2011

 

 

 

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, 2011

      Commission file number 1-4119

OR

 

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

For the transition period from              to             

 

 

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 the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 Exchange Act).    Yes  ¨    No  x

Aggregate market value of common stock held by non-affiliates was approximately $13.09 billion based upon the closing sales price of the registrant’s common stock on the last day of our most recently completed second fiscal quarter, July 2, 2011.

316,887,937 shares of common stock were outstanding at February 17, 2012.

 

 

Documents incorporated by reference include: Portions of 2011 Annual Report (Parts I, II and IV), and Notice of 2012 Annual Meeting of Stockholders and Proxy Statement (Part III) to be filed within 120 days after Nucor’s fiscal year end.

 

 

 


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    16
PART II        
   Item 5      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities    18
   Item 6      Selected Financial Data    18
   Item 7      Management’s Discussion and Analysis of Financial Condition and Results of Operations    18
   Item 7A      Quantitative and Qualitative Disclosures about Market Risk    18
   Item 8      Financial Statements and Supplementary Data    19
   Item 9      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    19
   Item 9A      Controls and Procedures    20
   Item 9B      Other Information    20
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    21
   Item 13      Certain Relationships and Related Transactions, and Director Independence    21
   Item 14      Principal Accountant Fees and Services    21
PART IV        
   Item 15      Exhibits and Financial Statement Schedules    21
SIGNATURES    26
Index to Financial Statement Schedule    28

 

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PART I

 

Item 1. Business

Overview

Nucor Corporation and its affiliates (“Nucor” or the “Company”) 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”), which the Company acquired in 2008, 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 increasingly, 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 2011, we recycled approximately 19.7 million tons of scrap steel.

General Development of our Business in Recent Years

Nucor has employed a multi-pronged growth strategy in recent years that allows for flexibility and the ability to capitalize on growth opportunities as they arise. The five prongs of that growth strategy are: (1) optimizing existing operations, (2) executing on our raw materials strategy, (3) growing through developing greenfield projects that capitalize on new technologies and unique marketplace opportunities, (4) acquiring other companies that will strengthen Nucor’s position as North America’s most diversified producer of steel and steel products and (5) growing internationally with an emphasis on leveraging strategic partnerships and new technologies.

Optimizing our existing operations has primarily involved targeting a significant portion of our capital expenditures each year on projects that enhance productivity and efficiency as well as allow us to produce products that move us up the value chain at our existing facilities. The heat treat line at our Hertford County, North Carolina mill became operational in 2010, which has allowed Nucor to grow its presence in higher margin products where higher strength and abrasion resistance is required. The heat treat line has also allowed us to improve the product mix allocation between our two plate mills and four sheet mills to improve margins at those facilities. Nucor has announced plans to spend approximately $290 million for projects at our Tennessee, Nebraska, and South Carolina bar mills that will expand Nucor’s special bar quality (“SBQ”) and wire rod capacity by one million tons. The projects, which we project will be completed by the end of 2013, will allow us to meet the needs of our engineered bar customers in the attractive automotive, energy, heavy truck and heavy equipment markets. Other planned value-added projects at existing operations include a vacuum degasser at our Hickman, Arkansas mill and a new mill stand and other modifications that will allow us to produce wider and lighter gauge hot-rolled steel at our Berkeley, South Carolina mill.

Executing on our raw materials strategy involves putting the pieces into place to meet our goal of controlling between six and seven million tons of annual capacity in high quality scrap substitutes. We have begun construction on our 2,500,000 tons-per-year DRI facility in St. James Parish, Louisiana. The majority of the equipment for this $750 million project will begin arriving in 2012, and start-up is currently projected to be in mid-2013. Between our existing DRI plant in Trinidad, which we have expanded to increase the annual capacity from 1,800,000 to 2,000,000 metric tons, and our facility in St. James Parish, Louisiana, we will be approximately two-thirds of the way towards that goal.

 

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Growing through greenfield projects has included the construction of our SBQ steel mill in Memphis, Tennessee, which we completed in 2009. We also began commercial production in 2009 at a new facility in Blytheville, Arkansas, which uses breakthrough Castrip® technology to strip cast molten steel into near final shape and thickness with minimal hot or cold rolling. This allows for lower investment and operating costs and reduces the environmental impact of producing steel.

The pace at which we have been acquiring other companies slowed dramatically in late 2008, but in the preceding four years we completed numerous acquisitions. Since late 2006 our annual capacity to produce downstream value-added products has more than doubled to over 4.6 million tons through acquisitions of a steel decking producer, fabricators of rebar, cold finished bars and steel grating, a manufacturer of metal buildings and a wire mesh fabricator. The acquisition of DJJ in the spring of 2008 was a key part of our strategy to better manage the supply of ferrous scrap metal, the primary raw material used by our electric arc furnace steel mills.

In 2010, we entered into an agreement with Mitsui & Co. (U.S.A.) to form NuMit LLC, in which we own a 50% economic and voting interest. NuMit LLC owns 100% of the equity interest in Steel Technologies LLC, which operates 25 sheet processing facilities located throughout the United States, Canada and Mexico.

In 2008 we grew internationally by entering into a joint investment with Duferco S.A., Duferdofin Nucor S.r.l., which operates a one million tons-per-year steel melt shop with a bloom billet caster in Brescia, Italy and three rolling mills located throughout Italy. The customers for the products produced by Duferdofin Nucor S.r.l. are primarily steel service centers and distributors located both in Italy and throughout Europe.

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 (loss) 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, 2011 are set forth in Note 22 of the Notes to Consolidated Financial Statements included in Nucor’s 2011 Annual Report, which is hereby incorporated by reference. The steel mills are Nucor’s dominant segment representing approximately 70% of the Company’s sales to external customers in the fiscal year ended December 31, 2011.

Principal Products Produced

In the steel mills segment, Nucor produces sheet steel (hot and cold-rolled), plate steel, structural steel (wide-flange beams, beam blanks and sheet piling) and bar steel (blooms, billets, concrete reinforcing bar, merchant bar and SBQ). Nucor manufactures steel principally from scrap steel and scrap steel substitutes using electric arc furnaces, continuous casting and automated rolling mills. In the steel products segment, Nucor produces steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems, light gauge steel framing, 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.

 

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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, increasingly, elsewhere in the world. Nucor produces hot-rolled and cold-rolled sheet steel in standard grades and to customers’ specifications while maintaining inventories to fulfill anticipated orders. In 2011, approximately 50% of our sheet steel sales were to contract customers, while steel contract sales outside of our sheet operations are not significant. The proportion of tons sold to contract customers depends on a variety of factors. These factors include 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 prevailing raw material costs and typically have terms ranging from six to twelve months. The balance of our sheet steel sales was in the spot market at prevailing prices at the time of sale.

Our plate, structural, reinforcing and merchant bar steel come in standard sizes and grades, whereby we maintain inventory levels 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, and bar steel sales occur in the spot market at prevailing market prices.

In 2011, approximately 86% of the production by our steel mills segment was sold to external customers. The balance of the steel mill segment’s production went to 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. 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 permit us to adjust our prices to reflect changes in prevailing raw materials costs. We sell 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. The markets for these products are tied to capital and durable goods spending and are affected by changes in general economic conditions.

In the raw materials segment, the Company processes ferrous and nonferrous scrap metal for use in Nucor’s steel mills and for sale to various domestic and international external customers. The Company also brokers ferrous and nonferrous metals and scrap substitutes, supplies ferro-alloys, and provides transportation, material handling and other services to users of scrap metals. The 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 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 2011, approximately 12% of the ferrous and nonferrous metals and scrap substitutes tons processed and sold by the raw materials segment were sold to external customers.

 

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The Company’s other operations include international trading companies that buy and sell steel and steel products that Nucor and other steel producers have manufactured.

Backlog

In the steel mills segment, Nucor’s backlog of orders was approximately $1.80 billion and $1.64 billion at December 31, 2011 and 2010, respectively. Nucor’s backlog of orders in the steel products segment was approximately $1.11 billion and $1.02 billion at December 31, 2011 and 2010, respectively. Order backlogs for the steel mills segment include orders attributable to Nucor’s downstream businesses. 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 by internal divisions.

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, 2011, DJJ operated over 60 scrap yards, and the Company’s annual scrap processing capability was approaching 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. Nucor operates a DRI plant in Trinidad with a capacity of 1,800,000 metric tons of DRI annually. An expansion project has now increased the capacity to 2,000,000 metric tons annually. The primary raw material for our DRI facility in Trinidad is iron ore, which we purchase from various international suppliers. A second DRI facility in Louisiana with an annual capacity of 2,500,000 tons is under construction. This Louisiana DRI facility is the first phase of a multi-phase plan that may include an additional DRI facility, a coke plant, a blast furnace, a pellet plant and a steel mill.

In 2010, Nucor entered into an agreement with a natural gas exploration and production firm that involves drilling and completing onshore natural gas wells in U.S.-based proven reserves over a seven-year period that began in June 2010. Natural gas generated by this working interest drilling program is being sold to offset our exposure to the volatility of the price of gas consumed by our Louisiana DRI facility. Revenues from natural gas generated by this working interest drilling program are a small but increasing amount, and all natural gas is being sold to outside parties.

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 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.

 

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Energy Consumption and Costs

Our steel mills are large consumers of electricity and natural gas. Our DRI facility in Trinidad is, and the DRI facility we are currently constructing in Louisiana will be, 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 a working interest agreement with a leading natural gas production firm to drill on-shore natural gas wells in the United States.

Historically, manufacturers in the United States have benefitted 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, by changes in public policy relating to energy production and use. Because energy is such a significant cost of products sold for Nucor, we are continually striving 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 market place.

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. Our unfinished and finished steel products face domestic competition from both integrated steel producers and other electric-arc furnace mills. 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.

Recently we have experienced increased competition in the U.S. sheet steel market stemming from significant capacity increases. Since the beginning of 2010, domestic sheet capacity has increased by approximately 5,000,000 tons as a result of the opening of a new sheet facility in Alabama, capacity additions at existing sheet mills, and the reopening of a previously shuttered sheet mill in Maryland.

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. Foreign imports accounted for approximately 22% of the U.S. steel market in 2011. In particular, competition from steel imported from China, which accounts for more than 40% of the steel produced annually in the world, is a major challenge. 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 their products below cost. These distorting trade practices are not only widely recognized as being unfair but also have been challenged

 

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successfully in some recent instances as violating world trade rules. Examples of successful challenges include the imposition of antidumping duty orders on imports of line pipe, oil country tubular goods, rebar, cut-to-length plate and hot rolled sheet from China.

China’s unfair trade practices seriously undermine the ability of the Company and other domestic producers to compete on price when left unchallenged. That country’s artificially lowered production costs have significantly contributed to the exodus of manufacturing jobs from the United States. When such a flight occurs, Nucor’s customer base is diminished, thereby providing us with fewer opportunities to supply steel to those shuttered businesses. 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 and address the jobs crisis in the United States. Numerous downstream consumers of steel are also taking action against unfairly traded Chinese imports, as demonstrated by recently filed cases on steel wheels and wind towers from China.

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. The states in which our operations are located also have 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. Both federal and state laws and regulations are becoming increasingly stringent however, 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 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 and 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

 

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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. The DRI facility we are constructing in Louisiana was permitted under the CAA in January 2011. This permit included an evaluation and determination of Best Available Control Technology (“BACT”) for USEPA’s new “Greenhouse Gasses” (“GHGs”) rule. Because of the size of our steelmaking operations, they are also subject to these new GHG regulations and will be required to do GHG BACT evaluations if their permits are modified in the future. There is still a great deal of uncertainty and very little guidance from USEPA as to what is or may be considered GHG BACT for steelmaking operations. Our operations are properly permitted, and we will not need to make these determinations unless and until their 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 other new environmental regulations are imposed on electric utilities, 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 are either already identified and being resolved or have been fully resolved and Nucor is in receipt of no further action letters from the appropriate regulatory agency.

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.

 

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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 Nucor 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.

Capital expenditures at our facilities that are associated with environmental regulation compliance for 2012 and 2013 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 be innovative. Our organization is highly decentralized, with most day-to-day operating decisions made by our division general managers and their staff. Less than 100 employees are located in our executive office. The majority of Nucor’s 20,800 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 all 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.

Recovery from the global recession and credit crisis has and likely will continue to adversely affect our business.

The sluggish pace of the recovery from the deep global recession that began in the United States in December 2007 and officially ended in June 2009 is continuing to have an adverse effect on demand for our products and consequently the results of our operations, financial condition and cash flows. In addition, uncertainties in Europe regarding the financial sector and sovereign debt and the potential impact on banks in other regions of the world will continue to weigh on global and domestic growth.

 

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Although domestic credit markets have largely stabilized from the height of the financial crisis in the fourth quarter of 2008 and the first half of 2009, the effects of the financial crisis continue to present additional risks to us, our customers and suppliers. In particular, there is no guarantee that the credit markets or liquidity will not once again be restricted. Additionally, stricter lending standards have made it more difficult for some firms to access the credit markets. Although we believe we have adequate access to several sources of contractually committed borrowings and other available credit facilities, these risks could temporarily restrict our ability to borrow money on acceptable terms in the credit markets and potentially could affect our ability to draw on our credit facility. In addition, restricted access to the credit markets is also continuing to make it difficult or, in some cases, impossible for our customers to borrow money to fund their operations. Lack of, or limited access to, capital would adversely affect our customers’ ability to purchase our products or, in some cases, to pay for our products on a timely basis.

Long-term unemployment for those unemployed for more than six months remains at historically high levels and the housing market and non-residential construction market remain depressed. High unemployment and a weak housing market have an impact on downstream demand for many of our products. Additionally, non-residential construction, including publicly financed state and municipal projects, has slowed significantly due to overcapacity of commercial properties and the reluctance of state and local governments to borrow to spend on capital projects when faced with stagnant or declining tax revenues and increased operating costs.

Our industry is cyclical and both recessions and prolonged periods of slow economic growth could have a material 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, 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. The global economic recession of 2008/2009 and subsequent anemic economic recovery period, coupled with the lingering effects of the global financial and credit market disruptions, have had a historic negative impact on the steel industry and Nucor. These events contributed to an unprecedented decline in pricing for steel and steel products, weak end-markets and continued depressed demand, resulting in extraordinary volatility in our financial results since the last up-cycle. In 2009, we reported a net loss of $293.6 million, the first in the Company’s history. We returned to profitability in 2010 and 2011, reporting net income of $134.1 million and $778.2 million, respectively. However, 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 depressed economic conditions that are contributing to reduced demand for our products. 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,

 

9


international currency conversion rates and 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.

In particular, steel production in China, the world’s largest producer and consumer of steel, currently exceeds Chinese demand and in recent years the production growth rate has exceeded the growth rate of demand. This rising overcapacity in China has the potential to result in a further increase in imports of low-priced, unfairly traded steel and steel products to the United States that could put our 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.

The recent addition of new capacity and expansion or restarting of existing sheet steel production in the United States has exacerbated this issue domestically as well as globally.

Competition from other producers, imports or alternative materials may have a material adverse effect on 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, energy, 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.

In 2011, automobile producers began taking steps towards complying with new Corporate Average Fuel Economy (“CAFE”) 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 in cars and trucks to improve fuel economy, thereby reducing demand for steel and resulting in further over-supply of steel in North America.

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 vertically integrated our business by constructing our DRI facility in Trinidad and 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, purchase 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 markets restrict the export of scrap, protecting the supply chain of some foreign competitors. This trade practice creates artificial competitive advantage for foreign producers that could limit our ability to compete in the U.S. market.

 

10


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, although we have successfully used a raw material surcharge in the steel mills segment since 2004. 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 facility is also a large consumer 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 applicable across the entire steel market could materially adversely affect our business, results of operations, financial condition and cash flows.

Our steelmaking processes, and the manufacturing processes of many of our suppliers and customers, are energy intensive and generate carbon dioxide and other GHGs, and regulation of 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 as GHG regulations are further implemented. Because Nucor’s steelmaking 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 increased 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 “fracking” is dampening some of this indirect impact, as some utilities switch fuels to natural gas from coal thereby reducing their emissions significantly. To the extent that these regulations cause 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. Most of these and other related regulations are already, or we expect will shortly be, challenged in court. Until all proposed GHG emission regulations are adopted in final form and all legal challenges to them, including the authority of the USEPA to adopt them, have been resolved, however, we cannot reliably estimate their impact on our financial condition, operating performance or ability to compete. Because some foreign steel producers will not be subject to these same indirect 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 GHG regulations and the alleged impact of our operations on climate change.

 

11


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 required to incur equivalent costs, our competitive position could be materially adversely impacted.

We plan to continue to implement our acquisition strategy and 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 are complementary to our existing strengths. 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.

In addition, we may enter into joint ventures or acquisitions located outside the U.S., which may be adversely affected by foreign currency fluctuations, changes in economic conditions and changes in local government regulations and policies.

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 or man-made disasters, 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.

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, 2011, our total capital expenditures, excluding acquisitions, were approximately $2.73 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 could require financing from external sources.

Changes in foreign currency may adversely affect our financial results.

Because of our international expansion efforts, we are increasingly exposed to changes in foreign exchange rates. Generally, each of our foreign operations both produces and sells in its local currency, limiting our exposure to foreign currency transactions. We monitor our exposures and, from time to time, may use forward currency contracts to hedge certain forecasted currency transactions. In addition to potential transaction losses, our reported results of operations and financial position could 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.

 

12


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 long-lived assets is less than the value recorded on our balance sheet, we would likely incur a non-cash impairment loss that will negatively impact our results of operations.

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, repealing LIFO (last-in, first-out treatment of inventory) and decreasing 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.

 

Item 1B. Unresolved Staff Comments

None.

 

13


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

     2,550,000       Steel shapes, flat-rolled steel

Berkeley County, South Carolina

     2,160,000       Flat-rolled steel, steel shapes

Decatur, Alabama

     2,000,000       Flat-rolled steel

Crawfordsville, Indiana

     1,880,000       Flat-rolled steel

Norfolk, Nebraska

     1,440,000       Steel shapes

Hickman, Arkansas

     1,420,000       Flat-rolled steel

Plymouth, Utah

     1,190,000       Steel shapes

Hertford County, North Carolina

     1,100,000       Steel plate

Jewett, Texas

     1,080,000       Steel shapes

Darlington, South Carolina

     940,000       Steel shapes

Seattle, Washington

     640,000       Steel shapes

Memphis, Tennessee

     520,000       Steel shapes

Auburn, New York

     450,000       Steel shapes

Marion, Ohio

     440,000       Steel shapes

Kankakee, Illinois

     430,000       Steel shapes

Kingman, Arizona

     380,000       Steel shapes

Tuscaloosa, Alabama

     370,000       Steel plate

Jackson, Mississippi

     370,000       Steel shapes

Birmingham, Alabama

     280,000       Steel shapes

Wallingford, Connecticut

     240,000       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

Fort Payne, Alabama

     470,000       Joists, deck

Raw materials:

     

Point Lisas, Trinidad

     2,040,000       Direct reduced iron

Our steel mills segment also includes a distribution center in Pompano Beach, Florida.

In the steel products segment, we have 84 additional operating facilities in 39 states and 28 operating facilities in Canada. Our affiliate, Harris Steel, also operates multiple sales offices in Canada and certain other foreign locations.

In the raw materials segment, DJJ has 68 operating facilities in 15 states along with multiple brokerage offices in the U.S. and certain other foreign locations.

 

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During 2011, the average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 74%, 57% and 70% 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 plaintiffs allege that from January 2005 to the present 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. 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.

In the course of normal compliance evaluation in 2008 at our steel mill in Marion, Ohio, we discovered and self-disclosed to the Ohio Environmental Protection Agency (the “Ohio EPA”) that the facility had failed to properly permit modifications to its power supply. The Ohio EPA has since issued notices of violation for this incident and ancillary issues arising from it. The Ohio EPA has assessed a civil penalty that will not have a material adverse effect on our consolidated financial condition or results of operations. We expect to settle this matter in 2012.

Nucor is involved in various other judicial and administrative proceedings as both plaintiff and defendant, arising in the ordinary course of business. Nucor does not believe that any such proceedings (including matters relating to contracts, torts, taxes, warranties and insurance) will have a material adverse effect on its business, operating results, financial condition or cash flows.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

15


Executive Officers of the Registrant

James R. Darsey (56) – Mr. Darsey has been an Executive Vice President of Nucor since September 2010. He was promoted to Vice President in 1996 and to President of the Vulcraft/Verco Group in 2007. He was General Manager of Nucor Steel, Jewett, Texas from 1999 to 2007; General Manager of Vulcraft, Grapeland, Texas from 1995 to 1999; Engineering Manager of Vulcraft, Grapeland, Texas from 1987 to 1995; and Engineering Manager of Vulcraft, Brigham City, Utah from 1986 to 1987. He began his Nucor career in 1979 as a Design Engineer at Vulcraft, Grapeland, Texas.

Daniel R. DiMicco (61) – Mr. DiMicco has been a director of Nucor since 2000 and was elected Chairman in 2006. Mr. DiMicco has served as Nucor’s Chief Executive Officer since 2000 and served as Vice Chairman from 2001 to 2006. He also served as President from 2000 to 2010. He was an Executive Vice President of Nucor from 1999 to 2000 and Vice President from 1992 to 1999, serving as General Manager of Nucor-Yamato Steel Company. Mr. DiMicco began his career with Nucor in 1982 at Nucor Steel, Plymouth, Utah.

John J. Ferriola (59) – Mr. Ferriola has been President and Chief Operating Officer and a member of the Board of Directors since January 2011. He was the Chief Operating Officer of Steelmaking Operations from 2007 to 2010. Mr. Ferriola previously served as an Executive Vice President of Nucor from 2002 to 2007 and was a Vice President from 1996 to 2001. He was General Manager of Nucor Steel, Crawfordsville, Indiana from 1998 to 2001; General Manager of Nucor Steel, Norfolk, Nebraska from 1995 to 1998; General Manager of Vulcraft, Grapeland, Texas in 1995; and Manager of Maintenance and Engineering at Nucor Steel, Jewett, Texas from 1992 to 1995.

James D. Frias (55) – Mr. Frias has been Chief Financial Officer, Treasurer and Executive Vice President since January 2010. He was a Vice President of Nucor from 2006 to 2009. Mr. Frias previously served as Corporate Controller from 2001 to 2009; Controller of Nucor Steel, Crawfordsville, Indiana from 1994 to 2001; and Controller of Nucor Building Systems, Waterloo, Indiana from 1991 to 1994.

Keith B. Grass (55) – Mr. Grass is an Executive Vice President of Nucor and serves as President and Chief Executive Officer of DJJ. From January 2000 until Nucor acquired DJJ in February 2008, he served as the President and Chief Executive Officer of DJJ. Before he assumed that position with DJJ, Mr. Grass held the following positions with the same company: President and Chief Operating Officer of the Metal Recycling Division during 1999; President of the International Division from 1996 to 1998; Vice President of Trading from 1992 to 1996; District Manager of the Chicago trading office from 1988 to 1992; District Manager of the Detroit office from 1986 to 1988; and District Manager of the Omaha office from 1985 to 1986. Mr. Grass began his career as a brokerage representative in DJJ’s Chicago office in 1978.

Ladd R. Hall (55) – Mr. Hall has been an Executive Vice President of Nucor since September 2007 and was Vice President and General Manager of Nucor Steel, Berkeley County, South Carolina from 2000 to 2007; Vice President and General Manager of Nucor Steel, Darlington, South Carolina from 1998 to 2000; Vice President of Vulcraft, Brigham City, Utah from 1994 to 1998 and General Manager there from 1993 to 1994; General Manager of Vulcraft, Grapeland, Texas in 1993; Sales Manager of Vulcraft, Brigham City, Utah from 1988 to 1993; and Inside Sales at Nucor Steel Plymouth, Utah from 1981 to 1988.

Hamilton Lott, Jr. (62) – Mr. Lott has been an Executive Vice President of Nucor since September 1999 and was a Vice President from 1988 to 1999. He was General Manager of Vulcraft, Florence, South

 

16


Carolina from 1993 to 1999; General Manager of Vulcraft, Grapeland, Texas from 1987 to 1993; Sales Manager of Vulcraft, St. Joe, Indiana from January 1987 to May 1987 and Engineering Manager there from 1982 to 1986. Mr. Lott began his career with Nucor as Design Engineer at Vulcraft, Florence, South Carolina in 1975.

R. Joseph Stratman (55) – Mr. Stratman has been an Executive Vice President of Nucor since September 2007 and was Vice President and General Manager of Nucor-Yamato Steel Company from 1999 to 2007. He was Vice President of Nucor Steel, Norfolk, Nebraska in 1999 and General Manager there from 1998 to 1999; Controller of Nucor-Yamato Steel Company from 1991 to 1998; and Controller of Nucor Building Systems, Waterloo, Indiana from 1989 to 1991.

 

17


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 $1.45 per share in 2011 compared with $1.44 per share in 2010. In December 2011, the board of directors increased the base quarterly cash dividend on Nucor’s common stock to $0.365 per share from $0.3625 per share. In February 2012, the board of directors declared Nucor’s 156th consecutive quarterly cash dividend of $0.365 per share payable on May 11, 2012 to stockholders of record on March 30, 2012.

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 2011 Annual Report, page 68.

 

Item 6. Selected Financial Data

Historical financial information is incorporated by reference to Nucor’s 2011 Annual Report, page 39.

 

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 2011 Annual Report, page 2 (Forward-looking Statements) and pages 20 through 35.

 

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 appropriate 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, 2011, 24% of Nucor’s long-term debt was in industrial revenue bonds that have variable interest rates that are adjusted weekly or annually. The remaining 76% of Nucor’s debt is at fixed rates. Future changes in interest rates are not expected to significantly impact earnings. Nucor also makes use of interest rate swaps to manage net exposure to interest rate changes. As of December 31, 2011, 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.

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. Nucor utilizes a raw material surcharge as a component of pricing steel to facilitate the passing through of increased costs of scrap steel and other raw materials. In periods of stable demand for our products, our surcharge mechanism has worked effectively to reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand for and cost of raw materials is lower, however, the surcharge impacts our sales prices to a lesser extent.

 

18


Nucor also 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, 2011, accumulated other comprehensive income (loss) included $40.3 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, 2011, 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

   $ 1,100       $ 2,700   

Aluminum

     3,030         7,576   

Copper

     300         750   

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 through its operations in Canada, Europe, Trinidad and Australia. We periodically use derivative contracts to mitigate the risk of currency fluctuations. Open foreign currency derivative contracts at December 31, 2011 and 2010 were insignificant.

 

Item 8. Financial Statements and Supplementary Data

Information required by this item is incorporated by reference to Nucor’s 2011 Annual Report, pages 40 through 64.

 

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

None.

 

19


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, 2011 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, 2011 are incorporated by reference to Nucor’s 2011 Annual Report, pages 40 and 41.

 

Item 9B. Other Information

None.

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item about Nucor’s executive officers is contained in Part I, Item 1 of this Form 10-K. The other information required by this Item is contained in the sections of Nucor’s Notice of 2012 Annual Meeting of Stockholders and Proxy Statement (the “Proxy Statement”) captioned Election of Directors, Section 16(a) Beneficial Ownership Reporting Compliance and Corporate Governance and Board of Directors, which sections are incorporated by reference.

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 included under the headings Compensation Discussion and Analysis, Corporate Governance and Board of Directors, Report of the Compensation and Executive Development Committee in Nucor’s Proxy Statement and is incorporated herein by reference.

 

20


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

Information required by this item with respect to security ownership of certain beneficial owners and management is incorporated by reference to Nucor’s Proxy Statement under the heading Security Ownership of Management and Certain Beneficial Owners.

The information regarding the number of securities issuable under equity compensation plans and the related weighted average exercise price is incorporated by reference to the Proxy Statement under the heading Equity Compensation Plan Information.

 

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

Information required by this item is incorporated by reference to Nucor’s Proxy Statement under the heading Corporate Governance and Board of Directors.

 

Item 14. Principal Accountant Fees and Services

Information about the fees in 2011 and 2010 for professional services rendered by our independent registered public accounting firm is incorporated by reference to Nucor’s Proxy Statement under the heading Fees Paid to Independent Registered Public Accounting Firm. The description of our audit committee’s policy on pre-approval of audit and permissible non-audit services of our independent registered public accounting firm is also incorporated by reference from the same section of the Proxy Statement.

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

Financial Statements:

The following consolidated financial statements and the report of independent registered public accounting firm are incorporated by reference to Nucor’s 2011 Annual Report, pages 40 through 64:

 

   

Management’s Report on Internal Control Over Financial Reporting

 

   

Report of Independent Registered Public Accounting Firm

 

   

Consolidated Balance Sheets - December 31, 2011 and 2010

 

   

Consolidated Statements of Earnings - Years ended December 31, 2011, 2010 and 2009

 

   

Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2011, 2010 and 2009

 

   

Consolidated Statements of Cash Flows - Years ended December 31, 2011, 2010 and 2009

 

   

Notes to Consolidated Financial Statements

 

21


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

         29   

Schedule II – Valuation and Qualifying Accounts – Years ended December 31, 2011, 2010 and 2009

         30   

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

 

22


Exhibits:

 

3   Restated Certificate of Incorporation (incorporated by reference to Form 8-K filed September 14, 2010)
3(i)   By-Laws as amended and restated September 7, 2011 (incorporated by reference to Form 8-K filed September 9, 2011)
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)   Second Supplemental Indenture, dated as of 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(ii)   Third Supplemental Indenture, dated as of 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)
4(iii)   Fourth Supplemental Indenture, dated as of 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(iv)   Fifth Supplemental Indenture, dated as of 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(v)   Form of 4.875% Notes due October 2012 (included in Exhibit 4(i) above) (incorporated by reference to Form S-4 filed December 13, 2002)
4(vi)   Form of 5.00% Notes due December 2012 (included in Exhibit 4(ii) above) (incorporated by reference to Form 8-K filed December 4, 2007)
4(vii)   Form of 5.75% Notes due December 2017 (included in Exhibit 4(ii) above) (incorporated by reference to Form 8-K filed December 4, 2007)
4(viii)   Form of 6.40% Notes due December 2037 (included in Exhibit 4(ii) above) (incorporated by reference to Form 8-K filed December 4, 2007)
4(ix)   Form of 5.00% Notes due June 2013 (included in Exhibit 4(iii) above) (incorporated by reference to Form 8-K filed June 3, 2008)
4(x)   Form of 5.85% Notes due June 2018 (included in Exhibit 4(iii) 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(iv) above) (incorporated by reference to Form 8-K filed September 21, 2010)
10   2003 Key Employees Incentive Stock Option Plan (as amended through Amendment 2003-1) (incorporated by reference to Form 10-Q for quarter ended October 4, 2003) (1)
10(i)   Non-Employee Director Equity Plan (incorporated by reference to Form 10-K for year ended December 31, 2000) (1)
10(ii)   2005 Stock Option and Award Plan (incorporated by reference to Form 8-K filed May 17, 2005) (1)
10(iii)   2005 Stock Option and Award Plan, Amendment No. 1 (incorporated by reference to Form 10-Q for quarter ended September 29, 2007) (1)
10(iv)   2010 Stock Option and Award Plan (incorporated by reference to Form 10-Q for quarter ended July 3, 2010) (1)
10(v)   Form of Restricted Stock Unit Award Agreement – time-vested awards (incorporated by reference to Form 10-K for year ended December 31, 2005) (1)
10(vi)   Form of Restricted Stock Unit Award Agreement – retirement-vested awards (incorporated by reference to Form 10-K for year ended December 31, 2005) (1)

 

23


10(vii)   Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated by reference to Form 10-Q for quarter ended April 1, 2006) (1)
10(viii)   Form of Award Agreement for Stock Option Granted in 2010 (incorporated by reference to Form 10-Q for quarter ended October 2, 2010) (1)
10(ix)   Form of Award Agreement for Annual Stock Option Grants (incorporated by reference to Form 10-Q for quarter ended July 2, 2011) (1)
10(x)   Employment Agreement of Daniel R. DiMicco (incorporated by reference to Form 10-Q for quarter ended June 30, 2001) (1)
10(xi)   Amendment to Employment Agreement of Daniel R. DiMicco (incorporated by reference to Form 10-K for year ended December 31, 2007) (1)
10(xii)   Employment Agreement of James D. Frias (incorporated by reference to Form 10-K for year ended December 31, 2009) (1)
10(xiii)   Employment Agreement of Hamilton Lott, Jr. (incorporated by reference to Form 10-Q for quarter ended June 30, 2001) (1)
10(xiv)   Amendment to Employment Agreement of Hamilton Lott, Jr. (incorporated by reference to Form 10-K for year ended December 31, 2007) (1)
10(xv)   Employment Agreement of John J. Ferriola (incorporated by reference to Form 10-K for year ended December 31, 2001) (1)
10(xvi)   Amendment to Employment Agreement of John J. Ferriola (incorporated by reference to Form 10-K for year ended December 31, 2007) (1)
10(xvii)   Employment Agreement of Ladd R. Hall (incorporated by reference to Form 10-Q for quarter ended September 29, 2007) (1)
10(xviii)   Employment Agreement of R. Joseph Stratman (incorporated by reference to Form 10-Q for quarter ended September 29, 2007) (1)
10(xix)*   Employment Agreement of Keith B. Grass (1)
10(xx)   Employment Agreement of James R. Darsey (incorporated by reference to Form 10-K for year ended December 31, 2010) (1)
10(xxi)   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) (1)
10(xxii)   Senior Officers Annual Incentive Plan As Amended and Restated Effective February 18, 2009 (incorporated by reference to Form 10-Q for quarter ended April 4, 2009) (1)
10(xxiii)   Senior Officers Long-Term Incentive Plan As Amended and Restated Effective February 18, 2009 (incorporated by reference to Form 10-Q for quarter ended April 4, 2009) (1)
10(xxiv)   Senior Officers Long-Term Incentive Plan Amendment No. 1 Adopted May 13, 2010 (incorporated by reference to Form 10-Q for quarter ended July 3, 2010) (1)
10(xxv)   Underwriting Agreement dated September 16, 2010 among Nucor Corporation, Banc of America Securities LLC, Citigroup Capital Markets Inc. and J.P. Morgan Securities, Inc. (incorporated by reference to Form 8-K filed September 21, 2010)
12*   Computation of Ratio of Earnings to Fixed Charges
13*   2011 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

 

24


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, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholders’ Equity, and (v) the Notes to Consolidated Financial Statements.

 

* Filed herewith.
(1) Indicates a management contract or compensatory plan or arrangement.

 

25


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/ Daniel R. DiMicco

    Daniel R. DiMicco
    Chairman and Chief Executive Officer
  Dated: February 28, 2012

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 any 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/ Daniel R. DiMicco

       

/s/ Peter C. Browning

Daniel R. DiMicco

Chairman and Chief Executive Officer

     

Peter C. Browning

Lead Director

/s/ James D. Frias

       

/s/ Clayton C. Daley, Jr.

James D. Frias

Chief Financial Officer, Treasurer and Executive Vice President

(Principal Financial Officer)

     

Clayton C. Daley, Jr.

Director

/s/ Michael D. Keller

       

/s/ John J. Ferriola

Michael D. Keller

Vice President and Corporate Controller

(Principal Accounting Officer)

     

John J. Ferriola

Director, President and Chief Operating Officer

       

/s/ Harvey B. Gantt

       

Harvey B. Gantt

Director

       

/s/ Victoria F. Haynes

       

Victoria F. Haynes

Director

 

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/s/ James D. Hlavacek

       

James D. Hlavacek

Director

       

/s/ Bernard L. Kasriel

       

Bernard L. Kasriel

Director

       

/s/ Christopher J. Kearney

       

Christopher J. Kearney

Director

       

/s/ John H. Walker

       

John H. Walker

Director

Dated: February 28, 2012

 

27


NUCOR CORPORATION

Index to Financial Statement Schedule

 

     Page  

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

         29   

Schedule II – Valuation and Qualifying Accounts – Years ended December 31, 2011, 2010 and 2009

         30   

 

28


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 28, 2012 appearing in the 2011 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 28, 2012

 

29


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, 2011 LIFO Reserve

   $ 620,414       $ 142,762       $ —        $ 763,176   

Year ended December 31, 2010 LIFO Reserve

   $ 456,448       $ 163,966       $ —        $ 620,414   

Year ended December 31, 2009 LIFO Reserve

   $ 923,362       $ —         ($ 466,914   $ 456,448   

 

30


NUCOR CORPORATION

List of Exhibits to Form 10-K – December 31, 2011

 

Exhibit
No.

 

Description of Exhibit

10(xix)   Employment Agreement of Keith B. Grass
12   Computation of Ratio of Earnings to Fixed Charges
13   2011 Annual Report (portions incorporated by reference)
21   Subsidiaries
23   Consent of Independent Registered Public Accounting Firm
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, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholders’ Equity, and (v) the Notes to Consolidated Financial Statements.

 

31

Executive Employment Agreement

Exhibit 10(xix)

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into between NUCOR CORPORATION, a Delaware corporation with its principal place of business in Charlotte, North Carolina, on behalf of itself and each of its affiliates and subsidiaries (all such entities, collectively, “Nucor”), and KEITH B. GRASS (“Executive”), a resident of Kentucky.

WHEREAS, Executive is currently employed by The David J. Joseph Company, an indirect wholly-owned subsidiary of Nucor Corporation, as President and Chief Executive Officer;

WHEREAS, Executive also currently serves as an Executive Vice President of Nucor Corporation;

WHEREAS, contingent upon Executive’s execution of this Agreement and effective as of January 1, 2012, Nucor Corporation desires for Executive to continue his employment with each of Nucor Corporation as Executive Vice President and The David J. Joseph Company as President and Chief Executive Officer while also providing Executive with an increase in his base salary and the opportunity to receive increased severance benefits that Executive was not previously entitled to receive; and

WHEREAS, in consideration for such an increase in Executive’s base salary and the opportunity to receive such enhanced severance benefits, Executive desires to continue his employment with each of Nucor Corporation as an Executive Vice President and The David J. Joseph Company as President and Chief Executive Officer upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration for the promises and mutual agreements contained herein, the parties agree, effective as of January 1, 2012 (the “Effective Date”), as follows:

1. Employment. Nucor agrees to employ Executive in the position of Executive Vice President of Nucor Corporation and President and Chief Executive Officer of The David J. Joseph Company, and Executive agrees to accept employment in these positions, subject to the terms and conditions set forth in this Agreement, including the confidentiality, non-competition and non-solicitation provisions which Executive acknowledges were discussed in detail prior to and made an express condition of his receipt of the benefits set forth herein.

2. Compensation and Benefits During Employment. Nucor will provide or cause to be provided, as the case may be, the following compensation and benefits to Executive:

(a) Executive will be entitled to receive a base salary of Four Hundred Twenty Two Thousand Dollars ($422,000) per year, paid not less frequently than monthly in accordance with Nucor’s normal payroll practices, subject to withholding and other deductions as required by law. The parties acknowledge and agree that this amount exceeds the base salary Executive was entitled to receive prior to the Effective Date. Executive’s base salary is subject to adjustment up or down by the Board of Directors of Nucor Corporation (the “Board”) at its sole discretion and without notice to Executive.

(b) Executive will be a participant in, and eligible to receive awards of incentive compensation under and in accordance with the applicable terms and conditions of, Nucor’s senior officer annual and long term incentive compensation plans, as modified from time to time by, and in the sole discretion of, the Board.


(c) Executive shall be a participant in, and eligible to receive awards of equity-based compensation under and in accordance with the applicable terms and conditions of, Nucor’s senior officer equity incentive compensation plans, as modified from time to time by, and in the sole discretion of, the Board.

(d) Executive will be eligible for those employee benefits that are generally made available by Nucor to its executive officers. To the extent Executive is eligible to participate in the Nucor Corporation Severance Plan for Senior Officers and General Managers (the “Severance Plan”) pursuant to its terms, notwithstanding anything to the contrary set forth in the Severance Plan, Executive’s years of service with The David J. Joseph Company prior to such time as The David J. Joseph Company became a subsidiary of Nucor Corporation shall be deemed Years of Service (as such term is defined in the Severance Plan).

3. Compensation Following Termination.

(a) From the date of Executive’s termination of employment with Nucor, whether by Executive or Nucor for any or no reason, and provided that Executive executes and returns to Nucor a separation and release agreement in form and substance satisfactory to Nucor, in its sole discretion, releasing any and all claims Executive has or may have against Nucor at the time of his termination of employment from Nucor, Nucor will pay Executive the Monthly Amount (as defined below) for twenty-four (24) months following Executive’s termination. The “Monthly Amount” shall be an amount equal to (i) the product of (A) the amount of Executive’s highest base salary level during the twelve (12) month period immediately prior to his date of termination, multiplied by (B) 3.36, (ii) divided by twelve (12). Subject to the provisions of Section 24 of this Agreement, the payments of the Monthly Amount shall be made at the end of each month following Executive’s termination of employment with Nucor on Nucor’s regular monthly payroll date.

(b) In exchange for Nucor’s agreement to pay the Monthly Amount as set forth in this Section 3, and other good and valuable consideration, including without limitation the compensation and benefits set forth in Section 2 of this Agreement, Executive agrees to strictly abide by the terms of Sections 8 through 13 of this Agreement.

(c) If Executive is employed by Nucor at the time of Executive’s death, Nucor’s obligations to make any payments of the Monthly Amount under this Agreement will automatically terminate and Executive’s estate and executors will have no rights to any payments of the Monthly Amount under this Agreement. If Executive dies during the first twelve (12) months following Executive’s termination from employment with Nucor, then Nucor will pay Executive’s estate the payments of the Monthly Amount due pursuant to Section 3(a) of this Agreement through the end of the twelfth (12th) month following Executive’s termination from employment with Nucor. If Executive dies twelve (12) or more months after termination of Executive’s employment with Nucor, then Nucor’s obligations to make any payments of the Monthly Amount under Section 3(a) of this Agreement will automatically terminate without the necessity of Nucor providing notice, written or otherwise.

(d) The amounts payable pursuant to this Section 3 of this Agreement shall be in addition to and not in lieu of any amounts payable to Executive pursuant to the Nucor Corporation Severance Plan for Senior Officers and General Managers (the “Severance Plan”), which such payments, if any, shall be governed by the terms and conditions of the Severance Plan.

 

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4. Duties and Responsibilities; Best Efforts. While employed by Nucor, Executive shall perform such duties for and on behalf of Nucor as may be determined and assigned to Executive from time to time by the Chief Executive Officer of Nucor Corporation, the Chief Operating Officer of Nucor Corporation or the Board. Executive shall devote his full time and best efforts to the business and affairs of Nucor. During the term of Executive’s employment with Nucor, Executive will not undertake other paid employment or engage in any other business activity without the prior written consent of the Board.

5. Employment at Will. The parties acknowledge and agree that this Agreement does not create employment for a definite term and that Executive’s employment with Nucor is at will and terminable by Nucor or Executive at any time, with or without cause and with or without notice, unless otherwise expressly set forth in a separate written agreement executed by Executive and Nucor after the Effective Date.

6. Change in Executive’s Position. In the event that Nucor transfers, demotes, promotes, or otherwise changes Executive’s compensation or position with Nucor, the restrictions and post-termination obligations set forth in Sections 8 through 13 of this Agreement shall remain in full force and effect.

7. Recognition of Nucor’s Legitimate Interests. Executive understands and acknowledges that Nucor competes in North America and throughout the world in the research, manufacture, marketing, sale, distribution, processing, trading, brokering, recycling and/or placement of steel or steel products (including but not limited to flat-rolled steel, steel shapes, structural steel, light gauge steel framing, steel plate, steel joists and girders, steel deck, steel fasteners, metal building systems, wire rod, welded-wire reinforcement rolls and sheets, cold finished steel bars and wire, special quality bar products, guard rail, fabricated concrete reinforcement bars, and structural welded-wire reinforcement) or steel or steel product inputs (including but not limited to direct reduced iron and ferrous and non-ferrous scrap metal and substitutes thereof) (all such activities, collectively, the “Business”). As part of Executive’s employment with Nucor, Executive acknowledges he will continue to have access to and gain knowledge of significant secret, confidential and proprietary information of the full range of operations of Nucor. In addition, Executive will continue to have access to training opportunities, contact with vendors, customers and prospective vendors and customers of Nucor, in which capacity he is expected to develop good relationships with such vendors, customers and prospective vendors and customers, and will gain intimate knowledge regarding the products and services of Nucor. Executive recognizes and agrees that Nucor has spent and will continue to spend substantial effort, time and money in developing relationships with its vendors and customers, that many such vendors and customers have long term relationships with Nucor, and that all vendors, customers and accounts that Executive may deal with during his employment with Nucor, are the vendors, customers and accounts of Nucor. Executive acknowledges that Nucor’s competitors would obtain an unfair advantage if Executive disclosed Nucor’s Secret Information or Confidential Information (as defined in Sections 8 and 9, respectively) to a competitor, used it on a competitor’s behalf, or if he were able to exploit the relationships he develops as an employee of Nucor to solicit business on behalf of a competitor.

8. Covenant Regarding Nucor’s Secret Information. Executive recognizes and agrees that he will have continued access to certain sensitive and confidential information of Nucor (a) that is not generally known in the steel business, which would be difficult for others to acquire or duplicate without improper means, (b) that Nucor strives to keep secret, and (c) from which Nucor derives substantial commercial benefit because of the fact that it is not generally known (the “Secret Information”), including without limitation: (i) Nucor’s process of developing, processing, recycling and producing raw material (including ferrous and non-ferrous scrap metal and substitutes thereof), and designing and manufacturing steel and iron products; (ii) Nucor’s process for treating, processing or fabricating steel and iron products; (iii) Nucor’s non-public financial data, strategic business plans, competitor analysis, purchase, sales and marketing data, and proprietary margin, pricing, and cost data; and (iv) any other information or data

 

3


which meets the definition of “trade secrets” under the North Carolina Trade Secrets Protection Act. Executive agrees that unless he is expressly authorized by Nucor in writing, Executive will not use or disclose or allow to be used or disclosed Nucor’s Secret Information. This covenant shall survive until the Secret Information is generally known in the industry through no act or omission of the Executive or until Nucor knowingly authorizes the disclosure of or discloses the Secret Information, without any limitations on use or confidentiality. Executive acknowledges that he did not have knowledge of Nucor’s Secret Information prior to his employment with Nucor and that the Secret Information does not include Executive’s general skills and know-how.

9. Agreement to Maintain Confidentiality.

(a) As used in this Agreement, “Confidential Information” shall include all confidential and proprietary information of Nucor, including, without limitation, any of the following information to the extent not generally known to third persons: financial and budgetary information and strategies; plant and processing facility designs, specifications, and layouts; equipment design, specifications, and layouts; product design and specifications; manufacturing and recycling processes, procedures, and specifications; data processing or other computer programs; research and development projects; marketing information and strategies; customer lists; vendor lists; information about customer preferences and buying patterns; information about prospective customers, vendors and prospective vendors, or business opportunities; information about Nucor’s costs and the pricing structure used in sales to customers; information about Nucor’s overall corporate business strategy; and technological innovations used in Nucor’s business, to the extent that such information does not fall within the definition of Secret Information.

(b) During Executive’s employment with Nucor and at all times after the termination of Executive’s employment with Nucor, (i) Executive covenants and agrees to treat as confidential all Confidential Information submitted to Executive or received, compiled, developed, designed, produced, accessed, or otherwise discovered by the Executive from time to time while employed by Nucor, and (ii) Executive will not disclose or divulge the Confidential Information to any person, entity, firm or company whatsoever or use the Confidential Information for Executive’s own benefit or for the benefit of any person, entity, firm or company other than Nucor. This restriction will apply throughout the world; provided, however, that if the restrictions of this Section 9(b) when applied to any specific piece of Confidential Information would prevent Executive from using his general knowledge or skills in competition with Nucor or would otherwise substantially restrict the Executive’s ability to fairly compete with Nucor, then as to that piece of Confidential Information only, the scope of this restriction will apply only for the Restrictive Period (as defined below) and only within the Restricted Territory (as defined below).

(c) Executive specifically acknowledges that the Confidential Information, whether reduced to writing or maintained in the mind or memory of Executive, and whether compiled or created by Executive, Nucor, or any of its vendors, customers, or prospective vendors or customers derives independent economic value from not being readily known to or ascertainable by proper means by others who could obtain economic value from the disclosure or use of the Confidential Information. Executive also acknowledges that reasonable efforts have been put forth by Nucor to maintain the secrecy of the Confidential Information, that the Confidential Information is and will remain the sole property of Nucor or any of its vendors, customers or prospective vendors or customers, as the case may be, and that any retention and/or use of Confidential Information during or after the termination of Executive’s employment with Nucor (except in the regular course of performing his duties hereunder) will constitute a

 

4


misappropriation of the Confidential Information belonging to Nucor. Executive acknowledges and agrees that if he (i) accesses Confidential Information on any Nucor computer system within thirty (30) days prior the effective date of his voluntary resignation of employment with Nucor and (ii) transmits, copies or reproduces such Confidential Information in any manner or deletes any such Confidential Information, he is exceeding his authorized access to such computer system.

10. Noncompetition.

(a) Executive hereby agrees that for the duration of Executive’s employment with Nucor, and for a period of twenty-four (24) months thereafter (the “Restrictive Period”), Executive will NOT, within the Restricted Territory, do any of the following:

(i) engage in, whether as an employee, consultant, or in any other capacity, any business activity (A) that is the same as, or is in direct competition with, any portion of the Business, and (B) in which Executive engaged in during the course of his employment with Nucor (any such activities described in this Section 10(a)(i), “Competing Activities”);

(ii) commence, establish or own (in whole or in part) any business that engages in any Competing Activities, whether (i) by establishing a sole proprietorship, (ii) as a partner of a partnership, (iii) as a member of a limited liability company, (iv) as a shareholder of a corporation (except to the extent Executive is the holder of not more than five percent (5%) of any class of the outstanding stock of any company listed on a national securities exchange so long as Executive does not actively participate in the management or business of any such entity) or (v) as the owner of any similar equity interest in any such entity;

(iii) provide any public endorsement of, or otherwise lend Executive’s name for use by, any person or entity engaged in any Competing Activities; or

(iv) engage in work that would inherently call on him in the fulfillment of his duties and responsibilities to reveal, rely upon, or otherwise use any Confidential Information or Secret Information.

(b) For purposes of this Agreement:

(i) The term “Restricted Territory” means Executive’s geographic area of responsibility at Nucor which Executive acknowledges extends to the full scope of Nucor operations throughout the world. “Restricted Territory” therefore consists of the following alternatives reasonably necessary to protect Nucor’s legitimate business interests:

(A) Asia, Australia, Western Europe, Eastern Europe (including Russia), the Middle East, South America, Central America and North America, where Executive acknowledges Nucor engages in the Business, but if such territory is deemed overbroad by a court of law, then

(B) The United States, Canada, Mexico, Guatemala, Honduras, the Dominican Republic, Costa Rica, Colombia, Argentina and Brazil, where Executive acknowledges Nucor engages in the Business, but if such territory is deemed overbroad by a court of law, then;

 

5


(C) The United States, Canada and Mexico, where Executive acknowledges Nucor engages in the Business, but if such territory is deemed overbroad by a court of law, then;

(D) The contiguous United States, where Executive acknowledges Nucor engages in the Business, but if such territory is deemed overbroad by a court of law, then;

(E) Any state in the United States located within a three hundred (300) mile radius of a Nucor plant or facility that engages in any aspect of the Business, but if such territory is deemed overbroad by a court of law, then;

(F) Any state in the United States where a Customer or Supplier or Prospective Customer or Supplier is located.

(ii) The term “Customer or Supplier” means the following alternatives:

(A) any and all customers or suppliers of Nucor with whom Nucor is doing business at the time of Executive’s termination of employment with Nucor, but if such definition is deemed overbroad by a court of law, then;

(B) any customer or supplier of Nucor with whom Executive or Executive’s direct reports had significant contact or with whom Executive or Executive’s direct reports directly dealt on behalf of Nucor at the time of Executive’s last date of full time employment with Nucor, but if such definition is deemed overbroad by a court of law, then;

(C) any customer or supplier of Nucor with whom Executive had significant contact or with whom Executive directly dealt on behalf of Nucor at the time of Executive’s last date of full time employment with Nucor but if such definition is deemed overbroad by a court of law, then;

(D) any customer or supplier of Nucor about whom Executive had obtained Secret Information or Confidential Information by virtue of his employment with Nucor and with whom Executive had significant contact or with whom Executive directly dealt on behalf of Nucor at the time of Executive’s last date of full time employment;

Provided, however, that the term “Customer or Supplier” shall not include any business or entity that no longer does business with Nucor without any direct or indirect interference by Executive or violation of this Agreement by Executive, and that ceased doing business with Nucor prior to any direct or indirect communication or contact by Executive.

(iii) The term “Prospective Customer or Supplier” means any person or entity who does not currently or has not yet purchased the products or services of Nucor or from whom Nucor does not currently or has not yet purchased products or services, but who, at the time of Executive’s last date of full-time employment with Nucor has been targeted

 

6


by Nucor as a potential user of the products or services of Nucor or supplier of products or services to Nucor, and whom Executive or his direct reports participated in the solicitation of or on behalf of Nucor.

(iv) The term “solicit” means to initiate contact for the purpose of promoting, marketing, or selling products or services similar to those Nucor offered during the tenure of Executive’s employment with Nucor or to accept business from Customers or Suppliers or Prospective Customers or Suppliers.

(c) Executive specifically agrees that the post-termination obligations and restrictions in this Section 10 and in Sections 8, 9, 11, 12 and 13 will apply to Executive regardless of whether termination of employment is initiated by Nucor or Executive and regardless of the reason for termination of Executive’s employment. Further, Executive acknowledges and agrees that Nucor’ s payment of the compensation described in Section 3 is intended to compensate Executive for the limitations on Executive’s competitive activities described in this Section 10 and Sections 11 and 12 for the Restrictive Period regardless of the reason for termination. Thus, for example, in the event that Nucor terminates Executive’s employment without cause, Executive expressly agrees that the obligations and restrictions in this Section 10 and Sections 8, 9, 11, 12 and 13 will apply to Executive notwithstanding the reasons or motivations of Nucor in terminating Executive’s employment.

11. Nonsolicitation. Executive hereby agrees that for the duration of Executive’s employment with Nucor, and for the Restrictive Period, Executive will NOT, within the Restricted Territory, do any of the following:

(a) solicit, contact, or attempt to influence any Customer or Supplier to limit, curtail, cancel, or terminate any business it transacts with, or products it receives from or provides to Nucor;

(b) solicit, contact, or attempt to influence any Prospective Customer or Supplier to terminate any business negotiations it is having with Nucor, or to otherwise not do business with Nucor;

(c) solicit, contact, or attempt to influence any Customer or Supplier to purchase products or services from an entity other than Nucor or to provide products or services to an entity other than Nucor, which are the same or substantially similar to, or otherwise in competition with, those offered to the Customer or Supplier by Nucor or those offered to Nucor by the Customer or Supplier; or

(d) solicit, contact, or attempt to influence any Prospective Customer or Supplier to purchase products or services from an entity other than Nucor or to provide products or services to an entity other than Nucor, which are the same or substantially similar to, or otherwise in competition with, those offered to the Prospective Customer or Supplier by Nucor or those offered to Nucor by the Prospective Customer or Supplier.

12. Antipiracy.

(a) Executive agrees for the duration of the Restrictive Period, Executive will not, directly or indirectly, encourage, contact, or attempt to induce any employees of Nucor (i) with whom Executive had regular contact with at the time of Executive’s last date of full time employment with Nucor, and (ii) who are employed by Nucor at the time of the encouragement, contact or attempted inducement, to end their employment relationship with Nucor.

 

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(b) Executive further agrees for the duration of the Restrictive Period not to hire for any reason any employees described in Section 12(a) of this Agreement.

13. Assignment of Intellectual Property Rights.

(a) Executive hereby assigns to Nucor Executive’s entire right, title and interest, including copyrights and patents, in any idea, invention, design of a useful article (whether the design is ornamental or otherwise), and any other work of authorship (collectively the “Developments”), made or conceived solely or jointly by Executive at any time during Executive’s employment by Nucor (whether prior or subsequent to the execution of this Agreement), or created wholly or in part by Executive, whether or not such Developments are patentable, copyrightable or susceptible to other forms of protection, where the Developments: (i) were developed, invented, or conceived within the scope of Executive’s employment with Nucor; (ii) relate to Nucor’s actual or demonstrably anticipated research or development; or (iii) result from any work performed by Executive on Nucor’s behalf.

(b) The assignment requirement in Section 13(a) shall not apply to an invention that Executive developed entirely on his own time without using Nucor’s equipment, supplies, facilities or Secret Information or Confidential Information except for those inventions that (i) relate to Nucor’s business or actual or demonstrably anticipated research or development, or (ii) result from any work performed by Executive for Nucor.

(c) In connection with any of the Developments assigned pursuant to Section 13(a): (i) Executive will promptly disclose them to Nucor’s management; and (ii) Executive will, on Nucor’s request, promptly execute a specific assignment of title to Nucor or its designee, and do anything else reasonably necessary to enable Nucor or its designee to secure a patent, copyright, or other form of protection therefore in the United States and in any other applicable country.

(d) Nothing in this Section 13 is intended to waive, or shall be construed as waiving, any assignment of any Developments to Nucor implied by law.

14. Severability. It is the intention of the parties to restrict the activities of Executive only to the extent reasonably necessary for the protection of Nucor’s legitimate interests. The parties specifically covenant and agree that should any of the provisions in this Agreement be deemed by a court of competent jurisdiction too broad for the protection of Nucor’s legitimate interests, the parties authorize the court to narrow, limit or modify the restrictions herein to the extent reasonably necessary to accomplish such purpose. In the event such limiting construction is impossible, such invalid or unenforceable provision shall be deemed severed from this Agreement and every other provision of this Agreement shall remain in full force and effect.

15. Enforcement. Executive understands and agrees that any breach or threatened breach by Executive of any of the provisions of Sections 8 through 13 of this Agreement shall be considered a material breach of this Agreement, and in the event of such a breach or threatened breach of this Agreement, Nucor shall be entitled to pursue any and all of its remedies under law or in equity arising out of such breach. If Nucor pursues either a temporary restraining order or temporary injunctive relief, then Executive agrees to expedited discovery with respect thereto and waives any requirement that Nucor post a bond. Executive further agrees that in the event of his breach of any of the provisions of Sections 8 through 13 of this Agreement, unless otherwise prohibited by law:

(a) Nucor shall be entitled to (i) cancel any unexercised stock options granted under any senior officer equity incentive compensation plan from and after the Effective Date (the “Post-Agreement Date Option Grants”), (ii) cease payment of any Monthly Amounts otherwise due hereunder, (iii) seek other appropriate relief, including, without limitation, repayment by Executive of any (A) Monthly Amounts already paid hereunder and (B) benefits already paid under any severance or similar benefit plans; and

 

8


(b) Executive shall (i) forfeit any (A) unexercised Post-Agreement Date Option Grants and (B) any shares of restricted stock or restricted stock units granted under any senior officer equity incentive compensation plan that vested during the six (6) month period immediately preceding Executive’s termination of employment (the “Vested Stock”) and (ii) forfeit and immediately return upon demand by Nucor any profit realized by Executive from the exercise of any Post-Agreement Date Option Grants or sale or exchange of any Vested Stock during the six (6) month period preceding Executive’s breach of any of the provisions of Sections 8 through 13 of this Agreement.

Executive agrees that any breach or threatened breach of any of the provisions of Sections 8 through 13 will cause Nucor irreparable harm which cannot be remedied through monetary damages and the alternative relief set forth in Sections 15(a) and (b) shall not be considered an adequate remedy for the harm Nucor would incur. Executive further agrees that such remedies in Sections 15(a) and (b) will not preclude injunctive relief.

If Executive breaches or threatens to breach any of the provisions of Sections 10, 11 or 12 of this Agreement and Nucor obtains an injunction, preliminary or otherwise, ordering Executive to adhere to the restrictive period required by the applicable paragraph, then the applicable restrictive period will be extended by the number of days that have elapsed from the date of Executive’s termination until the time the injunction is granted.

Executive further agrees, unless otherwise prohibited by law, to pay Nucor’s attorneys’ fees and costs incurred in successfully enforcing its rights pursuant to this Section 15, or in defending against any action brought by Executive or on Executive’s behalf in violation of or under this Section 15 in which Nucor prevails. Executive agrees that Nucor’s actions pursuant to this Section 15, including, without limitation, filing a legal action, are permissible and are not and will not be considered by Executive to be retaliatory. Executive further represents and acknowledges that in the event of the termination of Executive’s employment for any reason, Executive’s experience and capabilities are such that Executive can obtain employment and that enforcement of this Agreement by way of injunction will not prevent Executive from earning a livelihood.

16. Reasonableness of Restrictions. Executive has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon Nucor under Sections 8, 9, 10, 11, 12, 13 and 15 and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition which would otherwise be unfair to Nucor, do not interfere with Executive’s exercise of his inherent skill and experience, are reasonably required to protect the legitimate interests of Nucor, and do not confer a benefit upon Nucor disproportionate to the detriment to Executive. Executive certifies that he has had the opportunity to discuss this Agreement with such legal advisors as he chooses and that he understands its provisions and has entered into this Agreement freely and voluntarily.

17. Applicable Law. Executive acknowledges and agrees that during the course of his employment with Nucor he has had regular contact with and taken direction from the Chief Executive Officer and/or the Chief Operating Officer of Nucor Corporation in North Carolina, regularly attends

 

9


Board meetings in North Carolina, regularly visits North Carolina as part of his employment, and directly or indirectly receives compensation and benefits from Nucor’s headquarters in North Carolina. Accordingly, this Agreement is made in, and shall be interpreted, construed and governed according to the laws of, the State of North Carolina, regardless of choice of law principles of any jurisdiction to the contrary. Each party, for themselves and their successors and assigns, hereby irrevocably (a) consents to the exclusive jurisdiction of the North Carolina State courts located in Mecklenburg County, North Carolina and (b) waives any objection to any such action based on venue or forum non conveniens. Further, Executive hereby irrevocably consents to the jurisdiction of any court or similar body within the Restricted Territory for enforcement of any judgment entered in a court or similar body pursuant to this Agreement. This Agreement is intended, among other things, to supplement the provisions of the North Carolina Trade Secrets Protection Act, as amended from time to time, and the duties Executive owes to Nucor under the common law, including, but not limited to, the duty of loyalty.

18. Executive to Return Property. Executive agrees that upon (a) the termination of Executive’s employment with Nucor and within three (3) business days thereof, whether by Executive or Nucor for any reason (with or without cause), or (b) the written request of Nucor, Executive (or in the event of the death or disability of Executive, Executive’s heirs, successors, assigns and legal representatives) shall return to Nucor any and all property of Nucor regardless of the medium in which such property is stored or kept, including but not limited to all Secret Information, Confidential Information, notes, data, tapes, computers, lists, customer lists, names of customers, reference items, phones, documents, sketches, drawings, software, product samples, rolodex cards, forms, manuals, keys, pass or access cards and equipment, without retaining any copies or summaries of such property. Executive further agrees that to the extent Secret Information or Confidential Information are in electronic format and in Executive’s possession, custody or control, Executive will provide all such copies to Nucor and will not keep copies in such format but, upon Nucor’s request, will confirm the permanent deletion or other destruction thereof.

19. Entire Agreement; Amendments. This Agreement discharges and cancels all previous agreements regarding Executive’s employment with Nucor, including without limitation that certain Executive Agreement by and between The David J. Joseph Company and Executive dated as of February 6, 2008, and constitutes the entire agreement between the parties with regard to the subject matter hereof. No agreements, representations, or statements of any party not contained herein shall be binding on either party. Further, no amendment or variation of the terms or conditions of this Agreement shall be valid unless in writing and signed by both parties.

20. Assignability. This Agreement and the rights and duties created hereunder shall not be assignable or delegable by Executive. Nucor may, at its option and without consent of Executive, assign its rights and duties hereunder to any successor entity or transferee of Nucor Corporation’s assets.

21. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Nucor and Executive and their respective successors, assigns, heirs and legal representatives.

22. No Waiver. No failure or delay by any party to this Agreement to enforce any right specified in this Agreement will operate as a waiver of such right, nor will any single or partial exercise of a right preclude any further or later enforcement of the right within the period of the applicable statute of limitations. No waiver of any provision hereof shall be effective unless such waiver is set forth in a written instrument executed by the party waiving compliance.

23. Cooperation. Executive agrees that both during and after his employment, he shall, at Nucor’s request, render all assistance and perform all lawful acts that Nucor considers necessary or advisable in connection with any litigation involving Nucor or any of its directors, officers, employees,

 

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shareholders, agents, representatives, consultants, clients, customers or vendors. Executive understands and agrees that Nucor will reimburse him for any reasonable documented expense he incurs related to this cooperation and assistance, but will not be obligated to pay him any additional amounts.

24. Compliance with Code Section 409A. Notwithstanding anything in this Agreement to the contrary, if (a) Executive is a “specified employee” under Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986 (the “Code”) as of the date of his separation from service and (b) any amount or benefit that Nucor determines would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable or distributable under this Agreement by reason of Executive’s separation from service, then to the extent necessary to comply with Code Section 409A: (i) if the payment or distribution is payable in a lump sum, Executive’s right to receive payment or distribution of such non-exempt deferred compensation will be delayed until the earlier of Executive’s death or the seventh month following Executive’s separation from service, and (ii) if the payment, distribution or benefit is payable or provided over time, the amount of such non-exempt deferred compensation or benefit that would otherwise be payable or provided during the six (6) month period immediately following Executive’s separation from service will be accumulated, and Executive’s right to receive payment or distribution of such accumulated amount or benefit will be delayed until the earlier of Executive’s death or the seventh month following Executive’s separation from service and paid or provided on the earlier of such dates, without interest, and the normal payment or distribution schedule for any remaining payments, distributions or benefits will commence.

For purposes of this Agreement, the term “separation from service” shall be defined as provided in Code Section 409A and applicable regulations, and Executive shall be a “specified employee” during the twelve (12) month period beginning April 1 each year if Executive met the requirements of Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5) of the Code) at any time during the twelve (12) month period ending on the December 31 immediately preceding his separation from service.

[Signatures Appear on Following Page]

 

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IN WITNESS WHEREOF, Executive and Nucor Corporation have executed this Agreement on the dates specified below.

 

EXECUTIVE

/s/ Keith B. Grass

Keith B. Grass
Date:  

December 20, 2011

NUCOR CORPORATION
By:  

/s/ John J. Ferriola

Its:  

President and Chief Operating Officer

Date:  

December 30, 2011

Computation of Ratio of Earnings to Fixed Charges

Exhibit 12

Nucor Corporation

2011 Form 10-K

Computation of Ratio of Earnings to Fixed Charges

 

     Year-ended December 31,  
     2007     2008     2009     2010     2011  
     (In thousands, except ratios)        

Earnings

          

Earnings/(loss) before income taxes and noncontrolling interests

   $ 2,546,816      $ 3,104,391      $ (413,978   $ 267,115      $ 1,251,812   

Plus/(Less): losses/(earnings) from equity investments

     24,618        36,920        82,341        32,082        10,043   

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

     55,381        146,360        168,317        163,626        183,541   

Plus: amortization of capitalized interest

     216        300        962        2,332        2,724   

Plus: distributed income of equity investees

     8,072        20,117        7,373        4,923        3,883   

Less: interest capitalized

     (3,700     (10,020     (16,390     (940     (3,509

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

     (293,604     (314,277     (57,865     (73,110     (83,591
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total earnings/(loss) before fixed charges

   $ 2,337,799      $ 2,983,791      $ (229,240   $ 396,028      $ 1,364,903   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed charges

          

Interest cost and amortization of bond issuance and settled swaps

   $ 55,052      $ 144,845      $ 166,313      $ 162,213      $ 182,321   

Estimated interest on rent expense

     329        1,515        2,004        1,413        1,220   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed charges

   $ 55,381      $ 146,360      $ 168,317      $ 163,626      $ 183,541   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratio of earnings to fixed charges

     42.21        20.39        *        2.42        7.44   

 

* Earnings for the year ended December 31, 2009 were inadequate to cover fixed charges. The coverage deficiency was $397,557.
2011 Annual Report (portions incorporated by reference)

Exhibit 13

 

2         
           FINANCIAL HIGHLIGHTS   
        

 

 FINANCIAL HIGHLIGHTS    (dollar and share amounts in thousands, except per share data)  
      2011      2010      % CHANGE  

  FOR THE YEAR

            

 

  Net sales

     $20,023,564         $15,844,627         26%   

 

  Earnings:

            

 

Earnings before income taxes and noncontrolling interests

     1,251,812         267,115         369%   

 

Provision for income taxes

            390,828                  60,792         543%   

 

  Net earnings

     860,984         206,323         317%   

 

  Earnings attributable to noncontrolling interests

              82,796                  72,231         15%   

 

  Net earnings attributable to Nucor stockholders

     778,188         134,092         480%   

 

Per share:

            

 

Basic

     2.45         0.42         483%   

 

Diluted

     2.45         0.42         483%   

 

  Dividends declared per share

     1.4525         1.4425         1%   

 

  Percentage of net earnings to net sales

     3.9%         0.8%      

 

  Return on average stockholders’ equity

     10.7%         1.8%      

 

  Capital expenditures

     450,627         345,294         31%   

 

  Depreciation

     522,571         512,147         2%   

 

  Acquisitions (net of cash acquired)

     3,959         64,788         -94%   

 

  Sales per employee

     974         777         25%   

  AT YEAR END

            

 

  Working capital

     $4,312,022         $4,356,737         -1%   

 

  Property, plant and equipment, net

     3,755,604         3,852,118         -3%   

 

  Long-term debt (including current maturities)

     4,280,200         4,280,200           

 

  Total Nucor stockholders’ equity

     7,474,885         7,120,070         5%   

 

Per share

     23.60         22.55         5%   

 

  Shares outstanding

     316,749         315,791           

 

  Employees

     20,800         20,500         1%   

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” 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; (3) 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.; (4) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (5) impairment in the recorded value of goodwill, equity investments, inventory, fixed assets or other long-lived assets; (6) uncertainties surrounding the global economy, including the severe economic downturn in construction markets and excess world capacity for steel production; (7) fluctuations in currency conversion rates; (8) U.S. and foreign trade policies affecting steel imports or exports; (9) significant changes in laws or government regulations affecting environmental compliance, including legislation and regulations that result in greater regulation of greenhouse gas emissions, which could increase our energy costs and our capital expenditures and operating costs; (10) the cyclical nature of the steel industry; (11) capital investments and their impact on our performance; and (12) our safety performance.


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

 

 

OVERVIEW

MACROECONOMIC CONDITIONS

The sluggish pace of the economic recovery since the worst national recession the United States has experienced in decades continues to adversely affect our business. Although the U.S. economy has grown since the second half of 2009, the unemployment rate remains high due to the loss of millions of jobs during the recession and the slow pace of the recovery. In some sectors of the economy, particularly housing and nonresidential construction, the recovery has been minimal at best. Employment is not expected to regain the peak reached during the most recent economic cycle for several more years. Until a stronger job recovery takes hold, it is also expected that consumer confidence and spending will be inconsistent, indirectly negatively affecting demand for our products. In 2011, the economy — particularly the manufacturing and automotive sectors — was negatively impacted by the devastating Japanese earthquake and tsunami that occurred in March. Uncertainties in Europe’s financial sector and the potential impact on banks in other regions of the world will continue to weigh on global and domestic growth in 2012. We believe our net sales and financial results will be stronger in 2012 than in 2011, but they will continue to be adversely affected by these general economic factors as well as by the conditions specific to the steel industry that are described below.

CONDITIONS IN THE STEEL INDUSTRY

The steel industry has always been cyclical in nature, but North American producers of steel and steel products have been and are continuing to face some of the most challenging market conditions they have experienced in decades. The average capacity utilization rate of U.S. steel mills was at a historically unprecedented low of 52% in 2009. Since then, the average capacity utilization rate improved to 70% in 2010 and 75% in 2011. These rates, though improved, still compare unfavorably to capacity utilization rates of 81% and 87% in 2008 and 2007, respectively. As domestic demand for steel and steel products is expected to improve only slowly in 2012, it is unlikely that average capacity utilization rates will increase significantly in 2012. The average utilization rates of all operating facilities in our steel mills, steel products and raw materials segments were approximately 74%, 57% and 70%, respectively, in 2011, compared with 70%, 54% and 69% respectively, in 2010.

The steel industry has also historically been characterized by overcapacity and intense competition for sales among producers. This aspect of the industry remains true today despite the bankruptcies of numerous domestic steel companies and ongoing global steel industry consolidation. The rapid and extraordinary increase in China’s total production of steel in the last decade has only compounded these characteristics of the steel industry. China is both the world’s largest producer and exporter of steel, and production there increased in 2011 compared to 2010 at a higher rate than the increase in steel production by the United States and most other steel-producing countries.

As imports of steel increase competition in the domestic market, the financial crisis in the Eurozone could intensify competition in Europe, which is the largest market for total U.S. exports. A stronger dollar against the euro will make prices for goods imported from the United States more expensive in Europe.

OUR CHALLENGES AND RISKS

Sales of many of our products are dependent upon capital spending in the nonresidential construction markets in the United States, not only in the industrial and commercial sectors, but also including capital spending on infrastructure that is publicly funded such as roads, bridges, schools, prisons and hospitals. Unlike recoveries from past recessions, the recovery from the recession of 2008-2009 has not included a strong recovery in the severely depressed nonresidential construction market. In fact, capital spending on nonresidential construction projects continues to show little, if any, strength, posing a significant challenge to our business. We do not expect to see strong growth in our net sales until we see a sustained increase in capital spending on these types of construction projects.

Artificially cheap exports by some of our major foreign competitors to the United States and elsewhere reduce our net sales and adversely impact our financial results. Direct imports of finished steel mill products in 2011 accounted for a 22% share of the U.S. market despite significant unused domestic steelmaking capacity. Aggressive enforcement of trade rules by the World Trade Organization (WTO) to limit unfairly traded imports remains uncertain, although it is critical to our ability to remain competitive. We have been encouraged by recent actions the United States government has taken before the WTO to challenge some of China’s trade practices as violating world trade rules, and 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 rapidly in response to changes in domestic demand, unanticipated events that decrease the flow of scrap into scrap yards, and increased foreign demand for scrap. Increasing 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 manage this risk via a


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raw material surcharge mechanism, which our customers understand is a necessary response by us to the market forces of supply and demand for our raw materials. The surcharge mechanism functions to offset changes in prices of our raw materials and is based upon widely available market indices for prices of scrap and other raw materials. We monitor changes in those indices closely and make adjustments as needed, generally on a monthly basis, to our surcharges and sometimes directly to the selling prices for our products. The surcharges are determined from a base scrap price and can differ by product. To help mitigate the scrap price risk, we also aim to manage 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. Our raw material surcharge mechanism works best when demand for the affected products ranges from stable to strong. Then, we are generally able to pass through relatively quickly the increased costs of ferrous scrap and scrap substitutes and protect our gross margins from significant erosion. The surcharge mechanism can be less effective when the demand for our products is weak.

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 2011 (40% and 30% in 2010 and 2009, respectively), with the balance in the spot market at the prevailing prices at the time of sale. Steel contract sales outside of our sheet operations are not significant. The amount of tons sold to contract customers depends on the overall market conditions at the time, how the end-use customers see the market moving forward, and the strategy that Nucor management believes is appropriate to the upcoming period. Nucor management considerations include maintaining an appropriate balance of spot and contract tons based on market projections and appropriately supporting our diversified customer base. The percentage of tons that is placed under contract also depends on the overall market dynamics and customer negotiations. In years of strengthening demand, we typically see an increase in the percentage of sheet sales sold under contract as our customers have an expectation that transaction prices will rapidly rise and available capacity will quickly be sold out. To mitigate this risk, customers prefer to enter into contracts in order to obtain committed volumes of supply from the mills. Our contracts include a method of adjusting prices on a periodic basis to reflect changes in the market pricing for steel and/or scrap. Market indices for steel generally trend with scrap pricing changes. Since the selling price adjustments are not immediate, however, 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.

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. The pie chart below shows the diversity of our product mix by total tons sold to outside customers in 2011.

 

LOGO


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Our highly variable cost structure, combined with our financial strength and liquidity, has allowed us to succeed in 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 have given us 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.

We begin measuring our performance by comparing our net sales, both in total and by individual segment, during a reporting period to 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 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 LIFO method of accounting to a substantial portion of our inventory (47% of total inventories as of December 31, 2011). 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 of inventory costs and/or quantities may differ significantly from these estimated interim amounts. Annual LIFO charges or credits are largely based on the relative changes in cost and quantities year over year, primarily with raw material inventory in the steel mills segment.

Because we are such a large user of energy, material changes in energy costs per ton can also significantly affect our gross margins. 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 freight and profit sharing costs, can also have a material effect on our results of operations for a reporting period. 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 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 investing activities, the amount and reasons for changes in cash provided by 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 the current downturn in the economic cycle.

 

 

COMPARISON OF 2011 TO 2010

RESULTS OF OPERATIONS

NET SALES

Net sales to external customers by segment for 2011 and 2010 were as follows:

 

           (in thousands ) 
Year Ended December 31,    2011      2010      % Change   

 

Steel mills

  

 

$

 

13,960,245

 

  

  

 

$

 

10,860,760

 

  

  

 

 

 

29% 

 

  

Steel products

     3,431,490         2,831,209         21%    

Raw materials

     2,128,391         1,814,329         17%    

All other

     503,438         338,329         49%    
    

 

 

    

 

 

    

Total net sales to external customers

   $ 20,023,564       $ 15,844,627         26%    
    

 

 

    

 

 

    
                            


     23    
    
    

 

Net sales for 2011 increased 26% from the prior year. The average sales price per ton increased 21% from $720 in 2010 to $869 in 2011, while total tons shipped to outside customers increased 5%. The average sales price per ton of $850 in the fourth quarter of 2011 decreased 6% from $908 in the third quarter of 2011 due to lower average sales price per ton in our steel mills.

 

LOGO

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

 

               (in thousands ) 
Year Ended December 31,      2011        2010      % Change   

 

Steel production

    

 

 

 

19,561

 

  

    

 

 

 

18,258

 

  

  

 

 

 

7% 

 

  

 

Outside steel shipments

    

 

 

 

16,796

 

  

    

 

 

 

15,821

 

  

  

 

 

 

6% 

 

  

Inside steel shipments

         3,329             2,752         21%    

Total steel shipments

       20,125           18,573         8%    
                                

Net sales to external customers in the steel mills segment increased 29% due to a 6% increase in tons sold to outside customers and a 21% increase in the average sales price per ton from $689 in 2010 to $832 in 2011. Total production levels at the steel mills increased 7% due to an increase in outside shipments as well as an increase of more than 500,000 tons supplied to other Nucor businesses.

While average selling prices increased from the prior year, the average sales price per ton declined during the last three quarters of 2011. The average sales price per ton in the fourth quarter of 2011 was $806, a decrease of 10% from $891 in the second quarter of 2011. The most significant decreases in average selling prices were for our sheet and plate products, which were impacted by increased domestic capacity and imports in the second half of the year. The erosion in the selling prices of our sheet and plate products has been cushioned by greater stability in the selling prices of our other steel mill products. Residential and nonresidential construction markets continue to suffer from recessionary levels of demand and have shown only small improvement. Markets such as automotive, energy, heavy equipment and general manufacturing have continued to experience improvement in demand.


24      
     
     

 

Tonnage data for the steel products segment is as follows:

 

               (in thousands ) 
Year Ended December 31,      2011        2010      % Change   

 

 

Joist production

    

 

 

 

288

 

  

    

 

 

 

276

 

  

  

 

 

 

4% 

 

  

Deck sales

       312           306         2%    

Cold finished sales

       494           462         7%    

Fabricated concrete reinforcing steel sales

       1,074           981         9%    
                                

Net sales to external customers in the steel products segment increased 21% over 2010 due to a 7% increase in tons sold to outside customers and a 13% increase in the average sales price per ton from $1,194 to $1,355. While pricing of joists, deck, cold finished bar products, and rebar fabricated products improved over the prior year, sales in the steel products segment remain depressed due to the low levels of demand in the nonresidential construction market. Net sales to external customers decreased 10% in the fourth quarter of 2011 from the third quarter because of typical seasonality in the nonresidential construction market.

Though volumes have decreased each quarter in 2011, average sales prices of cold finished bar products were 7% higher in the fourth quarter of 2011 compared to the first quarter. Sales of cold finished bar products contributed most significantly to the year-over-year increases in volumes and prices due to improved demand in heavy equipment and transportation markets.

Sales for the raw materials segment increased 17% over 2010 primarily due to increased prices. Approximately 86% of outside sales in the raw materials segment in 2011 were from brokerage operations of DJJ and approximately 13% of the outside sales were from the scrap processing facilities (88% and 12%, respectively, in 2010).

The “All other” category includes Nucor’s steel trading businesses. The year-over-year increases in sales are due to increases in both volume and price.

GROSS MARGIN

In 2011, Nucor recorded gross margins of $1.95 billion (10%) compared with $843.7 million (5%) in 2010. The year-over-year dollar and percentage gross margin increases were primarily the result of the 21% increase in the average sales price per ton and the 5% increase in tons shipped to outside customers. Additionally, gross margins were impacted by the following factors:

 

  In the steel mills segment, while the average scrap and scrap substitute cost per ton used increased 25% from $351 in 2010 to $439 in 2011, metal margins for the full year 2011 also increased and were at their highest level since 2008. This metal margin expansion was consistent with our historical experience of rising scrap prices leading, after a short lag, to higher metal margins.
  While scrap costs and metal margins increased year over year, a decrease in scrap costs at the beginning of the fourth quarter was accompanied by a decrease in metal margins. This declining trend in steel margins appears to have bottomed out overall, as December was our most profitable month in the fourth quarter. The trend is more positive at the bar mills and beam mills, where margins per ton improved in the fourth quarter compared with the third quarter of 2011. Margins at our plate and sheet mills continued to be impacted by higher import levels that began in the second quarter of 2011 and new domestic sheet mill supply. Selling prices have recently trended up for both our plate and sheet steel mills while scrap prices have been flat to slightly down.    LOGO
 

 

Scrap prices are driven by changes in global supply and demand. While monthly scrap prices remained volatile in 2011, the quarterly average cost was less volatile and remained at higher levels than in 2010. In 2012, we expect quarterly scrap prices and the level of volatility to be more consistent with that experienced in 2011.

  

 

 

 

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, 2011 increased 12% as compared with December 31, 2010, while quantities included in ending inventory also increased. As a result of these factors, Nucor incurred a LIFO charge of

  


     25    
    
    

 

  $142.8 million in 2011 (a LIFO charge of $164.0 million in 2010). The increases in cost per ton and quantities were driven by increases in the demand for steel and the related raw materials.
  Pre-operating and start-up costs of new facilities decreased to $97.1 million in 2011, compared with $174.8 million in 2010. The decrease in pre-operating and start-up costs was due to several projects coming out of start-up, including the SBQ mill in Memphis, Tennessee, the wire rod products mill in Kingman, Arizona, and the galvanizing line in Decatur, Alabama. Nucor defines pre-operating and start-up costs, all of which are expensed, as the losses attributable to facilities or major projects that are either under construction or in the early stages of operation. Once these facilities or projects have attained a utilization rate that is consistent with our similar operating facilities, they are no longer considered by Nucor to be in start-up.
  Total energy costs increased $1 per ton from 2010 to 2011 due primarily to higher electricity unit costs. Due to the efficiency of Nucor’s steel mills, energy costs remained less than 6% of the sales dollar in 2011 and 2010.
  Gross margins were impacted in the fourth quarter of 2011 by a non-cash gain of $29.0 million as a result of the correction of an actuarial calculation related to the medical plan covering certain eligible early retirees.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

Two major components of marketing, administrative and other expenses are freight and profit sharing costs. Although freight costs increased 3% over the prior year, unit freight costs increased only 1%. Higher fuel prices were partially offset by efficiencies created by increased shipments. Profit sharing costs, which are based upon and fluctuate with pre-tax earnings, increased more than fivefold from 2010 to 2011 due to the Company’s increased profitability in 2011. In 2011, profit sharing costs consisted of $117.7 million of contributions, including the Company’s matching contribution, made to the Company’s Profit Sharing and Retirement Savings Plan for qualified employees ($22.1 million in 2010). 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 increased 56% to $24.7 million in 2011 compared with $15.8 million in 2010 and includes costs associated with vesting of stock awards granted in prior years.

In 2011, marketing, administrative, and other expenses included a charge of $13.9 million for the impairment of a dust recycling project. In 2010, Nucor and its joint venture partners agreed to permanently close the HIsmelt plant in Kwinana, Western Australia. Nucor has a 25% interest in the joint venture that will be terminated. Nucor recorded a pre-tax charge of $10.0 million in 2010 for our share of the estimated closure costs.

EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES

Nucor incurred equity method investment losses of $10.0 million and $32.1 million in 2011 and 2010, respectively. Included in equity method losses is amortization expense associated with the purchase of equity method investments. The decrease in the equity method investment losses is primarily attributable to decreased losses incurred at the HIsmelt joint venture that was closed in late 2010 and to increased earnings generated by NuMit LLC, of which Nucor acquired a 50% interest in the second quarter of 2010. The markets served by Duferdofin Nucor continue to be negatively affected by the global economic recession and lower-priced imports from foreign steel producers receiving government subsidies. Equity in earnings of unconsolidated affiliates was $4.1 million in the fourth quarter of 2011 compared with losses of $0.6 million in the fourth quarter of 2010 and $11.2 million in the third quarter of 2011. The increase in equity method earnings for the fourth quarter of 2011 is due to the reversal of a deferred tax asset valuation allowance of $7.1 million related to the Duferdofin Nucor joint venture’s Italian net operating loss carryforward. This valuation allowance was recorded in the third quarter of 2011 and reversed in the fourth quarter as a result of changes in Italian tax regulations in December 2011.

INTEREST EXPENSE (INCOME)

Net interest expense is detailed below:

 

          (in thousands ) 
Year Ended December 31,      2011      2010  

 

Interest expense

    

 

 

 

$178,812

 

  

  

 

 

 

$161,140

 

  

Interest income

          (12,718           (8,047

Interest expense, net

       $166,094         $153,093   
                     

The 11% increase in gross interest expense over 2010 is attributable to a 29% increase in average debt outstanding, partially offset by a 14% decrease in the average interest rate. Gross interest income increased 58% due to a 76% increase in average investments, partially offset by a 16% decrease in the average interest rate earned on investments.


26      
     
     

 

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

Earnings before income taxes and noncontrolling interests by segment for 2011 and 2010 are as follows:

 

       (in thousands ) 
Year Ended December 31,    2011     2010   

 

Steel mills

  

 

 

 

$1,703,933

 

  

 

 

 

 

$778,946 

 

  

Steel products

     (60,282     (173,433)   

Raw materials

     150,029        106,317    

All other

     4,296        4,344    

Corporate/eliminations

       (546,164     (449,059)   

Earnings before income taxes and noncontrolling interests

     $1,251,812        $267,115    
                  

Earnings before income taxes and noncontrolling interests in the steel mills segment for 2011 more than doubled over 2010 because of increased utilization rates, increased sales prices and metal margins, decreased pre-operating and start-up costs and decreased losses from unconsolidated affiliates. Nucor benefited from our diversified product mix in 2011, in which our sheet, bar, plate and beam mills all improved their profitability compared to 2010. Our plate and bar mills had the largest increases in profitability, while our sheet and beam mills also contributed solid profitability growth.

Loss before income taxes and noncontrolling interests in the steel products segment in 2011 decreased from 2010. The strongest performer in the steel products segment continues to be the cold finished business due to improved demand in the heavy equipment and transportation markets. Our downstream fabricated construction products continued to operate in very depressed markets; however, we are seeing small but encouraging signs of improvement in our construction products business.

The profitability of our raw materials segment, particularly DJJ, increased over 2010 as higher selling prices in the scrap market allowed for margin enhancement.

NONCONTROLLING INTERESTS

Noncontrolling interests represent the income attributable to the minority interest partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (NYS) and Barker Steel Company, Inc., of which Nucor owns 51% and 90%, respectively. The 15% increase in earnings attributable to noncontrolling interests was primarily attributable to the increased earnings of NYS, which were due to improvements in the structural steel market. 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 2011 was 31.2% compared with 22.8% in 2010. The change in the rate between 2010 and 2011 was primarily due to the changes in relative proportions of net earnings attributable to noncontrolling interests, state income tax benefit and foreign tax benefit to total pre-tax earnings. Nucor has concluded U.S. federal income tax matters for years through 2006. The 2008 through 2011 tax years are open to examination by the Internal Revenue Service. The years 2004 and 2007 are open to the extent net operating losses were carried back. The Canada Revenue Agency has completed an audit examination for the periods 2006 to 2008 for Harris Steel Group Inc. and subsidiaries with immaterial adjustments to the income tax returns. The tax years 2008 through 2011 remain open to examination by other major taxing jurisdictions to which Nucor is subject (primarily Canada and other state and local jurisdictions).


     27    
    
    

 

NET EARNINGS AND RETURN ON EQUITY

Nucor reported net earnings of $778.2 million, or $2.45 per diluted share, in 2011 compared to net earnings of $134.1 million, or $0.42 per diluted share, in 2010. Net earnings attributable to Nucor stockholders as a percentage of net sales were 4% in 2011 and 1% in 2010. Return on average stockholders’ equity was 11% and 2% in 2011 and 2010, respectively.

 

LOGO

 

 

COMPARISON OF 2010 TO 2009

RESULTS OF OPERATIONS

NET SALES

Net sales to external customers by segment for 2010 and 2009 were as follows:

 

           (in thousands ) 
Year Ended December 31,    2010      2009      % Change  

 

Steel mills

  

 

 

 

$10,860,760

 

  

  

 

 

 

$7,159,512

 

  

  

 

 

 

52% 

 

  

Steel products

     2,831,209         2,691,322         5%    

Raw materials

     1,814,329         1,076,964         68%    

All other

            338,329                262,498         29%    

Total net sales to external customers

     $15,844,627         $11,190,296         42%    
                            

Net sales for 2010 increased 42% from the prior year. The average sales price per ton increased 13% from $637 in 2009 to $720 in 2010, while total tons shipped to outside customers increased 25%.

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

 

               (in thousands ) 
Year Ended December 31,      2010        2009      % Change   

 

Steel production

    

 

 

 

18,258

 

  

    

 

 

 

 13,998

 

  

  

 

 

 

30% 

 

  

 

Outside steel shipments

    

 

 

 

15,821

 

  

    

 

 

 

12,075

 

  

  

 

 

 

31% 

 

  

Inside steel shipments

         2,752             1,961         40%    

Total steel shipments

       18,573           14,036         32%    
                                


28      
   XX   
     

 

Net sales to external customers in the steel mills segment increased 52% due to a 31% increase in tons sold to outside customers and a 16% increase in the average sales price per ton from $593 in 2009 to $689 in 2010. Total production levels at the steel mills increased 30% due to significant increases in outside shipments as well as in tons supplied to Nucor’s downstream businesses.

Tonnage data for the steel products segment was as follows:

 

                       (in thousands)   
  Year Ended December 31,                2010                  2009       % Change  

 

  Joist production

     276         264         5%   

  Deck sales

     306         310         -1%   

  Cold finished sales

     462         330         40%   

  Fabricated concrete reinforcing steel sales

 

    

 

981

 

  

 

    

 

954

 

  

 

    

 

3%

 

  

 

Net sales to external customers in the steel products segment increased 5% from 2009 due to a 12% increase in tons sold to outside customers partially offset by a 5% decrease in the average sales price per ton from $1,263 to $1,194.

Sales for the raw materials segment increased 68% from 2009 primarily due to increased prices. Approximately 88% of outside sales in the raw materials segment in 2010 were from brokerage operations of DJJ and approximately 12% of the outside sales were from the scrap processing facilities (80% and 19%, respectively, in 2009).

The “All other” category includes Nucor’s steel trading businesses. The year-over-year increases in sales are due to increases in both volume and price.

GROSS MARGIN

In 2010, Nucor recorded gross margins of $843.7 million (5%) compared with $154.4 million (1%) in 2009. The year-over-year dollar and gross margin increases were the result of the 25% increase in total shipments to outside customers and the 13% increase in average selling price per ton. Additionally, gross margins were impacted by the following factors:

 

In the steel mills segment, the average scrap and scrap substitute cost per ton used increased 16% from $303 in 2009 to $351 in 2010; however, metal margin dollars also increased. The results of the first nine months of 2009 include a substantially greater burden than 2010 from the accelerated consumption of high-cost pig iron inventories, primarily at our sheet mills. These inventories were purchased prior to the collapse of both the economy and scrap/pig iron pricing in the fourth quarter of 2008. The consumption of the high-cost pig iron inventories was completed by the close of the third quarter of 2009 but had a negative impact of approximately $420 million on the 2009 gross margin.

 

The average scrap and scrap substitute cost per ton in ending inventory within our steel mills segment at December 31, 2010 increased 32% as compared with December 31, 2009. At December 31, 2010, the tons on hand of inventory held at locations that value inventory using the LIFO method of accounting decreased from December 31, 2009, causing a liquidation of LIFO inventory layers in 2010. However, the increases in costs that we experienced more than offset the reduction in tons, and the net result was a LIFO charge of $164.0 million in 2010 (a LIFO credit of $466.9 million in 2009). The increase in cost per ton was driven by increases in the demand for steel and the related raw materials, while the decrease in tons on hand resulted from the Company’s working capital management efforts.

 

Pre-operating and start-up costs of new facilities increased to $174.8 million in 2010, compared with $160.0 million in 2009. In 2010, these costs primarily related to the Memphis SBQ mill and the Decatur galvanizing line. In 2009, these costs primarily related to the start-up of the SBQ mill, the construction and start-up of the galvanizing line, the Louisiana ironmaking facility and the Castrip project in Blytheville, Arkansas.

 

Total energy costs decreased $3 per ton from 2009 to 2010 due primarily to increased utilization rates across all product lines.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

Total freight costs increased 10% from 2009 to 2010, while unit freight costs increased only 4%. Higher fuel costs were partially offset by efficiencies created by increased shipments. Profit sharing costs more than doubled from 2009 to 2010 because of our return to profitability after a net loss in 2009. In 2010, profit sharing costs primarily consisted of $22.1 million of contributions made to the Company’s Profit Sharing and Retirement Savings Plan for qualified employees (including the Company’s matching contribution). In 2009, profit sharing costs primarily consisted of $9.6 million of matching contributions. Stock-based compensation included in marketing, administrative and other expenses decreased 19% to $15.8 million in 2010 compared with $19.5 million in 2009.


     29    
    
    

 

In 2010, Nucor recorded a pre-tax charge of $10.0 million for our share of the estimated closure costs of the HIsmelt facility.

EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES

Nucor incurred equity method investment losses of $32.1 million and $82.3 million in 2010 and 2009, respectively. The decrease in the equity method investment losses is primarily due to decreased losses at Duferdofin Nucor S.r.l., which included a pre-tax charge to write down inventories to the lower of cost or market of $46.8 million in 2009 (none in 2010).

INTEREST EXPENSE (INCOME)

Net interest expense is detailed below:

 

       (in thousands)  
  Year Ended December 31,      2010        2009  

 

  Interest expense

       $161,140           $149,922   

  Interest income

       (8,047        (15,170
    

 

 

      

 

 

 

  Interest expense, net

       $153,093           $134,752   
    

 

 

      

 

 

 
                       

Gross interest expense increased 7% over 2009 primarily because of increased average debt outstanding of approximately 7%. Gross interest income decreased 47% because of a significant decrease in the average interest rate earned on investments combined with a 21% decrease in average investments.

EARNINGS (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

Earnings (loss) before income taxes and noncontrolling interests by segment for 2010 and 2009 are as follows:

 

       (in thousands)  
  Year Ended December 31,      2010        2009  

 

  Steel mills

       $778,946           $(350,372

  Steel products

       (173,433        (112,800

  Raw materials

       106,317           (76,965

  All other

       4,344           (14,130

  Corporate/eliminations

       (449,059        140,289   
    

 

 

      

 

 

 

  Earnings (loss) before income taxes and noncontrolling interests

       $267,115           $(413,978
    

 

 

      

 

 

 
                       

Earnings before income taxes and noncontrolling interests increased primarily due to increases in average sales price per ton, tons shipped to outside customers and metal margins in 2010 as compared to 2009.

In the steel mills segment, we were able to significantly raise mill selling prices in response to rising raw material costs and some improvement in end-use demand. The average utilization rate in our steel mills was 70% in 2010, compared with a historically low average utilization rate of 54% in 2009.

In the steel products segment, the market environment for our fabricated construction products was extremely challenging in 2010 and 2009. Sales of cold finished bar products increased primarily due to improved demand in the heavy equipment and transportation markets. The average utilization rate in the steel products segment was 54% in 2010, compared with a utilization rate of 49% in 2009.

Increases in selling prices for scrap contributed to the increase in earnings before income taxes and noncontrolling interests in the raw materials segment in 2010 compared with 2009. The average utilization rate in the raw materials segment was 69% in 2010, compared with a utilization rate of 53% in 2009.

NONCONTROLLING INTERESTS

The 28% increase in earnings attributable to noncontrolling interests was primarily attributable to the increased earnings of NYS, which were due to improvements in the structural steel market. In 2009, the amount of cash distributed to noncontrolling interest holders exceeded the earnings attributable to noncontrolling interests based on mutual agreement of the general partners; however, the cumulative amount of cash distributed to partners was less than the cumulative net earnings of the partnership.


30      
   XX   
     

 

PROVISION FOR INCOME TAXES

The effective tax rate in 2010 was 22.8% compared with 42.7% in 2009. The change in the rate between 2009 and 2010 was primarily due to the changes in relative proportions of net earnings or loss attributable to noncontrolling interests and equity method investments to total pre-tax earnings or loss. The change in rate was also caused by changes in the state income tax benefit in 2010 resulting from reductions in liabilities for uncertain tax positions due to statute closures.

NET EARNINGS AND RETURN ON EQUITY

Nucor reported net earnings of $134.1 million, or $0.42 per diluted share, in 2010 compared to a net loss of $293.6 million, or $0.94 per diluted share, in 2009. Net earnings (loss) attributable to Nucor stockholders as a percentage of net sales were 1% in 2010 and (3%) in 2009. Return on average stockholders’ equity was 2% and (4%) in 2010 and 2009, respectively.

 

 

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities provide us with a significant source of liquidity. When needed, we also 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 the fourth quarter of 2011, Nucor increased its revolving credit facility to $1.5 billion and extended the maturity date to December 2016. The revolving credit facility was undrawn and we had no commercial paper outstanding at December 31, 2011. We believe our financial strength is a key strategic advantage among domestic steel producers, particularly during recessionary business cycles. We currently carry the highest credit ratings of any metals and mining company in North America with an A rating from Standard & Poor’s and an A2 rating from Moody’s. Based upon these ratings, we expect to continue to have adequate access to the capital markets at a reasonable cost of funds for liquidity purposes when needed. 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.

Nucor’s cash and cash equivalents and short-term investments position remains robust at $2.56 billion as of December 31, 2011, and an additional $585.8 million of restricted cash and investments is available for use in the construction of the DRI facility in Louisiana. Approximately $181.3 million and $189.7 million of the cash and cash equivalents position at December 31, 2011 and December 31, 2010, respectively, was held by our majority-owned joint ventures.

Selected Measures of Liquidity and Capital Resources:

 

              (in thousands)   
  December 31,              2011                2010  

 

  Cash and cash equivalents

   $ 1,200,645         $1,325,406   

  Short-term investments

   $ 1,362,641         $1,153,623   

  Restricted cash and investments

   $ 585,833         $   598,482   

  Working capital

   $ 4,312,022         $4,356,737   

  Current ratio

 

    

 

2.8

 

  

 

    

 

3.9

 

  

 

The current ratio decreased from 3.9 at December 31, 2010 to 2.8 at December 31, 2011. Contributing to the decrease in the current ratio was the reclassification to a current liability of $650 million of long-term debt that matures in the second half of 2012. Accounts receivable and inventories increased 19% and 28%, respectively, since 2010, while net sales in the fourth quarter increased 25% from the prior year fourth quarter. The increases in accounts receivable and inventories are due to higher sales prices and the increased cost of raw materials in the current year as compared with the fourth quarter of 2010, combined with increased volumes. In 2011, total accounts receivable turned approximately monthly and inventories turned approximately every five weeks. These turnover rates are comparable to Nucor’s historical performance, in contrast to the slower rates experienced in 2009. The current ratio was also impacted by the 61% increase in salaries, wages and related accruals, which was attributable to higher profit sharing and bonus costs driven by our increase in profitability.

Funds provided by operations, cash and cash equivalents, short-term investments and new borrowings under existing credit facilities are expected to be adequate to pay maturing debt and 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 and do not have off-balance sheet financing arrangements or relationships with unconsolidated special purpose entities that we believe could have a material impact on our financial condition or liquidity.


     31    
    
    

 

OPERATING ACTIVITIES

Nucor generated cash provided by operating activities of $1.03 billion in 2011 compared with $873.4 million in 2010, an increase of 18%. The increase in net earnings over the prior year was offset by changes in operating assets and liabilities of ($535.9) million in 2011 compared with ($128.9) million in 2010. The funding of working capital increased over the prior year due to higher levels of operations in 2011 and increases in the costs of raw materials and selling prices.

 

INVESTING ACTIVITIES

Our business is capital intensive; therefore, cash used in investing activities represents capital expenditures for new facilities, the expansion and upgrading of existing facilities, and the acquisition of other companies. Nucor invested $440.5 million in new facilities (exclusive of acquisitions) and expansion or upgrading of existing facilities in 2011 compared with $345.3 million in 2010, an increase of 28%. Nucor’s capital investment and maintenance practices give us the flexibility to reduce our current spending on our facilities to lower levels during severely depressed market conditions such as we experienced in recent years.

 

Additionally, the cash used in investing activities includes investments in joint ventures and purchases of and proceeds from the sale of investments. In 2010, cash used in investing activities included the acquisition of a 50% interest in NuMit LLC for $221.3 million and the investment of funds received from the issuance of approximately $1.2 billion in long-term debt. These two investing activities account for the majority of the decrease from 2010 to 2011.

   LOGO

FINANCING ACTIVITIES

Cash used in financing activities was $495.0 million in 2011 compared with cash provided by financing activities of $691.8 million in 2010. In September 2010, Nucor issued $600.0 million of 4.125% unsecured notes due in 2022 for general corporate purposes, including repayment of debt. In November 2010, Nucor issued $600.0 million in 30-year variable rate Gulf Opportunity Zone bonds to partially fund the construction of the DRI facility in Louisiana.

In 2011, Nucor increased its quarterly base dividend resulting in dividends paid of $461.5 million ($457.3 million in 2010).

Although there were no repurchases in 2010 or 2011, approximately 27.2 million shares remain authorized for repurchase under the Company’s stock repurchase program.

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% and 37% at year-end 2011 and 2010, respectively, 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 2011 were 71% and 55%, respectively. A significant portion of our steel and steel products segments’ sales are in the commercial, industrial and municipal construction markets, which continue to be depressed. Our largest single customer in 2011 represented approximately 5% of sales and consistently pays within terms. We have only a small exposure to the U.S. automotive industry. 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.

The majority of Nucor’s tax-exempt industrial revenue bonds (IDRBs), including the Gulf Opportunity Zone bonds, have variable interest rates that are adjusted weekly, with the rate of one IDRB adjusted annually. These IDRBs represent 24% of Nucor’s long-term debt outstanding at December 31, 2011. The remaining 76% 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, 2011, 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.


32      
   XX   
     

 

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 in future periods and hedging the exposures related to changes in the fair value of outstanding fixed rate debt instruments and foreign currency transactions. Nucor recognizes all derivative instruments in the consolidated balance sheets at fair value. The Company is exposed to foreign currency risk through its operations in Canada, Europe, Trinidad and Australia. 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, 2011 for the periods presented:

 

000000000000 000000000000 000000000000 000000000000 000000000000
                                                (in thousands)   
      

 

Payments Due By Period

 
  Contractual Obligations      Total                  2012                  2013 - 2014              2015 - 2016             2017 and thereafter   

 

  Long-term debt

       $  4,280,200           $   650,000           $   253,300           $16,300        $3,360,600   

  Estimated interest on long-term debt(1)

       1,817,559           170,825           268,739           263,313        1,114,682   

  Operating leases

       84,618           23,754           31,612           15,806        13,446   

  Raw material purchase commitments(2)

       6,814,363           1,458,362           2,015,172           2,114,035        1,226,794   

  Utility purchase commitments(2)

       981,823           207,685           178,362           106,734        489,042   

  Other unconditional purchase obligations(3)

       943,404           407,083           227,804           236,194        72,323   

  Other long-term obligations(4)

              337,203                162,986                  52,952                  12,271             108,994   

  Total contractual obligations

       $15,259,170           $3,080,695           $3,027,941           $2,764,653        $6,385,881   
                                                     

 

  (1) Interest is estimated using applicable rates at December 31, 2011 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, 2011, 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 and payments related to the working interest natural gas drilling program.
  (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, $80.9 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 $34.3 million at December 31, 2011.

DIVIDENDS

Nucor has increased its base cash dividend every year since it began paying dividends in 1973. Nucor paid dividends of $1.45 per share in 2011 compared with $1.44 per share in 2010. In December 2011, the board of directors increased the base quarterly dividend to $0.365 per share. The base quarterly dividend has more than tripled since the end of 2007. In February 2012, the board of directors declared Nucor’s 156th consecutive quarterly cash dividend of $0.365 per share payable on May 11, 2012 to stockholders of record on March 30, 2012.

OUTLOOK

In 2012, we expect to see a continued, albeit slow, growth in sales and earnings. This expected growth will occur in a U.S. economy burdened by a challenging regulatory and overall business environment. Uncertainties in Europe’s financial sector will almost certainly affect both global and domestic growth in 2012. Utilization rates, which improved slightly during 2011, have continued at a similar pace in early 2012 and we expect the trend to continue as we progress through the first quarter. In addition, recent price increases for all steel mill products are expected to have a positive impact on earnings in the first quarter. This positive trend in earnings is expected to continue as we head into the second quarter. We are therefore cautiously optimistic regarding first half volume, pricing and profitability. We believe several end-use markets, such as automotive, heavy equipment, energy and general manufacturing, are experiencing some real demand improvement that will continue throughout 2012. However, the effect of this improvement in demand on our operating


     33    
    
    

 

rates will be challenged by recent increases in domestic sheet steel capacity as well as continued increases in imported steel. We also expect quarterly average scrap prices in 2012 to remain at higher levels similar to 2011. The most challenging markets for our products continue to be those associated with residential and nonresidential construction.

We have continued to rely on our strong cash from operations and liquidity to support investments in our facilities that will prepare us for increased profitability as we eventually enter into more favorable market conditions. In 2012, we will continue to allocate capital to investments that build our long-term earnings power. Capital expenditures are currently projected to be approximately $1.0 billion in 2012, more than double the levels of 2009 and 2010. Included in this total are expenditures for our Louisiana DRI plant, our natural gas working interest program, our planned capacity expansion in SBQ steel as well as other 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.

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 last-in, first-out (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 could hinder our ability to work through high-priced scrap and scrap substitutes (particularly pig iron), 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 changes in circumstances indicate that the carrying amounts of those productive assets could exceed their projected undiscounted cash flows. Some of the estimated values for assets that we currently use in our operations 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 2011. 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, 2011; 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.


34      
   XX   
     

 

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 with 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 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 2011 annual goodwill impairment analysis did not result in an impairment charge. The excess of fair value over carrying value for the majority of our reporting units improved from 2010 levels. Accordingly, management does not currently believe that future impairment of these reporting units is probable. However, the performance of certain businesses that comprise our reporting units requires continued improvement. A 50 basis point increase in the discount rate, a critical assumption in which a minor change can have a significant impact on the estimated fair value, would not result in an impairment charge.

Nucor will continue to monitor operating results within all reporting units throughout the upcoming year in an effort to determine if events and circumstances warrant further interim impairment testing. Otherwise, all reporting units will again be subject to the required annual impairment test during our fourth quarter of 2012. 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 the fair value of our investment could be less than carrying value. If the results of the review indicate a decline in the carrying value of our investment and that decline is other than temporary, the Company would write down the investment to its estimated fair 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.

As a result of the significant decline in the global demand for steel and the losses incurred in the investment during 2010 and 2011, we evaluated our investment in Duferdofin Nucor during the fourth quarter of 2011. Nucor determined the estimated fair value of our investment in Duferdofin Nucor using a discounted cash flow model based on a weighted-average of multiple discounted cash flow scenarios. The discounted cash flow scenarios require the use of unobservable inputs, including assumptions of projected revenues (including product volume, product mix and average selling prices), raw material costs and other production expenses, capital spending and other costs, as well as a discount rate. Estimates of projected revenues, expenses, capital spending and other costs are developed by Duferdofin Nucor and Nucor using historical data and available market data. Based on our analysis, the estimated fair value of our investment in Duferdofin Nucor approximated carrying value as of December 31, 2011. As a result, we did not have an other-than-temporary impairment of our investment in Duferdofin Nucor in 2011.

We will continue to monitor trends in the global demand for steel, particularly within the European market in which Duferdofin Nucor operates, as well as other general economic and currency matters. It is reasonably possible that based on actual performance in the near term the estimates used in our valuation as of December 31, 2011 could change and result in an 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 and discount rate are the assumptions that most significantly affect the fair value determination.


     35    
    
    

 

ENVIRONMENTAL REMEDIATION

We are subject to environmental laws and regulations established by federal, state and local authorities, and we make provision 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. The accruals are not reduced by possible recoveries from insurance carriers or other third parties. 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 earnings before taxes and noncontrolling interests.

 

 

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our consolidated financial statements for a discussion of new accounting pronouncements adopted by Nucor during 2011 and the expected financial impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.


        39    
   FIVE-YEAR FINANCIAL REVIEW          
       

 

 

     (dollar and share amounts in thousands, except per share data)  
      2011      2010      2009     2008      2007  

  FOR THE YEAR

             

 

  Net sales

   $ 20,023,564       $ 15,844,627       $ 11,190,296      $ 23,663,324       $ 16,592,976   

 

  Costs, expenses and other:

             

 

  Cost of products sold

     18,074,967         15,000,962         11,035,903        19,612,283         13,462,927   

 

  Marketing, administrative and other expenses

     520,648         391,375         351,278        714,064         553,146   

 

  Equity in losses of unconsolidated affiliates

     10,043         32,082         82,341        36,920         24,618   

 

  Impairment of non-current assets

                            105,183           

 

  Interest expense, net

     166,094         153,093         134,752        90,483         5,469   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     18,771,752         15,577,512         11,604,274        20,558,933         14,046,160   

 

  Earnings (loss) before income taxes and noncontrolling interests

     1,251,812         267,115         (413,978     3,104,391         2,546,816   

 

  Provision for (benefit from) income taxes

     390,828         60,792         (176,800     959,480         781,368   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

  Net earnings (loss)

     860,984         206,323         (237,178     2,144,911         1,765,448   

 

  Earnings attributable to noncontrolling interests

     82,796         72,231         56,435        313,921         293,501   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

  Net earnings (loss) attributable to Nucor stockholders

     778,188         134,092         (293,613     1,830,990         1,471,947   

 

  Net earnings (loss) per share:

             

 

  Basic

     2.45         0.42         (0.94     5.99         4.96   

 

  Diluted

     2.45         0.42         (0.94     5.98         4.94   

 

  Dividends declared per share

     1.4525         1.4425         1.41        1.91         2.44   

 

  Percentage of net earnings (loss) to net sales

     3.9%         0.8%         -2.6%        7.7%         8.9%   

 

  Return on average stockholders’ equity

     10.7%         1.8%         -3.8%        28.1%         29.5%   

 

  Capital expenditures

     450,627         345,294         390,500        1,018,980         520,353   

 

  Acquisitions (net of cash acquired)

     3,959         64,788         32,720        1,826,030         1,542,666   

 

  Depreciation

     522,571         512,147         494,035        479,484         403,172   

 

  Sales per employee

     974         777         539        1,155         1,085   

  AT YEAR END

             

 

  Current assets

   $ 6,708,081       $ 5,861,175       $ 5,182,248      $ 6,397,486       $ 5,073,249   

 

  Current liabilities

     2,396,059         1,504,438         1,227,057        1,854,192         1,582,036   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

  Working capital

     4,312,022         4,356,737         3,955,191        4,543,294         3,491,213   

 

  Cash provided by operating activities

     1,032,612         873,404         1,173,194        2,502,063         1,935,306   

 

  Current ratio

     2.8         3.9         4.2        3.5         3.2   

 

  Property, plant and equipment, net

     3,755,604         3,852,118         4,013,836        4,131,861         3,232,998   

 

  Total assets

     14,570,350         13,921,910         12,571,904        13,874,443         9,826,122   

 

  Long-term debt (including current maturities)

     4,280,200         4,280,200         3,086,200        3,266,600         2,250,300   

 

  Percentage of debt to capital(1)

     35.7%         36.9%         28.9%        28.3%         29.4%   

 

  Total Nucor stockholders’ equity

     7,474,885         7,120,070         7,390,526        7,929,204         5,112,917   

 

  Per share

     23.60         22.55         23.47        25.25         17.75   

 

  Shares outstanding

     316,749         315,791         314,856        313,977         287,993   

 

  Employees

     20,800         20,500         20,400        21,700         18,000   
(1) Long-term debt divided by total equity plus long-term debt.


40         
           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, 2011. 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.

Based on its assessment, management concluded that Nucor’s internal control over financial reporting was effective as of December 31, 2011. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of Nucor’s internal control over financial reporting as of December 31, 2011, as stated in their report which is included herein.


        41    
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         
       

 

 

 

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, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Nucor Corporation and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 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, 2011, based on criteria established in Internal Control - Integrated Framework 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 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.

 

LOGO
PricewaterhouseCoopers LLP
Charlotte, NC
February 28, 2012


42         
           CONSOLIDATED BALANCE SHEETS   
        

 

 

  CONSOLIDATED BALANCE SHEETS           (in thousands)  
  December 31,    2011     2010  

  ASSETS

      

  CURRENT ASSETS:

      

  Cash and cash equivalents (Note 15)

   $ 1,200,645      $ 1,325,406   

  Short-term investments (Notes 4 and 15)

     1,362,641        1,153,623   

  Accounts receivable, net (Note 5)

     1,710,773        1,439,828   

  Inventories, net (Note 6)

     1,987,257        1,557,574   

  Other current assets (Notes 10, 14, 15 and 20)

     446,765        384,744   
  

 

 

   

 

 

 

  Total current assets

     6,708,081        5,861,175   

  PROPERTY, PLANT AND EQUIPMENT, NET (Note 7)

     3,755,604        3,852,118   

  RESTRICTED CASH AND INVESTMENTS (Notes 8 and 15)

     585,833        598,482   

  GOODWILL (Note 9)

     1,830,661        1,836,294   

  OTHER INTANGIBLE ASSETS, NET (Note 9)

     784,640        856,125   

  OTHER ASSETS (Note 10)

     905,531        917,716   
  

 

 

   

 

 

 

  TOTAL ASSETS

   $ 14,570,350      $ 13,921,910   
  

 

 

   

 

 

 
                  

  LIABILITIES AND EQUITY

      

  CURRENT LIABILITIES:

      

  Short-term debt (Notes 12 and 15)

   $ 1,826      $ 13,328   

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

     650,000          

  Accounts payable (Note 11)

     958,645        896,703   

  Salaries, wages and related accruals (Notes 17 and 18)

     333,341        207,168   

  Accrued expenses and other current liabilities (Notes 11, 14, 15 and 16)

     452,247        387,239   
  

 

 

   

 

 

 

  Total current liabilities

     2,396,059        1,504,438   

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

     3,630,200        4,280,200   

  DEFERRED CREDITS AND OTHER LIABILITIES (Notes 14, 15, 16, 17, 18 and 20)

     837,511        806,578   
  

 

 

   

 

 

 

  TOTAL LIABILITIES

     6,863,770        6,591,216   
  

 

 

   

 

 

 

  COMMITMENTS AND CONTINGENCIES (Notes 6, 14 and 16)

      

  EQUITY

      

  NUCOR STOCKHOLDERS’ EQUITY (Notes 13 and 17):

      

  Common stock (800,000 shares authorized; 376,239 and 375,451 shares issued, respectively)

     150,496        150,181   

  Additional paid-in capital

     1,756,534        1,711,518   

  Retained earnings

     7,111,566        6,795,988   

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

     (38,177     (27,776

  Treasury stock (59,490 and 59,660 shares, respectively)

     (1,505,534     (1,509,841
  

 

 

   

 

 

 

  Total Nucor stockholders’ equity

     7,474,885        7,120,070   

  NONCONTROLLING INTERESTS

     231,695        210,624   
  

 

 

   

 

 

 

  TOTAL EQUITY

     7,706,580        7,330,694   
  

 

 

   

 

 

 

  TOTAL LIABILITIES AND EQUITY

   $ 14,570,350      $ 13,921,910   
  

 

 

   

 

 

 
                  

See notes to consolidated financial statements.


        43    
   CONSOLIDATED STATEMENTS OF EARNINGS         
       

 

 

  CONSOLIDATED STATEMENTS OF EARNINGS   

(in thousands, except per share data)

 
  Year Ended December 31,    2011      2010      2009  

  NET SALES

     $20,023,564         $15,844,627         $11,190,296   
  

 

 

    

 

 

    

 

 

 

  COSTS, EXPENSES AND OTHER:

        

Cost of products sold (Notes 14 and 18)

     18,074,967         15,000,962         11,035,903   

Marketing, administrative and other expenses (Note 10)

     520,648         391,375         351,278   

Equity in losses of unconsolidated affiliates (Note 10)

     10,043         32,082         82,341   

Interest expense, net (Note 19)

     166,094         153,093         134,752   
  

 

 

    

 

 

    

 

 

 
     18,771,752         15,577,512         11,604,274   
  

 

 

    

 

 

    

 

 

 

  EARNINGS (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

     1,251,812         267,115         (413,978

  PROVISION FOR (BENEFIT FROM) INCOME TAXES (Note 20)

     390,828         60,792         (176,800
  

 

 

    

 

 

    

 

 

 

  NET EARNINGS (LOSS)

     860,984         206,323         (237,178

  EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     82,796         72,231         56,435   
  

 

 

    

 

 

    

 

 

 

  NET EARNINGS (LOSS) ATTRIBUTABLE TO NUCOR STOCKHOLDERS

     $     778,188         $     134,092         $    (293,613
  

 

 

    

 

 

    

 

 

 

  NET EARNINGS (LOSS) PER SHARE (Note 21):

        

Basic

     $2.45         $0.42         ($0.94

Diluted

     $2.45         $0.42         ($0.94

See notes to consolidated financial statements.


44         
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
        

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY                 (in thousands, except per share data)  
           COMMON STOCK    

ADDITIONAL

CAPITAL

   

RETAINED

EARNINGS

   

ACCUMULATED
OTHER

COMPREHENSIVE

INCOME (LOSS)

   

TREASURY STOCK

(AT COST)

   

TOTAL NUCOR

STOCKHOLDERS’

EQUITY

   

NON-

CONTROLLING

INTERESTS

 
     TOTAL     SHARES     AMOUNT           SHARES     AMOUNT      

BALANCES, December 31, 2008

    $8,256,681        374,069        $149,628        $1,629,981        $7,860,629        $(190,262)        60,092        $(1,520,772     $7,929,204        $327,477   

Comprehensive income:

                             

Net earnings (loss) in 2009

    (237,178             (293,613                 (293,613     56,435   

Net unrealized loss on hedging derivatives, net of income taxes

    (48,616               (48,616             (48,616  

Reclassification adjustment for loss on settlement of hedging derivatives included in net loss, net of income taxes

    40,543                  40,543                40,543     

Foreign currency translation gain, net of income taxes

    155,285                  155,201                155,201        84   

Adjustment to early retiree medical plan, net of income taxes

    2,078                  2,078                2,078     
   

 

 

                   

 

 

   

 

 

 

Total comprehensive income (loss)

    (87,888                           (144,407     56,519   

Stock options exercised

    3,740        239        95        3,645                      3,740     

Issuance of stock under award plans, net of forfeitures

    44,883        384        154        38,247              (256     6,482        44,883     

Amortization of unearned compensation

    3,904              3,904                      3,904     

Cash dividends ($1.41 per share)

    (446,798             (446,798                 (446,798  

Distributions to noncontrolling interests

    (190,233                               (190,233

BALANCES, December 31, 2009

    7,584,289        374,692        149,877        1,675,777        7,120,218        (41,056     59,836        (1,514,290     7,390,526        193,763   

Comprehensive income:

                             

Net earnings in 2010

    206,323                134,092                    134,092        72,231   

Net unrealized loss on hedging derivatives, net of income taxes

    (29,957               (29,957             (29,957  

Reclassification adjustment for loss on settlement of hedging derivatives included in net earnings, net of income taxes

    35,141                  35,141                35,141     

Foreign currency translation gain, net of income taxes

    8,182                  8,172                8,172        10   

Adjustment to early retiree medical plan, net of income taxes

    (76               (76             (76  
 

 

 

                               

 

 

   

 

 

 

Total comprehensive income

    219,613                              147,372        72,241   

Stock options exercised

    4,662        319        128        4,534                      4,662     

Stock option expense

    729              729                      729     

Issuance of stock under award plans, net of forfeitures

    32,777        440        176        28,152              (176     4,449        32,777     

Amortization of unearned compensation

    2,326              2,326                      2,326     

Cash dividends ($1.4425 per share)

    (458,322             (458,322                 (458,322  

Distributions to noncontrolling interests

    (55,380                               (55,380

BALANCES, December 31, 2010

    7,330,694        375,451        150,181        1,711,518        6,795,988        (27,776     59,660        (1,509,841     7,120,070        210,624   

Comprehensive income:

                             

Net earnings in 2011

    860,984                778,188                    778,188        82,796   

Net unrealized loss on hedging derivatives, net of income taxes

    (8,454               (8,454             (8,454  

Reclassification adjustment for loss on settlement of hedging derivatives included in net earnings, net of income taxes

    37,093                  37,093                37,093     

Foreign currency translation loss, net of income taxes

    (40,210               (40,205             (40,205     (5

Adjustment to early retiree medical plan, net of income taxes

    8,789                  8,789                8,789     

Correction of error in early retiree medical plan, net of income taxes

    (7,624               (7,624             (7,624  
   

 

 

                               

 

 

   

 

 

 

Total comprehensive income

    850,578                              767,787        82,791   

Stock options exercised

    8,097        387        155        7,942                      8,097     

Stock option expense

    9,850              9,850                      9,850     

Issuance of stock under award plans, net of forfeitures

    30,091        401        160        25,624              (170     4,307        30,091     

Amortization of unearned compensation

    1,600              1,600                      1,600     

Cash dividends ($1.4525 per share)

    (462,610             (462,610                 (462,610  

Distributions to noncontrolling interests

    (61,720                               (61,720

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   

See notes to consolidated financial statements.


        45    
   CONSOLIDATED STATEMENTS OF CASH FLOWS          
       

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS                  (in thousands)  
Year Ended December 31,    2011     2010     2009  

OPERATING ACTIVITIES:

      

 

Net earnings (loss)

     $    860,984        $    206,323        $  (237,178

 

Adjustments:

      

 

Depreciation

     522,571        512,147        494,035   

 

Amortization

     67,829        70,455        72,388   

 

Stock-based compensation

     49,003        43,041        54,665   

 

Deferred income taxes

     58,051        138,262        88,546   

 

Equity in losses of unconsolidated affiliates

     10,043        32,082        82,341   

 

Changes in assets and liabilities (exclusive of acquisitions):

      

 

Accounts receivable

     (274,920     (310,188     141,104   

 

Inventories

     (433,696     (231,913     1,117,600   

 

Accounts payable

     63,571        186,417        170,229   

 

Federal income taxes

     930        180,821        (422,116

 

Salaries, wages and related accruals

     129,340        56,641        (419,800

 

Other

          (21,094          (10,684            31,380   

 

Cash provided by operating activities

     1,032,612        873,404        1,173,194   

INVESTING ACTIVITIES:

      

 

Capital expenditures

     (440,502     (345,294     (390,500

 

Investment in and advances to affiliates

     (95,950     (434,006     (63,563

 

Repayment of advances to affiliates

     50,000        83,885          

 

Disposition of plant and equipment

     25,333        24,944        11,371   

 

Acquisitions (net of cash acquired)

     (3,959     (64,788     (32,720

 

Purchases of investments

     (1,494,782     (1,323,264     (261,389

 

Proceeds from the sale of investments

     1,285,763        394,640        36,389   

 

Purchases of restricted investments

     (564,994              

 

Proceeds from the sale of restricted investments

     47,479                 

 

Changes in restricted cash

          530,165             (598,482                   —   

 

Cash used in investing activities

     (661,447     (2,262,365     (700,412

FINANCING ACTIVITIES:

      

 

Net change in short-term debt

     (11,450     11,561        (6,908

 

Repayment of long-term debt

            (6,000     (180,400

 

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

            1,198,992          

 

Debt issuance costs

            (4,050       

 

Issuance of common stock

     8,097        4,687        3,716   

 

Excess tax benefits from stock-based compensation

     1,000        (700     (3,100

 

Distributions to noncontrolling interests

     (61,720     (55,380     (190,233

 

Cash dividends

     (461,518     (457,282     (443,109

 

Other financing activities

           30,569                      —                      —   

 

Cash provided by (used in) financing activities

     (495,022     691,828        (820,034

Effect of exchange rate changes on cash

                (904              5,558                 9,103   

 

DECREASE IN CASH AND CASH EQUIVALENTS

     (124,761     (691,575     (338,149

 

CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR

        1,325,406          2,016,981          2,355,130   

 

CASH AND CASH EQUIVALENTS — END OF YEAR

     $1,200,645        $1,325,406        $2,016,981   
                          

See notes to consolidated financial statements.


46         
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
        

 

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

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 Certain amounts for prior years have been reclassified to conform to the 2011 presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents Cash equivalents are recorded at cost plus accrued interest, which approximates market, 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 market. 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 47% of total inventories as of December 31, 2011 (45% as of December 31, 2010). 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. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. The costs of planned major maintenance activities are capitalized 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 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 carrying value of goodwill and could result in additional impairment charges in future periods.

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


     47    
    
    

 

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 changes in circumstances indicate that the carrying amounts of those productive assets could exceed their projected undiscounted cash flows. When it is determined that an 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. 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 as well as scrap, copper and aluminum purchased for resale to its customers. In addition, Nucor uses derivatives from time to time to partially manage its exposure to changes in interest rates on outstanding debt instruments and uses forward foreign exchange contracts to hedge cash flows associated with certain assets and liabilities, firm commitments and anticipated transactions.

Nucor recognizes all derivative instruments in the consolidated balance sheets at fair value. Amounts included in accumulated other comprehensive income (loss) related to cash flow hedges are reclassified into earnings when the underlying transaction is recognized in net earnings. Changes in fair value hedges are reported currently 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, the change in fair value is recognized immediately in earnings in the same financial statement line as the underlying transaction.

Revenue Recognition Nucor recognizes revenue when the customer takes title, assumes risk of loss, and when collection is reasonably assured.

Freight Costs Internal fleet and some common carrier costs are included in marketing, administrative and other expenses. These costs included in marketing, administrative and other expenses were $67.2 million in 2011 ($59.9 million in 2010 and $54.3 million in 2009). All other freight costs are included in cost of products sold.

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.