Table of Contents

2016

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2016

OR

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

For the transition period from              to            

Commission file number 1-4119

NUCOR CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware    13-1860817

(State or other jurisdiction of

incorporation or organization)

   (I.R.S. Employer Identification No.)
  
1915 Rexford Road, Charlotte, North Carolina    28211
(Address of principal executive offices)    (Zip Code)

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

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

 

Title of each class

  

Name of each exchange

     on which registered     

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

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒     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  ☒

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

Indicate by check mark whether the registrant has submitted electronically 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  ☒    No  ☐

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

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

 

Large accelerated filer  ☒   Accelerated filer  ☐   Non-accelerated filer  ☐   Smaller reporting company  ☐

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

Aggregate market value of common stock held by non-affiliates was approximately $15.83 billion based upon the closing sales price of the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter, July 2, 2016.

318,848,316 shares of the registrant’s common stock were outstanding at February 21, 2017.

Documents incorporated by reference include: Portions of the registrant’s 2016 Annual Report (Parts I, II and IV), and portions of the registrant’s definitive Proxy Statement for its 2017 Annual Meeting of Stockholders (Part III) to be filed within 120 days after the registrant’s fiscal year end.


Table of Contents

Nucor Corporation

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2016

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      17  
   Item 6.    Selected Financial Data      17  
   Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      17  
   Item 7A.    Quantitative and Qualitative Disclosures About Market Risk      17  
   Item 8.    Financial Statements and Supplementary Data      18  
   Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      18  
   Item 9A.    Controls and Procedures      18  
   Item 9B.    Other Information      18  
PART III      
   Item 10.    Directors, Executive Officers and Corporate Governance      19  
   Item 11.    Executive Compensation      19  
   Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      19  
   Item 13.    Certain Relationships and Related Transactions, and Director Independence      19  
   Item 14.    Principal Accountant Fees and Services      19  
PART IV      
   Item 15.    Exhibits and Financial Statement Schedules      20  
   Item 16.    Form 10-K Summary      23  
SIGNATURES      24  

 

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PART I

 

Item 1. Business

Overview

Nucor Corporation and its affiliates (“Nucor,” the “Company” or “we”) manufacture steel and steel products. The Company also produces direct reduced iron (“DRI”) for use in the Company’s steel mills. Through The David J. Joseph Company and its affiliates (“DJJ”), the Company also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (“HBI”) and DRI. Most of the Company’s operating facilities and customers are located in North America, but Nucor does 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 2016, we recycled approximately 17.6 million tons of scrap steel.

General Development of our Business in Recent Years

Nucor has invested significant capital in recent years to expand our product portfolio to include more value-added steel mill products, improve our cost structure, enhance our operational flexibility and provide additional channels to market for our products. Our investments total almost $6 billion over the last five years, with approximately two-thirds going to capital expenditures and one-third going to acquisitions. We believe that our focus on lowering cost will enable us to execute on our strategy of delivering profitable growth. Shifting our product mix to a greater portion of value-added products and increasing end-user market diversity will make us less susceptible to imports.

The following projects at facilities within our steel mills segment illustrate Nucor’s execution on the value-added product expansion and cost improvement aspects of our strategy. At our Hertford County, North Carolina plate mill, a series of expansions, including a heat treat line, a normalizing line and a vacuum tank degasser, were completed in 2013. Those projects have positioned the mill to increase its diversity of product offerings to be less exposed to imports and have allowed us to improve the product mix allocation between our plate mills and sheet mills to improve margins at those facilities. The final components of Nucor’s $290 million project at our South Carolina, Nebraska and Tennessee bar mills to expand our special bar quality (“SBQ”) and wire rod production capabilities by approximately one million tons were completed in 2015. These SBQ projects are an important component of our strategy because they allow us to produce engineered bar for more demanding applications that are less exposed to imports while maintaining our position as a low-cost commodity bar producer by shifting production to our other bar mills. In 2014, our Berkeley County, South Carolina mill successfully started up its nearly $100 million capital project that allows us to produce wider and thinner high-strength steel grades that can be used in a wide range of end use markets, including metal buildings, rail cars, water heaters, automotive, heavy equipment and motor lamination. Additionally, our Nucor-Yamato Steel Company (“Nucor-Yamato”) joint venture has recently completed two major capital projects to broaden its product offerings. Nucor-Yamato completed a $115 million project in late 2014 to add several additional sheet piling sections, which expanded our product offerings to include wider piling sections that are lighter and stronger, covering more area at a lower installed cost. The joint venture also recently began shipping structural steel from its $75 million quench and self-tempering line, which will make that mill the sole North American producer of certain high-strength, low-alloy structural sections. In September 2016, Nucor announced that it will add an additional cold mill at its Nucor Steel Arkansas facility for an estimated $230 million that will expand our ability to produce advanced high-strength, high-strength low-alloy and motor lamination steel products. We expect that the new cold mill complex will be operational in approximately two years.

Nucor’s steel mills segment has also grown significantly in recent years through the acquisitions of Gallatin Steel Company (“Gallatin”), a plate mill in Longview, Texas (“Longview”) and Independence Tube Corporation

 

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(“Independence Tube”), as well as Southland Tube (“Southland”) and Republic Conduit (“Republic”) in early 2017. Nucor acquired Gallatin in 2014 for a cash purchase price of $779 million. Located on the Ohio River in Ghent, Kentucky, Gallatin has an annual sheet steel production capacity of approximately 1,600,000 tons and provides us with expanded access to the important midwestern United States steel market. Acquired during the third quarter of 2016 for approximately $29 million, Longview is able to produce 125,000 tons annually of higher value-added carbon and alloy plate products that can range from 1 to 12 inches thick and up to 138 inches wide. Nucor completed the acquisition of Independence Tube during the fourth quarter of 2016 for approximately $430 million, and we completed the acquisition of Southland for approximately $130 million in January 2017. From their five facilities in Alabama and Illinois, Independence Tube and Southland are able to produce over 800,000 tons annually of hollow structural section (HSS) tubing used primarily in nonresidential construction markets. Nucor also completed the acquisition of Republic, a steel electrical conduit manufacturer with plants in Georgia and Kentucky, in January 2017 for approximately $335 million. These three pipe and tube businesses provide Nucor with a new line of value-added products to offer our customers, and they provide a value-added channel to market as the businesses are consumers of Nucor’s hot-rolled sheet steel.

In addition to growing through capital expansions at existing operations and acquisitions, Nucor also uses joint ventures as a platform for growth. We recently announced the formation of a joint venture with JFE Steel Corporation of Japan in which Nucor would have 50% ownership in a plant that will be built in central Mexico to supply galvanized sheet steel to the growing Mexican automotive market. The plant, which is expected to be operational in 2019, will cost approximately $270 million and will have an annual capacity of 400,000 tons. Nucor’s sheet mills will provide approximately half of the hot-rolled steel substrate that will be consumed by the joint venture.

A major emphasis of our cost improvement and operational flexibility plan relates to having more control over both the cost and reliable sourcing of our raw materials. Our 2,500,000 metric tons-per-year DRI facility in St. James Parish, Louisiana began production in December 2013. The combination of our Louisiana facility and our DRI plant in Trinidad with an annual capacity of 2,000,000 metric tons gives us the flexibility to optimize Nucor’s overall iron units mix based on current market pricing for scrap and scrap substitutes to provide us with a low cost feedstock for our steel mills.

The DRI production process requires significant volumes of natural gas. On October 1, 2016, Nucor concluded several transactions to preserve its access to a long-term supply of low cost natural gas resources while maintaining capital flexibility. Nucor purchased 49% of Encana Oil & Gas (USA) Inc.’s (“Encana”) leasehold interest covering approximately 54,000 acres in the South Piceance Basin, terminated two Carry & Earning (“C&E”) drilling agreements, and sold its 50% interest in Hunter Ridge Energy Services LLC (“Hunter Ridge”). In the new arrangement, the determination of whether or not to participate and invest in all future drilling capital investment by one working interest owner is independent of other working interest owners. Nucor retains its interest in all existing producing wells that it currently owns.

Segments

Nucor reports its results in three segments: steel mills, steel products and raw materials. Net sales to external customers, intercompany sales, depreciation expense, amortization expense, earnings before income taxes and noncontrolling interests, assets and capital expenditures by segment for each of the three fiscal years in the three-year period ended December 31, 2016 are set forth in Note 22 of the Notes to Consolidated Financial Statements included in Nucor’s 2016 Annual Report, which is incorporated by reference. The steel mills segment is Nucor’s largest segment, representing approximately 70% of the Company’s sales to external customers in the fiscal year ended December 31, 2016.

Principal Products Produced

In the steel mills segment, Nucor produces and distributes sheet steel (hot-rolled, cold-rolled and galvanized), tubular products, plate steel, structural steel (wide-flange beams, beam blanks, H-piling and sheet

 

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piling) and bar steel (blooms, billets, concrete reinforcing bar, merchant bar, wire rod and SBQ). Nucor manufactures steel principally from scrap steel and scrap steel substitutes using electric arc furnaces, continuous casting and automated rolling mills. Nucor’s equity method investments in Duferdofin Nucor S.r.l. and NuMit LLC are included in the steel mills segment. Also included in the steel mills segment are our distribution and international trading companies that buy and sell steel and steel products that Nucor and other steel producers have manufactured. In the steel products segment, Nucor produces steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems, steel grating, and wire and wire mesh. In the raw materials segment, the Company produces DRI; brokers ferrous and nonferrous metals, pig iron, HBI and DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap metal. The raw materials segment also includes our natural gas drilling operations.

Markets and Marketing

The steel mills segment sells its products primarily to steel service centers, fabricators and manufacturers located throughout the United States, Canada, Mexico and elsewhere in the world. Nucor produces hot-rolled, cold-rolled and galvanized sheet steel to customers’ specifications while maintaining inventories to fulfill anticipated orders. We estimate that approximately 60% of our sheet steel sales in 2016 were to contract customers. The balance of our sheet steel sales was made in the spot market at prevailing prices at the time of sale. The proportion of tons sold to contract customers at any given time depends on a variety of factors, including our consideration of current and future market conditions, our strategy to appropriately balance spot and contract tons in a manner to meet our customers’ requirements while considering the expected profitability, our desire to sustain a diversified customer base, and our end-use customers’ perceptions about future market conditions. These sheet sales contracts permit price adjustments to reflect changes in the current market-based indices and/or raw material costs near the time of shipment. These sheet sales contracts typically have terms ranging from six to twelve months. Steel contract sales outside of our sheet operations are not significant.

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

In 2016, approximately 86% of the shipments made by our steel mills segment were to external customers. The remaining 14% of the steel mills segment’s shipments went to our tubular product maker, our piling distributor and our downstream joist, deck, rebar fabrication, fastener, metal buildings and cold finish operations. One of Nucor’s strategies for growth is expanding the channels by which our steel mills’ products can reach end-user customers. We have a goal of increasing our volume sold to internal customers to 20%.

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

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

 

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In the raw materials segment, we process ferrous and nonferrous scrap metal for use in our steel mills and for sale to various domestic and international external customers. We also broker ferrous and nonferrous metals and scrap substitutes, supply ferro-alloys, and provide transportation, material handling and other services to users of scrap metals. Our primary external customers for ferrous scrap are electric arc furnace steel mills and foundries that use ferrous scrap as a raw material in their manufacturing process. External customers purchasing nonferrous scrap metal include aluminum can producers, secondary aluminum smelters, steel mills and other 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 2016, approximately 10% of the ferrous and nonferrous metals and scrap substitutes tons we processed were sold to external customers. We used the balance in our steel mills.

Also within the raw materials segment are our DRI plants in Trinidad and Louisiana that produce iron inputs exclusively for use in the Nucor mills, as well as our natural gas production operations. All natural gas produced by the drilling operations is and will be sold to outside parties.

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 steel mills, foreign imports and alternative materials. Large integrated steel producers have the ability to manufacture a wide variety of products but face significantly higher energy costs and are often burdened with higher capital and fixed operating costs. Electric arc furnace steel 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.

Excess global steelmaking capacity, particularly in non-market economies, continues to be a significant challenge for Nucor and the entire U.S. steel industry. With the U.S. economy performing better than most other economies around the world and a strong U.S. dollar, the U.S. steel market is the destination of choice for global steel producers. Steel imports were down 15% in 2016 compared to 2015. Finished imports last year captured 26% market share. The effects of successful trade cases involving flat-rolled products were an important step in returning fair trade to the U.S. flat-rolled steel market, but challenges still remain in several product areas.

Competition from foreign steel and steel product producers presents unique challenges for us. Imported steel and steel products often benefit from government subsidies, either directly or indirectly through government-owned enterprises or government-owned or controlled financial institutions. China, which accounts for almost half of the steel produced annually in the world, is the prime example of how some foreign governments impact the global steel market. Nucor believes that Chinese producers, many of which are government-owned in whole or in part, benefit from their government’s manipulation of foreign currency exchange rates and from the receipt of government subsidies, which allow them to sell their products below cost. Other foreign governments utilize similar tactics to artificially lower their steel production costs. These distorting trade practices are widely recognized as being unfair and have been challenged successfully as violating world trade rules. In 2016, the U.S. steel industry received positive determinations in trade cases involving three flat-rolled products—corrosion-resistant, cold-rolled and hot-rolled steel. The U.S. Department of Commerce recently announced preliminary duty determinations in investigations addressing cut-to-length plate from twelve countries. The U.S. Department of Commerce also announced the initiation of antidumping duty investigations of imports of steel concrete reinforcing bar from Japan, Taiwan, and Turkey, and a countervailing duty (CVD) investigation of steel concrete reinforcing bar imports from Turkey. We expect the plate and rebar cases to conclude in 2017.

 

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Efforts by foreign companies to evade duties by routing products through third-party countries is also a challenge. Artificially-priced imports and duty evasion schemes make it very difficult for Nucor to maintain sales prices and profit levels. As a result, Nucor joined three other steelmakers in filing a petition alleging China is circumventing coated steel sheet duties by shipping product through Vietnam.

The U.S. government announced it will continue to treat China as a non-market economy, despite China’s insistence that it should be recognized as a market economy under its Protocol of Accession to the World Trade Organization (“Protocol”). China was a government-run, non-market economy in 2001 when it entered its Protocol, and China remains a government-run, non-market economy today. The main objective of the Protocol was to encourage, and in some cases to require, China to make market-based economic reforms. However, over the past 15 years, China has failed to take the required steps to establish that it is a market economy under U.S. law. Therefore, the United States had no reason to change its treatment of China as a non-market economy when one of the relevant provisions of the Protocol expired in December 2016. By treating China as a non-market economy in antidumping cases, the U.S. Department of Commerce can assume that Chinese prices and costs are distorted, and may use other methodologies to calculate antidumping duties. This often results in appropriately higher duties against Chinese products in order to offset its unfair trade practices. China has filed a challenge to the U.S. decision with the World Trade Organization.

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

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

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

Backlog

In the steel mills segment, Nucor’s backlog of orders was approximately $1.52 billion and $1.17 billion at December 31, 2016 and 2015, respectively. Order backlog for the steel mills segment includes only orders from external customers and excludes orders from our downstream businesses. Nucor’s backlog of orders in the steel products segment was approximately $1.40 billion and $1.35 billion at December 31, 2016 and 2015, respectively. The majority of these orders will be filled within one year. Order backlog within our raw materials segment is not significant because the majority of the raw materials that segment produces are used internally.

Sources and Availability of Raw Materials

For the past decade, Nucor has focused on securing access to low-cost raw material inputs as they are the Company’s largest expense. Nucor’s broad, balanced supply chain is an important strength which allows us to reduce the cost of our steelmaking operations, create a shorter supply chain and have greater optionality over our metallics inputs. Our investment in DRI production facilities and scrap yards, as well as our access to international raw materials markets, provides Nucor with significant flexibility in optimizing our raw materials costs. Additionally, having a significant portion of our raw materials supply under our control minimizes risk associated with the global sourcing of raw materials, particularly since a good deal of scrap substitutes comes

 

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from regions of the world that have historically experienced greater political turmoil. Continued successful implementation of our raw material strategy, including key investments in DRI production, coupled with the scrap brokerage and processing services performed by our team at DJJ, give us greater control over our metallic inputs and thus help us mitigate the risk of significant price fluctuations in input costs.

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. DJJ operates six regional scrap companies within the United States that have the combined annual scrap processing capability of over five million tons. DJJ acquires ferrous scrap from numerous sources including manufacturers of products made from steel, industrial plants, scrap dealers, peddlers, auto wreckers and demolition firms. We purchase pig iron as needed from a variety of sources and operate DRI plants in Trinidad and Louisiana with respective capacities of 2,000,000 and 2,500,000 metric tons annually. The primary raw material for our DRI facilities is iron ore, which we purchase from various international suppliers.

In October 2016, Nucor concluded several transactions to improve its access to a long-term supply of natural gas. Nucor purchased 49% of Encana’s leasehold interest covering approximately 54,000 acres in the South Piceance Basin. Further, Nucor and Encana also terminated the two C&E drilling agreements entered into in 2010 and 2012, and Nucor sold its 50% equity interest in Hunter Ridge to Encana. Hunter Ridge is a gas gathering and water service provider formed by Nucor and Encana in 2012 to support the joint well development in the North Piceance Basin. In the new arrangement, the determination of whether or not to participate and invest in all future drilling capital investment by one working interest owner is independent of the other working interest owners. As such, Nucor has full discretion on its participation in all future drilling capital investments. By canceling the C&E drilling agreements, Nucor has eliminated all future carry capital and all contingent liabilities associated with those contracts, which should result in lower unit cost for any future drilling. Nucor retains all existing producing wells it currently owns. To support Nucor’s operating wells and potential future well developments on the 54,000 acres, Nucor has entered into long-term agreements directly with existing third party gathering and processing service providers.

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 and other metallic inputs such as iron ore are affected by changes in the global supply and demand for steel and steel products.

Energy Consumption and Costs

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

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

 

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

We believe that we are in substantial compliance with the provisions of all federal and state environmental laws and regulations applicable to our business operations.

The U.S. Environmental Protection Agency (“USEPA”) issued a final rule regarding the Clean Power Plan (“CPP”). While the CPP is directed at electric generating units, as opposed to steelmaking operations, Nucor expects indirect impact through increased electric costs. There are ongoing legal challenges to the CPP which will likely delay any potential adverse impacts to Nucor. Additionally, the current administration has given strong signals that their intention is to repeal this regulation. If this regulation moves forward, we expect the impacts will be spread over a significant timeframe, mitigating these impacts on Nucor’s operations.

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 administration revisits any number of recently implemented environmental regulations, such as greenhouse gas (“GHG”) regulations, air toxics rules, and emissions standards imposed on coal-fired electric utilities, it is reasonable to assume that any cost implications would be delayed until those reviews are complete.

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 activities and off-site properties that USEPA has determined are contaminated, for which Nucor may be potentially responsible at some level, are quickly evaluated and corrected. While Nucor has conducted and is in the final stages of completing some cleanups under RCRA, these liabilities either are identified already and being resolved or have been fully resolved.

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

The primary raw material of Nucor’s steelmaking operations is scrap metal. The process of recycling scrap metal brings with it many contaminants such as paint, zinc, chrome and other metals that produce air emissions

 

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

Nucor operates an aggressive and sustainable environmental program that incorporates the concept of individual employee as well as management responsibility for environmental performance. All of Nucor’s steelmaking operations are ISO 14001 certified. Achieving ISO 14001 certification means that each of Nucor’s steel mills has put an environmental management system in place with measurable targets and objectives, such as reducing the use of oil and grease and minimizing electricity use, and has implemented site-wide recycling programs. Many of our facilities have incorporated energy efficiency targets to reduce both cost and environmental impacts into their environmental management systems. These environmental management systems help facilitate compliance with our environmental commitment, which is every Nucor teammate’s responsibility. Nucor’s environmental program maintains a high level of ongoing training, commitment, outreach and visibility.

Capital expenditures at our facilities that are associated with environmental regulation compliance for 2017 and 2018 are estimated to be less than $100 million per year.

Employees

Nucor has a simple, streamlined organizational structure to allow our employees to make quick decisions and to innovate. Our organization is highly decentralized, with most day-to-day operating decisions made by our division general managers and their staff. We have slightly more than 100 employees in our executive office. The vast majority of Nucor’s approximately 23,900 employees as of December 31, 2016 are not represented by labor unions.

Available Information

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

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

The current global steelmaking capacity exceeds the current global consumption of steel. 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

 

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imports, which are also affected by demand in the domestic market, 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. Overcapacity has also led to greater protectionism as is evident in raw material and finished product border tariffs put in place by China, Brazil and other countries.

According to the American Iron and Steel Institute, global steel overcapacity is estimated at approximately 770 million tons per year, with China’s overcapacity being the largest piece at approximately 470 million tons. This overcapacity and the slowdown in demand in China have resulted in a further increase in imports of artificially low-priced steel and steel products to the United States and world steel markets. Steel and steel products which would otherwise have been consumed by the local steel customers could then be displaced into global markets, putting our steel and steel products at a competitive disadvantage. A continuation of this unbalanced growth trend or a significant decrease in China’s rate of economic expansion could result in increasing steel exports from China.

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

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

Demand for most of our products is cyclical in nature and sensitive to general economic conditions. Our business supports cyclical industries such as the commercial construction, energy, metals service centers, appliance and automotive industries. As a result, downturns in the U.S. economy or any of these industries could materially adversely affect our results of operations, financial condition and cash flows. While the United States has recently experienced modest growth in the general economy and steel demand in this country is stronger than in many parts of the world, the global and domestic steel industries continue to face significant challenges. These challenges are caused by global overcapacity in the steel industry and ongoing uncertainties in other regions of the world. These situations can contribute to weaker end-markets and depressed demand for domestically produced steel and steel products, potentially resulting in extraordinary volatility in our financial results.

The economic outlook for our industry remains uncertain both in the United States and globally. While we believe that the long-term prospects for the steel industry remain bright, we are unable to predict the duration of the current economic conditions that are contributing to reduced demand for domestically produced steel and steel products well below the 2007 pre-recession levels. Future economic downturns or a prolonged slow-growth or stagnant economy could materially adversely affect our business, results of operations, financial condition and cash flows.

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

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

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

 

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

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 facilities in Trinidad and Louisiana and also acquiring DJJ, we still must purchase most of our primary raw material, steel scrap, from numerous other sources located throughout the United States. Although we believe that the supply of scrap and scrap substitutes is adequate to operate our facilities, prices of these critical raw materials are volatile and are influenced by changes in scrap exports in response to changes in the scrap, scrap substitutes and iron ore 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 an artificial competitive advantage for foreign producers that could limit our ability to compete in the U.S. market.

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

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

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

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

Carbon is an essential raw material in Nucor’s production processes. As a carbon steel producer, Nucor could be increasingly affected both directly and indirectly if more stringent GHG regulations are further

 

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implemented. Because our operations are subject to most of these new GHG regulations, we are already impacted in the permit modification and reporting processes. Both GHG regulations and recently promulgated National Air Ambient Quality Standards (“NAAQS”), which are more restrictive than previous standards, make it significantly more difficult to obtain new permits and to modify existing permits.

These same regulations have indirectly increased the costs to manufacture our products as they have and continue to increase the cost of energy, primarily electricity, which we use extensively in the steelmaking process. The discovery of new natural gas reserves utilizing the practice of horizontal drilling and hydraulic fracturing is dampening some of this indirect impact, as some utilities switch fuels to natural gas from coal thereby reducing their emissions significantly. However, because some generating facilities when faced with new regulations are idling facilities instead of converting to natural gas, the resulting reduction in capacity can and will create further pressure on electrical energy prices. The USEPA has recently finalized its CPP, but that regulation is currently undergoing judicial review. These are regulations intended to reduce GHGs from electric generating units. The increase in electric costs will vary on a state by state basis but could be substantial across all regions. Although the rule is stayed pending a final court decision, utility companies are making decisions today that will likely increase cost for energy purchasers. To the extent that these regulations cause either directly or indirectly an increase in the cost of energy, they could have an impact on Nucor’s competitive position.

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

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 and regulations are becoming increasingly stringent, resulting in inherent uncertainties in these estimates. The USEPA has recently revised the rules and definitions around recycling and solid wastes. The new rules require states to create new programs and certification processes for the companies that wish to continue recycling materials. Increased administrative and operational costs are likely in the United States to handle steel mill recycled materials such as slag, mill scale, iron dusts, lime and air filtration control dusts. To the extent that competitors, particularly foreign steel producers and manufacturers of competitive products, are not subject to similar regulation and required to incur equivalent costs, our competitive position could be materially adversely impacted. If one of our permits is revoked or if we were to experience significant delays in obtaining a permit modification or a new permit, this could result in operational delays at one or more of our facilities, causing a negative impact on our results of operations and cash flows.

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

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

 

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Our operations are subject to business interruptions and casualty losses.

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

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

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

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

Our operations are capital intensive. For the five-year period ended December 31, 2016, our total capital expenditures, excluding acquisitions, were approximately $4 billion. Our business also requires substantial expenditures for routine maintenance. Although we expect requirements for our business needs, including the funding of capital expenditures, debt service for financings and any contingencies, will be financed by internally generated funds or from borrowings under our $1.5 billion unsecured revolving credit facility, we cannot assure you that this will be the case. Additional acquisitions or unforeseen events could require financing from additional sources.

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

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

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

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

 

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

The steel industry and our business are sensitive to changes in taxes. As a company based in the United States, Nucor is more exposed to the effects of changes in U.S. tax laws than some of our major competitors. Our provision for income taxes and cash tax liability in the future could be adversely affected by changes in U.S. tax laws. Potential changes that would adversely affect us include, but are not limited to, current proposals for corporate tax reform which would lower tax rates, eliminate many tax deductions (accelerated depreciation, interest expense, and the domestic production activity deduction) and create border adjustments eliminating deduction of inputs from foreign sources.

We are subject to legal proceedings and legal compliance risks.

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

 

Item 1B. Unresolved Staff Comments

None.

 

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Item 2. Properties

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

 

Location

   Approximate
square footage
of facilities
    

Principal products

Steel mills:

     

Blytheville, Arkansas

     2,560,000      Structural steel, sheet steel

Decatur, Alabama

     2,470,000      Sheet steel, tubular steel

Berkeley County, South Carolina

     2,300,000      Sheet steel, structural steel

Hickman, Arkansas

     2,050,000      Sheet steel

Crawfordsville, Indiana

     1,900,000      Sheet steel

Norfolk, Nebraska

     1,530,000      Bar steel

Hertford County, North Carolina

     1,250,000      Plate steel

Plymouth, Utah

     1,200,000      Bar steel

Jewett, Texas

     1,080,000      Bar steel

Darlington, South Carolina

     980,000      Bar steel

Seattle, Washington

     640,000      Bar steel

Ghent, Kentucky

     600,000      Sheet steel

Memphis, Tennessee

     580,000      Bar steel

Marseilles, Illinois

     550,000      Tubular steel

Auburn, New York

     520,000      Bar steel

Marion, Ohio

     430,000      Bar steel

Kankakee, Illinois

     430,000      Bar steel

Longview, Texas

     430,000      Plate steel

Jackson, Mississippi

     420,000      Bar steel

Tuscaloosa, Alabama

     390,000      Plate steel

Kingman, Arizona

     380,000      Bar steel

Chicago, Illinois

     350,000      Tubular steel

Trinity, Alabama

     310,000      Tubular steel

Birmingham, Alabama

     290,000      Bar steel

Wallingford, Connecticut

     240,000      Bar steel

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

St. Joe, Indiana

     460,000      Fasteners

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

In the steel products segment, we have approximately 70 operating facilities, in addition to the 8 listed above, in 37 states and 28 operating facilities in Canada. Our affiliate, Harris Steel Inc., also operates multiple sales offices in Canada and certain other foreign locations.

 

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In the raw materials segment, DJJ has 67 operating facilities in 15 states along with multiple brokerage offices in the United States and certain other foreign locations. Nucor’s raw materials segment also includes our DRI facilities in Point Lisas, Trinidad and St. James Parish, Louisiana. A significant portion of the DRI production process occurs outdoors. The Trinidad site, including leased land, is approximately 1.84 million square feet. The Louisiana site has approximately 174.2 million square feet of owned land with buildings that total approximately 72,000 square feet.

The average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments in 2016 were approximately 80%, 63% and 62% of production capacity, respectively. During the fourth quarter of 2016, we revised our steel mill capacity estimates to reflect the impact of the shift in our product mix in recent years to include a greater diversity and proportion of value-added products which often run more slowly on our mills.

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

 

Item 3. Legal Proceedings

Since 2008, Nucor has been a defendant, along with other major steel producers, in several related antitrust class-action proceedings filed by Standard Iron Works and other steel purchasers in the United States District Court for the Northern District of Illinois. The majority of these complaints were filed in September and October of 2008, with two additional complaints being filed in July and December of 2010. Two of these complaints were voluntarily dismissed and are no longer pending. The plaintiffs alleged that from April 1, 2005 through December 31, 2007, eight steel manufacturers, including Nucor, engaged in anticompetitive activities with respect to the production and sale of steel. Nucor denies those allegations. The plaintiffs sought monetary and other relief on behalf of themselves and classes of direct and indirect purchasers of steel products from the defendants in the United States between April 1, 2005 and December 31, 2007.

On September 30, 2016, Nucor entered into an agreement to settle the claims of the class of direct purchasers of steel products for the amount of $23.4 million, which was paid during the fourth quarter of 2016. Nucor believes the plaintiffs’ claims are without merit and did not admit liability or the validity of the plaintiffs’ claims as part of the settlement, but entered into the settlement in order to avoid the burden, expense and distraction of further litigation. The settlement was subject to court approval. On November 3, 2016, the court granted preliminary approval of the settlement. Direct purchasers of steel products were given notice of the settlement and the opportunity to object to the settlement or to opt out as class members. No purchasers timely objected to the settlement, and only two purchasers filed notices of intent to opt out. On February 16, 2017, the Court granted final approval of the settlement. The settlement does not resolve claims asserted by a separate putative class of indirect purchasers of steel products. Nucor and other Defendants have moved to dismiss those indirect purchaser claims. We will continue to vigorously defend against the indirect purchasers’ claims and any other claims relating to these allegations. We cannot at this time predict the outcome of the remaining litigation or estimate the range of Nucor’s potential exposure (if any) and, consequently, have not recorded any reserves or contingencies related to the class of indirect purchasers.

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

 

Item 4. Mine Safety Disclosures

Not applicable.

 

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Executive Officers of the Registrant

James R. Darsey (61), Executive Vice President of Merchant and Rebar Products, was named EVP in September 2010. Prior to that, he served as President of the Vulcraft/Verco Group from 2007 and was elected Vice President of Nucor in 1996. Mr. Darsey began his Nucor career in 1979 as Design Engineer at Vulcraft-Texas, later serving as Engineering Manager at Vulcraft-Utah and Vulcraft-Texas. He then served as General Manager of Vulcraft-Texas and General Manager of Nucor Steel-Texas.

John J. Ferriola (64), has served as Chairman of the Board of Directors of Nucor since January 2014, as Chief Executive Officer since January 2013 and as President since January 2011. Previously, Mr. Ferriola served as President and Chief Operating Officer from January 2011 to December 2012 and, prior to that, as Chief Operating Officer of Steelmaking Operations from 2007 to 2010, Executive Vice President from 2002 to 2007 and Vice President from 1996 to 2001. He has also been a director of Nucor since January 2011. Mr. Ferriola joined Nucor in 1991 as the Manager of Maintenance and Engineering at Nucor Steel-Texas. He later served as General Manager of Vulcraft-Texas, Nucor Steel-Nebraska and Nucor Steel-Indiana.

James D. Frias (60), has been Chief Financial Officer, Treasurer and Executive Vice President since January 2010. Prior to that, Mr. Frias was Vice President of Finance from 2006 to 2009. Mr. Frias joined Nucor in 1991 as Controller of Nucor Building Systems-Indiana. He also served as Controller of Nucor Steel-Indiana and as Corporate Controller. Mr. Frias joined the board of directors of Carlisle Companies Incorporated in February 2015.

Ladd R. Hall (60), Executive Vice President of Flat-Rolled Products, was named EVP in September 2007, having previously served as Vice President of Nucor since 1994. He began his Nucor career in Inside Sales at Nucor Steel-Utah in 1981. He later served as Sales Manager of Vulcraft-Utah, and General Manager of Vulcraft-Texas, Vulcraft-Utah, Nucor Steel-South Carolina and Nucor Steel-Berkeley County.

Raymond S. Napolitan, Jr. (59), was named Executive Vice President of Fabricated Construction Products in June 2013, having previously served as President of Nucor’s Vulcraft/Verco group from 2010 to 2013 and President of American Buildings Company from 2007 to 2010. He was elected Vice President of Nucor in 2007. Mr. Napolitan began his Nucor career in 1996 as Engineering Manager of Nucor Building Systems-Indiana, and later served as General Manager of Nucor Building Systems-Texas.

R. Joseph Stratman (60), Chief Digital Officer and Executive Vice President of Raw Materials, was named EVP in September 2007 and CDO in August 2016. He was elected Vice President of Nucor in 1999. Mr. Stratman joined Nucor in 1989 as Controller of Nucor Building Systems-Indiana. He then served as Controller of Nucor-Yamato, General Manager of Nucor Steel-Nebraska and General Manager of Nucor-Yamato.

David A. Sumoski (50), was named Executive Vice President of Engineered Bar Products in September 2014. He had previously served as General Manager of Nucor Steel Marion, Inc. from 2008 to 2012 and as General Manager of Nucor Steel Memphis, Inc. from 2012 to September 2014. Mr. Sumoski was named Vice President of Nucor in 2010. He began his career with Nucor as an electrical supervisor at Nucor Steel-Berkeley in 1995, later serving as Maintenance Manager.

D. Chad Utermark (48), was named Executive Vice President of Beam and Plate Products in May 2014. He had previously served as General Manager of Nucor Steel-Texas from 2008 to 2011 and as General Manager of Nucor-Yamato from 2011 to May 2014. He was named Vice President of Nucor in 2009. Mr. Utermark began his Nucor career as a utility operator at Nucor Steel-Arkansas in 1992, subsequently serving as shift supervisor and Hot Mill Manager at that division as well as Roll Mill Manager at Nucor Steel-Texas.

 

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PART II

 

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

Nucor has increased its base cash dividend every year since the Company began paying dividends in 1973. Nucor paid a total dividend of $1.50 per share in 2016 compared with $1.49 per share in 2015. In November 2016, the Board of Directors increased the base quarterly cash dividend on Nucor’s common stock to $0.3775 per share from $0.375 per share. In February 2017, the Board of Directors also declared Nucor’s 176th consecutive quarterly cash dividend of $0.3775 per share payable on May 11, 2017 to stockholders of record on March 31, 2017.

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 2016 Annual Report, page 86. Additional information regarding securities authorized for issuance under stock-based compensation plans is incorporated by reference to Nucor’s 2016 Annual Report, pages 69 through 72.

 

Item 6. Selected Financial Data

Historical financial information is incorporated by reference to Nucor’s 2016 Annual Report, page 47.

 

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

The information required by this item is incorporated by reference to Nucor’s 2016 Annual Report, page 4 (Forward-Looking Statements) and pages 26 through 45.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk—Nucor manages interest rate risk by using a combination of variable-rate and fixed-rate debt. At December 31, 2016, 23% of Nucor’s long-term debt was in industrial revenue bonds that have variable interest rates that are adjusted weekly. The remaining 77% of Nucor’s long-term debt was at fixed rates. Future changes in interest rates are not expected to significantly impact earnings. Nucor also occasionally makes use of interest rate swaps to manage net exposure to interest rate changes. As of December 31, 2016, there were no such contracts outstanding. Nucor’s investment practice is to invest in securities that are highly liquid with short maturities. As a result, we do not expect changes in interest rates to have a significant impact on the value of our investment securities recorded as short-term investments.

Commodity Price Risk—In the ordinary course of business, Nucor is exposed to market risk for price fluctuations of raw materials and energy, principally scrap steel, other ferrous and nonferrous metals, alloys and natural gas. We attempt to negotiate the best prices for our raw materials and energy requirements and to obtain prices for our steel products that match market price movements in response to supply and demand. In periods of strong or stable demand for our products, we are more likely to be able to effectively reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand for our products is weaker, this becomes more challenging. Our DRI facilities in Trinidad and Louisiana provide us with flexibility in managing our input costs. DRI is particularly important for operational flexibility when demand for prime scrap increases due to increased domestic production.

Natural gas produced by Nucor’s drilling operations is being sold to third parties to offset our exposure to changes in the price of natural gas consumed by our Louisiana DRI facility and our steel mills in the United States. For the year ended December 31, 2016, the volume of natural gas sold from our drilling operations was approximately 28% of the volume of natural gas purchased for consumption in our domestic steelmaking and DRI facilities.

 

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Nucor also periodically uses derivative financial instruments to hedge a portion of our exposure to price risk related to natural gas purchases used in the production process and to hedge a portion of our scrap, aluminum and copper purchases and sales. Gains and losses from derivatives designated as hedges are deferred in accumulated other comprehensive income (loss), net of income taxes on the consolidated balance sheets and recognized into earnings in the same period as the underlying physical transaction. At December 31, 2016, accumulated other comprehensive income (loss) included $0.8 million in unrealized net-of-tax gains 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, 2016, due to an assumed 10% and 25% change in the market price of each of the indicated commodities (in thousands):

 

Commodity Derivative

   10% Change      25% Change  

Natural gas

   $ 5,800      $ 14,510  

Aluminum

     1,272        2,943  

Copper

     1,099        3,892  

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

Foreign Currency Risk—Nucor is exposed to foreign currency risk primarily through its operations in Canada, Europe and Trinidad. We periodically use derivative contracts to mitigate the risk of currency fluctuations. Open foreign currency derivative contracts at December 31, 2016 and 2015 were insignificant.

 

Item 8. Financial Statements and Supplementary Data

The information required by this item is incorporated by reference to Nucor’s 2016 Annual Report, pages 48 through 82.

 

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

None.

 

Item 9A. Controls and Procedures

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

Changes in Internal Control Over Financial Reporting – There were no changes in our internal control over financial reporting during the quarter ended December 31, 2016 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, 2016 are incorporated by reference to Nucor’s 2016 Annual Report, pages 48 through 49.

 

Item 9B. Other Information

None.

 

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Table of Contents

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item about Nucor’s executive officers is contained in the section captioned Executive Officers of the Registrant in Part I of this report. The other information required by this item is incorporated by reference to Nucor’s definitive Proxy Statement for the 2017 Annual Meeting of Stockholders (“Proxy Statement”) under the headings Election of Directors; Information Concerning Experience, Qualifications, Attributes and Skills of the Nominees; Section 16(a) Beneficial Ownership Reporting Compliance and Corporate Governance and Board of Directors.

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

 

Item 11. Executive Compensation

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

 

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

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

 

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

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

 

Item 14. Principal Accountant Fees and Services

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

 

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Table of Contents

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

Financial Statements:

The following consolidated financial statements and notes thereto, management’s report on internal control over financial reporting and the report of independent registered public accounting firm are incorporated by reference to Nucor’s 2016 Annual Report, pages 48 through 82:

 

   

Management’s Report on Internal Control Over Financial Reporting

 

   

Report of Independent Registered Public Accounting Firm

 

   

Consolidated Balance Sheets—December 31, 2016 and 2015

 

   

Consolidated Statements of Earnings—Years ended December 31, 2016, 2015 and 2014

 

   

Consolidated Statements of Comprehensive Income – Years ended December 31, 2016, 2015 and 2014

 

   

Consolidated Statements of Stockholders’ Equity—Years ended December 31, 2016, 2015 and 2014

 

   

Consolidated Statements of Cash Flows—Years ended December 31, 2016, 2015 and 2014

 

   

Notes to Consolidated Financial Statements

Schedule II is not presented as all applicable information is presented in the consolidated financial statements and notes.

Exhibits:

 

3

   Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed September 14, 2010 (File No. 001-04119))

3(i)

   Bylaws as amended and restated September 15, 2016 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed September 20, 2016 (File No. 001-04119))

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 Exhibit 4.1 to the Registration Statement on Form S-4 filed December 13, 2002 (File No. 333-101852))

4(i)

   Indenture, dated as of August 19, 2014, between Nucor Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 filed August 20, 2014 (File No. 333-198263))

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 Exhibit 4.1 to the Current Report on Form 8-K filed December 4, 2007 (File No. 001-04119))

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 Exhibit 4.2 to the Current Report on Form 8-K filed June 3, 2008 (File No. 001-04119))

4(iv)

   Fifth Supplemental Indenture, dated as of September 21, 2010, between Nucor Corporation and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed September 21, 2010 (File No. 001-04119))

4(v)

   Sixth Supplemental Indenture, dated as of July 29, 2013, between Nucor Corporation and U.S. Bank National Association, as successor trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed July 29, 2013 (File No. 001-04119))

 

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Table of Contents

4(vi)

   Seventh Supplemental Indenture, dated as of December 10, 2014, among Nucor Corporation, The Bank of New York Mellon, as prior trustee, and U.S. Bank National Association, as successor trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed December 11, 2014 (File No. 001-04119))

4(vii)

   Form of 5.750% Notes due December 2017 (included in Exhibit 4(ii) above) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed December 4, 2007 (File No. 001-04119))

4(viii)

   Form of 6.400% Notes due December 2037 (included in Exhibit 4(ii) above) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed December 4, 2007 (File No. 001-04119))

4(ix)

   Form of 5.850% Notes due June 2018 (included in Exhibit 4(iii) above) (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed June 3, 2008 (File No. 001-04119))

4(x)

   Form of 4.125% Notes due September 2022 (included in Exhibit 4(iv) above) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed September 21, 2010 (File No. 001-04119))

4(xi)

   Form of 4.000% Notes due August 2023 (included in Exhibit 4(v) above) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed July 29, 2013 (File No. 001-04119))

4(xii)

   Form of 5.200% Notes due August 2043 (included in Exhibit 4(v) above) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed July 29, 2013 (File No. 001-04119))

10

   2005 Stock Option and Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 17, 2005 (File No. 001-04119)) (#)

10(i)

   Amendment No. 1 to 2005 Stock Option and Award Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 29, 2007 (File No. 001-04119)) (#)

10(ii)

   2010 Stock Option and Award Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended July 3, 2010 (File No. 001-04119)) (#)

10(iii)

   Nucor Corporation 2014 Omnibus Incentive Compensation Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed March 25, 2014 (File No. 001-04119)) (#)

10(iv)

   Form of Restricted Stock Unit Award Agreement – time-vested awards (incorporated by reference to Exhibit 10(iv) to the Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-04119)) (#)

10(v)

   Form of Restricted Stock Unit Award Agreement – retirement-vested awards (incorporated by reference to Exhibit 10(v) to the Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-04119)) (#)

10(vi)

   Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended April 1, 2006 (File No. 001-04119)) (#)

10(vii)

   Form of Award Agreement for Annual Stock Option Grants used for awards granted prior to May 8, 2014 (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (File No. 001-04119)) (#)

10(viii)

   Form of Award Agreement for Annual Stock Option Grants used for awards granted after May 7, 2014 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended July 5, 2014 (File No. 001-04119)) (#)

 

21


Table of Contents

10(ix)

   Employment Agreement of John J. Ferriola (incorporated by reference to Exhibit 10(vii) to the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-04119)) (#)

10(x)

   Amendment to Employment Agreement of John J. Ferriola (incorporated by reference to Exhibit 10(xix) to the Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-04119)) (#)

10(xi)

   Employment Agreement of Ladd R. Hall (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended September 29, 2007 (File No. 001-04119)) (#)

10(xii)

   Employment Agreement of R. Joseph Stratman (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 29, 2007 (File No. 001-04119)) (#)

10(xiii)

   Employment Agreement of James D. Frias (incorporated by reference to Exhibit 10(xi) to the Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 001-04119)) (#)

10(xiv)

   Employment Agreement of James R. Darsey (incorporated by reference to Exhibit 10(xxii) to the Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-04119)) (#)

10(xv)

   Employment Agreement of Raymond S. Napolitan, Jr. (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended June 29, 2013 (File No. 001-04119)) (#)

10(xvi)

   Employment Agreement of Chad Utermark (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended July 5, 2014 (File No. 001-04119)) (#)

10(xvii)

   Employment Agreement of David A. Sumoski (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended October 4, 2014 (File No. 001-04119)) (#)

10(xviii)

   Severance Plan for Senior Officers and General Managers, as amended and restated effective February 18, 2009 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended April 4, 2009 (File No. 001-04119)) (#)

10(xix)

   Senior Officers Annual Incentive Plan, as amended and restated effective January 1, 2013 (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed March 27, 2013 (File No. 001-04119)) (#)

10(xx)

   Senior Officers Long-Term Incentive Plan, as amended and restated effective January 1, 2013 (incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14A filed March 27, 2013 (File No. 001-04119)) (#)

10(xxi)

   Termination and Indemnification Agreement and Mutual Waiver and Release dated October 1, 2016 among Nucor Corporation, Nucor Energy Holdings Inc., Encana Oil & Gas (USA) Inc. and Hunter Ridge Energy Services LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed October 4, 2016 (File No. 001-04119))

12*

   Computation of Ratio of Earnings to Fixed Charges

13*

   2016 Annual Report (portions incorporated by reference)

18*

   Letter, dated February 28, 2017, from PricewaterhouseCoopers LLP

21*

   Subsidiaries

23*

   Consent of Independent Registered Public Accounting Firm

24*

   Power of Attorney (included on signature pages)

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

 

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Table of Contents

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*

   Financial Statements from the Annual Report on Form 10-K of Nucor Corporation for the year ended December 31, 2016, filed February 28, 2017, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

 

* Filed herewith.

 

** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.

 

(#) Indicates a management contract or compensatory plan or arrangement.

 

Item 16. Form 10-K Summary

None.

 

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SIGNATURES

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

 

NUCOR CORPORATION
By:  

/S/ JOHN J. FERRIOLA

  John J. Ferriola
 

Chairman, Chief Executive Officer and

President

Dated: February 28, 2017

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James D. Frias and A. Rae Eagle, or either of them, his or her attorney-in-fact, with full power of substitution and resubstitution 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 date indicated.

 

/S/ JOHN J. FERRIOLA

  

/S/ PATRICK J. DEMPSEY

John J. Ferriola

Chairman, Chief Executive Officer and President

(Principal Executive Officer)

  

Patrick J. Dempsey

Director

/S/ JAMES D. FRIAS

  

/S/ GREGORY J. HAYES

James D. Frias

Chief Financial Officer, Treasurer and

Executive Vice President

(Principal Financial Officer)

  

Gregory J. Hayes

Director

/S/ MICHAEL D. KELLER

  

/S/ VICTORIA F. HAYNES

Michael D. Keller

Vice President and Corporate Controller

(Principal Accounting Officer)

  

Victoria F. Haynes

Director

  

/S/ BERNARD L. KASRIEL

  

Bernard L. Kasriel

Director

  

/S/ CHRISTOPHER J. KEARNEY

  

Christopher J. Kearney

Director

  

/S/ LAURETTE T. KOELLNER

  

Laurette T. Koellner

Director

 

24


Table of Contents
  

/S/ RAYMOND J. MILCHOVICH

  

Raymond J. Milchovich

Director

  

/S/ JOHN H. WALKER

  

John H. Walker

Lead Director

Dated: February 28, 2017

 

25


Table of Contents

NUCOR CORPORATION

List of Exhibits to Form 10-K—December 31, 2016

 

Exhibit
      No.      

  

Description of Exhibit

12

   Computation of Ratio of Earnings to Fixed Charges

13

   2016 Annual Report (portions incorporated by reference)

18

   Letter, dated February 28, 2017, from PricewaterhouseCoopers LLP

21

   Subsidiaries

23

   Consent of Independent Registered Public Accounting Firm

24

   Power of Attorney (included on signature pages)

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

   Financial Statements from the Annual Report on Form 10-K of Nucor Corporation for the year ended December 31, 2016, filed February 28, 2017, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

 

26

EX-12

Exhibit 12

Nucor Corporation

2016 Form 10-K

Computation of Ratio of Earnings to Fixed Charges

 

     Year ended December 31,  
     2012*     2013*     2014*     2015*     2016*  
     (In thousands, except ratios)  

Earnings

          

Earnings before income taxes and noncontrolling interests

   $ 647,004     $ 808,568     $ 1,147,288     $ 241,866     $ 1,298,659  

Plus: (earnings)/losses from equity investments

     13,323       (9,297     (13,505     (5,329     (38,757

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

     179,169       164,128       178,240       178,941       186,437  

Plus: amortization of capitalized interest

     2,550       3,064       4,166       4,062       3,715  

Plus: distributed income of equity investees

     9,946       8,708       53,738       15,132       40,602  

Less: interest capitalized

     (4,715     (10,913     (2,946     (311     (3,940

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

     (83,207     (94,330     (99,227     (112,306     (104,145
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total earnings before fixed charges

   $ 814,070     $ 869,928     $ 1,267,754     $ 322,055     $ 1,382,571  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed charges

      

Interest cost and amortization of bond issuance and settled swaps

   $ 178,218     $ 162,899     $ 177,088     $ 177,855     $ 185,119  

Estimated interest on rent expense

     951       1,229       1,152       1,086       1,318  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed charges

   $ 179,169     $ 164,128     $ 178,240     $ 178,941     $ 186,437  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratio of earnings to fixed charges

     4.54       5.30       7.11       1.80       7.42  

 

* In the fourth quarter of 2016, Nucor changed its accounting method for valuing certain inventories from the last-in, first-out (LIFO) inventory valuation method. All periods presented in the above table reflect this change in accounting principle.
EX-13

 

   

Exhibit 13

 

 

4

 

   

 

      FINANCIAL HIGHLIGHTS

 

 

 

F I N A N C I A L    H I G H L I G H T S

 

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

 

     

 

 

 

 

2016

 

 

 

   

 

 

 

 

2015

 

 

 

    

 

 

 

 

% CHANGE 

 

 

 

 

 FOR THE YEAR*

 

                

 Net sales

      $16,208,122       $16,439,276        -1% 
     

 Earnings:

                
     

   Earnings before income taxes and noncontrolling interests

      1,298,659       241,866        437% 
     

   Provision for income taxes

            398,243               48,836        715% 
     

 Net earnings

      900,416       193,030        366% 
     

 Earnings attributable to noncontrolling interests

            104,145             112,306        -7% 
     

 Net earnings attributable to Nucor stockholders

      796,271       80,724        886% 
     

   Per share:

                
     

     Basic

      2.48       0.25        892% 
   

     Diluted

      2.48       0.25        892% 
     

 Dividends declared per share

      1.5025       1.4925        1% 
     

 Percentage of net earnings to net sales

      4.9%       0.5%     
     

 Return on average stockholders’ equity

      10.4%       1.0%     
     

 Capital expenditures

      617,677       364,768        69% 
     

 Depreciation

      613,192       625,757        -2% 
     

 Acquisitions (net of cash acquired)

      474,788       19,089        not meaningful 
     

 Sales per employee

     

 

690

 

 

     

 

690

 

 

      

 

— 

 

 

 

 

 AT YEAR END

 

                              

 Working capital

      $4,116,427       $4,469,232        -8% 
     

 Property, plant and equipment, net

      5,078,650       4,891,153        4% 
     

 Long-term debt (including current maturities)

      4,339,141       4,337,145        — 
     

 Total Nucor stockholders’ equity

      7,879,865       7,477,816        5% 
     

   Per share

      24.72       23.52        5% 
     

 Shares outstanding

      318,737       317,962        — 
     

 Employees

      23,900       23,700        1% 

 

*

In the fourth quarter of 2016, Nucor changed its accounting method for valuing certain inventories from the last-in, first-out (LIFO) inventory valuation method. All periods presented in the above table reflect this change in accounting principle. See Note 2 to the Consolidated Financial Statements for more information related to the change in accounting principle.

FORWARD-LOOKING STATEMENTS Certain statements made in this annual report are forward-looking statements that involve risks and uncertainties. The words “believe,” “expect,” “project,” “will,” “should,” “could” and similar expressions are intended to identify those forward-looking statements. These forward-looking statements reflect the Company’s best judgment based on current information, and although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this report. Factors that might cause the Company’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: (1) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (2) U.S. and foreign trade policies affecting steel imports or exports; (3) the sensitivity of the results of our operations to prevailing steel prices and changes in the supply and cost of raw materials, including pig iron, iron ore and scrap steel; (4) availability and cost of electricity and natural gas which could negatively affect our cost of steel production or could result in a delay or cancelation of existing or future drilling within our natural gas drilling programs; (5) critical equipment failures and business interruptions; (6) market demand for steel products, which, in the case of many of our products, is driven by the level of nonresidential construction activity in the U.S.; (7) impairment in the recorded value of inventory, equity investments, fixed assets, goodwill or other long-lived assets; (8) uncertainties surrounding the global economy, including the severe economic downturn in construction markets and excess world capacity for steel production; (9) fluctuations in currency conversion rates; (10) significant changes in laws or government regulations affecting environmental compliance, including legislation and regulations that result in greater regulation of greenhouse gas emissions that could increase our energy costs and our capital expenditures and operating costs or cause one or more of our permits to be revoked or make it more difficult to obtain permit modifications; (11) the cyclical nature of the steel industry; (12) capital investments and their impact on our performance; and (13) our safety performance.

 


 

26

 

   

 

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

 

 

 

 

OVERVIEW

STEEL INDUSTRY CONDITIONS

In spite of lackluster global economic and steel industry conditions, the economy in the United States continues to experience modest growth, and steel demand in this country is stronger than in many parts of the world. After several years of growth in nonresidential construction markets (the sector to which we are most closely tied and the largest end market for steel in the United States), demand stalled in 2015, and that trend continued in 2016. The domestic automotive market, which is the second largest end market for steel in the United States, had a second consecutive record year, with 17.6 million vehicles sold. With an improved labor market and low gasoline prices, we expect continued strength in vehicle sales in 2017. A steep drop in oil prices in 2015 had a significant negative impact on demand for energy-related steel, which is the third largest end market for steel in the United States. This low price environment remained throughout 2016, and we are only recently starting to see oil prices rise due to lower inventories and production from OPEC nations. Long-term, we believe that the domestic economy can benefit from globally competitive energy prices.

Although Nucor’s earnings increased in 2016, they were impacted significantly by continued extremely high levels of steel imports. Our industry remains greatly constrained by the impact of global overcapacity. Weak economic conditions in Europe, slow growth in China and a strong U.S. dollar relative to other foreign currencies continue to make the U.S. markets a prime target for foreign steel imports. While the steel industry has historically been characterized by periods of overcapacity and intense competition for sales among producers, we are currently experiencing an era of global overcapacity that is unprecedented. Despite ongoing domestic and global steel industry consolidation, the extraordinary increase in China’s steel production in the last decade, together with the excess capacity from other countries that have state-owned enterprises (SOEs) or export-focused steel industries, have exacerbated this overcapacity issue domestically as well as globally. According to the American Iron and Steel Institute, global steel overcapacity is estimated at approximately 770 million tons per year, with China’s overcapacity being the largest piece at approximately 470 million tons. Chinese overcapacity alone is estimated to be four times greater than the entire U.S. annual demand for steel. China is the world’s largest producer and exporter of steel, accounting for approximately 50% of the steel produced globally. We believe Chinese producers, many of which are government-owned in whole or in part, continue to benefit from their government’s manipulation of foreign currency exchange rates and from the receipt of government subsidies, which allow them to sell steel into our markets at artificially low prices.

Imported steel and steel products continue to present unique challenges for us because foreign producers often benefit from government subsidies, either directly through SOEs or indirectly through government-owned or controlled financial institutions. Foreign imports of finished and semi-finished steel were down approximately 15% in 2016 compared to 2015, but they still remain excessive with finished steel imports alone capturing 26% of the market despite significant unused cost-competitive domestic capacity. The surge comes from numerous countries and cuts across all product lines. Our products that experience the greatest amount of imports include: semi-finished steel, reinforcing bar, plate and hot-rolled, cold-rolled and galvanized sheet steel. Countries that contribute most significantly to the import total include South Korea, Turkey, Japan and China.

China is not only selling steel at artificially low prices into our domestic market but also across the globe. When it does so, steel products that would otherwise have been consumed by the local steel customers in other countries are displaced into global markets, compounding the issue. Nucor has joined three other domestic steelmakers in filing a petition alleging China is circumventing previously levied duties by shipping products through third-party countries. Also, in a more indirect manner, but still significant, is the import of fabricated steel products, such as oil country tubular goods, wind towers and other construction components that were produced in China.

The steel industry has always been cyclical in nature, but North American producers of steel and steel products have been facing, and are continuing to face, very challenging global market conditions. The average industry capacity utilization rate increased to approximately 73% in 2016 as compared to 71% in 2015. These rates compare unfavorably to capacity utilization rates that reached as high as 87% in 2007. Although domestic demand for steel and steel products is expected to remain healthy in 2017, we believe it is unlikely that average capacity utilization rates will increase significantly unless the U.S. government and world trade organizations continue to address global overcapacity and unfair trade practices. The average utilization rates of all operating facilities in our steel mills, steel products and raw materials segments were approximately 80%, 63% and 62%, respectively, in 2016, compared with 73%, 63% and 56%, respectively, in 2015. In spite of challenging market conditions, all of our product groups in the steel mills segment realized improved performance in 2016 over the prior year.

Macro-level uncertainties in world markets should continue to weigh on global and domestic growth in 2017. We believe our net sales and financial results will continue to be adversely affected by these general global economic factors as well as the global steel production overcapacity issue.

 


 

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OUR CHALLENGES AND RISKS

Sales of many of our products are largely dependent upon capital spending in the nonresidential construction markets in the United States, including in the industrial and commercial sectors, as well as capital spending on infrastructure that is publicly funded, such as bridges, schools, prisons and hospitals. Unlike recoveries from past recessions, the recovery from the recession of 2008-2009 has not yet included a strong recovery in the severely depressed nonresidential construction market. While we have experienced a continued slightly positive trajectory in capital spending on nonresidential construction projects since 2009, we do not expect to see strong growth in our net sales until we see a more sustained increase in spending on these types of construction projects. Congress did pass a five-year surface transportation funding bill at the end of 2015, providing $305 billion for highway and public transportation projects. We are also encouraged by the new administration’s recent commentary on initiatives that should spur greater economic growth, including increased infrastructure spending, the rolling back of excessive regulations and encouraging domestic energy production.

The continued flow of artificially cheap exports by some of our major foreign competitors into the United States and elsewhere reduces our net sales and adversely impacts our financial results. Unfair trade practices have been challenged successfully as violating world trade rules. In 2016, the U.S. steel industry received positive determinations in trade cases involving three flat-rolled products – corrosion-resistant, cold-rolled and hot-rolled steel. In addition, the U.S. Department of Commerce announced preliminary duty determinations in investigations addressing cut-to-length plate from twelve countries. The U.S. Department of Commerce also announced the initiation of antidumping duty investigations of imports of steel concrete reinforcing bar from Japan, Taiwan and Turkey, and a countervailing duty (CVD) investigation of steel concrete reinforcing bar imports from Turkey. We expect the plate and rebar cases to conclude in 2017.

Efforts by foreign companies to evade duties by routing products through third-party countries is also a challenge. Artificially-priced imports and duty evasion schemes make it very difficult for Nucor to maintain sales prices and profit levels. As a result, Nucor joined three other steelmakers in filing a petition alleging China is circumventing coated steel sheet duties by shipping product through Vietnam. We continue to believe that assertive enforcement of world trade rules must be one of the highest priorities of the United States government.

Another important trade issue in 2017 is China’s continued treatment as a non-market economy in trade disputes. China was a government-run, non-market economy in 2001 when it entered its Protocol of Accession to the World Trade Organization (Protocol), and China remains a government-run, non-market economy today. The main objective of the Protocol was to encourage, and in some cases to require, China to make market-based economic reforms. China has argued that its accession agreement with the World Trade Organization requires it be treated as a market economy after 15 years, a milestone it surpassed in December 2016. However, over this period, China has failed to take the required steps to establish that it is a market economy under U.S. law. Therefore, we agree with the U.S. Department of Commerce’s decision to continue treating China as a non-market economy and we encourage other countries to support this position. By treating China as a non-market economy in antidumping cases, the U.S. Department of Commerce can assume that Chinese prices and costs are distorted, and it can use other methodologies to calculate antidumping duties. This treatment often results in appropriately higher duties against Chinese products, in order to offset its unfair trade practices.

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

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

Although the majority of our steel sales are to spot market customers who place their orders each month based on their business needs and our pricing competitiveness compared to both domestic and global producers and trading companies, we also sell contract tons, primarily in our sheet operations. Approximately 60% of our sheet sales were to contract customers in 2016 (60% and 50% in 2015 and 2014, 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

 

 


 

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contract tons based on market projections and appropriately supporting our diversified customer base. The percentage of tons that is placed under contract also depends on the overall market dynamics and customer negotiations. In years of strengthening demand, we typically see an increase in the percentage of sheet sales sold under contract as our customers have an expectation that transaction prices will rapidly rise and available capacity will quickly be sold out. To mitigate this risk, customers prefer to enter into contracts in order to obtain committed volumes of supply from the mills. Our contracts include a method of adjusting prices on a periodic basis to reflect changes in the market pricing for steel and/or scrap. Market indices for steel generally trend with scrap pricing changes, but during periods of steel market weakness, the more intensified competitive steel market environment can cause the sales price indices to result in reduced gross margins and profitability. Furthermore, since the selling price adjustments are not immediate, there will always be a timing difference between changes in the prices we pay for raw materials and the adjustments we make to our contract selling prices. Generally, in periods of increasing scrap prices, we experience a short-term margin contraction on contract tons. Conversely, in periods of decreasing scrap prices, we typically experience a short-term margin expansion. Contract sales typically have terms ranging from six to twelve months.

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

OUR STRENGTHS AND OPPORTUNITIES

We are North America’s most diversified steel producer. As a result, our short-term performance is not tied to any one market. Since 2012, we have made investments of more than $6 billion on projects that are not only diversifying our product offerings but also the markets that we serve. These acquisitions and investments will grow our long-term earnings power by increasing our channels to market, expanding our product portfolio into higher value-added offerings that are less vulnerable to imports, improving our cost structure and further building upon our market leadership positions. The pie chart below shows the diversity of our product mix by total tons sold to outside customers in 2016.

 

 

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Given the strategic emphasis in recent years of shifting our product mix to include a greater proportion of value-added steel mill products, we performed an analysis to understand the impact on our steel mills’ capacities in the fourth quarter of 2016. As a result of the analysis, we estimate Nucor’s total steelmaking annual capacity to be approximately 26.7 million tons. The estimate is a 7% decrease from our previous estimate of just under 29 million tons.

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

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

EVALUATING OUR OPERATING PERFORMANCE

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

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

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

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

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

EVALUATING OUR FINANCIAL CONDITION

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

2016 CHANGE IN ACCOUNTING PRINCIPLE

In the fourth quarter of 2016, we changed our accounting method for valuing inventories held by the parent company and Nucor-Yamato Steel Company to the first-in, first-out (FIFO) method of accounting from the last-in, first-out (LIFO) method. All inventories held by other subsidiaries of the parent company were previously and continue to be valued using the FIFO method. The effects of the change in accounting principle from LIFO to FIFO have been retrospectively applied to all periods presented in all sections of this Annual Report to Stockholders, including Management’s Discussion and Analysis. See Note 2 to our Consolidated Financial Statements for more information related to the change in accounting principle.

 

 


 

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COMPARISON OF 2016 TO 2015

RESULTS OF OPERATIONS

NET SALES

Net sales to external customers by segment for 2016 and 2015 were as follows:

 

         (in thousands)

  Year Ended December 31,

 

    

 

2016 

 

  

 

    

 

2015 

 

  

 

  

% Change  

 

   

  Steel mills

     $  11,312,048          $11,084,331        2%  

  Steel products

     3,687,448          3,966,895        -7%  

  Raw materials

           1,208,626              1,388,050        -13%  

  Total net sales to external customers

     $  16,208,122          $16,439,276        -1%  
                        

Net sales for 2016 decreased 1% from the prior year. Average sales price per ton decreased 8% from $725 in 2015 to $667 in 2016. Total tons shipped to outside customers increased 7% from 22.7 million tons in 2015 to 24.3 million tons in 2016.

 

 

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

 

                                                           
                   (in thousands)
  Year Ended December 31,

 

  

2016 

 

    

2015 

 

    

% Change  

 

   

  Steel production

     21,282          19,294        10%  
   

  Outside steel shipments

     18,846          17,006        11%  

  Inside steel shipments

       3,095            2,854        8%  

  Total steel shipments

     21,941          19,860        10%  
                        

Net sales for the steel mills segment increased 2% in 2016 from the prior year primarily due to an 11% increase in total tons shipped to outside customers, which was partially offset by an 8% decrease in the average sales price per ton from $651 in 2015 to $601 in 2016.

 


 

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Our sheet, bar, plate and structural products all experienced lower average selling prices in 2016 as compared to 2015. Overall steel market conditions remained challenging in 2016; however, volumes increased in 2016 compared to 2015 for all product groups within the steel mills segment, most notably in sheet. The improved volumes outweighed the decreased selling prices to result in increased sales for the steel mills segment in all but the first quarter of 2016, which had the lowest average sales price per ton of any quarter in 2015 and 2016, when compared to the respective prior year quarter. Service center inventory levels in 2016 continued the downward trend that was experienced in 2015. Energy, agricultural and heavy equipment markets were weak in both 2015 and 2016, while the automotive market was strong in both years. A positive factor impacting the steel mills segment in 2016 was decreased imports; however, imports remain at very high levels and accounted for an estimated 26% of the finished steel market in 2016.

The results of recent trade cases are having a positive impact as steel imports were down approximately 15% in 2016 compared to 2015. In mid-2016, affirmative final determinations were announced in three flat-rolled antidumping duty and countervailing duty cases involving corrosion-resistant, cold-rolled and hot-rolled steel products. These final determinations are an important step in returning fair trade to the U.S. flat-rolled steel market. In addition, the cut-to-length plate cases filed against twelve countries continue to progress through the trade case process. Affirmative final determinations have been announced on dumped steel from Brazil, South Africa and Turkey, and in January 2017, the U.S. Department of Commerce announced its final determinations against China for illegally subsidizing and dumping plate. We expect all plate cases to conclude in the coming months. The U.S. Department of Commerce also announced the initiation of antidumping duty investigations of imports of steel concrete reinforcing bar from Japan, Taiwan and Turkey, and a countervailing duty investigation of rebar imports from Turkey. We expect the rebar cases to conclude in 2017.

Outside sales tonnage data for the steel products segment was as follows:

 

       (in thousands)

  Year Ended December 31,

 

    

          2016  

 

  

          2015

 

    

          % Change  

 

   

Joist sales

     445        427       4%  

Deck sales

     442        401       10%  

Cold finished sales

     426        449       -5%  

Fabricated concrete reinforcing steel sales    

     1,115        1,190       -6%  
   
                      

Net sales for the steel products segment decreased 7% from 2015 primarily due to a 3% decrease in tons sold to outside customers and a 6% decrease in the average sales price per ton from $1,374 in 2015 to $1,298 in 2016. Sales during 2016 followed the typical seasonal pattern that was also experienced in 2015. Total sales and volumes were lowest in the first quarter as winter weather conditions had their greatest impact on nonresidential construction markets. Conditions improved in the second quarter and remained relatively steady throughout the remainder of the year with a slight decline during the fourth quarter as winter weather conditions returned. Nonresidential construction markets remained generally flat during 2016 as full year nonresidential construction starts decreased in 2016 compared to 2015.

Net sales for the raw materials segment decreased 13% in 2016 from 2015 primarily due to decreased volumes and lower average selling prices in DJJ’s brokerage operations as well as decreased volumes in DJJ’s scrap processing operations. Approximately 89% of outside sales in the raw materials segment in 2016 were from DJJ’s brokerage operations and approximately 8% of outside sales were from DJJ’s scrap processing operations (88% and 8%, respectively, in 2015).

GROSS MARGIN

In 2016, Nucor recorded gross margins of $2.03 billion (12%) compared to $1.11 billion (7%) in 2015. Gross margins in 2016 benefitted from a 7% increase in tons shipped to outside customers and lower raw materials costs compared to 2015. The following factors also impacted gross margins:

 

 

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In the steel mills segment, the average scrap and scrap substitute cost per ton used decreased 16% from $270 in 2015 to $228 in 2016 and sales tons to outside customers increased 11%. These two factors combined to result in improved total metal margin dollars in 2016 as compared to 2015. Metal margin is the difference between the selling price of steel and the cost of scrap and scrap substitutes. The decline in average sales price contributed to the slight decline in metal margin per ton, but metal margin per ton as a percentage of average sales price per ton increased in 2016 as compared to 2015. The primary driver of the improved steel mill total metal margin dollars was the sheet mills’ 13% improvement in tons sold to outside customers in 2016 as compared to 2015. Metal margins per ton and total metal margin dollars in the fourth quarter of 2016 increased from the fourth quarter of 2015 due to higher average selling prices and increased volumes.

 

 


 

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  Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. Scrap prices were volatile throughout 2016 as the average cost of scrap and scrap substitutes used increased through the third quarter before decreasing during the fourth quarter of 2016. Despite the fourth quarter decrease from the third quarter, the average cost of scrap and scrap substitute used in the fourth quarter of 2016 increased 22% compared to the first quarter of 2016. As we begin 2017, we expect to see the scrap price increases in December and January tempered by some decline and leveling as the quarter progresses.     

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Steel mill energy costs decreased approximately $4 per ton in 2016 compared with 2015 due to improved productivity and lower electricity and natural gas unit costs. Due to the efficiency of Nucor’s steel mills, energy costs were approximately 6% of the sales dollar in 2016 and 2015.

    

 

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As noted previously and elsewhere in our financial statements, we have continued to diversify into more value-added products which inherently have lower mill capacities. In the fourth quarter of 2016, we performed an analysis of the impact that the shift to value-added products had on steel mill capacity. As part of this analysis, we also revisited the impact that the shift in product mix had on our inventory costing. Based on this analysis, we changed our updated normal

    
  capacity determination and the related full absorption costing. The impact of the change in estimate resulted in a net pre-tax benefit of $77.6 million, $83.0 million of which affected gross margin, being recorded in the fourth quarter of 2016.

 

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Gross margins in the steel products segment for 2016 decreased compared to 2015 primarily due to decreased performance in our joist, deck, building systems and cold finish operations. Our combined joist and deck operations experienced the largest decrease in gross margins in 2016 as compared to 2015 due to higher steel input costs and lower average selling prices per ton. Gross margins in the steel products segment benefitted from the improved performance of our rebar fabrication businesses in 2016 as compared to 2015.

 

·

 

 

Gross margins related to DJJ’s scrap processing operations improved significantly during 2016 compared to 2015 due to significant and sustainable improvements in its cost structure, reducing both fixed and variable costs.

 

·

 

 

Gross margins in the raw materials segment in 2016 were adversely impacted by the performance of our DRI businesses. Although margins improved notably for the full year 2016 as compared to 2015, the DRI operations remained at a loss position. The depressed level of pricing for alternative raw materials in 2016 had an adverse impact on the pricing and margins of our DRI facilities. We believe there is a positive impact on our steel mills’ overall iron unit costs, including scrap and pig iron costs, when Nucor Steel Louisiana is producing high-quality DRI.

 

 

Gross margins for our DRI businesses were higher in 2016 than in 2015, particularly at Nucor Steel Louisiana. Our Louisiana DRI facility was not in operation for much of the first quarter of 2015 as repairs related to an equipment failure that occurred in 2014 were completed. Following the resumption of operations, gross margins were negatively impacted by working through higher-cost iron ore inventory that could not be used as the necessary repairs caused by the equipment failure were being made. In the fourth quarter of 2015, following a planned maintenance outage, Nucor Steel Louisiana did not initially resume operations due to market conditions. The Louisiana DRI facility resumed operations in late January 2016.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

A major component of marketing, administrative and other expenses is profit sharing and other incentive compensation costs. These costs, which are based upon and fluctuate with Nucor’s financial performance, increased from 2015 to 2016 due to increased profitability in 2016. In 2016, profit sharing costs consisted of $129.0 million of contributions, including the Company’s matching contribution, made to the Company’s Profit Sharing and Retirement Savings Plan for qualified employees ($60.5 million in 2015). 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 by 26% to $26.9 million in 2016 compared with $21.3 million in 2015 and includes costs associated with vesting of stock awards granted in prior years.

Marketing, administrative and other expenses increased in the fourth quarter of 2016 as compared to the fourth quarter of 2015 due to increased profit sharing and other incentive compensation costs as a result of increased earnings.

 


 

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In the third quarter of 2016, there were charges related to legal settlements of $33.7 million included in marketing, administrative and other expenses. Also included in marketing, administrative and other expenses in the third quarter of 2016 was a net benefit of $11.1 million related to fair value adjustments to assets in the corporate/eliminations segment, the majority of which related to the acquisition of the remaining ownership interest in a joint venture.

EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES

Equity method investment earnings were $38.8 million in 2016 and $5.3 million in 2015. The increase in equity method investment earnings from 2015 to 2016 is primarily due to increased earnings at NuMit LLC (NuMit) and, to a lesser extent, a decrease in losses at Duferdofin Nucor S.r.l. (Duferdofin Nucor).

IMPAIRMENTS AND LOSSES ON ASSETS

In 2015, Nucor recorded $244.8 million in charges for impairments and losses on assets (none in 2016). During the fourth quarter of 2015, Nucor assessed its equity investment in Duferdofin Nucor for impairment due to unfavorable operating performance and deterioration in financial projections caused by increased global overcapacity in 2015. After completing its assessment, Nucor determined that the carrying amount exceeded its estimated fair value and was other than temporary. Nucor recorded a $153.0 million impairment charge against the Company’s investment in Duferdofin Nucor (see Note 9 to the Consolidated Financial Statements). The $153.0 million impairment charge was included in the steel mills segment.

Also during the fourth quarter of 2015, Nucor determined that certain assets, the majority of which were engineering and equipment related to a blast furnace project at our St. James Parish, Louisiana site, would not be utilized, resulting in an $84.1 million impairment charge (see Note 7 to the Consolidated Financial Statements). This charge was included in the raw materials segment.

INTEREST EXPENSE (INCOME)

Net interest expense is detailed below:

 

       (in thousands)

  Year Ended December 31,

 

    

 

2016

 

    

 

2015

 

 
 

Interest expense

       $181,179          $177,543   

Interest income

          (11,935           (4,012

Interest expense, net

       $169,244         $173,531   
 
                     

Gross interest expense increased in 2016 compared to 2015 primarily due to higher average interest rates on our variable rate debt. Gross interest income increased in 2016 due to increased average investment levels and higher average interest rates on investments.

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

Earnings before income taxes and noncontrolling interests by segment for 2016 and 2015 were as follows:

 

              (in thousands)   

  Year Ended December 31,

 

  

 

2016

 

    

 

2015

 

     
         

Steel mills

         $ 1,724,168             $  629,256     

Steel products

     249,970         276,048     

Raw materials

     (95,121      (283,938  

Corporate/eliminations

          (580,358         (379,500  

Earnings before income taxes and

     noncontrolling interests

     $ 1,298,659         $  241,866     
 
                     

Earnings before income taxes and noncontrolling interests in the steel mills segment for 2016 increased significantly from 2015 primarily due to improved total metal margin dollars resulting from increased sales volume and decreased input costs. The higher sales and production volumes in 2016 improved our energy and other production costs per ton as compared to 2015. The primary driver

 

 


 

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of the improvement in the steel mills segment was our sheet mills, benefitting from the factors previously discussed. The improved results of our NuMit and Duferdofin Nucor equity method joint ventures also contributed to the increase in earnings in 2016 as compared to 2015. A positive factor benefitting the steel mills segment in 2016 was decreased imports; however, imports remain at very high levels and accounted for an estimated 26% of the finished steel market in 2016. During 2015, the $153.0 million impairment charge related to Duferdofin Nucor significantly impacted the steel mills segment, causing the segment to report a loss before income taxes and noncontrolling interests in the fourth quarter of 2015. Overall operating rates at our steel mills for the full year 2016 increased to 80% as compared to 73% for the full year 2015.

In the steel products segment, earnings before income taxes and noncontrolling interests decreased slightly in 2016 compared to 2015. The performance of our joist, deck, buildings systems and cold finish operations during 2016 declined compared to 2015, while the performance of our rebar fabrication businesses had strong year-over-year improvement despite a generally flat nonresidential construction market. Backlog tons for our joist, deck, building systems and rebar fabrication businesses were higher at the end of 2016 than at the end of 2015 as market demand seems to be improving.

Earnings before income taxes and noncontrolling interests in the raw materials segment for 2016 improved significantly from 2015, with the most significant driver being the improved performance of our DRI operations, particularly at Nucor Steel Louisiana. In 2015, Nucor Steel Louisiana’s performance was affected by the challenging conditions previously discussed. During 2016, the facility was able to run throughout the year and benefitted from improved pricing that led to a profitable third quarter of 2016. Also contributing to the increased performance of the raw materials segment was the significant improvement in profitability of DJJ’s scrap processing operations in 2016. Earnings before income taxes and noncontrolling interests for the raw materials segment in 2015 were negatively impacted by the $84.1 million impairment charge on assets related to a blast furnace project that will not be utilized in the future.

NONCONTROLLING INTERESTS

Noncontrolling interests represent the income attributable to the minority interest partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (NYS), of which Nucor owns 51%. The 7% decrease in earnings attributable to noncontrolling interests from 2016 to 2015 was primarily due to decreased metal margins as a result of lower selling prices, partially offset by increased volumes. Under the NYS limited partnership agreement, the minimum amount of cash to be distributed each year to the partners is the amount needed by each partner to pay applicable U.S. federal and state income taxes.

PROVISION FOR INCOME TAXES

The effective tax rate in 2016 was 30.7% compared with 20.2% in 2015. The increase in the rate between 2015 and 2016 is primarily due to the change in the relative proportions of net earnings attributable to noncontrolling interests to total pre-tax earnings between the periods. The effective tax rate in 2015 also benefited from lower state income taxes caused by state tax credits and the reversal of previously unrecognized tax benefits. These decreases in the 2015 rate were somewhat offset by an increase as a result of the $153.0 million financial statement impairment of an investment in a foreign joint venture. Nucor has concluded U.S. federal income tax matters for years through 2012. Tax years 2013 through 2015 remain open to examination by the Internal Revenue Service. The Canada Revenue Agency has substantially concluded its examination of the 2012 Canadian returns for Harris Steel Group Inc. and certain related affiliates and is now examining the 2013 Canadian returns. The tax years 2009 through 2015 remain open to examination by other major taxing jurisdictions to which Nucor is subject (primarily Canada and other state and local jurisdictions).

 

NET EARNINGS AND RETURN ON EQUITY

 

Nucor reported net earnings of $796.3 million, or $2.48 per diluted share, in 2016, compared to net earnings of $80.7 million, or $0.25 per diluted share, in 2015. Net earnings attributable to Nucor stockholders as a percentage of net sales was 4.9% and 0.5% in 2016 and 2015, respectively. Return on average stockholders’ equity was 10.4% and 1.0% in 2016 and 2015, respectively.

   LOGO
 


 

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COMPARISON OF 2015 TO 2014

RESULTS OF OPERATIONS

NET SALES

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

 

                                                           
                   (in thousands)  
  Year Ended December 31,    2015      2014      % Change    
     

Steel mills

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

Steel products

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

Raw materials

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

Total net sales to external customers

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

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

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

 

                                                     
                   (in thousands)  
  Year Ended December 31,    2015      2014      % Change    
     

Steel production

     19,294         21,135         -9%     
     

Outside steel shipments

     17,006         18,681         -9%     

Inside steel shipments

       2,854           3,286         -13%     

Total steel shipments

     19,860         21,967         -10%     
     
                            

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

Outside sales tonnage for the steel products segment was as follows:

 

                                                           
                   (in thousands)  
  Year Ended December 31,    2015      2014      % Change    
     

Joist sales

     427         421         1%     

Deck sales

     401         396         1%     

Cold finished sales

     449         504         -11%     

Fabricated concrete reinforcing steel sales

    

 

1,190

 

  

 

    

 

1,185

 

  

 

    

 

—  

 

  

 

Net sales to external customers in the steel products segment decreased 2% in 2015 from 2014 due to a 1% decrease in tons sold to outside customers and a 1% decrease in the average sales price per ton from $1,383 in 2014 to $1,374 in 2015.

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

 

 


 

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GROSS MARGIN

In 2015, Nucor recorded gross margins of $1.11 billion (7%) compared to $1.85 billion (9%) in 2014. The year-over-year dollar decrease was primarily the result of the 13% decrease in the average sales price per ton and 11% decrease in tons shipped to outside customers. Gross margin during 2015 was also affected by the following factors:

 

·

 

 

In the steel mills segment, the average scrap and scrap substitute cost per ton used decreased 29% from $381 in 2014 to $270 in 2015; however, overall metal margin decreased significantly in 2015 due to lower sales prices and volumes.

 

·

 

 

Total steel mill energy costs decreased approximately $3 per ton from 2014 to 2015 primarily due to lower natural gas and electricity unit costs.

 

·

 

 

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

 

·

 

 

Gross margins in the steel products segment for 2015 increased significantly compared to 2014 primarily due to improved performance in our joist, deck, rebar and building systems operations. These operations experienced margin expansion in 2015 due to lower input costs caused by decreased steel prices and the successful execution of cost reduction strategies.

 

·

 

 

Our Nucor Steel Louisiana DRI facility experienced an equipment failure in the fourth quarter of 2014 that suspended production operations until late in the first quarter of 2015. The facility’s margins in 2015 were negatively impacted by working through higher-cost iron ore that was purchased at the end of 2014 but was unable to be used until the facility resumed operations. Following a planned maintenance outage that occurred in the fourth quarter of 2015, Nucor Steel Louisiana did not initially resume operations due to market conditions. The Louisiana DRI facility resumed operations in late January 2016.

 

·

 

 

Gross margins related to DJJ’s scrap processing and brokerage operations decreased during 2015 compared to 2014 due to weaker demand for scrap and other metallic commodities as steel mill utilization decreased.

MARKETING, ADMINISTRATIVE AND OTHER EXPENSES

Profit sharing costs decreased from 2014 to 2015. In 2015, profit sharing costs consisted of $60.5 million of contributions, including the Company’s matching contribution, made to the Company’s Profit Sharing and Retirement Savings Plan for qualified employees ($110.1 million in 2014). Stock-based compensation included in marketing, administrative and other expenses decreased 3% to $21.3 million in 2015 compared with $21.9 million in 2014 and includes costs associated with vesting of stock awards granted in prior years.

EQUITY EARNINGS OF UNCONSOLIDATED AFFILIATES

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

IMPAIRMENTS AND LOSSES ON ASSETS

In 2015, Nucor recorded $244.8 million in charges for impairments and losses on assets. The charges for impairments in 2015 related to the $153.0 million impairment charge against the Company’s investment in Duferdofin Nucor (see Note 9 to the Consolidated Financial Statements) and the $84.1 million charge related to a blast furnace project that will not be utilized in the future (see Note 7 to the Consolidated Financial Statements). These charges are included in the steel mills segment and the raw materials segment, respectively.

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

 


 

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37 

 

 

INTEREST EXPENSE (INCOME)

Net interest expense is detailed below:

 

      

(in thousands) 

 

 

  Year Ended December 31,

 

    

2015  

 

      

2014  

 

   

  Interest expense

       $177,543           $174,142  

 

  Interest income

           (4,012             (4,886

 

  Interest expense, net

       $173,531           $169,256  
   
                   

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

EARNINGS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

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

 

               

(in thousands) 

 

 

  Year Ended December 31,

 

    

2015

 

      

2014  

 

   

  Steel mills

       $   629,256           $1,594,352  

 

  Steel products

       276,048           166,323  

 

  Raw materials

       (283,938)          (29,053) 

 

  Corporate/eliminations

           (379,500             (584,334

 

  Earnings before income taxes
  and noncontrolling interests

       $   241,866           $1,147,288  
   
                   

Earnings before income taxes and noncontrolling interests in the steel mills segment for 2015 decreased significantly from 2014 due to significantly lower total metal margin dollars caused by lower sales volume and lower average sales prices resulting from the factors discussed above. The $153.0 million impairment charge related to Duferdofin Nucor significantly impacted the steel mills segment and caused the segment to report a loss before income taxes and noncontrolling interests in the fourth quarter of 2015. The steel mills segment’s profitability in 2014 was impacted by a $9.0 million charge on the disposal of assets and a $12.5 million charge related to the partial write-down of assets within the segment. Market conditions were much more challenging for the steel mills segment in 2015 as compared to 2014 due to the steep drop in oil prices and the significant negative impact on energy-related steel. Imports remained at historically high levels and accounted for an estimated 34% of the finished and semi-finished steel market in 2015.

In the steel products segment, earnings before income taxes and noncontrolling interests increased significantly in 2015 compared to 2014. Nonresidential construction markets experienced a slight decrease in demand as nonresidential building construction starts were lower in 2015 as compared to 2014. Despite this slight decrease in demand and only modest increases in volumes for our joist, deck, rebar fabrication and building systems operations, the steel products segment was able to expand its margins in 2015 due to lower steel costs.

Earnings before income taxes and noncontrolling interests in the raw materials segment for 2015 decreased significantly from 2014. DJJ’s brokerage and scrap processing operations had lower sales volumes and average selling prices in 2015 compared to 2014. Falling prices throughout 2015 caused margin compression at our scrap processing businesses. The raw materials segment was also impacted by the decreased performance of our DRI facilities in 2015 as previously discussed. Also negatively impacting the profitability of the raw materials segment in 2015 was the $84.1 million impairment charge for assets related to a blast furnace project.

NONCONTROLLING INTERESTS

The 13% increase in earnings attributable to noncontrolling interests from 2014 to 2015 was primarily due to increased metal margins as a result of lower raw materials costs, a more favorable product mix and the impact of a planned three-week outage associated with a capital project in the second quarter of 2014, partially offset by decreased volumes.

 

 


 

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PROVISION FOR INCOME TAXES

The effective tax rate in 2015 was 20.2% compared with 32.1% in 2014. The decrease in the rate between 2014 and 2015 is primarily due to the change in the relative proportions of net earnings attributable to noncontrolling interests to total pre-tax earnings between the periods. The effective tax rate in 2015 also benefited from lower state income taxes caused by state tax credits and the reversal of previously unrecognized tax benefits. These decreases in the 2015 rate were somewhat offset by an increase as a result of the $153.0 million financial statement impairment of an investment in a foreign joint venture.

NET EARNINGS AND RETURN ON EQUITY

Nucor reported net earnings of $80.7 million, or $0.25 per diluted share, in 2015, compared to net earnings of $679.3 million, or $2.11 per diluted share, in 2014. Net earnings attributable to Nucor stockholders as a percentage of net sales was 0.5% and 3.2% in 2015 and 2014, respectively. Return on average stockholders’ equity was 1.0% and 8.4% in 2015 and 2014, respectively.

 

 

LIQUIDITY AND CAPITAL RESOURCES

Nucor’s cash and cash equivalents and short-term investments position remained strong at $2.20 billion at the end of 2016. Approximately $348.8 million and $360.6 million of the cash and cash equivalents position at December 31, 2016 and December 31, 2015, respectively, was held by our majority-owned joint ventures. Cash flows provided by operating activities provide us with a significant source of liquidity. When needed, we have external short-term financing sources available, including the issuance of commercial paper and borrowings under our bank credit facilities. We also issue long-term debt from time to time.

Nucor has a $1.5 billion revolving credit facility that matures in April 2021 and was undrawn at December 31, 2016. We believe our financial strength is a key strategic advantage among domestic steel producers, particularly during recessionary business cycles. We carry the highest credit ratings of any steel producer headquartered in North America, with an A- long-term rating from Standard and Poor’s and a Baa1 long-term rating from Moody’s. Our credit ratings are dependent, however, upon a number of factors, both qualitative and quantitative, and are subject to change at any time. The disclosure of our credit ratings is made in order to enhance investors’ understanding of our sources of liquidity and the impact of our credit ratings on our cost of funds. Based upon the preceding factors, we expect to continue to have adequate access to the capital markets at a reasonable cost of funds for liquidity purposes when needed.

 

Selected Measures of Liquidity and Capital Resources

        
      

(dollars in thousands)

 

 

  December 31,

 

    

 

2016

 

      

 

2015 

 

   

  Cash and cash equivalents

       $ 2,045,961         $ 1,939,469 

 

  Short-term investments

       150,000         100,000 

 

  Working capital

       4,116,427         4,469,232 

 

  Current ratio

       2.7         4.2 
   
                   

The current ratio was 2.7 at year end 2016 compared with 4.2 at year end 2015. The current ratio was negatively impacted by the reclassification of $600.0 million of debt due in December 2017 from non-current to current liabilities, a 48% increase in accounts payable due primarily to a 24% rise in the value of scrap and scrap substitutes on hand from year end 2015 to year end 2016, as well as a 48% increase in salaries, wages and related accruals mainly due to greater performance-based bonus accruals resulting from Nucor’s improved profitability in 2016 over the prior year.

The current ratio was positively impacted by an 18% increase in accounts receivable and a 10% increase in inventory from year end 2015. The increase in accounts receivable was primarily due to a 14% increase in outside shipments in the fourth quarter of 2016 compared with the prior year fourth quarter. Inventories increased from year end 2015 due to the rise in the value of scrap and scrap substitutes previously mentioned. Finally, the 8% increase from 2015 in cash and cash equivalents and short-term investments was primarily due to the robust $1.74 billion of cash generated by operating activities during 2016, partially offset by cash used for capital expenditures, acquisitions and dividends.

 


 

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39 

 

 

In 2016, total accounts receivable turned approximately every five weeks and inventories turned approximately every eight weeks. These ratios compare with accounts receivable turnover of approximately every five weeks and inventory turnover of approximately every nine weeks in 2015.

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

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

CAPITAL ALLOCATION STRATEGY

Nucor’s strong cash and cash equivalents and short-term investments position provides many opportunities for prudent deployment of our capital. We have three approaches to allocating our capital. Nucor’s highest capital allocation priority is to invest for profitable long-term growth through our multi-pronged strategy of optimizing existing operations, acquisitions and greenfield expansions. Our second priority is to provide our stockholders with cash dividends that are consistent with our success in delivering long-term earnings growth. Our third priority is to opportunistically repurchase our stock when our cash position is strong and attractively priced growth opportunities are limited. In September 2015, Nucor’s Board of Directors authorized the repurchase of up to $900 million of the Company’s common stock. For the first time since 2008, Nucor repurchased approximately 1.7 million shares of stock for $66.5 million in December 2015 and approximately 0.1 million shares of stock for $5.2 million in February 2016.

 

OPERATING ACTIVITIES

 

Cash provided by operating activities was $1.74 billion in 2016, a decrease of 19% compared with cash provided by operating activities of $2.16 billion in 2015. The primary reason for the change is decreased cash generated from changes in operating assets and liabilities of $20.9 million in 2016 compared with cash generated by changes in operating assets and liabilities of $1.21 billion in 2015. The decrease in cash generated from changes in operating assets and liabilities was partially offset by the $707.4 million increase in net earnings and the increase in deferred income taxes in 2016 over the prior year. The funding of working capital increased from the prior year due mainly to increases in accounts receivable and inventories, partially offset by increases in accounts payable and salaries, wages and related accruals. Accounts receivable increased due to a 14% increase in outside shipments in the fourth quarter of 2016 from the fourth quarter of 2015, while average sales price per ton remained consistent during those periods. Inventories and accounts payable increased due to a 24% increase in scrap and scrap substitutes cost per ton in inventory from year end 2015. The increase in salaries, wages and related accruals as compared with 2015 is mainly due to greater performance-based bonus accruals resulting from the Company’s increased profitability in 2016 over 2015.

  

 

LOGO

INVESTING ACTIVITIES

Our business is capital intensive; therefore, cash used in investing activities primarily represents capital expenditures for new facilities, the expansion and upgrading of existing facilities and the acquisition of other companies. Cash used in investing activities increased $583.4 million from 2015 to 2016. The largest factor contributing to the increase in cash used in investing activities was the $455.7 million increase in cash paid for the acquisition of other companies in 2016 over the prior year, mainly due to the use of $424.7 million of cash for the acquisition of Independence Tube Corporation in the fourth quarter of 2016. Nucor invested $604.8 million in new facilities and expansion or upgrading of existing facilities in 2016 compared with $374.1 million in 2015. The increase in capital expenditures is due to Nucor’s purchase of 49% of Encana Oil & Gas (USA) Inc.’s leasehold interest covering approximately 54,000 acres in the South Piceance Basin, NYS’s quench and self-tempering expansion, the addition of a cold mill complex at Nucor Steel Arkansas and various other capital expansion projects. These increases in cash used for investing activities were partially offset by the receipt of $135.0 million from the sale of our 50% equity interest in Hunter Ridge Energy Services LLC.

 

 


 

40

 

   

 

FINANCING ACTIVITIES

Cash used in financing activities in 2016 was $614.0 million compared with cash used in financing activities of $789.8 million in 2015. The majority of the change was due to the first quarter 2015 repayment of approximately $151 million of commercial paper that was issued in 2014 and outstanding at year end 2014 to partially fund the acquisition of Gallatin. Additionally, cash used to repurchase treasury stock decreased from $66.5 million in 2015 to $5.2 million in 2016.

In 2016, Nucor increased its quarterly base dividend, resulting in dividends paid of $481.1 million in 2016 compared with $479.4 million in 2015.

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 35% at the end of 2016 and 36% at the end of 2015, and we were in compliance with all other covenants under our credit facility at the end of 2016.

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 2016 were 74% and 60%, respectively. A significant portion of our steel mills and steel products segments sales are into the commercial, industrial and municipal construction markets. These markets continue to be depressed when compared to historical levels, and the domestic steel industry continues to be negatively affected by imported steel. Our largest single customer in 2016 represented approximately 4% of sales and consistently pays within terms. In the raw materials segment, we are exposed to price fluctuations related to the purchase of scrap steel and iron ore. Our exposure to market risk is mitigated by the fact that our steel mills use a significant portion of the products of this segment.

Nucor’s tax-exempt industrial development revenue bonds (IDRBs), including the Gulf Opportunity Zone bonds, have variable interest rates that are adjusted weekly. These IDRBs represent 23% of Nucor’s long-term debt outstanding at December 31, 2016. The remaining 77% of Nucor’s long-term debt is at fixed rates. Future changes in interest rates are not expected to significantly impact earnings. From time to time, Nucor makes use of interest rate swaps to manage interest rate risk. As of December 31, 2016, there were no such contracts outstanding. Nucor’s investment practice is to invest in securities that are highly liquid with short maturities. As a result, we do not expect changes in interest rates to have a significant impact on the value of our investment securities recorded as short-term investments.

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

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

 


 

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CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

The following table sets forth our contractual obligations and other commercial commitments as of December 31, 2016 for the periods presented:

 

        (in thousands)
   

 

Payments Due By Period

 

         
  Contractual Obligations   Total   2017   2018 - 2019   2020 - 2021      2022 and thereafter  
         

  Long-term debt

      $  4,360,600         $   600,000         $   500,000         $   20,000         $3,240,600     

 

  Estimated interest on long-term debt(1)

      2,091,939         182,240         254,918         242,666         1,412,115     

 

  Capital leases

      31,868         3,597         7,194         7,194         13,883     

 

  Operating leases

      103,481         27,705         39,251         22,343         14,182     

 

  Raw material purchase commitments(2)

      1,697,564         1,045,836         430,295         115,738         105,695     

 

  Utility purchase commitments(2)

      945,515         224,339         217,632         153,700         349,844     

 

  Other unconditional purchase obligations(3) 

      101,557         96,884         2,424         1,420         829     

 

  Other long-term obligations(4)

             513,938              341,776                53,774                11,758              106,630     

 

  Total contractual obligations

      $  9,846,462         $2,522,377         $1,505,488         $   574,819         $5,243,778     
         
                                                   

 

  (1) Interest is estimated using applicable rates at December 31, 2016 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, 2016, or according to the contract language. These contracts are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such commitments will adversely affect our liquidity position.
  (3) Purchase obligations include commitments for capital expenditures on operating machinery and equipment.
  (4) Other long-term obligations include amounts associated with Nucor’s early-retiree medical benefits, management compensation and guarantees.
Note: In addition to the amounts shown in the table above, $44.1 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 $18.4 million at December 31, 2016.

DIVIDENDS

Nucor has increased its base cash dividend every year since it began paying dividends in 1973. Nucor paid dividends of $1.50 per share in 2016, compared with $1.49 per share in 2015. In November 2016, the Board of Directors increased the base quarterly dividend to $0.3775 per share. The base quarterly dividend has more than tripled over the past ten years. In February 2017, the board of directors declared Nucor’s 176th consecutive quarterly cash dividend of $0.3775 per share payable on May 11, 2017 to stockholders of record on March 31, 2017.

OUTLOOK

In 2017, we expect to take advantage of our position of strength to grow Nucor’s long-term earnings power and stockholder value despite a U.S. economy burdened by a challenging regulatory and overall business environment. We have invested significant capital into our business since the last cyclical peak in 2008. We have done so over a broad range of strategic acquisitions and investments that we believe will further enhance our ability to grow Nucor’s long-term earnings power by increasing our channels to market, expanding our product portfolios into higher value-added offerings that are less vulnerable to imports, improving our highly variable low cost structure and building upon our market leadership positions. With many of these capital projects completed and ready to yield results, we will focus on execution in order to generate strong returns on these investments. We will also utilize our strong liquidity position to seek investment opportunities to further grow our long-term earnings capacity.

We are very encouraged regarding full year volume, pricing and profitability and believe our 2017 results could significantly exceed the prior year. We expect our sheet mills to perform more consistently in 2017 due to the full year benefit of recent trade actions. Our plate mills and bar mills are also expected to deliver improved profitability as the pending plate and rebar cases are expected to conclude in 2017. Additionally, improved conditions in energy markets are expected to result in higher drilling activity and rig counts, benefitting energy-related steel mill products. Consumer confidence has risen sharply in December 2016 and in January 2017 due to a more optimistic outlook for the economy and job growth during the year ahead. Subject to timing, proposed infrastructure bills should benefit not just our steel mills segment but a number of steel products as well. While utilization rates remained depressed in 2016 we have realized some increase in momentum early in 2017. Due to lower industry output, reduced inventory levels at our service center customers and slight decreases in import volumes, we have been able to realize significant price increases for certain products within our steel mills segment late in 2016, and this has continued in early 2017. We expect that our downstream steel products segment will continue to build on its positive results after the typical seasonal slow-down in construction that the winter season brings. We anticipate improvement in the performance of the raw materials segment due to demand-driven stronger margins at our DRI mills as well as our scrap recycling businesses.

 

 


 

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We expect our first quarter operating results to increase compared to the fourth quarter of 2016. Spot prices on many of our products continue to improve and lead times are extending. Many sources predict healthy increases in nonresidential construction markets in 2017. The domestic automotive market experienced a second consecutive record year in 2016, with 17.6 million vehicles sold. With an improved labor market and stable gasoline prices, vehicle sales are expected to continue to be strong in 2017. The energy markets languished throughout much of 2016 after the collapse in global oil prices in 2015 triggered inventory reductions among pipe and tube producers serving those markets. The energy market, especially oil country tubular goods, is slowly recovering and we expect modest improvement throughout 2017. Backlogs in both the steel mills and steel products segments strengthened late in 2016, and we believe several end-use markets such as nonresidential construction, automotive and energy will experience real demand improvement that may gain momentum throughout 2017. However, the effect this improvement in demand will have on our operating rates will be challenged by excess foreign steel capacity and the threat of continued increases in imported steel. We have aggressively fought to stem the tide of unfairly traded imports and we applaud recent trade legislation that puts our nation in a much stronger position to hold foreign governments accountable when violating U.S. trade laws. Trade cases initiated by the U.S. steel industry targeting several products groups are having a positive impact as steel imports decreased approximately 15% in 2016 when compared to 2015. We expect that scrap prices will increase slightly over the balance of 2017 and that we will continue to experience fluctuations in raw material costs throughout the year. We have made significant investments in our raw materials segment and will continue to utilize our unmatched global supply chain to optimize our raw material costs.

We are committed to executing on the opportunities we see ahead to reward Nucor stockholders with very attractive long-term returns on their valuable capital invested in our company. Nucor is the only steel producer headquartered in North America with the extremely important competitive advantage of an investment-grade credit rating. Our industry-leading financial strength allows us to support investments in our facilities that will prepare us for increased profitability as we enter into more favorable market conditions. In 2017, as we have in our past, we will allocate capital to investments that build our long-term earnings power. Capital expenditures are currently projected to be approximately $575 million in 2017. Included in this total are primarily investments in our core operations to expand our product offerings and keep them state-of-the-art and globally cost-competitive.

 

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

ALLOWANCES FOR DOUBTFUL ACCOUNTS

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

INVENTORIES

Inventories are stated at the lower of cost or market. 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. In the fourth quarter of 2016, the Company changed its accounting method for valuing its inventories held by the parent company and NYS to the first-in, first-out (FIFO) method of accounting from the last-in, first-out (LIFO) method. All inventories held by other subsidiaries of the parent company are also valued using the FIFO method. The Company believes that the FIFO method is preferable as it improves comparability with our most similar peers, it more closely resembles the physical flow of our inventory, it better matches revenue with expenses and it aligns with how the Company internally monitors the performance of our businesses.

 


 

19

 

   

 

43 

 

 

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 would most likely be impacted. Low utilization rates at our steel mills or raw materials facilities could hinder our ability to work through high-priced scrap and scrap substitutes (particularly pig iron and iron ore), leading to period-end exposure when comparing carrying value to net realizable value.

LONG-LIVED ASSET IMPAIRMENTS

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

Certain long-lived asset groupings were tested for impairment during the fourth quarter of 2016. 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, 2016; 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.

Due to the current natural gas pricing environment, Nucor performed an impairment assessment of its proved producing natural gas well assets in December 2016. One of the main assumptions that most significantly affects the undiscounted cash flows determination is management’s estimate of future natural gas prices. The pricing used in this impairment assessment was developed by management based on projected natural gas market supply and demand dynamics, in conjunction with a review of projections by numerous sources of market data. This analysis was performed on each of Nucor’s three groups of wells, with each group defined by common geographic location. Each of Nucor’s three groups of wells passed the impairment test. One of the groups of wells had estimated undiscounted cash flows that were noticeably closer to its carrying value of $80.8 million as of December 31, 2016. Changes in the natural gas industry or a prolonged low price environment beyond what had already been assumed in the analysis could cause management to revise the natural gas price assumption, which could possibly result in an impairment of a portion or all of the groups of proved well assets.

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

GOODWILL

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

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

 

 


 

44

 

   

 

 

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 2016 annual goodwill impairment analysis did not result in an impairment charge. Management does not believe that future impairment of these reporting units is probable. However, the performance of certain businesses that comprise our reporting units requires continued improvement. An increase of approximately 50 basis points in the discount rate, a critical assumption in which a minor change can have a significant impact on the estimated fair value, would not result in an impairment charge.   
Nucor will continue to monitor operating results within all reporting units throughout the upcoming year in an effort to determine if events and circumstances warrant further interim impairment testing. Otherwise, all reporting units will again be subject to the required annual impairment test during our fourth quarter of 2017. Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including expected future operating cash flows and discount rate, could decrease the estimated fair value of our reporting units in the future and could result in an impairment of goodwill.   
EQUITY METHOD INVESTMENTS   
Investments in joint ventures in which Nucor shares control over the financial and operating decisions but in which Nucor is not the primary beneficiary are accounted for under the equity method. Each of the Company’s equity method investments is subject to a review for impairment if, and when, circumstances indicate that an other-than-temporary decline in value below its carrying amount may have occurred. Examples of such circumstances include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee; missed financial projections; a significant adverse change in the regulatory, tax, economic or technological environment of the investee; a significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates; and recurring negative cash flows from operations. If management considers the decline to be other than temporary, the Company would write down the investment to its estimated fair market value. An other-than-temporary decline in carrying value is determined to have occurred when, in management’s judgment, a decline in fair value below carrying value is of such length of time and/or severity that it is considered long-term.   
In the event that an impairment review is necessary, we calculate the estimated fair value of our equity method investments using a probability-weighted multiple-scenario income approach. Management’s analysis includes three discounted cash flow scenarios (best case, base case and recessionary case), which contain forecasted near-term cash flows under each scenario. Generally, (i) the best case scenario contains estimates of future results ranging from slightly higher than recent operating performance to levels that are consistent with historical operating and financial performance (i.e., results experienced prior to the onset of the recessionary period that began in 2008); (ii) the base case scenario has estimates of future results ranging from generally in line with recent operating performance to levels that are more conservative than historical operating and financial performance; and (iii) the recessionary case scenario has estimates of future results which include limited growth resulting only from operational cost improvements and limited benefits of new higher-value product offerings. Management determines the probability that each cash flow scenario will come to fruition based on the specific facts and circumstances of each of the preceding scenarios, with the base case typically receiving the majority of the weighting.   
Key assumptions used to determine the fair value of our equity method investments include: (a) expected cash flow for the six-year period following the testing date (including market share, sales volumes and prices, costs to produce and estimated capital needs); (b) an estimated terminal value using a terminal year growth rate determined based on the growth prospects of the reporting unit; (c) a discount rate based on management’s best estimate of the after-tax weighted average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to certain scenarios based on the likelihood of occurrence. While the assumptions that most significantly affect the fair value determination include projected revenues, metal margins and discount rate, the assumptions are often interdependent and no single factor predominates in determining the estimated fair value. Management considers historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and all available information at the time the fair values of its investments are estimated. Those estimates and judgments may or may not ultimately prove appropriate.   
In the fourth quarter of 2015, Nucor assessed its equity investment in Duferdofin Nucor for impairment due to the protracted challenging steel market conditions caused by global overcapacity, which increased in 2015, and the difficult economic environment in Europe. After completing its assessment, Nucor determined that the carrying amount exceeded its estimated fair value. The impairment condition was considered to be other than temporary, and, as a result, the Company recorded a $153.0 million impairment charge against the Company’s investment in Duferdofin Nucor in the fourth quarter of 2015. This charge is included in impairments and losses on assets in the consolidated statement of earnings for 2015. The assumptions that most significantly affect the fair value determination include projected revenues, metal margins and the discount rate. While the operating performance of Duferdofin Nucor showed meaningful improvement in 2016, steel market conditions in Europe continued to be challenging through the   
 


 

21

 

   

 

45 

 

 

fourth quarter of 2016, and, therefore, it is reasonably possible that material deviation of future performance from the estimates used in our most recent valuation could result in further impairment of our investment in Duferdofin Nucor. We will continue to monitor for potential triggering events that could affect the carrying value of our investment in Duferdofin Nucor as a result of future market conditions and any changes in business strategy.

ENVIRONMENTAL REMEDIATION

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

INCOME TAXES

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

 

 

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the Consolidated Financial Statements for a discussion of new accounting pronouncements adopted by Nucor during 2016 and the expected financial impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.

 

 


 

FIVE-YEAR FINANCIAL REVIEW      

 

   

47 

 

 

                                                                                                        
    

 

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

 

  

 

         
       2016        2015        2014        2013        2012   
       

FOR THE YEAR**

                  
       

Net sales

   $ 16,208,122      $  16,439,276      $  21,105,141      $  19,052,046      $  19,429,273   
       

Costs, expenses and other:

                  
       

Cost of products sold

     14,182,215        15,325,386        19,255,904        17,623,976        18,071,671   
       

Marketing, administrative and other expenses

     596,761        458,989        520,805        467,904        437,337   
       

Equity in (earnings) losses of unconsolidated affiliates

     (38,757     (5,329     (13,505     (9,297     13,323   
       

Impairments and losses on assets

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

Interest expense, net

     169,244        173,531        169,256        146,895        162,375   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       
     14,909,463        16,197,410        19,957,853        18,243,478        18,732,269   
       

Earnings before income taxes and noncontrolling interests

     1,298,659        241,866        1,147,288        808,568        697,004   
       

Provision for income taxes

     398,243        48,836        368,724        214,853        204,312   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       

Net earnings

     900,416        193,030        778,564        593,715        492,692   
       

Earnings attributable to noncontrolling interests

     104,145        112,306        99,227        94,330        83,207   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       

Net earnings attributable to Nucor stockholders

     796,271        80,724        679,337        499,385        409,485   
       

Net earnings per share:

                  
       

Basic

     2.48        0.25        2.12        1.56        1.28   
       

Diluted

     2.48        0.25        2.11        1.56        1.28   
       

Dividends declared per share

     1.5025        1.4925        1.4825        1.4725        1.4625   
       

Percentage of net earnings to net sales

     4.9%        0.5%        3.2%        2.6%        2.1%   
       

Return on average stockholders’ equity

     10.4%        1.0%        8.4%        6.2%        5.1%   
       

Capital expenditures

     617,677        364,768        568,867        1,230,418        1,019,334   
       

Acquisitions (net of cash acquired)

     474,788        19,089        768,581               760,833   
       

Depreciation

     613,192        625,757        652,000        535,852        534,010   
       

Sales per average employee

 

    

 

690

 

  

 

   

 

690

 

  

 

   

 

921

 

  

 

   

 

859

 

  

 

   

 

906

 

  

 

       

AT YEAR END

                  
       

Current assets

   $ 6,506,393      $ 5,854,405      $ 6,808,805      $ 6,814,189      $ 6,057,321   
       

Current liabilities

     2,389,966        1,385,173        2,097,776        1,960,216        2,029,568   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       

Working capital

     4,116,427        4,469,232        4,711,029        4,853,973        4,027,753   
       

Cash provided by operating activities

     1,737,533        2,157,043        1,342,898        1,077,949        1,200,385   
       

Current ratio

     2.7        4.2        3.2        3.5        3.0   
       

Property, plant and equipment, net

     5,078,650        4,891,153        5,287,639        4,917,024        4,283,056   
       

Total assets

     15,223,518        14,326,969        15,956,467        15,578,128        14,524,972   
       

Long-term debt (including current maturities)

     4,339,141        4,337,145        4,350,558        4,350,902        3,607,156   
       

Percentage of debt to capital(1)

     34.5%        35.6%        34.0%        34.4%        30.3%   
       

Total Nucor stockholders’ equity

     7,879,865        7,477,816        8,110,342        8,018,250        8,002,692   
       

Per share

     24.72        23.52        25.42        25.19        25.19   
       

Shares outstanding

     318,737        317,962        319,033        318,328        317,663   
       

Employees

 

    

 

23,900

 

  

 

   

 

23,700

 

  

 

   

 

23,600

 

  

 

   

 

22,300

 

  

 

   

 

22,200

 

  

 

 

(1) Long-term debt divided by total equity plus long-term debt.
** In the fourth quarter of 2016, Nucor changed its accounting method for valuing certain inventories from the last-in, first-out (LIFO) inventory valuation method. All periods presented in the above table reflect this change in accounting principle. See Note 2 to the Consolidated Financial Statements for more information related to the change in accounting principle.

 

  
 


 

48

 

   

 

      MANAGEMENT’S REPORT

 

 

 

   

MANAGEMENT’S 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, 2016. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013).   
Our evaluation did not include the internal controls over financial reporting of Independence Tube Corporation, which was acquired on October 31, 2016. Total assets and total revenues for the acquisition represent 1.94% and 0.37%, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended December 31, 2016.   
Based on its assessment, management concluded that Nucor’s internal control over financial reporting was effective as of December 31, 2016. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of Nucor’s internal control over financial reporting as of December 31, 2016 as stated in their report which is included herein.   
 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      

 

   

49

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors

Nucor Corporation:

 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Nucor Corporation and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 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, 2016, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for certain inventory from the last in, first out (LIFO) method to the first in, first out (FIFO) method in 2016.

 

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

 

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

 

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Independence Tube Corporation from its assessment of internal control over financial reporting as of December 31, 2016 because it was acquired by the Company in a purchase business combination during 2016. We have also excluded Independence Tube Corporation from our audit of internal control over financial reporting. Independence Tube Corporation is a wholly-owned subsidiary whose total assets and total revenues represent 1.94% and 0.37%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2016.

 

LOGO

Charlotte, North Carolina

February 28, 2017

  

 

  
 


 

50

 

   

 

      CONSOLIDATED BALANCE SHEETS

 

 

 

                                                              

  CONSOLIDATED BALANCE SHEETS

 

    

 

(in thousands)

 

 

 

 

  December 31,

 

  

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 
 

ASSETS

        
 

CURRENT ASSETS:

        
 

Cash and cash equivalents (Note 14)

     $    2,045,961       $   1,939,469    
 

Short-term investments (Notes 4 and 14)

     150,000       100,000    
 

Accounts receivable, net (Note 5)

     1,631,676       1,383,823    
 

Inventories, net (Notes 2 and 6)

     2,479,958       2,245,469    
 

Other current assets (Note 13)

              198,798               185,644    
 

Total current assets

     6,506,393       5,854,405    
 
PROPERTY, PLANT AND EQUIPMENT, NET (Note 7)      5,078,650       4,891,153    
 
GOODWILL (Notes 3 and 8)      2,052,728       2,011,278    
 
OTHER INTANGIBLE ASSETS, NET (Notes 3 and 8)      866,835       770,672    
 
OTHER ASSETS (Note 9)               718,912               799,461    
 

TOTAL ASSETS

 

    

 

$  15,223,518

 

 

 

   

 

$ 14,326,969

 

 

 

 
                    
 

LIABILITIES AND EQUITY

        
 

CURRENT LIABILITIES:

        
 

Short-term debt (Notes 11 and 14)

     $         17,959       $        51,315    
 

Long-term debt due within one year (Notes 11 and 14)

     600,000          
 

Accounts payable (Note 10)

     838,109       566,527    
 

Salaries, wages and related accruals (Note 17)

     428,829       289,004    
 

Accrued expenses and other current liabilities (Notes 10, 13 and 15)

              505,069               478,327    
 

Total current liabilities

     2,389,966       1,385,173    
 
LONG-TERM DEBT DUE AFTER ONE YEAR (Notes 2, 11 and 14)      3,739,141       4,337,145    
 
DEFERRED CREDITS AND OTHER LIABILITIES (Notes 2, 13, 15, 17 and 19)               839,703               754,774    
 

TOTAL LIABILITIES

           6,968,810            6,477,092    
 
COMMITMENTS AND CONTINGENCIES (Notes 13 and 15)         
 
EQUITY         
 
NUCOR STOCKHOLDERS’ EQUITY (Notes 12 and 16):         
 

Common stock (800,000 shares authorized; 379,334 and 378,566 shares issued, respectively)

     151,734       151,426    
 

Additional paid-in capital

     1,974,672       1,918,970    
 

Retained earnings (Note 2)

     7,630,916       7,316,910    
 

Accumulated other comprehensive loss, net of income taxes (Notes 2, 13 and 20)

     (317,843     (351,362  
 

Treasury stock (60,597 and 60,604 shares, respectively)

         (1,559,614         (1,558,128  
 

Total Nucor stockholders’ equity

     7,879,865       7,477,816    
 

NONCONTROLLING INTERESTS

             374,843               372,061    
 

TOTAL EQUITY

          8,254,708            7,849,877    
 

TOTAL LIABILITIES AND EQUITY

     $ 15,223,518       $ 14,326,969    
                    

See notes to consolidated financial statements.

 


 

CONSOLIDATED STATEMENTS OF EARNINGS      

 

   

51 

 

 

 

  CONSOLIDATED STATEMENTS OF EARNINGS

 

  

(in thousands, except per share data)

 

 
       

  Year Ended December 31,

 

    

 

2016

 

  

 

   

 

2015

 

  

 

   

 

2014

 

  

 

   

  NET SALES

   $ 16,208,122      $ 16,439,276      $ 21,105,141   
   

COSTS, EXPENSES AND OTHER:

          
   

Cost of products sold (Notes 2, 6 and 20)

     14,182,215        15,325,386        19,255,904   
   

Marketing, administrative and other expenses (Note 20)

     596,761        458,989        520,805   
   

Equity in earnings of unconsolidated affiliates

     (38,757     (5,329     (13,505
   

Impairments and losses on assets (Notes 7, 9 and 24)

            244,833        25,393   
   

Interest expense, net (Notes 7, 18 and 19)

     169,244        173,531        169,256   
  

 

 

   

 

 

   

 

 

 
   
     14,909,463        16,197,410        19,957,853   
  

 

 

   

 

 

   

 

 

 
   

EARNINGS BEFORE INCOME TAXES AND

          
   

NONCONTROLLING INTERESTS

     1,298,659        241,866        1,147,288   
   

PROVISION FOR INCOME TAXES (Notes 2, 19 and 24)

     398,243        48,836        368,724   
  

 

 

   

 

 

   

 

 

 
   

NET EARNINGS (Note 2)

     900,416        193,030        778,564   
   

EARNINGS ATTRIBUTABLE

TO NONCONTROLLING INTERESTS (Notes 2 and 6)

     104,145        112,306        99,227   
  

 

 

   

 

 

   

 

 

 
   

NET EARNINGS ATTRIBUTABLE TO NUCOR STOCKHOLDERS (Note 2)

   $ 796,271      $ 80,724      $ 679,337   
  

 

 

   

 

 

   

 

 

 
   

NET EARNINGS PER SHARE (Notes 2 and 21):

          
   

Basic

     $2.48        $0.25        $2.12   
   

Diluted

 

    

 

$2.48

 

  

 

   

 

$0.25

 

  

 

   

 

$2.11

 

  

 

 See notes to consolidated financial statements.

 

  
 


 

52

 

   

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

      

 

(in thousands)

 

  

 

 

  Year Ended December 31,

 

          

 

2016

 

  

 

    

 

2015

 

  

 

    

 

2014

 

  

 

     

  NET EARNINGS

       $ 900,416       $ 193,030       $ 778,564   
      

 

 

    

 

 

    

 

 

 
   

  OTHER COMPREHENSIVE INCOME (LOSS):

                
   

Net unrealized income (loss) on hedging derivatives, net of income taxes of $1,500, ($5,600) and ($4,900) for 2016, 2015 and 2014, respectively

         2,570         (9,498      (8,542
   

Reclassification adjustment for loss on settlement of hedging derivatives included in net earnings, net of income taxes of $5,800, $3,500 and $200 for 2016, 2015 and 2014, respectively

         9,880         5,798         542   
   

Foreign currency translation gain (loss), net of income taxes of $0, $0 and $400 for 2016, 2015 and 2014, respectively

         25,495         (205,397      (141,530
   

Adjustment to early retiree medical plan, net of income taxes of ($1,291), $127 and ($1,921) for 2016, 2015 and 2014, respectively

         (3,589      1,485         (4,228
   

Reclassification adjustment for gain on early retiree medical plan included in net earnings, net of income taxes of ($309), ($414) and ($557) for 2016, 2015 and 2014, respectively

         (837      (742      (1,030
   

Other, net of income taxes of $0, $1,500 and $0 for 2016, 2015 and 2014, respectively

                 2,700           
      

 

 

    

 

 

    

 

 

 
   
         33,519         (205,654      (154,788
      

 

 

    

 

 

    

 

 

 
   

  COMPREHENSIVE INCOME (LOSS)

         933,935         (12,624      623,776   
   
  COMPREHENSIVE INCOME ATTRIBUTABLE TO
  NONCONTROLLING INTERESTS
         (104,145      (112,306      (99,227
      

 

 

    

 

 

    

 

 

 
   

  COMPREHENSIVE INCOME (LOSS)

  ATTRIBUTABLE TO NUCOR STOCKHOLDERS

       $   829,790       $   (124,930    $   524,549   
      

 

 

    

 

 

    

 

 

 
   
                                  

  See notes to consolidated financial statements.

 


 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY  

 

   

53

 

 

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

ADDITIONAL

PAID-IN

   

RETAINED

   

ACCUMULATED

OTHER

COMPREHENSIVE

   

TREASURY STOCK

(AT COST)

   

TOTAL

NUCOR

STOCKHOLDERS’

   

NON-

CONTROLLING

 
     TOTAL     SHARES     AMOUNT     CAPITAL     EARNINGS     INCOME (LOSS)     SHARES     AMOUNT     EQUITY     INTERESTS  

 

BALANCES, December 31, 2013

 

    $8,314,422        377,525        $151,010        $1,843,353        $7,512,922        $     9,080        59,197        $(1,498,114     $8,018,251        $296,171   
                     

Net earnings in 2014

    778,564              679,337              679,337        99,227   
                   

Other comprehensive income (loss)

    (154,788             (154,788         (154,788  
                   

Stock options exercised

    5,614        136        54        5,560                5,614     
                   

Stock option expense

    7,716            7,716                7,716     
                   
Issuance of stock under award plans, net of forfeitures     29,667        431        173        26,009            (138     3,485        29,667     
                   

Amortization of unearned compensation

    718            718                718     
                   

Cash dividends ($1.4825 per share)

    (476,172           (476,172           (476,172  
                   

Distributions to noncontrolling interests

    (63,705                     (63,705

 

BALANCES, December 31, 2014

 

    8,442,036        378,092        151,237        1,883,356        7,716,087        (145,708     59,059        (1,494,629     8,110,343        331,693   
                     

Net earnings in 2015

    193,030              80,724              80,724        112,306   
                   

Other comprehensive income (loss)

    (205,654             (205,654         (205,654  
                   

Stock options exercised

    424        10        4        420                424     
                   

Stock option expense

    7,433            7,433                7,433     
                   
Issuance of stock under award plans, net of forfeitures     30,120        464        185        26,929            (119     3,006        30,120     
                   

Amortization of unearned compensation

    832            832                832     
                   

Treasury stock acquired

    (66,505               1,664        (66,505     (66,505  
                   

Cash dividends ($1.4925 per share)

    (479,901           (479,901           (479,901  
                   

Distributions to noncontrolling interests

    (71,938                     (71,938

 

BALANCES, December 31, 2015

 

    7,849,877        378,566        151,426        1,918,970        7,316,910        (351,362     60,604        (1,558,128     7,477,816        372,061   
                     

Net earnings in 2016

    900,416              796,271              796,271        104,145   
                   

Other comprehensive income (loss)

    33,519                33,519            33,519     
                   

Stock options exercised

    15,670        400        160        15,510                15,670     
                   

Stock option expense

    7,833            7,833                7,833     
                   
Issuance of stock under award plans, net of forfeitures     35,953        368        148        32,118            (143     3,687        35,953     
                   

Amortization of unearned compensation

    843            843                843     
                   

Treasury stock acquired

    (5,173               136        (5,173     (5,173  
                   

Cash dividends ($1.5025 per share)

    (482,265           (482,265           (482,265  
                   

Distributions to noncontrolling interests

    (99,588                     (99,588
                   

Other

    (2,377         (602             (602     (1,775

 

BALANCES, December 31, 2016

 

    $8,254,708        379,334        $151,734        $1,974,672        $7,630,916        $(317,843     60,597        $(1,559,614     $7,879,865        $374,843   

See notes to consolidated financial statements.

 

  
 


 

54

 

   

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

                      

 

(in thousands

 

)  

 

 

Year Ended December 31,

 

  

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

2014

 

 

 

 

     

 

OPERATING ACTIVITIES:

        
     

Net earnings

   $ 900,416      $ 193,030      $ 778,564  
     

Adjustments:

        
     

Depreciation

     613,192        625,757        652,000  
     

Amortization

     73,862        74,260        72,423  
     

Stock-based compensation

     56,511        45,794        46,384  
     

Deferred income taxes

     71,455        (246,836      70,801  
     

Distributions from affiliates

     40,602        15,132        53,738  
     

Equity in earnings of unconsolidated affiliates

     (38,757      (5,329      (13,505
     

Impairments and losses on assets

            244,833        25,393  
     

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

        
     

Accounts receivable

     (217,736      655,489        (179,181
     

Inventories

     (132,639      1,061,202        11,326  
     

Accounts payable

     236,788        (438,788      (111,859
     

Federal income taxes

     3,555        62,656        (111,687
     

Salaries, wages and related accruals

     133,544        (56,267      67,973  
     

Other operating activities

     (3,260      (73,890      (19,472
     
  

 

 

    

 

 

    

 

 

 
     

Cash provided by operating activities

     1,737,533        2,157,043        1,342,898  
     

 

INVESTING ACTIVITIES:

        
     

Capital expenditures

     (604,840      (374,123      (667,982
     

Investment in and advances to affiliates

     (63,167      (80,409      (97,841
     

Divestiture of affiliates

     135,000                
     

Repayment of advances to affiliates

                   122,000  
     

Disposition of plant and equipment

     18,571        29,390        36,563  
     

Acquisitions (net of cash acquired)

     (474,788      (19,089      (768,581
     

Purchases of investments

     (650,000      (111,927      (100,000
     

Proceeds from the sale of investments

     600,000        111,452        27,529  
     

Other investing activities

     14,106        3,010        10,250  
     
  

 

 

    

 

 

    

 

 

 
     

Cash used in investing activities

     (1,025,118      (441,696      (1,438,062
     

 

FINANCING ACTIVITIES:

        
     

Net change in short-term debt

     (33,360      (155,816      178,308  
     

Repayment of long-term debt

            (16,300      (5,358
     

Issuance of common stock

     15,751        424        5,614  
     

Excess tax benefits from stock-based compensation

     2,784        2,000        3,400  
     

Distributions to noncontrolling interests

     (99,588      (71,938      (63,705
     

Cash dividends

     (481,083      (479,432      (475,123
     

Acquisition of treasury stock

     (5,173      (66,505       
     

Other financing activities

     (13,297      (2,184      (2,183
     
  

 

 

    

 

 

    

 

 

 
     

Cash used in financing activities

     (613,966      (789,751      (359,047
     

 

Effect of exchange rate changes on cash

     8,043        (10,271      (4,897
     
  

 

 

    

 

 

    

 

 

 
     

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     106,492        915,325        (459,108
     

CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR

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

 

 

    

 

 

    

 

 

 
     

CASH AND CASH EQUIVALENTS — END OF YEAR

   $ 2,045,961      $ 1,939,469      $ 1,024,144  
     
  

 

 

    

 

 

    

 

 

 
     
    

 

 

    

 

 

    

 

 

 
     

NON-CASH INVESTING ACTIVITY:

        
     

Change in accrued plant and equipment purchases

   $ 12,837      $ (9,355    $ (99,115
     
  

 

 

    

 

 

    

 

 

 
     
    

 

 

    

 

 

    

 

 

 

See notes to consolidated financial statements.

 


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

 

   

55 

 

 

YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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

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

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

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

Reclassifications Certain reclassifications of prior years’ data have been made to conform to current year presentation.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Inventories At December 31, 2016, inventories were stated at the lower of cost or market. In the fourth quarter of 2016, the Company changed its accounting method for valuing its inventories held by the parent company and Nucor-Yamato Steel Company to the first-in, first-out (FIFO) method of accounting from the last-in, first-out (LIFO) method. All inventories held by other subsidiaries of the parent company were previously and continue to be valued using the FIFO method. The Company believes that the FIFO method is preferable as it improves comparability with our most similar peers, it more closely resembles the physical flow of our inventory, it better matches revenue with expenses and it aligns with how the Company internally monitors the performance of our businesses.

The effects of the change in accounting principle from LIFO to FIFO have been retrospectively applied to all periods presented. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheet as of December 31, 2015 and its consolidated statements of earnings and consolidated statements of cash flows for 2015 and 2014 were adjusted as follows.