Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2017

Commission file number 1-4119

 

 

NUCOR CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-1860817

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1915 Rexford Road, Charlotte, North Carolina   28211
(Address of principal executive offices)   (Zip Code)

(704) 366-7000

(Registrant’s telephone number, including area code)

 

 

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 (§232.405 of this chapter) 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

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

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

319,051,856 shares of common stock were outstanding at April 1, 2017.

 

 

 


Table of Contents

Nucor Corporation

Form 10-Q

April 1, 2017

INDEX

 

              Page  
Part I   Financial Information   
  Item 1    Financial Statements (Unaudited)   
     Condensed Consolidated Statements of Earnings - Three Months (13 Weeks) Ended April 1, 2017 and April 2, 2016      3  
     Condensed Consolidated Statements of Comprehensive Income - Three Months (13 Weeks) Ended April 1, 2017 and April 2, 2016      4  
     Condensed Consolidated Balance Sheets - April 1, 2017 and December 31, 2016      5  
     Condensed Consolidated Statements of Cash Flows - Three Months (13 Weeks) Ended April 1, 2017 and April 2, 2016      6  
     Notes to Condensed Consolidated Financial Statements      7  
  Item 2    Management’s Discussion and Analysis of Financial Condition and Results of Operations      22  
  Item 3    Quantitative and Qualitative Disclosures About Market Risk      29  
  Item 4    Controls and Procedures      30  
Part II   Other Information   
  Item 1    Legal Proceedings      31  
  Item 1A    Risk Factors      31  
  Item 6    Exhibits      31  
Signatures      32  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Nucor Corporation Condensed Consolidated Statements of Earnings (Unaudited)

(In thousands, except per share amounts)

 

     Three Months (13 Weeks) Ended  
     April 1, 2017     April 2, 2016  

Net sales

   $ 4,815,179     $ 3,715,576  
  

 

 

   

 

 

 

Costs, expenses and other:

    

Cost of products sold

     4,054,929       3,400,591  

Marketing, administrative and other expenses

     176,426       109,745  

Equity in earnings of unconsolidated affiliates

     (8,756     (9,245

Interest expense, net

     43,605       44,922  
  

 

 

   

 

 

 
     4,266,204       3,546,013  
  

 

 

   

 

 

 

Earnings before income taxes and noncontrolling interests

     548,975       169,563  

Provision for income taxes

     171,327       47,066  
  

 

 

   

 

 

 

Net earnings

     377,648       122,497  

Earnings attributable to noncontrolling interests

     20,749       34,932  
  

 

 

   

 

 

 

Net earnings attributable to Nucor stockholders

   $ 356,899     $ 87,565  
  

 

 

   

 

 

 

Net earnings per share:

    

Basic

   $ 1.11     $ 0.27  

Diluted

   $ 1.11     $ 0.27  

Average shares outstanding:

    

Basic

     320,224       319,240  

Diluted

     321,146       319,294  

Dividends declared per share

   $ 0.3775     $ 0.3750  

See notes to condensed consolidated financial statements.

 

3


Table of Contents

Nucor Corporation Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

    Three Months (13 Weeks) Ended  
    April 1, 2017     April 2, 2016  

Net earnings

  $ 377,648     $ 122,497  
 

 

 

   

 

 

 

Other comprehensive income:

   

Net unrealized loss on hedging derivatives, net of income taxes of ($1,000) for both the first quarter of 2017 and 2016

    (1,635     (1,731

Reclassification adjustment for loss on settlement of hedging derivatives included in net income, net of income taxes of $300 and $1,700 for the first quarter of 2017 and 2016, respectively

    485       3,031  

Foreign currency translation gain, net of income taxes of $0 for both the first quarter of 2017 and 2016

    2,001       53,897  
 

 

 

   

 

 

 
    851       55,197  
 

 

 

   

 

 

 

Comprehensive income

    378,499       177,694  

Comprehensive income attributable to noncontrolling interests

    (20,749     (34,932
 

 

 

   

 

 

 

Comprehensive income attributable to Nucor stockholders

  $ 357,750     $ 142,762  
 

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

4


Table of Contents

Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

 

     April 1, 2017     Dec. 31, 2016  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 1,657,759     $ 2,045,961  

Short-term investments

     50,000       150,000  

Accounts receivable, net

     1,980,556       1,631,676  

Inventories, net

     3,064,170       2,479,958  

Other current assets

     125,708       198,798  
  

 

 

   

 

 

 

Total current assets

     6,878,193       6,506,393  

Property, plant and equipment, net

     5,133,404       5,078,650  

Goodwill

     2,177,276       2,052,728  

Other intangible assets, net

     969,492       866,835  

Other assets

     717,095       718,912  
  

 

 

   

 

 

 

Total assets

   $ 15,875,460     $ 15,223,518  
  

 

 

   

 

 

 

LIABILITIES

    

Current liabilities:

    

Short-term debt

   $ 48,153     $ 17,959  

Long-term debt due within one year

     600,000       600,000  

Accounts payable

     1,257,900       838,109  

Federal income taxes payable

     76,755       —    

Salaries, wages and related accruals

     325,981       428,829  

Accrued expenses and other current liabilities

     529,007       505,069  
  

 

 

   

 

 

 

Total current liabilities

     2,837,796       2,389,966  

Long-term debt due after one year

     3,739,908       3,739,141  

Deferred credits and other liabilities

     829,685       839,703  
  

 

 

   

 

 

 

Total liabilities

     7,407,389       6,968,810  
  

 

 

   

 

 

 

EQUITY

    

Nucor stockholders’ equity:

    

Common stock

     151,775       151,734  

Additional paid-in capital

     1,986,983       1,974,672  

Retained earnings

     7,866,405       7,630,916  

Accumulated other comprehensive loss, net of income taxes

     (316,992     (317,843

Treasury stock

     (1,554,148     (1,559,614
  

 

 

   

 

 

 

Total Nucor stockholders’ equity

     8,134,023       7,879,865  

Noncontrolling interests

     334,048       374,843  
  

 

 

   

 

 

 

Total equity

     8,468,071       8,254,708  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 15,875,460     $ 15,223,518  
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

5


Table of Contents

Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

     Three Months (13 Weeks) Ended  
     April 1, 2017     April 2, 2016  

Operating activities:

    

Net earnings

   $ 377,648     $ 122,497  

Adjustments:

    

Depreciation

     158,525       152,249  

Amortization

     22,368       18,112  

Stock-based compensation

     9,524       7,300  

Deferred income taxes

     (6,695     15,530  

Distributions from affiliates

     30,249       36,015  

Equity in earnings of unconsolidated affiliates

     (8,756     (9,245

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

    

Accounts receivable

     (290,261     (104,252

Inventories

     (519,902     114,479  

Accounts payable

     413,256       197,350  

Federal income taxes

     157,346       23,273  

Salaries, wages and related accruals

     (102,744     (49,453

Other operating activities

     3,584       27,004  
  

 

 

   

 

 

 

Cash provided by operating activities

     244,142       550,859  
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures

     (94,535     (80,697

Investment in and advances to affiliates

     (14,000     (6,098

Disposition of plant and equipment

     8,870       5,309  

Acquisitions (net of cash acquired)

     (485,060     (1,386

Purchases of investments

     (50,000     (50,000

Proceeds from the sale of investments

     150,000       100,000  

Other investing activities

     —         792  
  

 

 

   

 

 

 

Cash used in investing activities

     (484,725     (32,080
  

 

 

   

 

 

 

Financing activities:

    

Net change in short-term debt

     30,180       (14,671

Issuance of common stock

     7,432       —    

Payment of tax withholdings on certain stock-based compensation

     (1,349     —    

Excess tax benefits from stock-based compensation

     —         353  

Distributions to noncontrolling interests

     (61,544     (49,853

Cash dividends

     (121,303     (120,153

Acquisition of treasury stock

     —         (5,173

Other financing activities

     (518     (559
  

 

 

   

 

 

 

Cash used in financing activities

     (147,102     (190,056
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (517     10,296  
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

     (388,202     339,019  

Cash and cash equivalents - beginning of year

     2,045,961       1,939,469  
  

 

 

   

 

 

 

Cash and cash equivalents - end of three months

   $ 1,657,759     $ 2,278,488  
  

 

 

   

 

 

 

Non-cash investing activity:

    

Change in accrued plant and equipment purchases

   $ (11,222   $ (4,949
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

6


Table of Contents

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

 

1. BASIS OF INTERIM PRESENTATION: The information furnished in Item 1 reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented and are of a normal and recurring nature unless otherwise noted. The information furnished has not been audited; however, the December 31, 2016 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements in this Item 1 should be read in conjunction with the consolidated financial statements and the notes thereto included in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2016.

Recently Adopted Accounting Pronouncements – In the first quarter of 2017, Nucor adopted new accounting guidance that amends the accounting for employee share-based payment transactions. This new standard requires income statement recognition of all tax effects, including all excess tax benefits and tax deficiencies, resulting from the settlement of share-based awards in the reporting period in which they occur. The standard also requires that all tax-related cash flows resulting from share-based payments, including the excess tax benefits and tax deficiencies related to the settlement of stock-based awards, be classified as cash flows from operating activities, and that cash paid by directly withholding shares for tax purposes be classified as a financing activity in the statement of cash flows. The standard also allows companies to make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with current guidance, or account for forfeitures as they occur. This new guidance, with the exception of the presentation of cash paid by directly withholding shares for tax purposes on the statement of cash flows, is applied prospectively for the Company beginning on January 1, 2017. The presentation of cash paid by directly withholding shares for tax purposes on the statement of cash flows as a financing activity requires retrospective application beginning January 1, 2017 (there was no impact on the condensed consolidated statement of cash flows for the three months ended April 2, 2016). The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. There is no change to our accounting policy with respect to the estimation of awards that are expected to vest.

In the January 2017, new guidance was issued regarding the simplification of the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test and will require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The new guidance is effective for the Company for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. The Company early adopted this new guidance in the first quarter of 2017. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements - In May 2014, new accounting guidance was issued that will supersede nearly all existing accounting guidance related to revenue recognition. The new guidance provides that an entity recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The Financial Accounting Standards Board has also issued a number of updates to this new accounting guidance. The standard is effective for the Company for annual and interim reporting periods beginning after December 15, 2017 and is not expected to have a material effect on the Company’s consolidated financial statements.

In January 2016, new accounting guidance was issued regarding the recognition and measurement of financial assets and financial liabilities. Changes to the current accounting guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the Financial Accounting Standards

 

7


Table of Contents

Board clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities, is largely unchanged. The standard is effective for the Company for annual and interim reporting periods beginning after December 15, 2017 and is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2016, new accounting guidance was issued regarding the accounting for leases. The new guidance requires all lessees to recognize on the balance sheet right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The standard is effective for the Company for annual and interim reporting periods beginning after December 15, 2018. The Company is evaluating the impact that the adoption of this new guidance will have on its consolidated financial statements., but we expect that assets and liabilities will increase on the consolidated balance sheet.

In August 2016, new accounting guidance was issued regarding the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance addresses specific cash flow presentation issues in order to reduce diversity in existing practice. The new guidance is effective for the Company for annual and interim reporting periods beginning after December 15, 2017. The Company is evaluating the impact that the adoption of this new guidance will have on its consolidated financial statements.

In October 2016, new accounting guidance was issued regarding intra-entity transfers of assets other than inventory. The new guidance requires that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for the Company for annual and interim reporting periods beginning after December 15, 2017. The Company is evaluating the impact that the adoption of this new guidance will have on its consolidated financial statements.

Prior Year Change in Accounting Principle - 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 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 condensed consolidated statement of earnings and condensed consolidated statement of cash flows (no impact on total cash provided by operating activities) for the three months ended April 2, 2016 were adjusted as follows:

 

(in thousands, except share data)    As Originally Reported      Effect of Change      As Currently Reported  

Condensed Consolidated Statement of Earnings for the Three Months (13 Weeks) Ended April 2, 2016:

        

Cost of products sold

   $ 3,428,628      $ (28,037    $ 3,400,591  

Provision for income taxes

     37,065        10,001        47,066  

Net earnings

     104,461        18,036        122,497  

Earnings attributable to noncontrolling interests

     33,707        1,225        34,932  

Net earnings attributable to Nucor stockholders

     70,754        16,811        87,565  

Net earnings per share:

        

Basic

   $ 0.22      $ 0.05      $ 0.27  

Diluted

   $ 0.22      $ 0.05      $ 0.27  

Condensed Consolidated Statement of Cash Flows for the Three Months (13 Weeks) Ended April 2, 2016:

        

Net earnings

   $ 104,461      $ 18,036      $ 122,497  

Changes in inventories

     142,516        (28,037      114,479  

Changes in deferred income taxes

     5,529        10,001        15,530  

 

8


Table of Contents
2. ACQUISITIONS AND DISPOSITIONS: On January 20, 2017, Nucor used cash on hand to acquire Republic Conduit (Republic) for a purchase price of $331.3 million. Republic produces steel electrical conduit primarily used to protect and route electrical wiring in various nonresidential structures such as hospitals, office buildings and stadiums. With its two facilities located in Kentucky and Georgia, Republic’s annual shipment volume has averaged 146,000 tons during the past two years. This acquisition not only further expands Nucor’s product portfolio to include the steel electrical conduit but the Company also believes it will be an important, value-added channel to market for Nucor’s sheet mills. Republic’s financial results are included as part of the steel mills segment (see Note 18).

We have allocated the purchase price for Republic to its individual assets acquired and liabilities assumed. While the purchase price allocation is substantially complete, it is still preliminary and subject to change.

The following table summarizes the fair values of the assets acquired and liabilities assumed of Republic as of the date of acquisition (in thousands):

 

Cash

   $ 206  

Accounts receivable

     39,177  

Inventory

     33,561  

Other current assets

     1,101  

Property, plant and equipment

     67,412  

Goodwill

     115,527  

Other intangible assets

     89,200  

Other assets

     3,118  
  

 

 

 

Total assets acquired

     349,302  
  

 

 

 

Current liabilities

     17,955  
  

 

 

 

Total liabilities assumed

     17,955  
  

 

 

 

Net assets acquired

   $ 331,347  
  

 

 

 

The following table summarizes the purchase price allocation to the identifiable intangible assets of Republic as of the date of acquisition (in thousands, except years):

 

            Weighted -
Average Life
 
           

Customer relationships

   $ 80,800        12 years  

Trademarks and trade names

     8,400        13 years  
  

 

 

    
   $ 89,200     
  

 

 

    

The goodwill of $115.5 million is calculated as the excess of the purchase price over the fair values of the assets acquired and liabilities assumed and has been allocated to the steel mills segment (see Note 6). Goodwill recognized for tax purposes was $118.6 million, all of which is deductible for tax purposes.

Other acquisitions, exclusive of purchase price adjustments of acquisitions made and net of cash acquired, totaled $150.8 million in the first quarter of 2017 ($1.4 million in the first quarter of 2016). Included the first quarter of 2017 amount is the January 9, 2017 acquisition of Southland Tube (Southland). Nucor used cash on hand to acquire Southland for a purchase price of approximately $130 million. Southland is a manufacturer of HSS tubing, which is primarily used in nonresidential construction markets. Southland had shipments of approximately 240,000 tons in 2016 and has one manufacturing facility in Birmingham, Alabama.

 

9


Table of Contents
3. ACCOUNTS RECEIVABLE: An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of our customers to make required payments. Accounts receivable are stated net of an allowance for doubtful accounts of $46.1 million at April 1, 2017 ($45.9 million at December 31, 2016).

 

4. INVENTORIES: Inventories consisted of approximately 39% raw materials and supplies and 61% finished and semi-finished products at April 1, 2017 (37% and 63%, respectively, at December 31, 2016). Nucor’s manufacturing process consists of a continuous, vertically integrated process from which products are sold to customers at various stages throughout the process. Since most steel products can be classified as either finished or semi-finished products, these two categories of inventory are combined. Use of the lower of cost or market methodology reduced inventories by $1.3 million at April 1, 2017 ($2.2 million at December 31, 2016).

 

5. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of $8.31 billion at April 1, 2017 ($8.16 billion at December 31, 2016).

Given the 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. The carrying value of that group of wells was $78.4 million at April 1, 2017. 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 assumptions, which could possibly result in an impairment of a portion or all of the groups of proved well assets.

 

6. GOODWILL AND OTHER INTANGIBLE ASSETS: The change in the net carrying amount of goodwill for the three months ended April 1, 2017 by segment is as follows (in thousands):

 

     Steel Mills      Steel Products      Raw Materials      Total  

Balance at December 31, 2016

   $ 620,156      $ 702,995      $ 729,577      $ 2,052,728  

Acquisitions

     125,293        —          —          125,293  

Translation

     —          (745      —          (745
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at April 1, 2017

   $ 745,449      $ 702,250      $ 729,577      $ 2,177,276  
  

 

 

    

 

 

    

 

 

    

 

 

 

Nucor completed its most recent annual goodwill impairment testing during the fourth quarter of 2016 and concluded that there was no impairment of goodwill for any of its reporting units. There have been no triggering events requiring an interim assessment for impairment since the most recent annual impairment testing date.

 

10


Table of Contents

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

 

    April 1, 2017     December 31, 2016  
    Gross
Amount
    Accumulated
Amortization
    Gross
Amount
    Accumulated
Amortization
 

Customer relationships

  $ 1,408,658     $ 584,962     $ 1,295,803     $ 566,884  

Trademarks and trade names

    174,021       69,149       161,851       66,494  

Other

    62,807       21,883       62,807       20,248  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,645,486     $ 675,994     $ 1,520,461     $ 653,626  
 

 

 

   

 

 

   

 

 

   

 

 

 

Intangible asset amortization expense for the first quarter of 2017 and 2016 was $22.4 million and $18.1 million, respectively. Annual amortization expense is estimated to be $90.9 million in 2017; $88.8 million in 2018; $85.9 million in 2019; $83.5 million in 2020; and $82.3 million in 2021.

 

7. EQUITY INVESTMENTS: The carrying value of our equity investments in domestic and foreign companies was $660.0 million at April 1, 2017 ($663.4 million at December 31, 2016) and is recorded in other assets in the condensed consolidated balance sheets.

NUMIT

Nucor has a 50% economic and voting interest in NuMit LLC (NuMit). NuMit owns 100% of the equity interest in Steel Technologies LLC, an operator of 25 sheet processing facilities located throughout the U.S., Canada and Mexico. Nucor accounts for the investment in NuMit (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the members. Nucor’s investment in NuMit at April 1, 2017, was $304.9 million ($325.1 million as of December 31, 2016). Nucor received distributions of $30.2 million and $36.0 million from NuMit during the first quarter of 2017 and 2016, respectively.

DUFERDOFIN NUCOR

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

Nucor’s investment in Duferdofin Nucor at April 1, 2017 was $258.6 million ($256.6 million at December 31, 2016). Nucor’s 50% share of the total net assets of Duferdofin Nucor was $103.4 million at April 1, 2017, resulting in a basis difference of $155.2 million due to the step-up to fair value of certain assets and liabilities attributable to Duferdofin Nucor as well as the identification of goodwill ($82.3 million) and finite-lived intangible assets. This basis difference, excluding the portion attributable to goodwill, is being amortized based on the remaining estimated useful lives of the various underlying net assets, as appropriate. Amortization expense associated with the fair value step-up was $2.1 million and $2.2 million in the first quarter of 2017 and 2016, respectively.

As of April 1, 2017, Nucor had outstanding notes receivable of €35.0 million ($37.4 million) from Duferdofin Nucor (€35.0 million, or $36.9 million, as of December 31, 2016). The notes receivable bear interest at 0.94% and reset annually on September 30 to the 12-month Euro Interbank Offered Rate (Euribor) plus 1% per year. The principal amounts are due on January 31, 2019. As of April 1, 2017, and December 31, 2016, the note receivable was classified in other assets in the condensed consolidated balance sheets.

Nucor has issued a guarantee, the fair value of which is immaterial, for its ownership percentage (50%) of Duferdofin Nucor’s borrowings under Facility A of a Structured Trade Finance Facilities Agreement (Facility A). The maximum amount Duferdofin Nucor can borrow under Facility A is €122.5

 

11


Table of Contents

million ($130.8 million as of April 1, 2017). As of April 1, 2017, there was €102.5 million ($109.5 million) outstanding under that facility (€107.0 million, or $112.7 million, at December 31, 2016). Facility A was amended in 2015 to extend the maturity date to October 12, 2018. If Duferdofin Nucor fails to pay when due any amounts for which it is obligated under Facility A, Nucor could be required to pay 50% of such amounts pursuant to and in accordance with the terms of its guarantee. Any indebtedness of Duferdofin Nucor to Nucor is effectively subordinated to the indebtedness of Duferdofin Nucor under Facility A. Nucor has not recorded any liability associated with this guarantee.    

ALL EQUITY INVESTMENTS

Nucor reviews its equity investments for impairment if and when circumstances indicate that a decline in value below their carrying amounts may have occurred. Nucor last assessed its equity investment in Duferdofin Nucor for impairment in 2015 due to the protracted challenging steel market conditions caused by excess global overcapacity, which increased in 2015, and the difficult economic environment in Europe. After completing its assessment, the Company determined that the carrying amount exceeded its estimated fair value and incurred a partial impairment of its investment. While the operating performance of Duferdofin Nucor showed meaningful improvement in 2016 and the first quarter of 2017, steel market conditions in Europe have continued to be challenging. 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 our business strategy.

 

8. CURRENT LIABILITIES: Book overdrafts, included in accounts payable in the condensed consolidated balance sheets, were $78.7 million at April 1, 2017 ($61.3 million at December 31, 2016). Dividends payable, included in accrued expenses and other current liabilities in the condensed consolidated balance sheets, were $121.4 million at April 1, 2017 ($121.3 million at December 31, 2016).

 

9. DERIVATIVES: Nucor periodically uses derivative financial instruments primarily to partially manage its exposure to price risk related to natural gas purchases used in the production process as well as to scrap, copper and aluminum purchased for resale to its customers. In addition, Nucor periodically uses derivatives to partially manage its exposure to changes in interest rates on outstanding debt instruments and uses forward foreign exchange contracts to hedge cash flows associated with certain assets and liabilities, firm commitments and anticipated transactions.

Nucor recognizes all derivative instruments in the condensed consolidated balance sheets at fair value. Any resulting changes in fair value are recorded as adjustments to other comprehensive income (loss), net of tax, or recognized in net earnings, as appropriate.

At April 1, 2017, natural gas swaps covering approximately 20.4 million MMBTUs (extending through December 2019) were outstanding.

 

12


Table of Contents

The following tables summarize information regarding Nucor’s derivative instruments (in thousands):

Fair Value of Derivative Instruments

 

            Fair Value at  
     Balance Sheet Location      April 1, 2017     Dec. 31, 2016  

Asset derivatives designated as hedging instruments:

       

Commodity contracts

     Other current assets      $ 500     $ 1,250  
     

 

 

   

 

 

 

Asset derivatives not designated as hedging instruments:

       

Foreign exchange contracts

     Other current assets        —         779  
     

 

 

   

 

 

 

Total asset derivatives

      $ 500     $ 2,029  
     

 

 

   

 

 

 

Liability derivatives designated as hedging instruments:

       

Commodity contracts

     Deferred credits and other liabilities      $ (1,100   $ —    
     

 

 

   

 

 

 

Liability derivatives not designated as hedging instruments:

       

Commodity contracts

     Accrued expenses and other current liabilities        (441     (605
     

 

 

   

 

 

 

Foreign exchange contracts

     Accrued expenses and other current liabilities        (92     —    
     

 

 

   

 

 

 

Total liability derivatives not designated as hedging instruments

        (533     (605

Total liability derivatives

      $ (1,633   $ (605
     

 

 

   

 

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Earnings

Derivatives Designated as Hedging Instruments

 

Derivatives in

Cash Flow

Hedging

Relationships

 

Statement of

Earnings

Location

  Amount of Gain or (Loss), net of
tax, Recognized in OCI on
Derivatives (Effective Portion)
    Amount of Gain or (Loss), net of tax,
Reclassified from Accumulated OCI
into Earnings on Derivatives

(Effective Portion)
    Amount of Gain or (Loss), net of
tax, Recognized in Earnings on
Derivatives (Ineffective Portion)
 
    Three Months (13 Weeks) Ended     Three Months (13 Weeks) Ended     Three Months (13 Weeks) Ended  
    April 1, 2017     April 2, 2016     April 1, 2017     April 2, 2016     April 1, 2017     April 2, 2016  

Commodity contracts

 

Cost of products sold

 

$

(1,635

 

$

(1,731

 

$

(485

 

$

(3,031

 

$

—  

 

 

$

—  

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivatives Not Designated as Hedging Instruments

 

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

Derivatives Not Designated as

Hedging Instruments

  

Statement of

Earnings Location

   Three Months (13 Weeks) Ended  
          April 1, 2017      April 2, 2016  

Commodity contracts

   Cost of products sold    $ (2,555    $ 88  

Foreign exchange contracts

   Cost of products sold      (896      (818
     

 

 

    

 

 

 

Total

      $ (3,451    $ (730
     

 

 

    

 

 

 

 

13


Table of Contents
10. FAIR VALUE MEASUREMENTS: The following table summarizes information regarding Nucor’s financial assets and financial liabilities that are measured at fair value as of April 1, 2017, and December 31, 2016 (in thousands). Nucor does not have any non-financial assets or liabilities that are measured at fair value on a recurring basis.

 

          Fair Value Measurements at Reporting Date Using  
          Quoted Prices
in Active
Markets for
Identical Assets
             
   

Carrying

Amount in

Condensed

Consolidated

      Significant
Other
Observable
Inputs
    Significant
Unobservable
Inputs
 

Description

  Balance Sheets     (Level 1)     (Level 2)     (Level 3)  

As of April 1, 2017

                       

Assets:

       

Cash equivalents

  $ 1,193,130     $ 1,193,130     $ —       $ —    

Short-term investments

    50,000       50,000       —         —    

Commodity contracts

    500       —         500       —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,243,630     $ 1,243,130     $ 500     $ —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Commodity and foreign exchange contracts

  $ (1,633   $ —       $ (1,633   $ —    
 

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2016

                       

Assets:

       

Cash equivalents

  $ 1,609,523     $ 1,609,523     $ —       $ —    

Short-term investments

    150,000       150,000       —         —    

Commodity and foreign exchange contracts

    2,029       —         2,029       —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,761,552     $ 1,759,523     $ 2,029     $ —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Commodity contracts

  $ (605   $ —       $ (605   $ —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Fair value measurements for Nucor’s cash equivalents and short-term investments are classified under Level 1 because such measurements are based on quoted market prices in active markets for identical assets. Our short-term investments are held in similar short-term investment instruments as described in Note 4 to the consolidated financial statements included in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2016. Fair value measurements for Nucor’s derivatives are classified under Level 2 because such measurements are based on published market prices for similar assets or are estimated based on observable inputs such as interest rates, yield curves, credit risks, spot and future commodity prices, and spot and future exchange rates.

The fair value of short-term and long-term debt, including current maturities, was approximately $4.70 billion at April 1, 2017 ($4.70 billion at December 31, 2016). The debt fair value estimates are classified under Level 2 because such estimates are based on readily available market prices of our debt at April 1, 2017, and December 31, 2016 or similar debt with the same maturities, ratings and interest rates.

 

11. CONTINGENCIES: Nucor is subject to environmental laws and regulations established by federal, state and local authorities and, accordingly, makes provision for the estimated costs of compliance. Of the undiscounted total of $20.9 million of accrued environmental costs at April 1, 2017 ($21.9 million at December 31, 2016), $6.6 million was classified in accrued expenses and other current liabilities ($9.5 million at December 31, 2016) and $14.3 million was classified in deferred credits and other liabilities ($12.4 million at December 31, 2016). Inherent uncertainties exist in these estimates primarily due to unknown conditions, evolving remediation technology and changing governmental regulations and legal standards.

 

14


Table of Contents

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

 

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

A summary of activity under Nucor’s stock option plans for the first quarter of 2017 is as follows (in thousands, except year and per share amounts):

 

           

Weighted -

Average

    

Weighted -

Average

     Aggregate
Intrinsic
Value
 
     Shares      Exercise
Price
     Remaining
Contractual Life
    

Number of shares under option:

           

Outstanding at beginning of year

     3,591      $ 45.32        

Granted

     —          —          

Exercised

     (92    $ 38.56           2,278  

Canceled

     —          —          
  

 

 

          

Outstanding at April 1, 2017

     3,499      $ 45.49        7.1 years        49,788  
  

 

 

          

Options exercisable at April 1, 2017

     1,466      $ 40.94        5.2 years        27,523  
  

 

 

          

Stock options granted to employees who are eligible for retirement on the date of grant are expensed immediately since these awards vest upon retirement from the Company. Retirement, for purposes of vesting in these stock options, means termination of employment after satisfying age and years of service requirements. Similarly, stock options granted to employees who will become retirement-eligible prior to the end of the vesting term are expensed over the period through which the employee will become retirement-eligible. Compensation expense for stock options granted to employees who are not retirement-eligible is recognized on a straight-line basis over the vesting period. Compensation expense for stock options was $0.3 million in the first quarter of 2017 ($0.2 million in the first quarter of 2016). As of April 1, 2017, unrecognized compensation expense related to stock options was $1.3 million, which is expected to be recognized over a weighted-average period of 1.8 years.

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

RSUs granted to employees who are eligible for retirement on the date of grant are expensed immediately, and RSUs granted to employees who will become retirement-eligible prior to the end of the vesting term are expensed over the period through which the employee will become retirement-

 

15


Table of Contents

eligible since these awards vest upon retirement from the Company. Compensation expense for RSUs granted to employees who are not retirement-eligible is recognized on a straight-line basis over the vesting period.

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

The fair value of an RSU is determined based on the closing stock price of Nucor’s common stock on the date of the grant. A summary of Nucor’s RSU activity for the first quarter of 2017 is as follows (shares in thousands):

 

    Shares     Grant Date
Fair Value
 

Restricted stock units:

   

Unvested at beginning of year

    1,040     $ 48.47  

Granted

    —         —    

Vested

    (11   $ 48.64  

Canceled

    (4   $ 48.53  
 

 

 

   

Unvested at April 1, 2017

    1,025     $ 48.47  
 

 

 

   

Shares reserved for future grants

        (stock options and RSUs)

    8,702    
 

 

 

   

Compensation expense for RSUs was $5.0 million in the first quarter of 2017 ($4.9 million in the first quarter of 2016). As of April 1, 2017, unrecognized compensation expense related to unvested RSUs was $26.1 million, which is expected to be recognized over a weighted-average period of 1.9 years.

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

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

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

 

16


Table of Contents

A summary of Nucor’s restricted stock activity under the AIP and the LTIP for the first quarter of 2017 is as follows (shares in thousands):

 

    Shares     Grant Date
Fair Value
 

Restricted stock awards and units:

   

Unvested at beginning of year

    67     $ 45.77  

Granted

    172     $ 60.62  

Vested

    (144   $ 51.69  

Canceled

    —         —    
 

 

 

   

Unvested at April 1, 2017

    95     $ 54.45  
 

 

 

   

Shares reserved for future grants

    683    
 

 

 

   

Compensation expense for common stock and common stock units awarded under the AIP and LTIP is recorded over the performance measurement and vesting periods based on the anticipated number and market value of shares of common stock and common stock units to be awarded. Compensation expense for anticipated awards based upon Nucor’s financial performance, exclusive of amounts payable in cash, was $4.3 million in the first quarter of 2017 ($2.2 million in the first quarter of 2016). As of April 1, 2017, unrecognized compensation expense related to unvested restricted stock awards was $1.9 million, which is expected to be recognized over a weighted-average period of 2.2 years.

 

13. EMPLOYEE BENEFIT PLAN: Nucor makes contributions to a Profit Sharing and Retirement Savings Plan for qualified employees based on the profitability of the Company. Nucor’s expense for these benefits totaled $54.0 million and $11.8 million in the first quarter of 2017 and 2016, respectively. The related liability for these benefits is included in salaries, wages and related accruals in the condensed consolidated balance sheets.

 

14. INTEREST EXPENSE (INCOME): The components of net interest expense are as follows (in thousands):

 

    Three Months (13 Weeks) Ended  
    April 1, 2017     April 2, 2016  

Interest expense

  $ 46,300     $ 47,374  

Interest income

    (2,695     (2,452
 

 

 

   

 

 

 

Interest expense, net

  $ 43,605     $ 44,922  
 

 

 

   

 

 

 

 

15. INCOME TAXES: The effective tax rate for the first quarter of 2017 was 31.2% compared to 27.8% for the first quarter of 2016. The increase in the effective tax rate for the first quarter of 2017 as compared to the first quarter of 2016 is primarily due to the change in relative proportions of net earnings attributable to noncontrolling interests to total pre-tax earnings between the periods. The increase in effective tax rate is also due to a $4.5 million favorable non-cash out-of-period adjustment to current tax balances during the first quarter of 2016.

Nucor has concluded U.S. federal income tax matters for years through 2012. The 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

 

17


Table of Contents

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).

Non-current deferred tax liabilities included in deferred credits and other liabilities in the condensed consolidated balance sheets were $546.5 million at April 1, 2017 ($558.6 million at December 31, 2016).

 

16. STOCKHOLDERS’ EQUITY: The following tables reflect the changes in stockholders’ equity attributable to both Nucor and the noncontrolling interests of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company, of which Nucor owns 51% (in thousands):

 

    Attributable to
Nucor Corporation
    Attributable to
Noncontrolling Interests
       Total  

Stockholders’ equity at December 31, 2016

  $ 7,879,865     $ 374,843      $ 8,254,708  

Total comprehensive income

    357,750       20,749        378,499  

Stock options

    3,785       —          3,785  

Issuance of stock under award plans, net of forfeitures

    13,633       —          13,633  

Amortization of unearned compensation

    400       —          400  

Dividends declared

    (121,410     —          (121,410

Distributions to noncontrolling interests

    —         (61,544      (61,544
 

 

 

   

 

 

    

 

 

 

Stockholders’ equity at April 1, 2017

  $ 8,134,023     $ 334,048      $ 8,468,071  
 

 

 

   

 

 

    

 

 

 
      

Stockholders’ equity at December 31, 2015

  $ 7,477,816     $ 372,061      $ 7,849,877  

Total comprehensive income

    142,762       34,932        177,694  

Stock options

    150       —          150  

Issuance of stock under award plans, net of forfeitures

    8,618       —          8,618  

Amortization of unearned compensation

    200       —          200  

Treasury stock acquired

    (5,173     —          (5,173

Dividends declared

    (120,156     —          (120,156

Distributions to noncontrolling interests

    —         (49,853      (49,853

Other

    —         (1,385      (1,385
 

 

 

   

 

 

    

 

 

 

Stockholders’ equity at April 2, 2016

  $ 7,504,217     $ 355,755      $ 7,859,972  
 

 

 

   

 

 

    

 

 

 

On September 2, 2015, the Company announced that the Board of Directors had approved a stock repurchase program under which the Company is authorized to repurchase up to $900 million of the Company’s common stock. The new $900 million share repurchase program has no stated expiration and replaced any previously authorized repurchase programs. As of April 1, 2017, the Company had $828.3 million remaining available under the program. The Company expects any share repurchases to be made through purchases from time to time in the open market at prevailing market prices, through private transactions or block trades. The timing and amount of any repurchases will depend on market conditions, share price, applicable legal requirements and other factors.

 

18


Table of Contents
17. ACCUMULATED OTHER COMPREHENSIVE LOSS: The following tables reflect the changes in other accumulated comprehensive loss by component (in thousands):

 

    Three Months (13 Weeks) Ended  
    April 1, 2017  
    Gains and Losses on
Hedging Derivatives
    Foreign Currency
Gain (Loss)
    Adjustment to Early
Retiree Medical Plan
    Total  

Accumulated other comprehensive loss at December 31, 2016

  $ 750     $ (326,170   $ 7,577     $ (317,843

Other comprehensive (loss) income before reclassifications

    (1,635     2,001       —         366  

Amounts reclassified from accumulated other comprehensive income into earnings (1)

    485       —         —         485  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive (loss) income

    (1,150     2,001       —         851  
 

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive loss at April 1, 2017

  $ (400   $ (324,169   $ 7,577     $ (316,992
 

 

 

   

 

 

   

 

 

   

 

 

 
    Three Months (13 Weeks) Ended  
    April 2, 2016  
    Gains and Losses on
Hedging Derivatives
    Foreign Currency
Gain (Loss)
    Adjustment to Early
Retiree Medical Plan
    Total  

Accumulated other comprehensive loss at December 31, 2015

  $ (11,700   $ (351,665   $ 12,003     $ (351,362

Other comprehensive (loss) income before reclassifications

    (1,731     53,897       —         52,166  

Amounts reclassified from accumulated other comprehensive loss into earnings (1)

    3,031       —         —         3,031  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive (loss) income

    1,300       53,897       —         55,197  
 

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive loss at April 2, 2016

  $ (10,400   $ (297,768   $ 12,003     $ (296,165
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Includes $485 and $3,031 of accumulated other comprehensive income reclassifications into cost of products sold for net losses on commodity contracts in the first quarter of 2017 and 2016, respectively. The tax impacts of those reclassifications were $300 and $1,700, respectively.

 

19


Table of Contents
18. SEGMENTS: Nucor reports its results in the following segments: steel mills, steel products and raw materials. The steel mills segment includes carbon and alloy steel in sheet, bars, structural and plate; steel foundation distributors; tubular products businesses; steel trading businesses; rebar distribution businesses; and Nucor’s equity method investments in Duferdofin Nucor and NuMit. The steel products segment includes 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. The raw materials segment includes The David J. Joseph Company and its affiliates (DJJ), primarily a scrap broker and processor; Nu-Iron Unlimited and Nucor Steel Louisiana, two facilities that produce direct reduced iron (DRI) used by the steel mills; our natural gas production operations; and Nucor’s equity method investment in Hunter Ridge Energy Services LLC (Hunter Ridge). Nucor sold its 50% interest in Hunter Ridge during the third quarter of 2016. The steel mills, steel products and raw materials segments are consistent with the way Nucor manages its business, which is primarily based upon the similarity of the types of products produced and sold by each segment.

Net interest expense, other income, profit sharing expense and stock-based compensation are shown under Corporate/eliminations. Corporate assets primarily include cash and cash equivalents, short-term investments, allowances to eliminate intercompany profit in inventory, deferred income tax assets, federal and state income taxes receivable and investments in and advances to affiliates. The balance of earnings (loss) before income taxes and noncontrolling interests as of and for the period ended April 2, 2016 was adjusted due to the change in accounting principle from LIFO to FIFO for certain inventories (see Note 1).

Nucor’s results by segment were as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     April 1, 2017      April 2, 2016  

Net sales to external customers:

     

Steel mills

   $ 3,542,789      $ 2,634,589  

Steel products

     860,075        828,376  

Raw materials

     412,315        252,611  
  

 

 

    

 

 

 
   $ 4,815,179      $ 3,715,576  
  

 

 

    

 

 

 

Intercompany sales:

     

Steel mills

   $ 660,918      $ 470,263  

Steel products

     27,143        21,206  

Raw materials

     2,178,639        1,171,362  

Corporate/eliminations

     (2,866,700      (1,662,831
  

 

 

    

 

 

 
   $ —        $ —    
  

 

 

    

 

 

 

Earnings (loss) before income taxes and noncontrolling interests:

     

Steel mills

   $ 684,161      $ 280,372  

Steel products

     26,922        42,367  

Raw materials

     26,391        (63,372

Corporate/eliminations

     (188,499      (89,804
  

 

 

    

 

 

 
   $ 548,975      $ 169,563  
  

 

 

    

 

 

 
     April 1, 2017      December 31, 2016  

Segment assets:

     

Steel mills

   $ 9,054,369      $ 8,084,773  

Steel products

     2,596,029        2,544,344  

Raw materials

     3,395,099        3,235,237  

Corporate/eliminations

     829,963        1,359,164  
  

 

 

    

 

 

 
   $ 15,875,460      $ 15,223,518  
  

 

 

    

 

 

 

 

20


Table of Contents
19. EARNINGS PER SHARE: The computations of basic and diluted net earnings per share are as follows (in thousands, except per share amounts):

 

    Three Months (13 Weeks) Ended  
    April 1, 2017     April 2, 2016  

Basic net earnings per share:

   

Basic net earnings

  $ 356,899     $ 87,565  

Earnings allocated to participating securities

    (1,192     (369
 

 

 

   

 

 

 

Net earnings available to common stockholders

  $ 355,707     $ 87,196  
 

 

 

   

 

 

 

Average shares outstanding

    320,224       319,240  
 

 

 

   

 

 

 

Basic net earnings per share

  $ 1.11     $ 0.27  
 

 

 

   

 

 

 

Diluted net earnings per share:

   

Diluted net earnings

  $ 356,899     $ 87,565  

Earnings allocated to participating securities

    (1,188     (369
 

 

 

   

 

 

 

Net earnings available to common stockholders

  $ 355,711     $ 87,196  
 

 

 

   

 

 

 

Diluted average shares outstanding:

   

Basic shares outstanding

    320,224       319,240  

Dilutive effect of stock options and other

    922       54  
 

 

 

   

 

 

 
    321,146       319,294  
 

 

 

   

 

 

 

Diluted net earnings per share

  $ 1.11     $ 0.27  
 

 

 

   

 

 

 

The following stock options were excluded from the computation of diluted net earnings per share because their effect would have been antidilutive (in thousands, except per share amounts):

 

    Three Months (13 Weeks) Ended  
    April 1, 2017     April 2, 2016  

Anti-dilutive stock options:

   

Weighted average shares

    —         2,403  
 

 

 

   

 

 

 

Weighted average exercise price

  $ —       $ 45.73  
 

 

 

   

 

 

 

 

21


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements made in this quarterly 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.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements included elsewhere in this report, as well as the audited consolidated financial statements, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2016.

Overview

Nucor and its affiliates manufacture steel and steel products. Nucor also produces direct reduced iron (DRI) for use in its 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 Nucor’s operating facilities and customers are located in North America. Nucor’s operations include international trading and sales 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.

Nucor reports its results in three segments: steel mills, steel products and raw materials. In the steel mills segment, Nucor produces sheet steel (hot-rolled, cold-rolled and galvanized), hollow structural section tubing, electrical conduit, plate steel, structural steel (wide-flange beams, beam blanks, H-piling and sheet piling) and bar steel (blooms, billets, concrete reinforcing bar, merchant bar and special bar quality). Nucor manufactures steel principally from scrap steel and scrap steel substitutes using electric arc furnaces, continuous casting and automated rolling mills. The steel mills segment also includes Nucor’s equity method investments in Duferdofin Nucor and NuMit, as well as Nucor’s steel trading businesses and rebar distribution businesses. 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 expanded metal, and wire and wire mesh. In the raw materials segment, Nucor produces DRI; brokers ferrous and nonferrous metals, pig iron, HBI and DRI; supplies

 

22


Table of Contents

ferro-alloys; and processes ferrous and nonferrous scrap metal. The raw materials segment also includes our natural gas drilling operations.

The average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 89%, 60% and 67%, respectively, in the first quarter of 2017 compared with 80%, 56% and 60%, respectively, in the first quarter of 2016. The steel mills segment’s utilization rate for the first quarter of 2016 was revised as part of our updated analysis of steel mill capacity performed in the fourth quarter of 2016. The utilization rates of the steel mills segment for the first quarter of 2017 and the first quarter of 2016 are calculated using the same steel mill capacity as calculated from that updated analysis.

On January 9, 2017, Nucor used cash on hand to acquire Southland Tube (Southland) for a purchase price of approximately $130 million. Southland is a manufacturer of HSS tubing, which is primarily used in nonresidential construction markets. Southland had shipments of approximately 240,000 tons in 2016 and has one manufacturing facility in Birmingham, Alabama.

Nucor further expanded its value-added product offerings to its customers within the pipe and tube market through the January 20, 2017 acquisition of Republic Conduit (Republic) for a purchase price of $331.3 million. Republic produces steel electrical conduit primarily used to protect and route electrical wiring in various nonresidential structures such as hospitals, office buildings and stadiums. With its two facilities located in Kentucky and Georgia, Republic’s annual shipment volume has averaged 146,000 tons during the past two years.

In March 2017, Nucor announced an investment of $85 million to upgrade the rolling mill at its steel bar mill in Marion, Ohio in order to maintain a cost competitive position by reducing operating costs.

Results of Operations

Net Sales – Net sales to external customers by segment for the first quarter of 2017 and 2016 were as follows (in thousands):

 

    Three Months (13 Weeks) Ended        
    April 1, 2017     April 2, 2016     % Change  

Steel mills

  $ 3,542,789     $ 2,634,589       34

Steel products

    860,075       828,376       4

Raw materials

    412,315       252,611       63
 

 

 

   

 

 

   

Net sales

  $ 4,815,179     $ 3,715,576       30
 

 

 

   

 

 

   

Net sales for the first quarter of 2017 increased 30% from the first quarter of 2016. Average sales price per ton increased 21% from $604 in the first quarter of 2016 to $731 in the first quarter of 2017. Total tons shipped to outside customers were 6,584,000 in the first quarter of 2017, a 7% increase from the same period last year. Net sales for the first quarter of 2017 increased 22% from the fourth quarter of 2016 due to a 13% increase in total tons shipped to outside customers, and an 8% increase in the average sales price per ton.

In the steel mills segment, shipment tons were as follows (in thousands):

 

    Three Months (13 Weeks) Ended        
    April 1, 2017     April 2, 2016     % Change  

Outside steel shipments

    5,202       4,899       6

Inside steel shipments

    945       748       26
 

 

 

   

 

 

   

Total steel shipments

    6,147       5,647       9
 

 

 

   

 

 

   

 

23


Table of Contents

Net sales for the steel mills segment for the first quarter of 2017 increased 34% from the first quarter of 2016 due primarily to a 27% increase in the average sales price per ton from $538 to $682 and a 6% increase in tons sold to outside customers. Our sheet, plate and bar products all experienced large increases in average selling prices in the first quarter of 2017 compared to the first quarter of 2016, with the most significant increase at our sheet mills. The increase in tons sold to outside customers in the first quarter of 2017 compared to the same period last year was due primarily to improved market conditions for our sheet mills and the addition of tubular products that occurred during the fourth quarter of 2016 and first quarter of 2017. The steel mills segment benefited from decreased levels of imports beginning in mid-2016.

Net sales for the steel mills segment for the first quarter of 2017 increased 31% from the fourth quarter of 2016 due to an 11% increase in sales price per ton and an 18% increase in tons sold to outside customers. All of the product groups experienced increases in outside sales tons, with the largest increases at our sheet, structural and plate mills. Outside sales for our tubular products in the first quarter of 2017 more than doubled compared to the fourth quarter of 2016 due to the acquisitions of Republic and Southland in January 2017.

Imports continue to impact the U.S. steel industry. Important trade cases in cut-to-length plate, steel concrete reinforcing bar (rebar) and steel wire rod are in progress, which are helping to stop the flood of dumped and subsidized products from foreign producers, and are making sure that we can compete on a level-playing field. In the cut-to-length plate cases filed against 12 countries in April 2016, the U.S. Department of Commerce has now announced affirmative final determinations on dumped and subsidized imports from all 12 countries. The U.S. International Trade Commission has also voted unanimously that the domestic industry is being injured by dumped and subsidized plate imports from China, Brazil, Turkey and South Africa. The remaining votes in the plate cases are expected in the coming weeks. In February 2017, the U.S. Department of Commerce announced preliminary antidumping duties on rebar imports from Japan, Taiwan, and Turkey, and preliminary countervailing duties on rebar imports from Turkey. We expect the rebar case to conclude later this year. In March 2017, we filed a new trade case to address the flood of dumped and subsidized steel wire rod imports from 10 countries. The wire rod case is in the preliminary phase. Although we have made important progress dealing with illegally dumped imports, overall imports remain at very high levels and we believe accounted for an estimated 25% of the finished steel market in the first three months of 2017.

Tonnage data for the steel products segment is as follows (in thousands):

 

    Three Months (13 Weeks) Ended        
    April 1, 2017     April 2, 2016     % Change  

Joist sales

    101       98       3

Deck sales

    106       101       5

Cold finish sales

    122       119       3

Fabricated concrete reinforcing steel sales

    247       242       2

Net sales for the steel products segment in the first quarter of 2017 increased 4% from the first quarter of 2016 due to a 3% increase in volume and a 1% increase in average sales price per ton, from $1,271 to $1,288. Nonresidential construction markets slowed during the first quarter of 2017 as compared to the fourth quarter of 2016 due to seasonal factors, but we expect those markets to improve as the year progresses.

Net sales for the raw materials segment increased 63% in the first quarter of 2017 from the first quarter of 2016 due primarily to increased volumes and average selling prices at DJJ’s brokerage operations and, to a lesser extent, increased average selling prices at DJJ’s scrap processing operations. In the first quarter of 2017, approximately 86% of outside sales in the raw materials segment were from the brokerage operations of DJJ, and approximately 11% of the outside sales were from the scrap processing facilities (87% and 10%, respectively, in the first quarter of 2016).

 

24


Table of Contents

Gross Margins –Nucor recorded gross margins of $760.3 million (16%) for the first quarter of 2017, which was an increase compared with $315.0 million (8%) for the first quarter of 2016 and $443.4 million (11%) for the fourth quarter of 2016:

 

    The primary driver for the increases in gross margins in the first quarter of 2017 as compared to the first quarter of 2016 and the fourth quarter of 2016 was increased metal margins and higher utilization rates in the steel mills segment. Metal margin is the difference between the selling price of steel and the cost of scrap and scrap substitutes. The average scrap and scrap substitute cost per ton used in the first quarter of 2017 was $284, a 47% increase from $193 in the first quarter of 2016 and a 20% increase from $236 in the fourth quarter of 2016. These increases in the average scrap and scrap substitutes cost per ton used in the first quarter of 2017 were more than offset by the previously mentioned increases in average sales prices and volumes resulting in increased metal margin per ton and total metal margin dollars in the first quarter of 2017 as compared to the first quarter of 2016 and fourth quarter of 2016.

Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. Scrap prices rose during the first quarter of 2017. As we begin the second quarter of 2017, we expect that scrap prices will remain steady at current pricing levels or decrease slightly compared to the peak levels reached by the end of the first quarter of 2017.

 

    Steel mill energy costs increased approximately $1 per ton in the first quarter of 2017 from the first quarter of 2016 due to higher natural gas unit costs.

 

    Gross margins in the steel products segment in the first quarter of 2017 decreased compared to the first quarter of 2016 due to increased input costs partly offset by an increase in volumes and a slight increase in average sales price.

 

    Gross margins related to DJJ’s brokerage and scrap processing operations for the first quarter of 2017 increased significantly compared to the first quarter of 2016 due to increased volumes and margin expansion caused by improving scrap selling prices. Our DJJ operations have continued to reduce the cost structure of their operations to benefit profitability.

 

    Gross margins in the raw materials segment were positively impacted by the performance of our DRI facility in Trinidad which experienced a significant increase in volume coupled with improved levels of pricing for alternative raw materials during the first quarter of 2017. The strong improvement in performance of our DRI operations during the first quarter of 2017 was despite the burden of a five-week unplanned outage during the quarter at the Nucor Steel Louisiana facility.

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 by $46.9 million in the first quarter of 2017 compared to the first quarter of 2016 due to increased profitability of the Company.

Interest Expense (Income) – Net interest expense for the first quarter of 2017 and 2016 was as follows (in thousands):

 

    Three Months (13 Weeks) Ended  
    April 1, 2017     April 2, 2016  

Interest expense

  $ 46,300     $ 47,374  

Interest income

    (2,695     (2,452
 

 

 

   

 

 

 

Interest expense, net

  $ 43,605     $ 44,922  
 

 

 

   

 

 

 

 

25


Table of Contents

Gross interest expense in the first quarter of 2017 decreased compared to the first quarter of 2016 due to a decrease in average debt outstanding. Gross interest income increased in the first quarter of 2017 compared to the first quarter of 2016 due to higher average interest rates on investments.

Earnings Before Income Taxes and Noncontrolling Interests – Earnings before income taxes and noncontrolling interests by segment for the first quarter of 2017 and 2016 were as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     April 1, 2017      April 2, 2016  

Steel mills

   $ 684,161      $ 280,372  

Steel products

     26,922        42,367  

Raw materials

     26,391        (63,372

Corporate/eliminations

     (188,499      (89,804
  

 

 

    

 

 

 
   $ 548,975      $ 169,563  
  

 

 

    

 

 

 

Earnings before income taxes and noncontrolling interests in the steel mills segment in the first quarter of 2017 improved from the first quarter of 2016 due to significantly improved total metal margin dollars and metal margins per ton resulting from strong improvements in sales prices and increased sales volumes. Overall operating rates at our steel mills increased to 89% in the first quarter of 2017 as compared to 80% in the first quarter of 2016. We continue to be encouraged by the renewed growth in demand we are seeing in the energy markets and the nonresidential construction markets. The automotive markets remain strong.

Earnings before income taxes and noncontrolling interests for the steel mills segment in the first quarter of 2017 more than doubled compared to the fourth quarter of 2016. Total metal margin dollars for the steel mills segment in the first quarter of 2017 increased over the fourth quarter of 2016 due to strong increases in volumes, particularly at our sheet mills, combined with increased selling prices. First quarter of 2017 results also benefited from an improvement in steel mill operating rates from 74% in the fourth quarter of 2016 to 89% in the first quarter of 2017.

In the steel products segment, earnings before income taxes and noncontrolling interests in the first quarter of 2017 decreased compared to the first quarter of 2016 as slight increases in volumes and average selling prices were offset by increased input costs. The profitability of the steel products segment in the first quarter of 2017 was decreased from the fourth quarter of 2016 due to typical seasonality. We believe that conditions in nonresidential constructions markets will be improved in 2017 as compared to 2016. Backlogs for the steel products segment at the end of the first quarter of 2017 were higher than they were at the end of the first and fourth quarters of 2016.

The profitability of our raw materials segment in the first quarter of 2017 increased from the first quarter of 2016 primarily due to improved performance of DJJ’s scrap processing and brokerage businesses due to higher average selling prices and volumes. Also contributing to the improved performance of the raw materials segment was the increased profitability of our DRI facility in Trinidad, which benefited from increased volumes and pricing.

The large increase in the loss of the corporate/eliminations line in the first quarter of 2017 as compared to the first quarter of 2016 was due to increased incentive compensation costs, primarily profit sharing, caused by the increased profitability of the Company and higher intercompany eliminations due to increased intercompany sales activity and increased intercompany steel mill margins.

Noncontrolling Interests – Noncontrolling interests represent the income attributable to the noncontrolling partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (NYS) of which Nucor owns 51%. The decrease in earnings attributable to noncontrolling interests in the first quarter of 2017 was primarily attributable to the decreased earnings of NYS, which were due to decreased metal margin per ton, partially offset by higher volumes in the first quarter of 2017 as compared to the first

 

26


Table of Contents

quarter of 2016. 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. In the first quarter of 2017 and 2016, the amount of cash distributed to noncontrolling interest holders exceeded the earnings attributable to noncontrolling interests based on mutual agreement of the general partners; however, the cumulative amount of cash distributed to partners was less than the cumulative net earnings of the partnership.

Provision for Income Taxes - The effective tax rate for the first quarter of 2017 was 31.2% compared to 27.8% for the first quarter of 2016. The expected rate for the full year of 2017 is approximately 31.8% compared with 30.7% for the full year of 2016. The increase in the effective tax rate for the first quarter of 2017 as compared to the first quarter of 2016 is primarily due to the change in relative proportions of net earnings attributable to noncontrolling interests to total pre-tax earnings between the periods. The increase in effective tax rate is also due to a $4.5 million favorable non-cash out-of-period adjustment to current tax balances during the first quarter of 2016.

We estimate that in the next 12 months our gross unrecognized tax benefits which totaled $43.8 million at April 1, 2017 exclusive of interest, could decrease by as much as $9.6 million as a result of the expiration of the statute of limitations and closures of examinations, substantially all of which would impact the effective tax rate.

Nucor has concluded U.S. federal income tax matters for years through 2012. The 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 Attributable to Nucor Stockholders and Return on Equity – Nucor reported consolidated net earnings of $356.9 million, or $1.11 per diluted share, in the first quarter of 2017 compared to consolidated net earnings of $87.6 million, or $0.27 per diluted share, in the first quarter of 2016. Included in the first quarter of 2016 net earnings are out-of-period non-cash gains totaling $13.4 million, primarily related to tax adjustments and a noncontrolling interest adjustment. The out-of-period adjustments, individually and in the aggregate, were not material to any previously reported periods. Net earnings as a percentage of net sales was 7.4% in the first quarter of 2017 and 2.4% in the first quarter of 2016. Annualized return on average stockholders’ equity was 17.8% in the first quarter of 2017 and 4.7% in the first quarter of 2016.

Outlook – Earnings in the first quarter of 2017 were the highest Nucor has had in recent years, and we expect earnings in the second quarter of 2017 to improve compared to the first quarter of 2017. Performance of the steel mills segment is expected to improve in the second quarter of 2017 as compared to the first quarter of 2017 as metal margins are expected to expand at our sheet mills due to the delayed impact of contract pricing. Our plate mills are anticipated to realize the full benefit of higher margins throughout the entire quarter. We expect increased profitability for our downstream products segment in the second quarter of 2017 as compared to the first quarter of 2017 due to seasonal factors as improving weather conditions benefit nonresidential construction markets. The performance of the raw materials segment is expected to improve in the second quarter of 2017 as compared to the first quarter of 2017 due to the improved profitability of our DRI facilities. We also expect intercompany profit eliminations to have a smaller relative impact in the second quarter of 2017.

Nucor’s largest exposure to market risk is via our steel mills and steel products segments. Our largest single customer in the first quarter of 2017 represented approximately 5% of sales and has consistently paid within terms. In the raw materials segment, we are exposed to price fluctuations related to the purchase of scrap and scrap substitutes 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.

 

27


Table of Contents

Liquidity and capital resources

Cash provided by operating activities was $244.1 million in the first quarter of 2017 compared with $550.9 million in the first quarter of 2016. The primary reason for the decrease in cash provided by operating activities is that changes in operating assets and liabilities (exclusive of acquisitions) used cash of $338.7 million in the first quarter of 2017 compared with $208.4 million of cash generated in the first quarter of 2016. The funding of our working capital increased over the prior year period due mainly to increases in inventories and accounts receivable, partially offset by increases in accounts payable and federal income taxes payable. Accounts receivable increased due to a 13% increase in tons shipped to outside customers in the first quarter of 2017 from the fourth quarter of 2016 and an 8% increase in average sales price per ton. Inventories and accounts payable increased due to the 22% increase in the cost of scrap and scrap substitutes in inventory, as well as the 8% increase in tons of inventory on hand from year-end to the end of the first quarter of 2017. Federal taxes payable increased mainly as a function of increased profitability over the prior year. Partially offsetting the decrease in cash generated from changes in operating assets and liabilities was a $255.2 million increase in net earnings over the first quarter of 2016.

The current ratio was 2.4 at the end of the first quarter of 2017 and 2.7 at year-end 2016. The current ratio was negatively impacted by a $488.2 million decrease in cash and cash equivalents and short-term investments during the first quarter of 2017 due to cash used for acquisitions, dividends and capital expenditures, partially offset by cash generated from operating activities. Additionally, in the first quarter of 2017, inventories increased 24%, accounts receivable increased 21% and accounts payable increased 50% from the fourth quarter of 2016 due to the reasons cited above. In the first quarter of 2017, total accounts receivable turned approximately every five weeks and inventories turned approximately every nine weeks. These ratios compare with accounts receivable turnover of every five weeks and inventory turnover of every eight weeks in the first quarter of last year.

Cash used in investing activities during the first quarter of 2017 increased $452.6 million from the prior year period, mainly due to the acquisitions of Republic and Southland in January 2017. Also impacting cash used in investing activities was a $50 million increase in proceeds from the sale of investments and a slight increase in cash used for capital expenditures over the prior year period.

Cash used in financing activities decreased by $43.0 million in the first quarter of 2017 compared with the prior year period. The majority of this change related to the net change in short-term debt associated with trade credit arrangements used to finance the business of Nucor Trading S.A.

Nucor’s conservative financial practices have served us well in the past and are serving us well today. Our cash and cash equivalents and short-term investments position remained strong at $1.71 billion as of April 1, 2017. Nucor’s solid 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 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 $66.5 million of stock in December 2015 and $5.2 million of stock in February 2016. There have been no stock repurchases since then, and, as of April 1, 2017, the Company had $828.3 million remaining available under the share repurchase program.

Nucor has an undrawn $1.5 billion revolving credit facility that does not mature until April 2021. 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-

 

28


Table of Contents

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.

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. As of April 1, 2017, our funded debt to total capital ratio was 34%, and we were in compliance with all other non-financial covenants under our credit facility. No borrowings were outstanding under the credit facility as of April 1, 2017.

Our financial strength allows a number of capital preservation options. Nucor’s robust capital investment and maintenance practices give us the flexibility to reduce spending by prioritizing our capital projects, potentially rescheduling certain projects, and selectively allocating capital to investments with the greatest impact on our long-term earnings power. Capital expenditures for 2017 are expected to be approximately $550 million compared to $617.7 million in 2016. The decrease in projected 2017 capital expenditures is primarily due to the fact that several major expansion projects were completed or near completion by the end of 2016. Those projects include NYS’s quench and self-tempering project to become the sole North American producer of high-strength, low-alloy beams; the heat treat facility addition at our Memphis, Tennessee SBQ mill to expand our participation in energy, automotive, heavy equipment, and service center markets; an upgraded finishing end at our Auburn, New York bar mill; and the installation of DRI handling equipment near our Gallatin, Kentucky sheet mill. Additionally, in 2016 Nucor purchased 49% of Encana Oil & Gas (USA) Inc.’s leasehold interest covering approximately 54,000 acres in the South Piceance Basin for $165.0 million. The project that we anticipate will have the largest capital expenditures in 2017 is the addition of a cold mill complex at Nucor Steel Arkansas.

In February 2017, Nucor’s Board of Directors declared a quarterly cash dividend on Nucor’s common stock of $0.3775 per share payable on May 11, 2017, to stockholders of record on March 31, 2017. This dividend is Nucor’s 176th consecutive quarterly cash dividend.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk – Nucor manages interest rate risk by using a combination of variable-rate and fixed-rate debt. Nucor also occasionally makes use of interest rate swaps to manage net exposure to interest rate changes. Management does not believe that Nucor’s exposure to interest rate market risk has significantly changed since December 31, 2016. There were no interest rate swaps outstanding at April 1, 2017.

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

 

29


Table of Contents

particularly important for operational flexibility when demand for prime scrap increases due to increased domestic steel 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 three months ended April 1, 2017, the volume of natural gas sold from our drilling operations was approximately 21% of the volume of natural gas purchased for consumption in our domestic steelmaking and DRI facilities.

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 condensed consolidated balance sheets and recognized into earnings in the same period as the underlying physical transaction. At April 1, 2017, accumulated other comprehensive income (loss) included $0.4 million in unrealized net-of-tax losses for the fair value of these derivative instruments. Changes in the fair values of derivatives not designated as hedges are recognized in earnings each period. The following table presents the negative effect on pre-tax earnings of a hypothetical change in the fair value of derivative instruments outstanding at April 1, 2017, 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

   $ 5,860      $ 14,640  

Aluminum

     1,591        3,980  

Copper

     1,277        3,247  

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 April 1, 2017, were insignificant.

Item 4. 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 April 1, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

30


Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes in Nucor’s risk factors from those included in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2016.

Item 6. Exhibits

 

Exhibit

No.

  

Description of Exhibit

  12*    Computation of Ratio of Earnings to Fixed Charges
  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
  31.1*    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
  32.1**    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 (unaudited) from the quarterly report on Form 10-Q of Nucor Corporation for the quarter ended April 1, 2017, filed on May 10, 2017, formatted in XBRL: (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

 

 

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

 

31


Table of Contents

SIGNATURES

Pursuant to the requirements 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/ James D. Frias

  James D. Frias
 

Chief Financial Officer, Treasurer

and Executive Vice President

Dated: May 10, 2017

 

32

EX-12

Exhibit 12

Nucor Corporation

2017 Form 10-Q

Computation of Ratio of Earnings to Fixed Charges

 

           Three Months
Ended

April 1,
2017
    Three Months
Ended

April 2,
2016
 
     Year-ended December 31,      
     2012     2013     2014     2015     2016      
     (In thousands, except ratios)                          

Earnings

              

Earnings before income taxes and noncontrolling interests

   $ 697,004     $ 808,568     $ 1,147,288     $ 241,866     $ 1,298,659     $ 548,975     $ 169,563  

Plus: (earnings)/losses from equity investments

     13,323       (9,297     (13,505     (5,329     (38,757     (8,756     (9,245

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       46,783       47,751  

Plus: amortization of capitalized interest

     2,550       3,064       4,166       4,062       3,715       1,048       968  

Plus: distributed income of equity investees

     9,946       8,708       53,738       15,132       40,602       30,249       36,015  

Less: interest capitalized

     (4,715     (10,913     (2,946     (311     (3,940     (150     (100

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     (20,749     (34,932
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total earnings before fixed charges

   $ 814,070     $ 869,928     $ 1,267,754     $ 322,055     $ 1,382,571     $ 597,400     $ 210,020  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed charges

              

Interest cost and amortization of bond issuance and settled swaps

   $ 178,218     $ 162,899     $ 177,088     $ 177,855     $ 185,119     $ 46,450     $ 47,474  

Estimated interest on rent expense

     951       1,229       1,152       1,086       1,318       333       277  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed charges

   $ 179,169     $ 164,128     $ 178,240     $ 178,941     $ 186,437     $ 46,783     $ 47,751  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratio of earnings to fixed charges

     4.54       5.30       7.11       1.80       7.42       12.77       4.40  
EX-31

Exhibit 31

Certification of Principal Executive Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, John J. Ferriola, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Nucor Corporation;

 

  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2017      

/s/ John J. Ferriola

      John J. Ferriola
     

Chairman, Chief Executive Officer

and President

EX-31.1

Exhibit 31.1

Certification of Principal Financial Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, James D. Frias, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Nucor Corporation;

 

  2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2017      

/s/ James D. Frias

      James D. Frias
     

Chief Financial Officer, Treasurer

and Executive Vice President

EX-32

Exhibit 32

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

I, John J. Ferriola, Chairman, Chief Executive Officer and President (principal executive officer) of Nucor Corporation (the “Registrant”), certify, to my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended April 1, 2017 of the Registrant (the “Report”), that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ John J. Ferriola

Name: John J. Ferriola
Date:   May 10, 2017
EX-32.1

Exhibit 32.1

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

I, James D. Frias, Chief Financial Officer, Treasurer and Executive Vice President (principal financial officer) of Nucor Corporation (the “Registrant”), certify, to my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended April 1, 2017 of the Registrant (the “Report”), that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ James D. Frias

Name: James D. Frias
Date:   May 10, 2017