, the $178.3 million increase in short-term debt from 2013, which was due mainly to the issuance of commercial paper, negatively affected the current ratio.

The current ratio benefited from a 14% increase in accounts receivable, a 5% increase in inventory and an 11% decrease in accounts payable as compared to year end 2013. The increase in accounts receivable was due primarily to the acquisition of Nucor Steel Gallatin, as well as a 2% increase in net sales in the fourth quarter of 2014 compared with the prior year fourth quarter. The net sales increase was the result of a 1% increase in both outside shipments and average sales price per ton in the fourth quarter of 2014 as compared with the fourth quarter of 2013. The increase in inventory from the previous year was mainly due to the addition of Nucor Steel Gallatin and an increase in inventory volumes on hand, partially offset by a decrease in scrap and iron ore prices in inventory from year end 2013. The decrease in scrap and iron ore prices was also a main driver of the decrease in accounts payable. In 2014, total accounts receivable turned approximately every five weeks and inventories turned approximately every seven weeks. These turnover rates are comparable to Nucor’s historical performance.

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. LOGO

OPERATING ACTIVITIES

Cash provided by operating activities was $1.34 billion, an increase of 25% compared with cash provided by operating activities of $1.08 billion in 2013. The primary reason for the change was higher net earnings, which included increased levels of depreciation expense due to significant capital projects being placed in service during 2014. Partially offsetting the increase in cash generated from higher earnings were changes in operating assets and liabilities that were ($400.2) million in 2014 compared with ($235.2) million in 2013. The funding of our working capital increased over the prior year period due mainly to increases in cash used to fund federal income taxes and accounts payable, somewhat offset by a decrease in cash used to fund the purchase of inventory. Federal income tax payments have increased due to Nucor’s increased profitability. The increased levels of cash used for accounts payable is due in large part to the change in accrued plant and equipment purchases. The decrease in cash used to fund the purchase of inventory is due to the decrease in scrap prices in inventory from year end 2013.

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 $668.0 million in new facilities and expansion or upgrading of existing facilities in 2014 compared with $1.20 billion in 2013, a decrease of 44%. The decrease in capital expenditures is in large part due to the completion of our Louisiana DRI facility and reduced spending on our natural gas working interest drilling program. Additionally, Nucor invested $768.6 million in the acquisition of other companies in 2014, primarily Nucor Steel Gallatin (there were no acquisitions in 2013). Another factor contributing to the increase in cash used in investing activities was the net decrease of $421.0 million in proceeds from the sale of investments and restricted investments (net of purchases) and changes in restricted cash from 2013.

FINANCING ACTIVITIES

Cash used in financing activities in 2014 was $359.0 million compared with cash provided by financing activities of $196.0 million in 2013. In 2013, Nucor issued $500.0 million of 4.00% notes due in 2023 and $500.0 million of 5.2% notes due in 2043. Net of discounts, the prior year debt issuance increased cash provided by financing activities by $999.1 million. There were no issuances of long-term debt in 2014. However, mainly due to the issuance of commercial paper in 2014, the net change in short-term debt provided cash of $178.3 million compared with ($0.7) million in 2013. Additionally, cash used to repay debt maturities was only $5.4 million in 2014 compared to $250.0 million in the prior year.

In 2014, Nucor increased its quarterly base dividend, resulting in dividends paid of $475.1 million in 2014 ($471.0 million in 2013).

Although there were no repurchases in 2014 or 2013, approximately 27.2 million shares remain authorized for repurchase under the Company’s stock repurchase program.


 

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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 2014 and 2013, 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 2014 were 76% and 61%, respectively. A significant portion of our steel and steel products segments sales are into the commercial, industrial and municipal construction markets. While we did see some improvement in some of these markets in 2014, they continue to be depressed when compared to historical levels. Our largest single customer in 2014 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, 2014. 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, 2014, 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 material 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.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

The following table sets forth our contractual obligations and other commercial commitments as of December 31, 2014 for the periods presented:

 

                         (in thousands) 
      

 

Payments Due By Period

 

 
  Contractual Obligations      Total            2015            2016 - 2017            2018 - 2019         2020 and thereafter  
         

Long-term debt

       $  4,376,900           $     16,300           $   600,000           $   500,000        $3,260,600   

Estimated interest on long-term debt(1)

       2,308,005           178,318           353,684           241,220        1,534,783   

Capital leases

       27,648           3,072           6,144           6,144        12,288   

Operating leases

       85,389           25,085           32,113           15,624        12,567   

Raw material purchase commitments(2)

       2,958,520           1,200,863           1,204,309           351,058        202,290   

Utility purchase commitments(2)

       923,298           261,918           176,707           117,932        366,741   

Natural gas drilling commitments

       4,857,599           18,600           691,455           724,860        3,422,684   

Other unconditional purchase obligations(3)

       118,781           100,800           4,527           3,386        10,068   

Other long-term obligations(4)

              462,606                295,995                  46,001                  32,744               87,866   

Total contractual obligations

       $16,118,746           $2,100,951           $3,114,940           $1,992,968        $8,909,887   
         
                                                     

 

(1) Interest is estimated using applicable rates at December 31, 2014 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, 2014, 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, $63.0 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 $28.2 million at December 31, 2014.


 

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DIVIDENDS

Nucor has increased its base cash dividend every year since it began paying dividends in 1973. Nucor paid dividends of $1.48 per share in 2014 compared with $1.47 per share in 2013. In December 2014, the Board of Directors increased the base quarterly dividend to $0.3725 per share. The base quarterly dividend has more than tripled since the end of 2007. In February 2015, the Board of Directors declared Nucor’s 168th consecutive quarterly cash dividend of $0.3725 per share payable on May 11, 2015 to stockholders of record on March 31, 2015.

OUTLOOK

In 2015, we will continue 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.

Although macro-level uncertainties in world markets will almost certainly affect both global and domestic growth, we anticipate sales and profitability on par with 2014. Utilization rates, which grew slightly in 2014 compared to 2013, have slowed in early 2015. Although we expect the first quarter operating results to be similar to the first quarter 2014 results, they will be in the face of significant headwinds that developed for the steel industry late in 2014. The collapse in global oil prices has triggered inventory reductions among pipe and tube producers serving energy markets, an important customer group for Nucor as well as the domestic steel industry. Also, given the relative health of the domestic steel markets, imports have increased dramatically as we have entered 2015. We are anticipating a more positive trend in earnings as we enter into the second quarter and then into the second half of the year. We are therefore cautiously optimistic regarding full-year volume, pricing and profitability. We are encouraged by an improvement of approximately 10% in backlog tons at our downstream steel products segment over 2013 and we believe several end-use markets such as automotive, energy and nonresidential construction will experience some real demand improvement that will gain momentum throughout 2015. 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 expect scrap prices to fall significantly in early 2015 and that we will continue to experience fluctuations in raw material costs throughout the year. We have made significant investments in our raw material 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 shareholders with very attractive long-term returns on their valuable capital invested in our company. Nucor is the only steel producer 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 2015, 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 2015, approximating our spend in 2014 but significantly lower than in 2013. This decrease is mainly due to the joint agreement with Encana to suspend drilling new natural gas wells through the end of 2015. 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 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.


 

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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.

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 separately 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 2014. 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, 2014; 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.

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 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 2014 annual goodwill impairment analysis did not result in an impairment charge. And, 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.


 

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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 2015. 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; 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 permanent.

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 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 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 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 second quarter of 2012, Nucor concluded that a triggering event occurred requiring assessment for impairment of its equity investment in Duferdofin Nucor due to the continued declines in the global demand for steel, the escalated economic and political turmoil in Europe and continued operating performance well below budgeted levels through the first half of 2012. Duferdofin Nucor’s updated unfavorable forecast of future operating performance was also a contributing factor. After completing its assessment, Nucor determined that the carrying amount exceeded its estimated fair value and recorded a $30.0 million impairment charge against the Company’s investment in Duferdofin Nucor in the second quarter of 2012. This charge is included in impairment of non-current assets in the consolidated statements of earnings.

Although there have been no significant deteriorations in near-term financial projections or other key assumptions since the last impairment test performed in the fourth quarter of 2013, Nucor concluded that it was appropriate to reassess its equity investment in Duferdofin Nucor for impairment during the fourth quarter of 2014 due to the protracted challenging steel market conditions in Europe. The updated analysis included expected future cash flow assumptions that were developed by local management at Duferdofin Nucor and were reviewed in detail by Nucor senior management using the methodology outlined above. The base case scenario received the majority of the probability weighting, with equal weighting given to the other two scenarios. 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 for additional impairment charges.


 

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It is reasonably possible that based on actual future performance the estimates used in our fourth quarter valuation could change and result in further impairment of our investment. Changes in management estimates to the unobservable inputs would change the valuation of the investment. The estimates for the projected revenue, metal margin and discount rate are the assumptions that most significantly affect the fair value determination.

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.

 

 

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our consolidated financial statements for a discussion of new accounting pronouncements adopted by Nucor during 2014 and the expected financial impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.

 

 

RECLASSIFICATIONS

In the first quarter of 2013, we began reporting the results of Nucor’s steel trading businesses and rebar distribution businesses in the steel mills segment. Previously these businesses were reported in an “All Other” category. These businesses were reclassified to the steel mills segment as part of a realignment of Nucor’s reportable segments to better reflect the way in which they are managed. The segment data for the comparable periods has also been reclassified into the steel mills segment in order to conform to the current year presentation. 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. Additionally, the composition of assets by segment at December 31, 2012 was reclassified to conform with the current presentation. This reclassification between segments did not have any impact on the consolidated asset balances.


 

FIVE-YEAR FINANCIAL REVIEW    

 

    

 

      43      

 

 

      

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

 

 
        2014      2013      2012        2011        2010  

 

FOR THE YEAR

                    
         

Net sales

     $ 21,105,141       $ 19,052,046       $ 19,429,273         $ 20,023,564         $ 15,844,627   
         

Costs, expenses and other:

                    
         

Cost of products sold

       19,198,615         17,641,421         17,915,735           18,142,144           15,060,882   
         

Marketing, administrative and other expenses

       546,198         481,904         454,900           439,528           331,455   
         

Equity in (earnings) losses of unconsolidated affiliates

       (13,505      (9,297      13,323           10,043           32,082   
         

Impairment of non-current assets

                       30,000           13,943             
         

Interest expense, net

       169,256         146,895         162,375           166,094           153,093   
    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

 
         
       19,900,564         18,260,923         18,576,333           18,771,752           15,577,512   
         

Earnings before income taxes and noncontrolling interests

       1,204,577         791,123         852,940           1,251,812           267,115   
         

Provision for income taxes

       388,787         205,594         259,814           390,828           60,792   
    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

 
         

Net earnings

       815,790         585,529         593,126           860,984           206,323   
         

Earnings attributable to noncontrolling interests

       101,844         97,504         88,507           82,796           72,231   
    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

 
         

Net earnings attributable to Nucor stockholders

       713,946         488,025         504,619           778,188           134,092   
         

Net earnings per share:

                    
         

Basic

       2.22         1.52         1.58           2.45           0.42   
         

Diluted

       2.22         1.52         1.58           2.45           0.42   
         

Dividends declared per share

       1.4825         1.4725         1.4625           1.4525           1.4425   
         

Percentage of net earnings to net sales

       3.4%         2.6%         2.6%           3.9%           0.8%   
         

.Return on average stockholders’ equity

       9.3%         6.4%         6.7%           10.7%           1.8%   
         

Capital expenditures

       568,867         1,230,418         1,019,334           450,627           345,294   
         

Acquisitions (net of cash acquired)

       768,581                 760,833           3,959           64,788   
         

Depreciation

       652,000         535,852         534,010           522,571           512,147   
         

Sales per employee

 

      

 

921

 

  

 

    

 

859

 

  

 

    

 

906

 

  

 

      

 

974

 

  

 

      

 

777

 

  

 

 

AT YEAR END

                    
         

Current assets

     $ 6,441,888       $ 6,410,046       $ 5,661,364         $ 6,708,081         $ 5,861,175   
         

Current liabilities

       2,097,776         1,960,216         2,029,568           2,396,059           1,504,438   
    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

 
         

Working capital

       4,344,112         4,449,830         3,631,796           4,312,022           4,356,737   
         

Cash provided by operating activities

       1,342,898         1,077,949         1,200,385           1,031,053           866,794   
         

Current ratio

       3.1         3.3         2.8           2.8           3.9   
         

Property, plant and equipment, net

       5,287,639         4,917,024         4,283,056           3,755,604           3,852,118   
         

Total assets

       15,615,927         15,203,283         14,152,059           14,570,350           13,921,910   
         

Long-term debt (including current maturities)

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

Percentage of debt to capital(1)

       35.2%         35.6%         31.5%           35.7%           36.9%   
         

Total Nucor stockholders’ equity

       7,772,470         7,645,769         7,641,571           7,474,885           7,120,070   
         

Per share

       24.36         24.02         24.06           23.60           22.55   
         

Shares outstanding

       319,033         318,328         317,663           316,749           315,791   
         

Employees

 

      

 

23,600

 

  

 

    

 

22,300

 

  

 

    

 

22,200

 

  

 

      

 

20,800

 

  

 

      

 

20,500

 

  

 

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


 

      44      

 

 

    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, 2014. 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).

Our evaluation did not include the internal controls over financial reporting of Gallatin Steel Company, which was acquired on October 8, 2014. Total assets and total sales for the acquisition represent approximately 4.2% and 1.1%, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended December 31, 2014.

Based on its assessment, management concluded that Nucor’s internal control over financial reporting was effective as of December 31, 2014. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of Nucor’s internal control over financial reporting as of December 31, 2014 as stated in their report which is included herein.


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    

 

 

      45      

 

 

 

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, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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, 2014, 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.

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.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Gallatin Steel Company from its assessment of internal control over financial reporting as of December 31, 2014 because it was acquired by the Company in a purchase business combination during 2014. We have also excluded Gallatin Steel Company from our audit of internal control over financial reporting. Gallatin Steel Company is a wholly owned subsidiary whose total assets and total sales represent approximately 4.2% and 1.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014.

 

LOGO

PricewaterhouseCoopers LLP

Charlotte, NC

February 27, 2015


 

      46      

 

 

    CONSOLIDATED BALANCE SHEETS

 

 

  CONSOLIDATED BALANCE SHEETS

 

              

(in thousands)

 

 
  December 31,      2014        2013  
 

ASSETS

           
 

CURRENT ASSETS:

           
 

Cash and cash equivalents (Note 15)

     $ 1,024,144         $ 1,483,252   
 

Short-term investments (Notes 4 and 15)

       100,000           28,191   
 

Accounts receivable, net (Note 5)

       2,068,298           1,810,987   
 

Inventories, net (Note 6)

       2,745,032           2,605,609   
 

Other current assets (Notes 10, 14 and 20)

       504,414           482,007   
    

 

 

      

 

 

 
 

Total current assets

  6,441,888      6,410,046   
 

PROPERTY, PLANT AND EQUIPMENT, NET (Note 7)

  5,287,639      4,917,024   
 

GOODWILL (Note 9)

  2,068,664      1,973,608   
 

OTHER INTANGIBLE ASSETS, NET (Note 9)

  862,093      874,154   
 

OTHER ASSETS (Note 10)

  955,643      1,028,451   
    

 

 

      

 

 

 
 

TOTAL ASSETS

$ 15,615,927    $ 15,203,283   
    

 

 

      

 

 

 
 
             

 

LIABILITIES AND EQUITY

 
 

CURRENT LIABILITIES:

 
 

Short-term debt (Notes 12 and 15)

$ 207,476    $ 29,202   
 

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

  16,335      3,300   
 

Accounts payable (Note 11)

  993,872      1,117,078   
 

Salaries, wages and related accruals (Note 18)

  352,488      282,860   
 

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

  527,605      527,776   
    

 

 

      

 

 

 
 

Total current liabilities

  2,097,776      1,960,216   
 

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

  4,360,600      4,376,900   
 

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

  1,082,433      955,889   
    

 

 

      

 

 

 
 

TOTAL LIABILITIES

  7,540,809      7,293,005   
    

 

 

      

 

 

 
 

COMMITMENTS AND CONTINGENCIES (Notes 14 and 16)

 
 

EQUITY

 
 

NUCOR STOCKHOLDERS’ EQUITY (Notes 13 and 17):

 
 

Common stock (800,000 shares authorized; 378,092 and 377,525 shares issued, respectively)

  151,237      151,010   
 

Additional paid-in capital

  1,883,356      1,843,353   
 

Retained earnings

  7,378,214      7,140,440   
 

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

  (145,708   9,080   
 

Treasury stock (59,059 and 59,197 shares, respectively)

  (1,494,629   (1,498,114
    

 

 

      

 

 

 
 

Total Nucor stockholders’ equity

  7,772,470      7,645,769   
 

NONCONTROLLING INTERESTS

  302,648      264,509   
    

 

 

      

 

 

 
 

TOTAL EQUITY

  8,075,118      7,910,278   
    

 

 

      

 

 

 
 

TOTAL LIABILITIES AND EQUITY

$ 15,615,927    $ 15,203,283   
    

 

 

      

 

 

 
 
             

See notes to consolidated financial statements.


 

CONSOLIDATED STATEMENTS OF EARNINGS    

 

 

      47      

 

 

  CONSOLIDATED STATEMENTS OF EARNINGS

 

    

(in thousands, except per share data)

 

 
  Year Ended December 31,      2014        2013        2012  
   

NET SALES

     $ 21,105,141         $ 19,052,046         $ 19,429,273   
    

 

 

      

 

 

      

 

 

 
   

COSTS, EXPENSES AND OTHER:

   
   

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

  19,198,615      17,641,421      17,915,735   
   

Marketing, administrative and other expenses (Notes 3 and 7)

  546,198      481,904      454,900   
   

Equity in (earnings) losses of unconsolidated affiliates (Note 10)

  (13,505   (9,297   13,323   
   

Impairment of non-current assets (Note 10)

            30,000   
   

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

  169,256      146,895      162,375   
    

 

 

      

 

 

      

 

 

 
   
  19,900,564      18,260,923      18,576,333   
    

 

 

      

 

 

      

 

 

 
   

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

  1,204,577      791,123      852,940   
   

PROVISION FOR INCOME TAXES (Note 20)

  388,787      205,594      259,814   
    

 

 

      

 

 

      

 

 

 
   

NET EARNINGS

  815,790      585,529      593,126   
   

EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

  101,844      97,504      88,507   
    

 

 

      

 

 

      

 

 

 
   

NET EARNINGS ATTRIBUTABLE TO NUCOR STOCKHOLDERS

$ 713,946    $ 488,025    $ 504,619   
    

 

 

      

 

 

      

 

 

 
   

NET EARNINGS PER SHARE (Note 22):

   
   

Basic

$ 2.22    $ 1.52    $ 1.58   
   

Diluted

 

$

 

2.22

 

  

 

$

 

1.52

 

  

 

$

 

1.58

 

  

 

See notes to consolidated financial statements.


 

      48      

 

 

    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

      

(in thousands)

 

 
  Year Ended December 31,      2014         2013         2012   
   

NET EARNINGS

     $ 815,790         $ 585,529         $ 593,126   
    

 

 

      

 

 

      

 

 

 
   

OTHER COMPREHENSIVE (LOSS) INCOME:

   
   

Net unrealized loss on hedging derivatives,
net of income taxes of ($4,900), $0 and ($1,100)
    for 2014, 2013 and 2012, respectively

  (8,542        (2,264
   

Reclassification adjustment for loss on settlement
of hedging derivatives included in net earnings,
    net of income taxes of $200, $0 and $25,000
      for 2014, 2013 and 2012, respectively

  542           42,515   
   

Foreign currency translation (loss) gain,
net of income taxes of $400, ($600) and $0
    for 2014, 2013 and 2012, respectively

  (141,530   (53,619   58,626   
   

Adjustment to early retiree medical plan,
net of income taxes of ($1,921), $2,547 and ($1,528)
    for 2014, 2013 and 2012, respectively

  (4,228   5,938      (3,646
   

Reclassification adjustment for gain on early retiree
medical plan included in net earnings,
    net of income taxes of ($557), $0 and $0
      for 2014, 2013 and 2012, respectively

  (1,030          
    

 

 

      

 

 

      

 

 

 
   
  (154,788   (47,681   95,231   
    

 

 

      

 

 

      

 

 

 
   

COMPREHENSIVE INCOME

  661,002      537,848      688,357   
   

COMPREHENSIVE INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS

  (101,844   (97,504   (88,512
    

 

 

      

 

 

      

 

 

 
   

COMPREHENSIVE INCOME ATTRIBUTABLE TO
NUCOR STOCKHOLDERS

$ 559,158    $ 440,344    $ 599,845   
    

 

 

      

 

 

      

 

 

 
   
                   

See notes to consolidated financial statements.


 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY    

 

   

 

      49      

 

 

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, 2011

 

 

$7,706,580

 

 

376,239

 

 

$150,496

 

 

$1,756,534

 

 

$7,111,566 

 

 

($  38,177)

 

 

59,490 

 

 

($1,505,534)

 

 

$7,474,885 

 

 

$231,695  

 

           
Net earnings in 2012   593,126              504,619              504,619    88,507  
           
Other comprehensive income (loss)   95,231                95,226          95,226    5  
           
Stock options exercised   10,515    354   142   10,373               10,515   
           
Stock option expense   9,850          9,850               9,850   
           
Issuance of stock under award plans, net of forfeitures   36,119    420   167   32,395         (140)   3,557    36,119   
           
Amortization of unearned compensation   800          800               800   
           
Cash dividends ($1.4625 per share)   (467,662)             (467,662)             (467,662)  
           
Distributions to noncontrolling interests   (74,848)                             (74,848) 
           
Other   (24,337)           1,507   (24,000)   (288)           (22,781)   (1,556) 
           

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  

 

See notes to consolidated financial statements.


 

      50      

 

 

    CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

        

(in thousands)

 

     
Year Ended December 31,           2014             2013             2012      
OPERATING ACTIVITIES:                       
     

Net earnings

       $ 815,790           $ 585,529           $ 593,126     
     

Adjustments:

                      
     

Depreciation

         652,000             535,852             534,010     
     

Amortization

         72,423             74,356             73,011     
     

Stock-based compensation

         46,384             47,450             50,733     
     

Deferred income taxes

         90,864             56,564             (25,274  
     

Distributions from affiliates

         53,738             8,708                 
     

Equity in (earnings) losses of unconsolidated affiliates

         (13,505          (9,297          13,323     
     

Impairment of non-current assets

                                 30,000     
     

Loss on assets

         25,393             14,000             17,563     
     

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

                      
     

Accounts receivable

         (179,181          (103,649          148,113     
     

Inventories

         (45,963          (298,074          (65,655  
     

Accounts payable

         (111,859          39,489             (111,496  
     

Federal income taxes

         (111,687          77,950             (28,022  
     

Salaries, wages and related accruals

         67,973             7,155             (60,363  
     

Other operating activities

         (19,472          41,916             31,316     
      

 

 

        

 

 

        

 

 

   
     

Cash provided by operating activities

           1,342,898               1,077,949               1,200,385     
INVESTING ACTIVITIES:                       
     

Capital expenditures

         (667,982          (1,196,952          (947,608  
     

Investment in and advances to affiliates

         (97,841          (85,053          (180,472  
     

Repayment of advances to affiliates

         122,000             54,500             65,446     
     

Disposition of plant and equipment

         36,563             34,097             51,063     
     

Acquisitions (net of cash acquired)

         (768,581                      (760,833  
     

Purchases of investments

         (100,000          (19,349          (409,403  
     

Proceeds from the sale of investments

         27,529             92,761             1,667,142     
     

Proceeds from the sale of restricted investments

                     148,725             359,295     
     

Changes in restricted cash

                     126,438             (48,625  
     

Other investing activities

         10,250             4,863                 
      

 

 

        

 

 

        

 

 

   
     

Cash used in investing activities

           (1,438,062            (839,970            (203,995  
FINANCING ACTIVITIES:                       
     

Net change in short-term debt

         178,308             (671          27,945     
     

Repayment of long-term debt

         (5,358          (250,000          (650,000  
     

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

                     999,100                 
     

Bond issuance costs

                     (7,625              
     

Issuance of common stock

         5,614                         10,515     
     

Excess tax benefits from stock-based compensation

         3,400             2,955             4,700     
     

Distributions to noncontrolling interests

         (63,705          (76,798          (74,848  
     

Cash dividends

         (475,123          (471,028          (466,361  
     

Other financing activities

         (2,183          111             1,172     
      

 

 

        

 

 

        

 

 

   
     

Cash (used in) provided by financing activities

           (359,047            196,044               (1,146,877  

Effect of exchange rate changes on cash

         (4,897          (3,633          2,704     
      

 

 

        

 

 

        

 

 

   
     

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

         (459,108          430,390             (147,783  
     

CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR

         1,483,252             1,052,862             1,200,645     
      

 

 

        

 

 

        

 

 

   
     

CASH AND CASH EQUIVALENTS — END OF YEAR

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

 

 

        

 

 

        

 

 

   

NON-CASH INVESTING ACTIVITY:

                                              
     

Change in accrued plant and equipment purchases

       $ (99,115        $ 33,467           $ 71,726     
      

 

 

        

 

 

        

 

 

   
                         

See notes to consolidated financial statements.


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    

 

 

      51      

 

 

YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

 

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 significant 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 In the first quarter of 2013, we began reporting the results of Nucor’s steel trading businesses and rebar distribution businesses in the steel mills segment. Previously, these businesses were reported in an “All Other” category. These businesses were reclassified to the steel mills segment as part of a realignment of Nucor’s reportable segments to better reflect the way in which they are managed. The segment data for the comparable periods has also been reclassified into the steel mills segment in order to conform to the current year presentation. 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. Additionally, the composition of assets by segment at December 31, 2012, was reclassified to conform with the current presentation. This reclassification between segments did not have any impact on the consolidated asset balances.

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 43% of total inventories as of December 31, 2014 (45% as of December 31, 2013). 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 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 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; 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 uses forward foreign exchange contracts to hedge cash flows associated with certain assets and liabilities, firm commitments and anticipated transactions.

Nucor recognizes all material 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 2014, Nucor adopted new accounting guidance, which requires unrecognized tax benefits to be presented as a decrease in net operating loss, similar tax loss or tax credit carryforward if certain criteria are met. Adoption of the guidance did not impact Nucor’s consolidated financial position, results of operations or cash flows.

In March 2013, new accounting guidance was issued on foreign currency matters that clarifies the guidance of a parent company’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. Under this new standard, a parent company that ceases to have a controlling financial interest in a foreign subsidiary or group of assets within a foreign entity shall release any related cumulative translation adjustment into net income only if a sale or transfer results in complete or substantially complete liquidation of the foreign entity. This standard has been applied prospectively for the Company beginning January 1, 2014. The adoption of this standard did not have a material effect on the consolidated financial statements.

In February 2013, new accounting guidance was issued on joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Under this new standard, obligations resulting from joint and several liability arrangements are to be measured as the sum of: (a) the amount the reporting entity agreed with its co-obligors that it will pay and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. This standard has been applied prospectively for the Company beginning January 1, 2014. The adoption of this standard did not have a material effect on the consolidated financial statements.

Recently Issued Accounting Pronouncements In April 2014, new accounting guidance was issued that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The new guidance is effective for annual and interim periods beginning after December 15, 2014. The impact on the Company of adopting the new guidance will depend on the nature, terms and size of business disposals completed after the effective date.

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. The amendments are effective for the Company for all annual and interim reporting periods beginning after December 15, 2016. The Company is evaluating adoption methods and the impact it will have on the 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 interim and annual periods beginning after December 15, 2016, and is not expected to have an effect on the Company’s 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 estimated 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

  98,505   

Other intangible assets

  67,150   

Other assets

  2,762   
    

 

 

 

Total assets acquired

  889,481   
    

 

 

 
 

Current liabilities

  105,816   

Long-term debt

  2,093   

Deferred credits and other liabilities

  2,500   
    

 

 

 

Total liabilities assumed

  110,409   
    

 

 

 
 

Net assets acquired

$ 779,072   
    

 

 

 
 
            

 

The purchase price allocation to the identifiable intangible assets is as follows:

 

  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 $98.5 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). Approximately $87.6 million of the goodwill recognized is expected to be deductible for tax purposes.

On June 20, 2012, Nucor completed the acquisition of the entire equity interest in Skyline Steel, LLC (Skyline) and its subsidiaries for the cash purchase price of $675.4 million. No cash was received nor was any debt assumed as a result of the acquisition. Skyline’s financial results are included as part of the steel mills segment (see Note 23).

Skyline is a steel foundation manufacturer and distributor serving the U.S., Canada, Mexico and the Caribbean. Skyline’s steel products are used in marine construction, bridge and highway construction, heavy civil construction, storm protection, underground commercial parking and environmental containment projects in the infrastructure and construction industries. Skyline is a significant consumer of H-piling and sheet piling from Nucor-Yamato Steel Company.


 

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

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

 

(in thousands)

 

   

Accounts receivable

$ 128,004   

Inventory

  260,473   

Other current assets

  4,410   

Property, plant and equipment

  70,100   

Goodwill

  138,579   

Other intangible assets

  215,600   
    

 

 

 

Total assets acquired

  817,166   
    

 

 

 
 

Current liabilities

  137,654   

Deferred credits and other liabilities

  4,078   
    

 

 

 

Total liabilities assumed

  141,732   
    

 

 

 
 

Net assets acquired

$ 675,434   
    

 

 

 
 
            

The purchase price allocation to the identifiable intangible assets is as follows:

 

  As of the date of acquisition   (in thousands, except years)  
                

    Weighted-     

    Average Life     

 
   

Customer relationships

       $ 184,500        17 years   

Trademarks and trade names

         28,500        20 years   

Other

         2,600        3 years   
      

 

 

   
$ 215,600   
      

 

 

   
   
                        

The goodwill of $138.6 million is primarily attributed to the synergies expected to arise after the acquisition and was allocated to the steel mills segment. Approximately $128.2 million of the goodwill recognized is expected to be deductible for tax purposes.

In August 2012, Nucor sold the assets of Nucor Wire Products Pennsylvania, Inc., resulting in a loss of $17.6 million. This charge is included in marketing, administrative and other expenses in the consolidated statement of earnings.

In November 2012, Nucor acquired 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 program. Nucor accounts for the investment (on a one-month lag basis) under the equity method (see Note 10). As of December 31, 2014, Nucor’s investment in Hunter Ridge was $138.6 million ($134.5 million at December 31, 2013).

Other minor acquisitions, exclusive of purchase price adjustments of acquisitions made, totaled $38.5 million in 2014, none in 2013, and $85.4 million in 2012.


 

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4. SHORT-TERM INVESTMENTS

Nucor’s short-term investments held as of December 31, 2014, and December 31, 2013, were $100.0 million and $28.2 million, respectively. These investments consisted of fixed term deposits and certificates of deposit (CDs) at December 31, 2014, and December 31, 2013, respectively, and 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 2014, 2013 or 2012.

The contractual maturities of all of the fixed term deposits outstanding at December 31, 2014, are before December 31, 2015.

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 $65.4 million at December 31, 2014 ($58.3 million at December 31, 2013, and $57.4 million at December 31, 2012).

6. INVENTORIES

Inventories consist of approximately 40% raw materials and supplies and 60% finished and semi-finished products at December 31, 2014, and December 31, 2013. 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 $567.4 million higher at December 31, 2014 ($624.7 million higher at December 31, 2013). Use of the lower of cost or market method reduced inventories by $2.7 million at December 31, 2014 ($2.1 million at December 31, 2013).

7. PROPERTY, PLANT AND EQUIPMENT

 

(in thousands) 

 

  December 31,      2014        2013  
   

Land and improvements

     $ 576,511         $ 555,309   

Buildings and improvements

       1,018,342           941,379   

Machinery and equipment

       10,080,640           9,159,151   

Proved oil and gas properties

       584,466           487,033   

Construction in process and equipment deposits

       193,594           400,373   
    

 

 

      

 

 

 
  12,453,553