UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2018
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file numberFile 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: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 RegulationS-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, anon-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 Rule12b-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 Rule12b-2 of the Exchange Act). Yes ☐ No ☒
317,916,674318,096,634 shares of the registrant’s common stock were outstanding at September 30, 2017.March 31, 2018.
Nucor Corporation
Quarterly Report on Form10-Q
September 30, 2017For the Three Months Ended March 31, 2018
i
Nucor Corporation Condensed Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||||||||
Net sales | $ | 5,170,117 | $ | 4,290,236 | $ | 15,160,065 | $ | 12,251,584 | $ | 5,568,419 | $ | 4,815,179 | ||||||||||||
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Costs, expenses and other: | ||||||||||||||||||||||||
Cost of products sold | 4,591,153 | 3,608,000 | 13,111,226 | 10,669,103 | 4,842,013 | 4,054,929 | ||||||||||||||||||
Marketing, administrative and other expenses | 172,792 | 169,223 | 519,429 | 440,679 | 182,960 | 176,426 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | (7,743 | ) | (14,168 | ) | (29,801 | ) | (30,232 | ) | (9,580 | ) | (8,756 | ) | ||||||||||||
Interest expense, net | 43,310 | 43,009 | 131,495 | 128,415 | 37,114 | 43,605 | ||||||||||||||||||
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4,799,512 | 3,806,064 | 13,732,349 | 11,207,965 | 5,052,507 | 4,266,204 | |||||||||||||||||||
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Earnings before income taxes and noncontrolling interests | 370,605 | 484,172 | 1,427,716 | 1,043,619 | 515,912 | 548,975 | ||||||||||||||||||
Provision for income taxes | 104,500 | 152,807 | 442,239 | 318,388 | 135,800 | 171,327 | ||||||||||||||||||
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Net earnings | 266,105 | 331,365 | 985,477 | 725,231 | 380,112 | 377,648 | ||||||||||||||||||
Earnings attributable to noncontrolling interests | 11,255 | 25,918 | 50,680 | 88,599 | 25,933 | 20,749 | ||||||||||||||||||
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Net earnings attributable to Nucor stockholders | $ | 254,850 | $ | 305,447 | $ | 934,797 | $ | 636,632 | $ | 354,179 | $ | 356,899 | ||||||||||||
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Net earnings per share: | ||||||||||||||||||||||||
Basic | $ | 0.79 | $ | 0.95 | $ | 2.91 | $ | 1.99 | $ | 1.11 | $ | 1.11 | ||||||||||||
Diluted | $ | 0.79 | $ | 0.95 | $ | 2.90 | $ | 1.99 | $ | 1.10 | $ | 1.11 | ||||||||||||
Average shares outstanding: | ||||||||||||||||||||||||
Basic | 320,096 | 319,737 | 320,253 | 319,444 | 319,421 | 320,224 | ||||||||||||||||||
Diluted | 320,763 | 320,028 | 321,045 | 319,632 | 320,474 | 321,146 | ||||||||||||||||||
Dividends declared per share | $ | 0.3775 | $ | 0.3750 | $ | 1.1325 | $ | 1.1250 | $ | 0.3800 | $ | 0.3775 |
See notes to condensed consolidated financial statements.
1
Nucor Corporation Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||||||||
Net earnings | $ | 266,105 | $ | 331,365 | $ | 985,477 | $ | 725,231 | $ | 380,112 | $ | 377,648 | ||||||||||||
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Other comprehensive income (loss): | ||||||||||||||||||||||||
Net unrealized income (loss) on hedging derivatives, net of income taxes of $300 and ($300) for the third quarter of 2017 and 2016, respectively, and ($700) and $600 for the first nine months of 2017 and 2016, respectively | 405 | (600 | ) | (1,301 | ) | 912 | ||||||||||||||||||
Reclassification adjustment for loss on settlement of hedging derivatives included in net income, net of income taxes of $0 and $1,200 for the third quarter of 2017 and 2016, respectively, and $300 and $4,800 for the first nine months of 2017 and 2016, respectively | 195 | 2,000 | 851 | 8,288 | ||||||||||||||||||||
Foreign currency translation gain (loss), net of income taxes of $0 for the third quarter of 2017 and 2016, and $0 for the first nine months of 2017 and 2016 | 74,479 | (8,606 | ) | 100,437 | 53,578 | |||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Net unrealized loss on hedging derivatives, net of income taxes of $500 and ($1,000) for the first quarter of 2018 and 2017, respectively | (752 | ) | (1,635 | ) | ||||||||||||||||||||
Reclassification adjustment for settlement of hedging derivatives included in net income, net of income taxes of $0 and $300 for the first quarter of 2018 and 2017, respectively | (48 | ) | 485 | |||||||||||||||||||||
Foreign currency translation gain, net of income taxes of $0 for both the first quarter of 2018 and 2017 | 6,115 | 2,001 | ||||||||||||||||||||||
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75,079 | (7,206 | ) | 99,987 | 62,778 | 5,315 | 851 | ||||||||||||||||||
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Comprehensive income | 341,184 | 324,159 | 1,085,464 | 788,009 | 385,427 | 378,499 | ||||||||||||||||||
Comprehensive income attributable to noncontrolling interests | (11,255 | ) | (25,918 | ) | (50,680 | ) | (88,599 | ) | (25,933 | ) | (20,749 | ) | ||||||||||||
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Comprehensive income attributable to Nucor stockholders | $ | 329,929 | $ | 298,241 | $ | 1,034,784 | $ | 699,410 | $ | 359,494 | $ | 357,750 | ||||||||||||
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See notes to condensed consolidated financial statements.
2
Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
Sept. 30, 2017 | Dec. 31, 2016 | March 31, 2018 | Dec. 31, 2017 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,575,944 | $ | 2,045,961 | $ | 760,254 | $ | 949,104 | ||||||||
Short-term investments | 50,000 | 150,000 | — | 50,000 | ||||||||||||
Accounts receivable, net | 2,113,890 | 1,631,676 | 2,371,758 | 2,028,545 | ||||||||||||
Inventories, net | 3,522,199 | 2,479,958 | 3,708,503 | 3,461,686 | ||||||||||||
Other current assets | 238,614 | 198,798 | 238,701 | 335,085 | ||||||||||||
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Total current assets | 7,500,647 | 6,506,393 | 7,079,216 | 6,824,420 | ||||||||||||
Property, plant and equipment, net | 5,095,880 | 5,078,650 | 5,090,890 | 5,093,147 | ||||||||||||
Goodwill | 2,208,246 | 2,052,728 | 2,195,565 | 2,196,058 | ||||||||||||
Other intangible assets, net | 940,305 | 866,835 | 892,121 | 914,646 | ||||||||||||
Other assets | 758,756 | 718,912 | 863,454 | 812,987 | ||||||||||||
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Total assets | $ | 16,503,834 | $ | 15,223,518 | $ | 16,121,246 | $ | 15,841,258 | ||||||||
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LIABILITIES | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Short-term debt | $ | 50,370 | $ | 17,959 | $ | 74,036 | $ | 52,833 | ||||||||
Long-term debt due within one year | 1,100,000 | 600,000 | 500,000 | 500,000 | ||||||||||||
Accounts payable | 1,312,817 | 838,109 | 1,329,902 | 1,181,346 | ||||||||||||
Salaries, wages and related accruals | 499,177 | 428,829 | 338,045 | 516,660 | ||||||||||||
Accrued expenses and other current liabilities | 593,102 | 505,069 | 602,598 | 573,925 | ||||||||||||
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Total current liabilities | 3,555,466 | 2,389,966 | 2,844,581 | 2,824,764 | ||||||||||||
Long-term debt due after one year | 3,241,488 | 3,739,141 | 3,242,865 | 3,242,242 | ||||||||||||
Deferred credits and other liabilities | 861,066 | 839,703 | 710,881 | 689,464 | ||||||||||||
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Total liabilities | 7,658,020 | 6,968,810 | 6,798,327 | 6,756,470 | ||||||||||||
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EQUITY | ||||||||||||||||
Nucor stockholders’ equity: | ||||||||||||||||
Common stock | 151,943 | 151,734 | 152,061 | 151,960 | ||||||||||||
Additionalpaid-in capital | 2,013,158 | 1,974,672 | 2,041,297 | 2,021,339 | ||||||||||||
Retained earnings | 8,201,667 | 7,630,916 | 8,696,007 | 8,463,709 | ||||||||||||
Accumulated other comprehensive loss, net of income taxes | (217,856 | ) | (317,843 | ) | (249,366 | ) | (254,681 | ) | ||||||||
Treasury stock | (1,643,527 | ) | (1,559,614 | ) | (1,663,972 | ) | (1,643,291 | ) | ||||||||
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Total Nucor stockholders’ equity | 8,505,385 | 7,879,865 | 8,976,027 | 8,739,036 | ||||||||||||
Noncontrolling interests | 340,429 | 374,843 | 346,892 | 345,752 | ||||||||||||
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Total equity | 8,845,814 | 8,254,708 | 9,322,919 | 9,084,788 | ||||||||||||
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Total liabilities and equity | $ | 16,503,834 | $ | 15,223,518 | $ | 16,121,246 | $ | 15,841,258 | ||||||||
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See notes to condensed consolidated financial statements.
3
Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | |||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||
Operating activities: | ||||||||||||||||
Net earnings | $ | 985,477 | $ | 725,231 | $ | 380,112 | $ | 377,648 | ||||||||
Adjustments: | ||||||||||||||||
Depreciation | 474,822 | 459,109 | 158,665 | 158,525 | ||||||||||||
Amortization | 68,394 | 54,066 | 22,453 | 22,368 | ||||||||||||
Stock-based compensation | 51,227 | 44,210 | 10,463 | 9,524 | ||||||||||||
Deferred income taxes | (38,335 | ) | 86,821 | 29,988 | (6,695 | ) | ||||||||||
Distributions from affiliates | 48,037 | 38,474 | 25,150 | 30,249 | ||||||||||||
Equity in earnings of unconsolidated affiliates | (29,801 | ) | (30,232 | ) | (9,580 | ) | (8,756 | ) | ||||||||
Changes in assets and liabilities (exclusive of acquisitions and dispositions): | ||||||||||||||||
Accounts receivable | (406,582 | ) | (328,000 | ) | (343,982 | ) | (290,261 | ) | ||||||||
Inventories | (957,029 | ) | (289,257 | ) | (246,933 | ) | (519,902 | ) | ||||||||
Accounts payable | 451,774 | 216,218 | 157,836 | 413,256 | ||||||||||||
Federal income taxes | (30,859 | ) | 28,915 | 86,746 | 157,346 | |||||||||||
Salaries, wages and related accruals | 70,231 | 103,324 | (171,626 | ) | (102,744 | ) | ||||||||||
Other operating activities | 75,137 | 73,211 | 28,629 | 3,584 | ||||||||||||
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Cash provided by operating activities | 762,493 | 1,182,090 | 127,921 | 244,142 | ||||||||||||
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Investing activities: | ||||||||||||||||
Capital expenditures | (292,312 | ) | (327,436 | ) | (172,203 | ) | (94,535 | ) | ||||||||
Investment in and advances to affiliates | (19,000 | ) | (48,167 | ) | (55,901 | ) | (14,000 | ) | ||||||||
Disposition of plant and equipment | 19,420 | 14,883 | 5,967 | 8,870 | ||||||||||||
Acquisitions (net of cash acquired) | (543,153 | ) | (48,105 | ) | — | (485,060 | ) | |||||||||
Purchases of investments | (50,000 | ) | (650,000 | ) | — | (50,000 | ) | |||||||||
Proceeds from the sale of investments | 150,000 | 100,000 | 50,000 | 150,000 | ||||||||||||
Other investing activities | (1,455 | ) | 13,350 | 975 | — | |||||||||||
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Cash used in investing activities | (736,500 | ) | (945,475 | ) | (171,162 | ) | (484,725 | ) | ||||||||
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Financing activities: | ||||||||||||||||
Net change in short-term debt | 32,409 | (21,520 | ) | 21,203 | 30,180 | |||||||||||
Issuance of common stock | 9,492 | 5,727 | 15,312 | 7,432 | ||||||||||||
Payment of tax withholdings on certain stock-based compensation | (13,960 | ) | (10,410 | ) | (4,430 | ) | (1,349 | ) | ||||||||
Excess tax benefits from stock-based compensation | — | 1,507 | ||||||||||||||
Distributions to noncontrolling interests | (85,094 | ) | (86,808 | ) | (24,793 | ) | (61,544 | ) | ||||||||
Cash dividends | (364,302 | ) | (360,675 | ) | (121,787 | ) | (121,303 | ) | ||||||||
Acquisition of treasury stock | (90,305 | ) | (5,173 | ) | (29,193 | ) | — | |||||||||
Other financing activities | (1,703 | ) | (5,212 | ) | (1,844 | ) | (518 | ) | ||||||||
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Cash used in financing activities | (513,463 | ) | (482,564 | ) | (145,532 | ) | (147,102 | ) | ||||||||
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Effect of exchange rate changes on cash | 17,453 | 11,187 | (77 | ) | (517 | ) | ||||||||||
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Decrease in cash and cash equivalents | (470,017 | ) | (234,762 | ) | (188,850 | ) | (388,202 | ) | ||||||||
Cash and cash equivalents—beginning of year | 2,045,961 | 1,939,469 | 949,104 | 2,045,961 | ||||||||||||
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Cash and cash equivalents—end of nine months | $ | 1,575,944 | $ | 1,704,707 | ||||||||||||
Cash and cash equivalents—end of three months | $ | 760,254 | $ | 1,657,759 | ||||||||||||
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Non-cash investing activity: | ||||||||||||||||
Change in accrued plant and equipment purchases and assets acquired by capital lease arrangements | $ | 42,810 | $ | 140,347 | ||||||||||||
Change in accrued plant and equipment purchases and assets recorded under capital lease arrangements | $ | (9,396 | ) | $ | (11,222 | ) | ||||||||||
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See notes to condensed consolidated financial statements.
4
Nucor Corporation – Notes to Condensed Consolidated Financial Statements (Unaudited)
1. | BASIS OF INTERIM PRESENTATION: The information |
Reclassifications – In the first quarter of 2018, the Company began reporting its tubular products and piling businesses as part of the steel products segment. These businesses were previously included in the steel mills segment. As a result, certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications did not have an impact on the condensed consolidated financial statements and cash flows of the Company for the prior period presented. See Note 15 for more information related to this segment realignment.
Recently Adopted Accounting Pronouncements – – In the first quarter of 2017, Nucor2018, we adopted new accounting guidance that amends the accounting for employee share-based payment transactions. The new guidance 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 new guidance also requires that alltax-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 new guidance 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. As a result of the retrospective application of this new guidance, $10.4 million was reclassified from other operating activities to payment of tax withholdings on certain stock-based compensation in the condensed consolidated statement of cash flows for the nine months ended October 1, 2016. The adoption of this new 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 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 new guidance did not have a material impact on the Company’s consolidated financial statements.
In August 2017, new guidance was issued regarding improvements to accounting and reporting for hedging activities to better reflect the economic results of an entity’s risk management activities. The new guidance reduces limitations on hedge designation and updates measurement guidance for qualifying hedging relationships. The new guidance also simplifies financial statement reporting for qualifying hedging relationships and aligns the recognition and presentation of the effects of the hedging instrument and hedged item within the financial statements. The new guidance is effective for the Company for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. The Company early adopted this new guidance in the third quarter of 2017. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
5
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 exchangerecognition for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customerall 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 Company will adopt the new revenue recognition guidance effective January 1, 2018. Usingusing the modified retrospective approach, the Company will recognizemethod. The modified retrospective method requires that the cumulative effect of the adoption, if any,initially applying this new guidance be recorded as an adjustment to the opening balance of retained earnings.earnings in the condensed consolidated balance sheet. The Company does not expect the adoption of this new accounting guidance did not have an impact on any prior period earnings attributable to Nucor stockholders, and no adjustment was recorded to the opening retained earnings balance as of January 1, 2018. Retrospective adjustment of comparative prior period information is not required when using the modified retrospective adoption method, and no comparative prior periods have a materialbeen adjusted for the new guidance.
The adoption of the new revenue accounting guidance did not significantly change the way we recognize revenue. To illustrate this, if we had continued using the previous accounting guidance in effect before the adoption of the new revenue accounting guidance, our consolidated net sales for the first quarter of 2018 would have increased approximately $10.2 million, or 0.2%, and cost of products sold would have increased by the same amount. There would have been no impact on any other financial statement line items in the Company’scondensed consolidated financial statements.statements for the first quarter of 2018. See Note 16 for disclosures required by the new revenue accounting guidance.
In January 2016,the first quarter of 2018, we adopted 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 Board clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses onavailable-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities and financial liabilities, is largely unchanged. The new guidance is effective for the Company for annual and interim reporting periods beginning after December 15, 2017. The Company does not expect the adoption of this new guidance todid not have a material effectimpact on the Company’s consolidated financial statements.
In the first quarter of 2018, we adopted new accounting guidance 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 adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
In the first quarter of 2018, we adopted new accounting guidance 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 adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements—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 new guidance 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 itthe Company expects that assets and liabilities will increase on theits consolidated balance sheet.
In August 2016,February 2018, new accounting guidance was issued regarding the presentationtax effects of the Tax Cuts and classification of certain cash receipts and cash payments in the statement of cash flows.Jobs Act. The new guidance addresses specific cash flow presentation issues in orderallows for a reclassification from accumulated other comprehensive income to reduce diversity in existing practice.retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act to improve the usefulness of information reported to financial statement users. The new guidance is effective for the Company for annual and interim reporting periods beginning after December 15, 2017.2018. The Company is evaluating the impact thatdoes not expect the adoption of this new guidance willto have a material impact 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 thefirst-in,first-out (FIFO) method of accounting from thelast-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.
6
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 statements of earnings for the three- and nine-month periods ended October 1, 2016 and condensed consolidated statement of cash flows (no impact on total cash provided by operating activities) for the nine-month period ended October 1, 2016 were adjusted as follows:
(in thousands, except per share data) | As Originally Reported | Effect of Change | As Currently Reported | |||||||||
Condensed Consolidated Statement of Earnings for the Three Months (13 Weeks) Ended October 1, 2016: | ||||||||||||
Cost of products sold | $ | 3,665,900 | $ | (57,900 | ) | $ | 3,608,000 | |||||
Provision for income taxes | 131,788 | 21,019 | 152,807 | |||||||||
Net earnings | 294,484 | 36,881 | 331,365 | |||||||||
Earnings attributable to noncontrolling interests | 24,448 | 1,470 | 25,918 | |||||||||
Net earnings attributable to Nucor stockholders | 270,036 | 35,411 | 305,447 | |||||||||
Net earnings per share: | ||||||||||||
Basic | $ | 0.84 | $ | 0.11 | $ | 0.95 | ||||||
Diluted | $ | 0.84 | $ | 0.11 | $ | 0.95 | ||||||
(in thousands, except per share data) | As Originally Reported | Effect of Change | As Currently Reported | |||||||||
Condensed Consolidated Statement of Earnings for the Nine Months (39 Weeks) Ended October 1, 2016: | ||||||||||||
Cost of products sold | $ | 10,774,040 | $ | (104,937 | ) | $ | 10,669,103 | |||||
Provision for income taxes | 281,401 | 36,987 | 318,388 | |||||||||
Net earnings | 657,281 | 67,950 | 725,231 | |||||||||
Earnings attributable to noncontrolling interests | 82,719 | 5,880 | 88,599 | |||||||||
Net earnings attributable to Nucor stockholders | 574,562 | 62,070 | 636,632 | |||||||||
Net earnings per share: | ||||||||||||
Basic | $ | 1.79 | $ | 0.20 | $ | 1.99 | ||||||
Diluted | $ | 1.79 | $ | 0.20 | $ | 1.99 | ||||||
(in thousands) | ||||||||||||
Condensed Consolidated Statement of Cash Flows for the Nine Months (39 Weeks) Ended October 1, 2016: | ||||||||||||
Net earnings | $ | 657,281 | $ | 67,950 | $ | 725,231 | ||||||
Changes in inventories | (184,320 | ) | (104,937 | ) | (289,257 | ) | ||||||
Changes in deferred income taxes | 49,834 | 36,987 | 86,821 |
2. |
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.
7
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 | 115,562 | |||
Other intangible assets | 89,200 | |||
Other assets | 3,118 | |||
|
| |||
Total assets acquired | 349,337 | |||
|
| |||
Current liabilities | 17,743 | |||
|
| |||
Total liabilities assumed | 17,743 | |||
|
| |||
Net assets acquired | $ | 331,594 | ||
|
|
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 approximately $115.6 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 5). Goodwill recognized for tax purposes was $118.6 million, all of which is deductible for such purposes.
Other acquisitions, exclusive of purchase price adjustments of acquisitions made and net of cash acquired, totaled $212.7 million in the first nine months of 2017 ($48.1 million in the first nine months of 2016). Included in the 2017 amount is the January 9, 2017 acquisition of Southland Tube (Southland) and the September 1, 2017 acquisition of St. Louis Cold Drawn, Inc. (St. Louis Cold Drawn). Nucor used cash on hand to acquire Southland and St. Louis Cold Drawn for purchase prices of approximately $130 million and $60 million, respectively. Southland is a manufacturer of hollow structural section 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. St. Louis Cold Drawn is a manufacturer of cold drawn rounds, hexagons, squares, and special sections that mainly serves the U.S. and Mexican automotive and industrial markets. St. Louis Cold Drawn has two manufacturing locations, one in St. Louis, Missouri and the other in Monterrey, Mexico, that have a combined annual capacity of 200,000 tons.
INVENTORIES: Inventories consisted of approximately |
million at September 30, 2017 ($2.2 million at December 31, 2016).
8
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of |
Given the natural gas pricing environment, Nucor performed an impairment assessment of its proved producing natural gas well assets in December 2016.2017. 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.dynamics. Management also makes key estimates on the expected reserve levels and on the expected drilling production costs. 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, which was $80.8 million as of December 31, 2016, than the other groups of wells. The carrying value of that group of wells was $74.0 million at September 30, 2017. Thecombined carrying value of the otherthree groups of wells was $183.9$246.4 million as of September 30, 2017.at March 31, 2018 ($252.0 million at December 31, 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, whichthe estimated reserves or the estimated drilling production costs. Unfavorable revisions to these assumptions or estimates could possibly result in an impairment of some or all of the groups of proved well assets.
GOODWILL AND OTHER INTANGIBLE ASSETS: The change in the net carrying amount of goodwill for the |
Steel Mills | Steel Products | Raw Materials | Total | |||||||||||||
Balance at December 31, 2016 | $ | 620,156 | $ | 702,995 | $ | 729,577 | $ | 2,052,728 | ||||||||
Acquisitions | 125,328 | 7,157 | — | 132,485 | ||||||||||||
Translation | — | 23,033 | — | 23,033 | ||||||||||||
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|
|
|
|
|
| |||||||||
Balance at September 30, 2017 | $ | 745,484 | $ | 733,185 | $ | 729,577 | $ | 2,208,246 | ||||||||
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|
|
|
Steel Mills | Steel Products | Raw Materials | Total | |||||||||||||
Balance at December 31, 2017 | $ | 745,484 | $ | 720,997 | $ | 729,577 | $ | 2,196,058 | ||||||||
Translation | — | (493 | ) | — | (493 | ) | ||||||||||
Reclassifications | (153,498 | ) | 153,498 | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at March 31, 2018 | $ | 591,986 | $ | 874,002 | $ | 729,577 | $ | 2,195,565 | ||||||||
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|
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|
Previously, Nucor’s tubular products and piling businesses were reported in the steel mills segment. Beginning in the first quarter of 2018, these businesses were reclassified to the steel products segment to better reflect the way in which they are viewed by management.
Nucor completed its most recent annual goodwill impairment testing during the fourth quarter of 20162017 and concluded that as of such time 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 goodwill impairment testing date.
Intangible assets with estimated useful lives of five to 22 years are amortized on a straight-line or accelerated basis and were comprised of the following as of September 30, 2017March 31, 2018 and December 31, 20162017 (in thousands):
September 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||||||||||||||||||
Customer relationships | $ | 1,422,569 | $ | 622,440 | $ | 1,295,803 | $ | 566,884 | $ | 1,420,166 | $ | 659,469 | $ | 1,420,224 | $ | 641,089 | ||||||||||||||||
Trademarks and trade names | 176,950 | 74,551 | 161,851 | 66,494 | 176,457 | 79,833 | 176,471 | 77,208 | ||||||||||||||||||||||||
Other | 62,807 | 25,030 | 62,807 | 20,248 | 62,807 | 28,007 | 62,805 | 26,557 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
$ | 1,662,326 | $ | 722,021 | $ | 1,520,461 | $ | 653,626 | $ | 1,659,430 | $ | 767,309 | $ | 1,659,500 | $ | 744,854 | |||||||||||||||||
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Intangible asset amortization expense infor the thirdfirst quarter of 2018 and 2017 and 2016 was $23.0$22.5 million and $18.5$22.4 million, respectively, and was $68.4 million and $54.1 million in the first nine months of 2017 and 2016, respectively. Annual amortization expense is estimated to be $91.2 million in 2017; $89.6$88.6 million in 2018; $86.7 million in 2019; $84.4 million in 2020; and $83.1 million in 2021.
9
EQUITY INVESTMENTS: The carrying value of our equity investments in domestic and foreign companies was |
NUMIT
Nucor has a 50% economic and voting interest in NuMit LLC (NuMit)(“NuMit”). NuMit owns 100% of the equity interest in Steel Technologies LLC, an operator of 2526 sheet processing facilities located throughout the United States, Canada and Mexico. Nucor accounts for the investment in NuMit (on aone-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 September 30, 2017March 31, 2018 was $311.9$305.8 million ($325.1321.4 million at December 31, 2016)2017). Nucor received distributions of $25.2 million and $30.2 million from NuMit of $0.1 million during the third quarter of 2017 and $47.0 million during the first nine months of 2017. NuMit distributions were $0.5 million during the third quarter of 20162018 and $37.5 million during the first nine months of 2016.2017, respectively.
DUFERDOFIN NUCOR
Nucor ownshas a 50% economic and voting interest in Duferdofin Nucor S.r.l. (Duferdofin Nucor)(“Duferdofin Nucor”), an Italian steel manufacturer, and accounts for the investment (on aone-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 September 30, 2017March 31, 2018 was $280.8$292.6 million ($256.6285.9 million at December 31, 2016)2017). Nucor’s 50% share of the total net assets of Duferdofin Nucor was $112.6$120.8 million at September 30, 2017,March 31, 2018, resulting in a basis difference of $168.2$171.8 million due to thestep-up to fair value of certain assets and liabilities attributable to Duferdofin Nucor as well as the identification of goodwill ($91.095.0 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 valuestep-up was $2.3$2.4 million and $2.2$2.1 million induring the thirdfirst quarter of 2018 and 2017, and 2016, respectively, and was $6.6 million in the first nine months of 2017 and 2016.respectively.
As of September 30, 2017,March 31, 2018, Nucor had outstanding notes receivable of €35.0 million ($41.343.1 million) from Duferdofin Nucor (€35.0 million, or $36.9$41.9 million, as of December 31, 2016)2017). The notes receivable bear interest at 0.83% and reset annually on September 30 to the 12-month Euro Interbank Offered Rate (Euribor) plus 1% per year. The maturity date of the principal amounts are due onwas extended to January 31, 2019.2022 during the first quarter of 2018. As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the notes receivable were 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)(“Facility A”). The fair value of the guarantee is immaterial. The maximum amount Duferdofin Nucor could have borrowedborrow under Facility A was €122.5 million ($144.6150.9 million) as of September 30, 2017.at March 31, 2018. As of September 30, 2017,March 31, 2018, there was €122.5 million ($144.6150.9 million) outstanding under that facility (€107.0122.5 million, or $112.7$146.7 million, as of December 31, 2016)2017). In April 2018, Duferdofin Nucor amended and extended Facility A wasA. The maximum amount Duferdofin Nucor can borrow under the amended in 2015 to extend the maturity date to October 12, 2018.agreement is €160.0 million ($197.1 million) and it matures on April 16, 2021. If Duferdofin Nucor fails to pay when due any amounts for which it is obligated under Facility A, Nucor could be required to pay 50% of such amounts pursuant to and in accordance with the terms of its guarantee. Any indebtedness of Duferdofin Nucor to Nucor is effectively subordinated to the indebtedness of Duferdofin Nucor under Facility A. Nucor has not recorded any liability associated with this guarantee.
NUCOR-JFE
Nucor owns a 50% economic and voting interest in Nucor-JFE Steel Mexico, S. de R.L. de C.V. (“Nucor-JFE”), a50-50 joint venture with JFE Steel Corporation of Japan, to build and operate a galvanized sheet steel plant in central Mexico. Nucor-JFE plant construction has commenced and operations are expected to begin in the second half of 2019. Nucor accounts for the investment in Nucor-JFE (on aone-month lag basis) under the equity method, as control and risk of loss are shared equally between the members. Nucor’s investment in Nucor-JFE at March 31, 2018 was $88.9 million ($71.1 million at December 31, 2017).
10
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 2015during the fourth quarter of 2017 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 exceeded its carrying amount by a sufficient amount and incurred a partialthat there was no need to record an impairment of its investment. Whilecharge. The assumptions that most significantly affect the operating performance of Duferdofin Nucor showed meaningful improvement in 2016fair value determination include projected revenues and the first nine months of 2017, steel market conditions in Europe have continued to be challenging. Therefore, itdiscount rate. 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.
CURRENT LIABILITIES: Book overdrafts, included in accounts payable in the condensed consolidated balance sheets, were |
FAIR VALUE MEASUREMENTS: The following table summarizes information regarding Nucor’s financial assets and financial liabilities that |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description | Carrying Amount in Condensed Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
As of September 30, 2017 | ||||||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 1,143,259 | $ | 1,143,259 | $ | — | $ | — | ||||||||
Short-term investments | 50,000 | 50,000 | — | — | ||||||||||||
Commodity contracts | 400 | — | 400 | — | ||||||||||||
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Total assets | $ | 1,193,659 | $ | 1,193,259 | $ | 400 | $ | — | ||||||||
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Liabilities: | ||||||||||||||||
Commodity and foreign exchange contracts | $ | (2,318 | ) | $ | — | $ | (2,318 | ) | $ | — | ||||||
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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 | — | ||||||||||||
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Total assets | $ | 1,761,552 | $ | 1,759,523 | $ | 2,029 | $ | — | ||||||||
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Liabilities: | ||||||||||||||||
Commodity contracts | $ | (605 | ) | $ | — | $ | (605 | ) | $ | — | ||||||
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Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description | Carrying Amount in Condensed Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
As of March 31, 2018 | ||||||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 254,494 | $ | 254,494 | $ | — | $ | — | ||||||||
Commodity contracts | 3,245 | — | 3,245 | — | ||||||||||||
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Total assets | $ | 257,739 | $ | 254,494 | $ | 3,245 | $ | — | ||||||||
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Liabilities: | ||||||||||||||||
Commodity and foreign exchange contracts | $ | (6,302 | ) | $ | — | $ | (6,302 | ) | $ | — | ||||||
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As of December 31, 2017 | ||||||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 594,946 | $ | 594,946 | $ | — | $ | — | ||||||||
Short-term investments | 50,000 | 50,000 | — | — | ||||||||||||
Foreign exchange contracts | 479 | — | 479 | — | ||||||||||||
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Total assets | $ | 645,425 | $ | 644,946 | $ | 479 | $ | — | ||||||||
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Liabilities: | ||||||||||||||||
Commodity contracts | $ | (8,531 | ) | $ | — | $ | (8,531 | ) | $ | — | ||||||
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11
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 audited consolidated financial statements included in Nucor’s Annual Report on Form10-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 $4.75$4.13 billion at September 30, 2017March 31, 2018 ($4.704.19 billion at December 31, 2016)2017). The debt fair value estimates are classified under Level 2 because such estimates are based on readily available market prices of our debt at September 30, 2017March 31, 2018 and December 31, 2016,2017, or similar debt with the same maturities, ratings and interest rates.
CONTINGENCIES: Nucor is subject to environmental laws and regulations established by federal, state and local authorities and, accordingly, makes |
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 with self-insurance limits for certain risks that is subject to certain self-insurance limits.risks.
STOCK-BASED COMPENSATION: |
The Company also maintains a number of inactive plans under which stock-based awards remain outstanding but no further awards may be made. As of March 31, 2018, 2.1 million shares were reserved for issuance upon the future settlement of outstanding awards under such inactive plans.
Stock Options– Stock options may be granted to Nucor’s key employees, officers andnon-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 nine monthsquarter of 20172018 is as follows (in thousands, except years and per share amounts):
Shares | Weighted - Average Exercise Price | Weighted - Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
Number of shares under stock options: | ||||||||||||||||
Outstanding at beginning of year | 3,591 | $ | 45.32 | |||||||||||||
Granted | 698 | $ | 59.07 | |||||||||||||
Exercised | (144 | ) | $ | 37.54 | $ | 3,618 | ||||||||||
Canceled | — | — | ||||||||||||||
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Outstanding at September 30, 2017 | 4,145 | $ | 47.90 | 7.1 years | $ | 35,842 | ||||||||||
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Stock options exercisable at September 30, 2017 | 1,848 | $ | 43.37 | 5.2 years | $ | 23,415 | ||||||||||
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12
Shares | Weighted - Average Exercise Price | Weighted - Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
Number of shares under stock options: | ||||||||||||||||
Outstanding at beginning of year | 4,106 | $ | 47.96 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (288 | ) | $ | 42.64 | $ | 7,253 | ||||||||||
Canceled | — | — | ||||||||||||||
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Outstanding at March 31, 2018 | 3,818 | $ | 48.36 | 6.9 years | $ | 48,614 | ||||||||||
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Stock options exercisable at March 31, 2018 | 1,521 | $ | 43.53 | 4.9 years | $ | 26,701 | ||||||||||
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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 will not become retirement-eligible prior to the end of the vesting term is recognized on a straight-line basis over the vesting period. Compensation expense for stock options was $0.4 million and $0.3 million in the thirdfirst quarter of 2017 and 2016, respectively, and $7.9 million and $7.62018 ($0.3 million in the first nine monthsquarter of 2017 and 2016, respectively.2017). As of September 30, 2017,March 31, 2018, unrecognized compensation expense related to stock options was $2.5$1.8 million, which is expected to be recognized over a weighted-average period of 2.21.8 years.
Restricted Stock Units–Nucor annually grants restricted stock units (RSUs)(“RSUs”) to key employees, officers andnon-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 anon-employee directordirectors are fully vested on the grant date and are payable to thenon-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-eligible since these awards vest upon retirement from the Company. Compensation expense for RSUs granted to employees who will not become retirement-eligible prior to the end of the vesting term 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.grant. A summary of Nucor’s RSU activity for the first nine monthsquarter of 20172018 is as follows (shares in thousands):
Shares | Grant Date Fair Value | Shares | Grant Date Fair Value | |||||||||||||
Restricted stock units: | ||||||||||||||||
Unvested at beginning of year | 1,040 | $ | 48.47 | 1,071 | $ | 52.62 | ||||||||||
Granted | 721 | $ | 59.07 | — | — | |||||||||||
Vested | (634 | ) | $ | 53.21 | (8 | ) | $ | 53.99 | ||||||||
Canceled | (13 | ) | $ | 50.21 | (5 | ) | $ | 53.51 | ||||||||
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Unvested at September 30, 2017 | 1,114 | $ | 52.61 | |||||||||||||
Unvested at March 31, 2018 | 1,058 | $ | 52.60 | |||||||||||||
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| |||||||||||||||
Shares reserved for future grants (stock options and RSUs) | 7,268 | |||||||||||||||
|
Compensation expense for RSUs was $6.1 million and $5.7 million in the thirdfirst quarter of 2017 and 2016, respectively, and $32.2 million and $28.92018 ($5.0 million in the first nine monthsquarter of 2017 and 2016, respectively.2017). As of September 30, 2017,March 31, 2018, unrecognized compensation expense related to unvested RSUs was $40.4$29.2 million, which is expected to be recognized over a weighted-average period of 2.31.9 years.
13
Restricted Stock Awards–Nucor’s Prior to their expiration effective December 31, 2017, the Nucor Corporation Senior Officers Long-Term Incentive Plan (LTIP) and the Nucor Corporation Senior Officers Annual Incentive Plan (AIP) authorizeauthorized the award of shares of common stock to officers subject to certain conditions and restrictions. Effective January 1, 2018, the Company adopted supplements to the Omnibus Plan with terms that permit the award of shares of common stock to officers subject to the conditions and restrictions described below, which are substantially similar to those of the expired Senior Officers Long-Term Incentive Plan and Senior Officers Annual Incentive Plan. The expired Senior Officers Long-Term Incentive Plan, together with the applicable supplement, is referred to below as the “LTIP,” and the expired Senior Officers Annual Incentive Plan, together with the applicable supplement, is referred to below as the “AIP.”
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 toone-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.
A summary of Nucor’s restricted stock activity under the AIP and the LTIP for the first nine monthsquarter of 20172018 is as follows (shares in thousands):
Shares | Grant Date Fair Value | Shares | Grant Date Fair Value | |||||||||||||
Restricted stock awards and units: | ||||||||||||||||
Unvested at beginning of year | 67 | $ | 45.77 | 91 | $ | 54.50 | ||||||||||
Granted | 172 | $ | 60.62 | 256 | $ | 67.68 | ||||||||||
Vested | (144 | ) | $ | 51.69 | (212 | ) | $ | 64.99 | ||||||||
Canceled | — | — | — | — | ||||||||||||
Unvested at September 30, 2017 | 95 | $ | 54.45 | |||||||||||||
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Shares reserved for future grants | 683 | |||||||||||||||
Unvested at March 31, 2018 | 135 | $ | 62.99 | |||||||||||||
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Compensation expense for common stock and common stock units awarded under the AIP and the 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 $3.6 million and $0.7 million in the third quarter of 2017 and 2016, respectively, and $11.1 million and $7.7$4.4 million in the first nine monthsquarter of 2017 and 2016, respectively.2018 ($4.3 million in the first quarter of 2017). As of September 30, 2017,March 31, 2018, unrecognized compensation expense related to unvested restricted stock awards was $1.3$2.7 million, which is expected to be recognized over a weighted-average period of 1.92.2 years.
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 |
14
INTEREST EXPENSE (INCOME): The components of net interest expense for the |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||||||||
Interest expense | $ | 47,621 | $ | 46,519 | $ | 141,486 | $ | 137,370 | $ | 40,178 | $ | 46,300 | ||||||||||||
Interest income | (4,311 | ) | (3,510 | ) | (9,991 | ) | (8,955 | ) | (3,064 | ) | (2,695 | ) | ||||||||||||
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Interest expense, net | $ | 43,310 | $ | 43,009 | $ | 131,495 | $ | 128,415 | $ | 37,114 | $ | 43,605 | ||||||||||||
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INCOME TAXES: The effective tax rate for the |
Nucor has concluded U.S. federal income tax matters for years through 2013. The tax years 2014 through 2016 remain open to examination by the Internal Revenue Service. The Canada Revenue Agency has substantially concluded its examination of the 2012 and 2013 Canadian returns for Harris Steel Group Inc. and certain related affiliates and is now examining the 2013 Canadian returns.affiliates. The tax years 2010 through 2016 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 assets included in other assets in the condensed consolidated balance sheets were $0.6$0.7 million at September 30, 2017 (noneMarch 31, 2018 ($0.6 million at December 31, 2016)2017).Non-current deferred tax liabilities included in deferred credits and other liabilities in the condensed consolidated balance sheets were $516.0$359.9 million at September 30, 2017March 31, 2018 ($558.6329.3 million at December 31, 2016)2017).
15
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 (Limited Partnership), of which Nucor owns 51%, for the |
Attributable to Nucor Corporation | Attributable to Noncontrolling Interests | Total | Attributable to Nucor Corporation | Attributable to Noncontrolling Interests | Total | |||||||||||||||||||
Stockholders’ equity at December 31, 2016 | $ | 7,879,865 | $ | 374,843 | $ | 8,254,708 | ||||||||||||||||||
Stockholders’ equity at December 31, 2017 | $ | 8,739,036 | $ | 345,752 | $ | 9,084,788 | ||||||||||||||||||
Total comprehensive income | 1,034,784 | 50,680 | 1,085,464 | 359,494 | 25,933 | 385,427 | ||||||||||||||||||
Stock options | 13,300 | — | 13,300 | 12,630 | — | 12,630 | ||||||||||||||||||
Issuance of stock under award plans, net of forfeitures | 30,787 | — | 30,787 | 15,240 | — | 15,240 | ||||||||||||||||||
Amortization of unearned compensation | 1,000 | — | 1,000 | 700 | — | 700 | ||||||||||||||||||
Treasury stock acquired | (90,305 | ) | — | (90,305 | ) | (29,193 | ) | — | (29,193 | ) | ||||||||||||||
Dividends declared | (364,046 | ) | — | (364,046 | ) | (121,880 | ) | — | (121,880 | ) | ||||||||||||||
Distributions to noncontrolling interests | — | (85,094 | ) | (85,094 | ) | — | (24,793 | ) | (24,793 | ) | ||||||||||||||
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Stockholders’ equity at September 30, 2017 | $ | 8,505,385 | $ | 340,429 | $ | 8,845,814 | ||||||||||||||||||
Stockholders’ equity at March 31, 2018 | $ | 8,976,027 | $ | 346,892 | $ | 9,322,919 | ||||||||||||||||||
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Attributable to Nucor Corporation | Attributable to Noncontrolling Interests | Total | Attributable to Nucor Corporation | Attributable to Noncontrolling Interests | Total | |||||||||||||||||||
Stockholders’ equity at December 31, 2015 | $ | 7,477,816 | $ | 372,061 | $ | 7,849,877 | ||||||||||||||||||
Stockholders’ equity at December 31, 2016 | $ | 7,879,865 | $ | 374,843 | $ | 8,254,708 | ||||||||||||||||||
Total comprehensive income | 699,410 | 88,599 | 788,009 | 357,750 | 20,749 | 378,499 | ||||||||||||||||||
Stock options | 13,229 | — | 13,229 | 3,785 | — | 3,785 | ||||||||||||||||||
Issuance of stock under award plans, net of forfeitures | 25,929 | — | 25,929 | 13,633 | — | 13,633 | ||||||||||||||||||
Amortization of unearned compensation | 600 | — | 600 | 400 | — | 400 | ||||||||||||||||||
Treasury stock acquired | (5,173 | ) | — | (5,173 | ) | |||||||||||||||||||
Dividends declared | (360,955 | ) | — | (360,955 | ) | (121,410 | ) | — | (121,410 | ) | ||||||||||||||
Distributions to noncontrolling interests | — | (86,808 | ) | (86,808 | ) | — | (61,544 | ) | (61,544 | ) | ||||||||||||||
Other | (602 | ) | (1,776 | ) | (2,378 | ) | ||||||||||||||||||
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Stockholders’ equity at October 1, 2016 | $ | 7,850,254 | $ | 372,076 | $ | 8,222,330 | ||||||||||||||||||
Stockholders’ equity at April 1, 2017 | $ | 8,134,023 | $ | 334,048 | $ | 8,468,071 | ||||||||||||||||||
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In September 2015, the Company announced that the Board of Directors had approved a stockshare repurchase program under which the Company is authorized to repurchase up to $900$900.0 million of the Company’s common stock. This $900$900.0 million share repurchase program has no stated expiration and replaced any previously authorized repurchase programs. As of September 30, 2017,March 31, 2018, the Company had approximately $738.0$708.9 million remaining available for share repurchases 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.
16
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): The following tables reflect the changes in other accumulated |
Three-Month (13 Week) Period Ended September 30, 2017 | Three-Months(13-Weeks) Ended March 31, 2018 | |||||||||||||||||||||||||||||||
Gains and Losses on Hedging Derivatives | Foreign Currency Gain (Loss) | Adjustment to Early Retiree Medical Plan | Total | Gains and Losses on Hedging Derivatives | Foreign Currency Gains and Losses | Adjustment to Early Retiree Medical Plan | Total | |||||||||||||||||||||||||
Accumulated other comprehensive loss at July 1, 2017 | $ | (300 | ) | $ | (300,212 | ) | $ | 7,577 | $ | (292,935 | ) | |||||||||||||||||||||
Accumulated other comprehensive income (loss) at December 31, 2017 | $ | (2,800 | ) | $ | (257,513 | ) | $ | 5,632 | $ | (254,681 | ) | |||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | 405 | 74,479 | — | 74,884 | (752 | ) | 6,115 | — | 5,363 | |||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) into earnings(1) | 195 | — | — | 195 | (48 | ) | — | — | (48 | ) | ||||||||||||||||||||||
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Net current-period other comprehensive income (loss) | 600 | 74,479 | — | 75,079 | (800 | ) | 6,115 | — | 5,315 | |||||||||||||||||||||||
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Accumulated other comprehensive loss at September 30, 2017 | $ | 300 | $ | (225,733 | ) | $ | 7,577 | $ | (217,856 | ) | ||||||||||||||||||||||
Accumulated other comprehensive income (loss) at March 31, 2018 | $ | (3,600 | ) | $ | (251,398 | ) | $ | 5,632 | $ | (249,366 | ) | |||||||||||||||||||||
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Nine-Month (39 Week) Period Ended September 30, 2017 | 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 | Gains and Losses on Hedging Derivatives | Foreign Currency Gains and Losses | Adjustment to Early Retiree Medical Plan | Total | |||||||||||||||||||||||||
Accumulated other comprehensive loss at December 31, 2016 | $ | 750 | $ | (326,170 | ) | $ | 7,577 | $ | (317,843 | ) | ||||||||||||||||||||||
Accumulated other comprehensive income (loss) at December 31, 2016 | $ | 750 | $ | (326,170 | ) | $ | 7,577 | $ | (317,843 | ) | ||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | (1,301 | ) | 100,437 | — | 99,136 | (1,635 | ) | 2,001 | — | 366 | ||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) into earnings(1) | 851 | — | — | 851 | 485 | — | — | 485 | ||||||||||||||||||||||||
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Net current-period other comprehensive income (loss) | (450 | ) | 100,437 | — | 99,987 | (1,150 | ) | 2,001 | — | 851 | ||||||||||||||||||||||
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Accumulated other comprehensive loss at September 30, 2017 | $ | 300 | $ | (225,733 | ) | $ | 7,577 | $ | (217,856 | ) | ||||||||||||||||||||||
Accumulated other comprehensive income (loss) at April 1, 2017 | $ | (400 | ) | $ | (324,169 | ) | $ | 7,577 | $ | (316,992 | ) | |||||||||||||||||||||
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17
Three-Month (13 Week) Period Ended October 1, 2016 | ||||||||||||||||
Gains and Losses on Hedging Derivatives | Foreign Currency Gain (Loss) | Adjustment to Early Retiree Medical Plan | Total | |||||||||||||
Accumulated other comprehensive loss at July 2, 2016 | $ | (3,900 | ) | $ | (289,481 | ) | $ | 12,003 | $ | (281,378 | ) | |||||
Other comprehensive income (loss) before reclassifications | (600 | ) | (8,606 | ) | — | (9,206 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income (loss) into earnings(2) | 2,000 | — | — | 2,000 | ||||||||||||
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Net current-period other comprehensive income (loss) | 1,400 | (8,606 | ) | — | (7,206 | ) | ||||||||||
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Accumulated other comprehensive loss at October 1, 2016 | $ | (2,500 | ) | $ | (298,087 | ) | $ | 12,003 | $ | (288,584 | ) | |||||
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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 income (loss) before reclassifications | 912 | 53,578 | — | 54,490 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) into earnings(2) | 8,288 | — | — | 8,288 | ||||||||||||
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Net current-period other comprehensive income (loss) | 9,200 | 53,578 | — | 62,778 | ||||||||||||
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Accumulated other comprehensive loss at October 1, 2016 | $ | (2,500 | ) | $ | (298,087 | ) | $ | 12,003 | $ | (288,584 | ) | |||||
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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 |
Previously, Nucor’s tubular products and piling products businesses were reported in the steel mills segment. Beginning in the first quarter of 2018, these businesses were reclassified to the steel products segment as part of a realignment of Nucor’s reportable segments to reflect the way in which they are now viewed by management and how segment performance assessments will be made by the chief operating decision maker beginning in such period. The segment data for the comparable period has also been reclassified into the steel products segment in order to conform to the current year presentation. The steel mills, steel products and raw materials segments are consistent with the way Nucor manages its business, which is primarily based upon the similarity of the types of products produced and sold by each segment. Additionally, the composition of assets by segment at December 31, 2017 was reclassified to conform to the current year presentation. This reclassification between segments did not have any impact on the consolidated asset balances.
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 periods ended October 1, 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 for the thirdfirst quarter of 2018 and first nine months of 2017 and 2016 were as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||||||||
Net sales to external customers: | ||||||||||||||||||||||||
Steel mills | $ | 3,639,488 | $ | 2,960,642 | $ | 10,982,636 | $ | 8,611,553 | $ | 3,580,694 | $ | 3,190,507 | ||||||||||||
Steel products | 1,089,519 | 1,011,602 | 2,919,992 | 2,763,335 | 1,468,711 | 1,212,357 | ||||||||||||||||||
Raw materials | 441,110 | 317,992 | 1,257,437 | 876,696 | 519,014 | 412,315 | ||||||||||||||||||
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$ | 5,170,117 | $ | 4,290,236 | $ | 15,160,065 | $ | 12,251,584 | $ | 5,568,419 | $ | 4,815,179 | |||||||||||||
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Intercompany sales: | ||||||||||||||||||||||||
Steel mills | $ | 767,268 | $ | 567,854 | $ | 2,189,123 | $ | 1,592,512 | $ | 898,326 | $ | 658,360 | ||||||||||||
Steel products | 28,537 | 31,117 | 80,652 | 80,277 | 35,770 | 29,701 | ||||||||||||||||||
Raw materials | 2,333,840 | 1,774,538 | 6,971,831 | 4,717,370 | 2,608,944 | 2,178,639 | ||||||||||||||||||
Corporate/eliminations | (3,129,645 | ) | (2,373,509 | ) | (9,241,606 | ) | (6,390,159 | ) | (3,543,040 | ) | (2,866,700 | ) | ||||||||||||
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Earnings (loss) before income taxes and noncontrolling interests: | ||||||||||||||||||||||||
Steel mills | $ | 432,718 | $ | 591,799 | $ | 1,734,245 | $ | 1,402,898 | $ | 560,503 | $ | 644,183 | ||||||||||||
Steel products | 59,225 | 72,578 | 131,956 | 197,891 | 85,814 | 66,919 | ||||||||||||||||||
Raw materials | 9,957 | 14,313 | 102,575 | (76,240 | ) | 74,547 | 26,391 | |||||||||||||||||
Corporate/eliminations | (131,295 | ) | (194,518 | ) | (541,060 | ) | (480,930 | ) | (204,952 | ) | (188,518 | ) | ||||||||||||
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$ | 370,605 | $ | 484,172 | $ | 1,427,716 | $ | 1,043,619 | $ | 515,912 | $ | 548,975 | |||||||||||||
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Sept. 30, 2017 | Dec. 31, 2016 | March 31, 2018 | Dec. 31, 2017 | |||||||||||||||||||||
Segment assets: | ||||||||||||||||||||||||
Steel mills | $ | 9,272,209 | $ | 8,084,773 | $ | 8,147,875 | $ | 7,671,217 | ||||||||||||||||
Steel products | 2,893,703 | 2,544,344 | 4,407,472 | 4,323,907 | ||||||||||||||||||||
Raw materials | 3,462,340 | 3,235,237 | 3,567,900 | 3,396,110 | ||||||||||||||||||||
Corporate/eliminations | 875,582 | 1,359,164 | (2,001 | ) | 450,024 | |||||||||||||||||||
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$ | 16,503,834 | $ | 15,223,518 | $ | 16,121,246 | $ | 15,841,258 | |||||||||||||||||
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16. | REVENUE: Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs upon shipment or when control is transferred. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods. In addition, revenue is deferred when cash payments are received or due in advance of performance. |
The durations of Nucor’s contracts with customers are generally one year or less. Customer payment terms are generally 30 days.
Contract liabilities are primarily related to deferred revenue resulting from cash payments received in advance from customers to protect against credit risk. Contract liabilities totaled $97.6 million as of March 31, 2018 ($72.3 million as of December 31, 2017), and are included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. The amount of revenue reclassified from the December 31, 2017 contract liabilities balance during the first three months of 2018 was approximately $41.4 million.
The following table disaggregates our revenue by major source for the three months ended March 31, 2018 (in thousands):
Three Months (13 Weeks) Ended March 31, 2018 | ||||||||||||||||
Steel Mills | Steel Products | Raw Materials | Total | |||||||||||||
Sheet | $ | 1,666,220 | $ | 1,666,220 | ||||||||||||
Bar | 1,090,147 | 1,090,147 | ||||||||||||||
Structural | 396,697 | 396,697 | ||||||||||||||
Plate | 427,630 | 427,630 | ||||||||||||||
Tubular Products | $ | 311,228 | 311,228 | |||||||||||||
Rebar Fabrication | 329,219 | 329,219 | ||||||||||||||
Other Steel Products | 828,264 | 828,264 | ||||||||||||||
Raw Materials | $ | 519,014 | 519,014 | |||||||||||||
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$ | 3,580,694 | $ | 1,468,711 | $ | 519,014 | $ | 5,568,419 | |||||||||
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19Steel Mills Segment
The amount of tons sold to contract customers at any given time depends on a variety of factors, including our consideration of current and future market conditions, our strategy to appropriately balance spot and contract tons in a manner to meet our customers’ requirements while considering the expected profitability, our desire to sustain a diversified customer base andour end-use customers’ perceptions about future market conditions. These contracts are typically one year or less. Steel mills segment contract sales outside of our sheet operations are not significant.
Bar, Structural and Plate – For the majority of bar, structural and plate products, we transfer control and recognize a sale when we ship the product from the mill to our customer. The significant majority of bar, structural and plate product sales are spot market sales, and the amount of consideration we receive and revenue we recognize for those sales are based upon prevailing prices at the time of sale.
Steel Products Segment
Tubular Products– The tubular products businesses transfer control and recognize a sale when the product is shipped from our operating location to our customer. The significant majority of tubular product sales are spot market sales, and the amount of consideration we receive and revenue we recognize for those sales are based upon prevailing prices at the time of sale.
Rebar Fabrication – The majority of revenue for our rebar fabrication businesses relates to revenue from contracts with customers for the supply of fabricated rebar. For the majority of these transactions, we transfer control and recognize a sale when the products are shipped from our operating locations and collection is reasonably assured. Provisions for losses on incomplete contracts are made in the period in which such losses are determined.
Our rebar fabrication businesses also generate a significant amount of revenue from contracts with customers in which it supplies fabricated rebar and installs it at the customer’s job site. There are two performance obligations for these types of contracts: the supply of the fabricated rebar and
installation of the supplied rebar at the customer’s job site. For the supply of fabricated rebar performance obligation, we transfer control and recognize a sale when the product is delivered to our customer’s job site. The transaction price allocated to this performance obligation is determined at the start of the contract, based on the then current market price for supplied fabricated rebar. For the installation performance obligation, we transfer control and recognize a sale when the delivered material is installed. The transaction price allocated to this performance obligation is determined at the start of the contract, based on the then current market price for the installation of fabricated rebar.
Variable consideration occurring from change orders and price escalations caused by changes in underlying material costs for previously satisfied performance obligations are recognized cumulatively in the period in which management believes that the amount of consideration is changed and collection is reasonably assured. Management reviews these situations on acase-by-case basis, and considers a variety of factors, including relevant experience with similar types of performance obligations, our experience with the customer and collectability considerations.
Other Steel Products – Other steel products include our joist, deck, cold finish, metal building systems, piling and the other remaining businesses that comprise the steel products segment. Generally for these businesses, we transfer control and recognize a sale when we ship the product from our operating location to our customer. The amount of consideration we receive and revenue we recognize for those sales are agreed upon with the customer before the product is shipped.
Raw Materials Segment
The majority of the raw materials segment revenue from outside customers is generated by The David J. Joseph Company and its affiliates. We transfer control and recognize a sale based on the terms of the agreement with the customer, which is generally when the product has met the delivery requirements. The amount of consideration we receive and revenue we recognize for those sales is based on the contract with the customer, which generally reflects current market prices at the time the contract is entered into.
17. | EARNINGS PER SHARE: The computations of basic and diluted net earnings per share for the |
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||||||||
Basic net earnings per share: | ||||||||||||||||||||||||
Basic net earnings | $ | 254,850 | $ | 305,447 | $ | 934,797 | $ | 636,632 | $ | 354,179 | $ | 356,899 | ||||||||||||
Earnings allocated to participating securities | (900 | ) | (1,034 | ) | (3,239 | ) | (2,115 | ) | (1,181 | ) | (1,192 | ) | ||||||||||||
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Net earnings available to common stockholders | $ | 253,950 | $ | 304,413 | $ | 931,558 | $ | 634,517 | $ | 352,998 | $ | 355,707 | ||||||||||||
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Average shares outstanding | 320,096 | 319,737 | 320,253 | 319,444 | 319,421 | 320,224 | ||||||||||||||||||
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Basic net earnings per share | $ | 0.79 | $ | 0.95 | $ | 2.91 | $ | 1.99 | $ | 1.11 | $ | 1.11 | ||||||||||||
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Diluted net earnings per share: | ||||||||||||||||||||||||
Diluted net earnings | $ | 254,850 | $ | 305,447 | $ | 934,797 | $ | 636,632 | $ | 354,179 | $ | 356,899 | ||||||||||||
Earnings allocated to participating securities | (899 | ) | (1,034 | ) | (3,233 | ) | (2,116 | ) | (1,177 | ) | (1,188 | ) | ||||||||||||
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Net earnings available to common stockholders | $ | 253,951 | $ | 304,413 | $ | 931,564 | $ | 634,516 | $ | 353,002 | $ | 355,711 | ||||||||||||
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Diluted average shares outstanding: | ||||||||||||||||||||||||
Basic shares outstanding | 320,096 | 319,737 | 320,253 | 319,444 | 319,421 | 320,224 | ||||||||||||||||||
Dilutive effect of stock options and other | 667 | 291 | 792 | 188 | 1,053 | 922 | ||||||||||||||||||
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320,763 | 320,028 | 321,045 | 319,632 | 320,474 | 321,146 | |||||||||||||||||||
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Diluted net earnings per share | $ | 0.79 | $ | 0.95 | $ | 2.90 | $ | 1.99 | $ | 1.10 | $ | 1.11 | ||||||||||||
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The followingThere were no stock options were excluded from the computation of diluted net earnings per share for either the thirdfirst quarter and first nine months of 2018 or 2017 and 2016 because their effect would have been anti-dilutive (in thousands, except per share amounts):anti-dilutive.
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | |||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | |||||||||||||
Anti-dilutive stock options: | ||||||||||||||||
Weighted-average shares | 698 | — | 309 | 1,254 | ||||||||||||
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Weighted-average exercise price | $ | 59.07 | $ | — | $ | 59.07 | $ | 47.04 | ||||||||
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18. | SUBSEQUENT EVENTS: We evaluate events occurring after the date of our accompanying condensed consolidated balance sheets for potential recognition or disclosure in our financial statements. |
The developments that ledIn April 2018, Nucor amended and restated its revolving credit facility to extend the maturity date to April 2023. To date, no amounts have ever been borrowed on this change in estimate occurred after the Company issued a news release announcing the preliminary financial results for the third quarter and first nine months of 2017, which release was included as an exhibit to the Current Report on Form 8-K furnished with the Securities and Exchange Commission on October 19, 2017.facility.
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Item 2. Management’s2.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.;United States; (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 and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report, as well as the audited consolidated financial statements and the notes thereto, “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Nucor’s Annual Report on Form10-K for the year ended December 31, 2016.2017.
Overview
Nucor and its affiliates manufacture steel and steel products. Nucor also produces direct reduced iron (DRI)(“DRI”) for use in its steel mills. Through The David J. Joseph Company and its affiliates (DJJ)(“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 threethe following 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 (HSS) 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 carbon and alloy steel in sheet, bars, structural and plate; steel trading businesses; rebar distribution businesses; and Nucor’s equity method investments in Duferdofin Nucor, S.r.l. (Duferdofin Nucor)NuMit and NuMit LLC (NuMit), as well as Nucor’s steel trading businesses and rebar distribution businesses. In theNucor-JFE. The steel products segment Nucor producesincludes steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems, steel grating, and expanded
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metal,tubular products businesses, piling products business, and wire and wire mesh. In the raw materials segment, Nucor produces DRI; brokers ferrous and nonferrous metals, pig iron, HBI and DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap metal. The raw materials segment also includes DJJ, primarily a scrap broker and processor;Nu-Iron Unlimited and Nucor Steel Louisiana, two facilities that produce DRI used by the steel mills; and our natural gas drillingproduction operations.
Previously, Nucor’s tubular products and piling products businesses were reported in the steel mills segment. Beginning in the first quarter of 2018, these businesses were reclassified to the steel products segment as part of a realignment of Nucor’s reportable segments to reflect the way in which they are now viewed by management and how segment performance assessments will be made by the chief operating decision maker beginning in such period. The segment data for the comparable period in the following discussion and analysis has also been recast to reflect this change.
The average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 86%92%, 64%71% and 64%74%, respectively, in the first nine monthsquarter of 2017,2018 compared with 80%88%, 63%62% and 64%67%, respectively, in the first nine months of 2016. The steel mills segment’s utilization rate for the first nine months 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 nine months of 2017 and the first nine months 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 $331.6 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.2017.
In March 2017,2018, 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.
In May 2017, Nucor announced that it is investing an estimated $176 millionplans to build a hot band galvanizing and pickling line at its sheetrebar micro mill in Ghent, Kentucky.Frostproof, Florida, which is located in Polk County. The new galvanizing linemicro mill is a $240 million investment that will expand Nucor Steel Gallatin’s product capabilities and should have an estimated annual capacity of 500,000 tons. Once350,000 tons and employ approximately 250 people. We anticipate the necessary approvals are obtained, it is expected toproject will take approximately two years to construct the galvanizing line and begin operations.
On September 1, 2017,complete. We believe this location will provide a logistical advantage to Nucor completed its acquisition of St. Louis Cold Drawn, Inc. (St. Louis Cold Drawn) for a purchase price of approximately $60 million. St. Louis Cold Drawn is a manufacturer of cold drawn rounds, hexagons, squares and special sections that mainly serves the U.S. and Mexican automotive and industrial markets. St. Louis Cold Drawn employs 125 people and has two manufacturing locations, one in St. Louis, Missouri and the other in Monterrey Mexico, that have a combined annual capacity of 200,000 tons. The addition of these facilities increased the total capacity of Nucor’s cold finished bar and wire facilities to more than 1.1 million tons annually and helps advance our goal of growing our sales to automotive customers.
In September 2017, Nucor’s Board of Directors approved investments in Nucor’s bar mill business, including micro mill investments and the expansion of its existing merchant bar operations. Both of these projects are part of Nucor’s strategy for long-term, profitable growth. By leveraging Nucor’s existing operating abilities, we expect that these projects will help to maintain our position as alow-cost producer and will allow us to better servecapitalize on a currently abundant supply of scrap, a good portion of which is handled by our customers.
Nucor’s consolidated net earnings of $2.90 per diluted share forscrap business, DJJ. This is the first nine months of 2017 exceed the reported annual diluted earnings per share for each of the previous eight years. The results achieved during the past nine months are due to the ongoing execution of our strategy for long-term, profitable growth. In addition, conditions in the overall economy and many of the markets we serve are much improved from the depressed levels in the years that followed the Great Recession. Our businesssecond rebar micro mill Nucor is cyclical and market conditions can change very rapidly, but Nucor’s steady, long-term focus provides for strong financial performance that takes advantage of improved market conditions.constructing.
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Results of Operations
Net Sales – – Net sales to external customers by segment for the thirdfirst quarter of 2018 and first nine months of 2017 and 2016 were as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | % Change | Sept. 30, 2017 | Oct. 1, 2016 | % Change | March 31, 2018 | April 1, 2017 | % Change | ||||||||||||||||||||||||||||
Steel mills | $ | 3,639,488 | $ | 2,960,642 | 23 | % | $ | 10,982,636 | $ | 8,611,553 | 28 | % | $ | 3,580,694 | $ | 3,190,507 | 12% | |||||||||||||||||||
Steel products | 1,089,519 | 1,011,602 | 8 | % | 2,919,992 | 2,763,335 | 6 | % | 1,468,711 | 1,212,357 | 21% | |||||||||||||||||||||||||
Raw materials | 441,110 | 317,992 | 39 | % | 1,257,437 | 876,696 | 43 | % | 519,014 | 412,315 | 26% | |||||||||||||||||||||||||
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Net sales | $ | 5,170,117 | $ | 4,290,236 | 21 | % | $ | 15,160,065 | $ | 12,251,584 | 24 | % | ||||||||||||||||||||||||
Total net sales to external customers | $ | 5,568,419 | $ | 4,815,179 | 16% | |||||||||||||||||||||||||||||||
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Net sales for the thirdfirst quarter of 20172018 increased 21%16% from the thirdfirst quarter of 2016.2017. Average sales price per ton increased 7%9% from $729$731 in the thirdfirst quarter of 20162017 to $781$799 in the thirdfirst quarter of 2017.2018. Total tons shipped to outside customers in the thirdfirst quarter of 20172018 were 6,618,000,6,967,000, a 12% increase from the third quarter of 2016.
Net sales for the first nine months of 2017 increased 24% from the first nine months of 2016. Average sales price per ton increased 15% from $662 in the first nine months of 2016 to $760 in the first nine months of 2017, while total tons shipped to outside customers in the first nine months of 2017 were 19,950,000, an 8%6% increase from the first nine monthsquarter of 2016.2017.
In the steel mills segment, sales tons for the thirdfirst quarter of 2018 and first nine months of 2017 and 2016 were as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | % Change | Sept. 30, 2017 | Oct. 1, 2016 | % Change | March 31, 2018 | April 1, 2017 | % Change | ||||||||||||||||||||||||||||
Outside steel shipments | 5,096 | 4,465 | 14 | % | 15,620 | 14,446 | 8 | % | 5,016 | 4,860 | 3% | |||||||||||||||||||||||||
Inside steel shipments | 1,069 | 748 | 43 | % | 3,039 | 2,344 | 30 | % | 1,252 | 1,025 | 22% | |||||||||||||||||||||||||
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Total steel shipments | 6,165 | 5,213 | 18 | % | 18,659 | 16,790 | 11 | % | 6,268 | 5,885 | 7% | |||||||||||||||||||||||||
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Net sales for the steel mills segment increased 12% in the thirdfirst quarter of 2018 from the first quarter of 2017 increased 23% from the third quarter of 2016 due primarily to a 14%9% increase in tons shipped to outside customers and an 8% increase inthe average sales price per ton from $664$657 to $715.$717 as well as a 3% increase in tons sold to outside customers. Our sheet, bar, beam and plate products all experienced higher average selling prices in the thirdfirst quarter and first nine months of 2017 as2018 compared to the respective prior year periods, with the most significantyear-to-date increases at our sheet and plate mills. Steel mills net sales increased 28% in the first nine months of 2017 from the first nine of months of 2016 primarily due to an 18% increase in average sales price per ton and an 8% increase in outside shipments. The increase in tons sold to outside customers for the third quarter and first nine months of 2017 compared to the respective prior year periods is partially due to the acquisitions of our tubular products businesses that occurred during the fourth quarter of 2016 and first quarter of 2017. The additionperformance of the tubular products businesses also contributed to the increase in average sales price per ton for the steel mills segment is expected to improve in the thirdsecond quarter and first nine months of 20172018 as compared to the same periods in the prior yearfirst quarter of 2018 as those products have higher average selling prices.
Importswe continue to negatively impactexperience the U.S. steel industry. Through the first nine monthsbenefit of 2017, finished steel imports accounted for an estimated 27% share of the U.S. market and have increased an estimated 15.1% compared to the same period last year. The industry continues to pursue trade cases to combat unfairly traded imports. Final determinations issued earlier this year againstcut-to-length steel plate imports from 12 countries are having a positive impact as steel imports of these products have decreased in the first nine months of this year compared to the same period last year. The U.S. Department of Commerce has made several rulings imposing duties on additional steel products since the beginning of the year that are favorable to the domestic steel industry. Although slower than we would like, weannounced price
increases. We are encouraged by recent actions by the steady progress that we are achieving throughgovernment to address the prosecutionmassive flood of productdumped and country specific trade cases.illegally subsidized imports into the United States. We believe this successbroad-based tariffs with few exceptions are needed to address the historic volume of unfairly traded imports and transshipping that is duedone to the overwhelming evidence that our foreign competitors receive support from illegal subsidies.
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Tonnage dataOutside sales tonnage for the steel products segment for the thirdfirst quarter of 2018 and first nine months of 2017 and 2016 was as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | % Change | Sept. 30, 2017 | Oct. 1, 2016 | % Change | March 31, 2018 | April 1, 2017 | % Change | ||||||||||||||||||||||||||||
Joist sales | 127 | 129 | -2 | % | 332 | 322 | 3 | % | 105 | 101 | 4% | |||||||||||||||||||||||||
Deck sales | 119 | 123 | -3 | % | 329 | 332 | -1 | % | 106 | 106 | — | |||||||||||||||||||||||||
Cold finish sales | 119 | 99 | 20 | % | 361 | 328 | 10 | % | 147 | 122 | 20% | |||||||||||||||||||||||||
Fabricated concrete reinforcing steel sales | 319 | 311 | 3 | % | 857 | 857 | 0 | % | 290 | 247 | 17% | |||||||||||||||||||||||||
Piling products sales | 126 | 119 | 6% | |||||||||||||||||||||||||||||||||
Tubular products sales | 284 | 223 | 27% |
The 8% increase inNet sales for the steel products segment’s sales forsegment increased 21% in the thirdfirst quarter of 2018 from the first quarter of 2017 from the third quarter of 2016 was due to a 5%15% increase in volume and a 6% increase in the average sales price per ton, from $1,299$1,201 to $1,361, and a 3% increase in volume. The 6% increase$1,270. All of our steel products businesses experienced increased volumes in the steel products segment’s sales forfirst quarter of 2018 compared to the first nine monthsquarter of 2017, fromwith the exception of our deck business which was flat compared to the first nine monthsquarter of 2016 was due to a 3% increase in average2017.
Net sales price per ton from $1,286 to $1,331, and a 2% increase in volume.
Sales for the raw materials segment increased 39% and 43%26% in the thirdfirst quarter and first nine months of 2017, respectively,2018 from the respective prior year periods. The increases arefirst quarter of 2017 primarily due to significantlyincreased volumes and higher average selling prices inat DJJ’s brokerage operations and, to a lesser extent, increased volumes in bothat DJJ’s brokerage and scrap processing operations. In the thirdfirst quarter of 2017,2018, approximately 88%89% of outside sales forin the raw materials segment were from DJJ’sthe brokerage operations of DJJ, and approximately 10%9% of the outside sales were from DJJ’sthe scrap processing operations (90%facilities (86% and 7%, respectively, in the third quarter of 2016). In the first nine months of 2017, approximately 87% of outside sales for the raw materials segment were from DJJ’s brokerage operations and approximately 10% of outside sales were from DJJ’s scrap processing operations (89% and 8%11%, respectively, in the first nine monthsquarter of 2016)2017).
Gross Margins – – Nucor recorded gross margins of $579.0$726.4 million (11%(13%) forin the thirdfirst quarter of 2017,2018, which was a decrease compared with $682.2$760.3 million (16%) in the thirdfirst quarter of 2016:2017.
Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. Scrap prices increased during the first halfquarter of 2017 with prices leveling out during the third quarter.2018. We do not expect significant volatility inthat scrap prices as we approachwill stabilize or decrease slightly in the second quarter of 2018 compared to the peak levels reached by the end of the year.first quarter of 2018.
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For the first nine months of 2017, Nucor recordedsaw a slight decrease in gross margins of $2.05 billion (14%), which was an increase compared with $1.58 billion (13%) for the first nine monthsquarter of 2016:
Marketing, Administrative and Other Expenses –A major component of marketing, administrative and other expenses is profit sharing and other incentive compensation costs. These costs, which are based upon and fluctuate with Nucor’s financial performance, increased $4.4 millionwere flat in the thirdfirst quarter of 20172018 compared to the third quarter of 2016 primarily due to other incentive compensation costs related to management compensation plans. Profit sharing and other incentive compensation costs increased $62.9 million in the first nine months of 2017 compared to the first nine months of 2016 due to the increased profitability of the Company. Profit sharing and other incentive compensation costs decreased $25.3 million in the third quarter of 2017 compared to the second quarter of 2017 due to consistent performance of the annual restricted stock unit and stock option grants that occurredCompany in the second quarter of 2017.respective periods.
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Equity in Earnings of Unconsolidated Affiliates –Equity in earnings of unconsolidated affiliates was $7.7$9.6 million and $14.2 million in the third quarter of 2017 and 2016, respectively, and $29.8 million and $30.2$8.8 million in the first nine monthsquarter of 20172018 and 2016,2017, respectively. The decreasesincrease in equity method investment earnings arewas due to decreased earnings at NuMit during both the third quarter and the first nine months of 2017 from the comparable prior year periods. Additionally, included in equity method investment earnings in the first nine months of 2016 is a $5.7 million benefit, $5.0 million of which isout-of-period,improved performance at Duferdofin Nucor, primarily related to a change in the Italian income tax rate. Theout-of-period adjustment was not material to any previously reported periods.partially offset by decreased performance at NuMit.
Interest Expense (Income) –Net interest expense for the thirdfirst quarter of 2018 and first nine months of 2017 and 2016 was as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||||||||
Interest expense | $ | 47,621 | $ | 46,519 | $ | 141,486 | $ | 137,370 | $ | 40,178 | $ | 46,300 | ||||||||||||
Interest income | (4,311 | ) | (3,510 | ) | (9,991 | ) | (8,955 | ) | (3,064 | ) | (2,695 | ) | ||||||||||||
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Interest expense, net | $ | 43,310 | $ | 43,009 | $ | 131,495 | $ | 128,415 | $ | 37,114 | $ | 43,605 | ||||||||||||
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Interest expense fordecreased in the thirdfirst quarter and first nine months of 2017 increased slightly2018 compared to the respective prior year periodsfirst quarter of 2017 due to minor increasesa decrease in both average interest rates on our variable rate debt and average debt outstanding as well as decreased capitalized interest.associated with the repayment of our $600.0 million 5.750% debt in the fourth quarter of 2017. Interest income forincreased in the thirdfirst quarter and first nine months of 2017 increased2018 compared to the respective prior year periodsfirst quarter of 2017 due to higher average interest rates on investments partially offset by significantly decreased average investment levels.
Earnings (Loss) Before Income Taxes and Noncontrolling Interests –Earnings (loss) before income taxes and noncontrolling interests by segment for the thirdfirst quarter of 2018 and first nine months of 2017 and 2016 were as follows (in thousands):
Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | Three Months (13 Weeks) Ended | ||||||||||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | Sept. 30, 2017 | Oct. 1, 2016 | March 31, 2018 | April 1, 2017 | |||||||||||||||||||
Steel mills | $ | 432,718 | $ | 591,799 | $ | 1,734,245 | $ | 1,402,898 | $ | 560,503 | $ | 644,183 | ||||||||||||
Steel products | 59,225 | 72,578 | 131,956 | 197,891 | 85,814 | 66,919 | ||||||||||||||||||
Raw materials | 9,957 | 14,313 | 102,575 | (76,240 | ) | 74,547 | 26,391 | |||||||||||||||||
Corporate/eliminations | (131,295 | ) | (194,518 | ) | (541,060 | ) | (480,930 | ) | (204,952 | ) | (188,518 | ) | ||||||||||||
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$ | 370,605 | $ | 484,172 | $ | 1,427,716 | $ | 1,043,619 | $ | 515,912 | $ | 548,975 | |||||||||||||
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Earnings before income taxes and noncontrolling interests for the steel mills segment in the thirdfirst quarter of 2018 decreased from the first quarter of 2017 decreased comparedprimarily due to the prior year period due to compressed margins, particularlyfirst quarter of 2017 benefitting from lower scrap prices embedded in raw materials and finished and semi-finished inventory at December 31, 2016. Improved earnings in the first quarter of 2018 at our bar and structural mills were offset by decreased earnings at our sheet and structural mills. Despite high utilizationplate mills as compared to the first quarter of 2017. Overall operating rates at our sheetsteel mills continued pressure from imports prevented prices from keeping pace with increasing raw material costsincreased to 92% in the thirdfirst quarter of 2018 as compared to 88% in the first quarter of 2017. These conditions, along withWe expect the decreased profitability of our platesteel mills also causedsegment earnings before income taxes and noncontrolling intereststo improve in the third quarter of 2017 to decrease from the second quarter of 2017. The increase in earnings in the steel mills segment in the first nine months of 20172018 compared to the first nine monthsquarter of 2016 was primarily due2018 as we continue to improved metal margins experiencedexperience the benefit of announced price increases. We believe there is sustainable strength in the first half of the year. Though the profitability of thesteelend-use markets and backlogs are strong throughout our steel mills segment decreased in the third quarter of 2017 as compared to the third quarter of 2016 and second quarter of 2017, we expect stable conditions to continue through 2017 for most end markets that the steel mills segment serves.businesses.
In the steel products segment, earnings before income taxes and noncontrolling interests increased in the thirdfirst quarter and first nine months of 2017 decreased2018 compared to the respective prior year periods due to margin compression resulting from higher steel input costs and highly competitive markets, particularly for our rebar fabrication operations. The performance of our joist, grating and rebar fabrication operations declined in the third quarter and first nine months of 2017 from the comparable prior year periods. The performance of our deck operations in the third quarter of 2017 improvedas significantly
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increased earnings in our tubular products and deck businesses more than offset decreased performance in our joist, rebar fabrication, piling and buildings systems operations. Our cold finish, fastener and wire operations also experienced moderately increased earnings in the first quarter of 2018 compared to the thirdfirst quarter of 2016, whileyear-to-date performance was flat compared with the prior year period. Our building systems operations2017. As noted previously, overall volumes and selling prices improved in our steel products segment in the thirdfirst quarter of 2018 compared to the first quarter of 2017, but declinedyear-to-daterising steel input costs caused margins to compress. As we enter the second quarter of 2018, we expect more of those steel input costs to be passed to customers, allowing us to recognize even further improved earnings compared to the respectivefirst quarter of 2018. Backlogs are robust throughout our portfolio of steel products businesses as we enter the second quarter of 2018, and they have improved compared to recent prior year periods. The performance of our cold finish operations improved in the third quarter and first nine months of 2017 compared to the respective prior year periods.
The profitability of our raw materials segment in the thirdfirst quarter decreased as comparedof 2018 increased from the first quarter of 2017 primarily due to the much improved performance of DJJ’s scrap processing operations that benefitted from a strong pricing environment and reported their strongest quarterly profits since the third quarter of 2016 and second quarter of 2017 due to the previously mentioned unplanned outages at our Louisiana DRI facility for most of the third quarter of 2017. Our2008. The raw materials segment also benefitted from the improved first quarter performance forof our DRI facilities.
The increase in the loss of the corporate/eliminations line in the first nine monthsquarter of 2017 improved significantly2018 as compared to the first nine months of 2016 due to the significantly increased profitability of DJJ’s brokerage and scrap processing operations and the profitable performance of our Trinidad DRI facility.
The decrease in losses in Corporate/eliminations in the third quarter of 2017 as compared to the third quarter of 2016 was driven primarily by less profit being eliminated related to intercompany inventory on hand at the end of the third quarter of 2017. The increase in losses in Corporate/eliminations in the first nine months of 2017 as compared to the first nine months of 2016 is primarily due to higher intercompany eliminations due to increased incentive compensation costs, primarily profit sharing expense.intercompany sales activity.
Noncontrolling Interests –Noncontrolling interests represent the income attributable to the noncontrolling partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (NYS),(Limited Partnership) (“NYS”) of which Nucor owns 51%. The decrease in earnings attributable to noncontrolling interests in the third quarter of 2017 as compared to the third quarter of 2016 was primarily attributable to the decreased earnings of NYS, which were due to decreased metal margin per ton and lower sales volumes in the third quarter of 2017 as compared to the third quarter of 2016. The decreaseincrease in earnings attributable to noncontrolling interests in the first nine monthsquarter of 20172018 as compared to the first nine monthsquarter of 2016 is mainly2017 was primarily due to the increased earnings of NYS, which was a result of lowerthe increased metal margins caused by higher scrap costs.margin per ton in the first quarter of 2018 as compared to the first quarter of 2017. 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 nine monthsquarter of 2017, 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.partnership.
Provision for Income Taxes –The effective tax rate for the thirdfirst quarter of 20172018 was 28.2%26.3% compared to 31.6%31.2% for the thirdfirst quarter of 2016.2017. We expect that the effective tax rate for the full year of 20172018 will be approximately 31.3%23.6% compared with 30.7%to 21.1% for the full year of 2016.2017. The decrease in the effective tax rate for the thirdfirst quarter of 20172018 as compared to the thirdfirst quarter of 20162017 was primarily due to a netthe permanent lowering of the U.S. corporate federal income tax benefit totaling $13.2rate from 35% to 21% effective for the years beginning after December 31, 2017 under the Tax Reform Act. This decrease was somewhat offset by increases in the effective tax rate due to the elimination of the domestic manufacturing deduction under the Tax Reform Act and thewrite-off of $21.8 million relatedof deferred tax assets due to a return to provisionthe change in estimate and statethe tax credits included duringstatus of a subsidiary in the thirdfirst quarter of 2017.2018.
We estimate that in the next 12 months our gross unrecognized tax benefits, which totaled $48.2$47.5 million at September 30, 2017,March 31, 2018 exclusive of interest, could decrease by as much as $9.5$7.0 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 2013. The tax years 2014 through 2016 remain open to examination by the Internal Revenue Service. The Canada Revenue Agency has substantially concluded its examination of the 2012 and 2013 Canadian returns for Harris Steel Group Inc. and certain related affiliates and is now examining the 2013 Canadian returns.affiliates. The tax years 2010 through 2016 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 $254.9$354.2 million, or $0.79$1.10 per diluted share, in the thirdfirst quarter of 20172018, compared withto consolidated net earnings of $305.4$356.9 million, or $0.95$1.11 per diluted share, in the thirdfirst quarter of 2016.2017. Net earnings attributable to Nucor stockholders as a percentage of net sales was 5%were 6.4% and 7% in the third quarter of 2017 and 2016, respectively.
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Nucor reported consolidated net earnings of $934.8 million, or $2.90 per diluted share,7.4% in the first nine monthsquarter of 2017 compared with consolidated net earnings of $636.6 million, or $1.99 per diluted share, in the first nine months of 2016. Net earnings attributable to Nucor stockholders as a percentage of net sales was 6%2018 and 5% in the first nine months of 2017, and 2016, respectively. Annualized return on average stockholders’ equity was 15%16.0% and 11%17.8% in the first nine monthsquarter of 2018 and 2017, and 2016, respectively.
Outlook – Approaching– Earnings in the endsecond quarter of 2017,2018 are expected to increase significantly compared to the first quarter of 2018. Notably, steel mill metal margins and profits in March were by far the strongest in the first quarter of 2018. The performance of the steel mills segment is expected to improve in the second quarter of 2018 as compared to the first quarter of 2018 as we continue to experience the benefit of announced price increases. We believe there is sustainable strength in steelend-use markets, and we are encouraged by a numberrecent actions by the U.S. federal government to address the massive flood of positive factors impacting our markets goingdumped and illegally subsidized imports into 2018.the United States. We see generally stable or improving market conditions for nonresidential construction, automotive, energy, heavy equipment and agriculture. Although illegallybelieve broad-based tariffs with few exceptions are needed to address the historic volume of unfairly traded imports remain at unacceptable levels, we are encouraged byand transshipping into the cumulative benefits of the domestic steel industry’s successfulUnited States that is done to avoid trade cases.duties. We expect fourth quarter of 2017 earnings to be similar to slightly decreased from the third quarter of 2017, exclusive of the legal charges and tax benefits related to a return to provision change in estimate and state tax credits recognized in the third quarter of 2017. We expect much improved performance by the raw materials segment driven by more consistent DRI production. The downstreamfor our steel products segment is also likelyin the second quarter of 2018 as compared to benefit from margin improvement. We expect the first quarter of 2018 as rising steel mills segmentinput costs are passed on to see some decline mainly due to weakness in plate steel and typical seasonality.customers.
Nucor’s largest exposure to market risk is via our steel mills and steel products segments. Our largest single customer in the first nine monthsquarter of 20172018 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.
Liquidity and capital resources
Cash provided by operating activities was $762.5$127.9 million in the first nine monthsquarter of 20172018 compared with $1.18 billion$244.1 million in the first nine monthsquarter of 2016.2017. The primary reason for the decrease in cash provided by operating activities is that changes in operating assets and operating liabilities (exclusive of
acquisitions) used cash of $797.3$489.3 million in the first nine monthsquarter of 20172018 compared with $195.6$338.7 million of cash used in the first nine monthsquarter of last year.2017. The funding of our working capital in the first nine monthsquarter of 20172018 increased over the prior year periodfirst quarter of 2017 due mainly to increases in accounts receivable and inventories and decreases in salaries, wages and related accruals, partially offset by increases in accounts payable.payable and decreases in other current assets. Accounts receivable increased in the thirdfirst quarter of 2018 from the first quarter of 2017 from the fourth quarter of 2016 due to a 14%6% increase in tons shipped to outside customers and a 15%3% increase in average sales price per ton.ton in the first quarter of 2018 from the fourth quarter of 2017. Inventories and accounts payable increased due to the 29%13% increase in the cost of scrap and scrap substitutes in inventory as well as the 21% increase in tons of inventory on hand fromyear-end 20162017 to the end of the thirdfirst quarter of 2018. The increase in cash used by changes in salaries, wages and related accruals in the first quarter of 2018 as compared to the first quarter of 2017 to support higher operating rates. Another factor leadingwas primarily attributable to the increased payout of accrued profit sharing and other incentive compensation costs in the first quarter of 2018, as compared to payouts in the first quarter of 2017. The first quarter of 2018 payment was based on Nucor’s financial performance in 2017, which had improved significantly from 2016. The decrease in cash provided by operating activitiesother current assets was the $125.2 millionmainly due to a decrease in deferred income taxes. Partially offsettingfederal and state taxes receivable, which is a function of Nucor’s increased profitability and the decrease in cash generated from changes in operating assets and operating liabilities and changes in deferred taxes was a $260.2 million increase in net earnings over the first nine monthstiming of 2016.tax payments.
The current ratio was 2.12.5 at the end of the thirdfirst quarter of 20172018 and 2.72.4 atyear-end 2016.2017. The current ratio was negativelypositively impacted by a 57%the 17% increase in accounts payable as compared toreceivable, the 7% increase in inventories and the 35% decrease in salaries, wages and related accruals fromyear-end 20162017 due to the reasons cited above. The current ratio was also negatively impacted by a decrease in cash and cash equivalents and short-term investments and an13% increase in long-term debt due within one year. The $570.0accounts payable and a $238.9 million decrease in cash and cash equivalents and short-term investments fromyear-end 2016 was primarily due toduring the fundingfirst quarter of 2018. The decrease in cash and cash equivalents and short-term investments resulted from the usage of cash for working capital, acquisitions, dividends, capital expenditures, dividends and common stock repurchases, partially offset by cash generated from operating activities. Accounts receivable and inventories increased 30% and 42%, respectively, sinceyear-end 2016 due to the reasons cited above.investments in affiliates. In the third quartersfirst quarter of both 2017 and 2016,2018, total accounts receivable turned approximately every five weeks and inventories turned approximately every 10 weeks. These ratios compare with accounts receivable turnover of every five weeks and inventory turnover of every nine weeks. The increaseweeks in long-term debt due within one year resulted from the reclassificationfirst quarter of $500.0 million of debt due in June 2018 fromnon-current to current liabilities.2017.
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Cash used in investing activities during the first nine monthsquarter of 2017 was $736.5 million compared to $945.52018 decreased $313.6 million from the prior year period. The primary driverfirst quarter of 2017. Nucor used $485.1 million of cash for acquisitions in the first quarter of 2017 mainly for the purchases of Republic Conduit and Southland Tube, Inc. during that period, while Nucor had no acquisitions in the first quarter of 2018. That decrease in cash used in investing activities in the first quarter of 2018 was thatoffset by a $100.0 million decrease in proceeds from the sale of investments, a $77.7 million increase in cash used for capital expenditures and a $41.9 million increase in investments in affiliates over the first quarter of 2017. The higher levels of capital expenditures in the first quarter of 2018 over the first quarter of 2017 were associated with the new cold mill complex at Nucor Steel Arkansas and the new galvanizing line at Nucor Steel Gallatin. The increased investments in affiliates in the first quarter of 2018 over the first quarter of 2017 related to purchasean additional $17.5 million of investments decreased from $650.0in Nucor-JFE as well as investments in other minor equity method investments.
Cash used in financing activities of $145.5 million during the first quarter of 2018 was relatively flat compared with $147.1 million in the first nine months of 2016 to $50.0 million in the first nine monthsquarter of 2017. Cash used for capital expenditures also experienced a small decrease from the first nine monthsThe majority of the prior year. Those decreasessmall change was due to the $36.7 million decrease in cash used in investing activities were partiallydistributions to noncontrolling interests, offset by a $495.0the $29.2 million increase in cash used to fund acquisitions, mainly the purchases of Republic and Southland in January 2017 and St. Louis Cold Drawn in September 2017.
Cash used in financing activitiesrepurchase treasury stock in the first nine monthsquarter of 2017 was $513.5 million compared with $482.6 million in the prior year period. The majority of the change related to the fact that cash used to fund the repurchase of shares of our common stock increased by $85.1 million2018 over the prior year period. Partially offsetting the increase in cash used to repurchase sharesfirst quarter of our common stock was a net increase in short-term debt associated with trade credit arrangements used to finance the business of Nucor Trading S.A. over the prior year period.2017.
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 $1.63 billion$760.3 million as of September 30, 2017.March 31, 2018. Nucor’s financial strength allowssolid cash and cash equivalents and short-term investments position provides many opportunities for a consistent approachprudent deployment of our capital. We have three approaches to capital allocation throughout the business cycle.allocating our capital. Nucor’s highest capital allocation priority is to invest for profitable long-term growth through our multi-pronged strategy of optimizing existing operations, acquisitions and greenfield expansions. Our second priority is to provide our stockholders with cash dividends that are consistent with our success in delivering long-term earnings growth. Our third priority is to opportunistically repurchase our stock when our cash position is strong and attractively priced growth opportunities are limited. In September 2015, Nucor’s Board of Directors approved a stockshare repurchase program under which the Company is authorized to repurchase up to $900$900.0 million of its common stock. As of September 30, 2017,March 31, 2018, the Company had approximately $738.0$708.9 million remaining availablefor share repurchases under the program.
Nucor has an undrawnNucor’s $1.5 billion revolving credit facility that does not mature untilis undrawn and was amended and restated in April 2021.2018 to extend the maturity date to April 2023. 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 anA- long-term rating from Standard and Poor’s and a Baa1 long-term rating from Moody’s. Our credit ratings are dependent, however, upon a number of factors, both qualitative and quantitative, and are subject to change at any time. The disclosure of our credit ratings is made in order to enhance investors’ understanding of our sources of liquidity and the impact of our credit ratings on our cost of funds.
Based upon the preceding factors, we expect to continue to have adequate access to the capital markets at a reasonable cost of funds for liquidity purposes when needed. This was evidenced when, in April 2018, we issued $500.0 million of10-year notes at an interest rate of 3.950% and $500.0 million of30-year notes at an interest rate of 4.400%. Due mainly to the increase in working capital levels fromyear-end, Nucor’s cash provided by operating activities less cash used in capital expenditures for the first three months of 2018 was a net cash outflow. Our spending levels in 2017 and 2018 were marked by several significant acquisitions and significant levels of capital spending made in order to increase our long-term earnings power. In addition, during 2017, we retired $600.0 million in long-term debt and we have another $500.0 million of long-term debt that will mature during the second quarter of 2018. Both of the previously mentioned debt tranches were at weighted average interest rates that were higher than the weighted average interest rates on the newly issued $1.0 billion notes. We plan to use the net proceeds from the sale of the notes for the repayment of the $500.0 million of long-term debt maturing in the second quarter of 2018 as well as for other general corporate purposes, which may include, but are not limited to, working capital, capital expenditures, advances for or investments in our subsidiaries, acquisitions, redemption and repayment of outstanding indebtedness, and purchases of our common stock.
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 customarynon-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 September 30, 2017,March 31, 2018, our funded debt to total capital ratio was 33%29%, and we were in compliance with allnon-financial covenants under our credit facility. No borrowings were outstanding under the credit facility as of September 30, 2017.March 31, 2018.
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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 20172018 are expected to be approximately $500.0 million$1.0 billion compared to $617.7$507.1 million in 2016.2017. The decreaseincrease in projected 20172018 capital expenditures is primarily due to the fact that several major expansion projects were completed or near completion bywill be underway in 2018. The projects that we anticipate will have the end of 2016. Those projects include NYS’s quench and self-tempering project to becomelargest capital expenditures in 2018 are the sole North American producer of high-strength,low-alloy beams; the heat treat facility$230.0 million cold mill complex addition at our Memphis, Tennessee SBQNucor Steel Arkansas, the $176.0 million hot band galvanizing line at Nucor Steel Gallatin, the two recently announced micro mill to expand our participationgreenfield expansions in energy, automotive, heavy equipmentSedalia, Missouri and service center markets; an upgraded finishing end at our Auburn, New York bar mill;Frostproof, Florida with a combined estimated cost of $490.0 million, and the installation of DRI handling equipment$180.0 million merchant bar rolling facility at 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.Steel Kankakee.
In September 2017,February 2018, Nucor’s Board of Directors declared a quarterly cash dividend on Nucor’s common stock of $0.3775$0.38 per share payable on November 9, 2017May 11, 2018, to stockholders of record on SeptemberMarch 29, 2017.2018. This dividend is Nucor’s 178th180th 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. Quantitative3.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, 2016.2017. There were no interest rate swaps outstanding at September 30, 2017.March 31, 2018.
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 material and energy requirements and to obtain prices for our steel products that match market price movements in response to supply and demand. In periods of strong or stable demand for our products, we are more likely to be able to effectively reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand for our products is weaker, this becomes more challenging. Our DRI facilities in Trinidad and Louisiana provide us with flexibility in managing our input costs. DRI is particularly important for operational flexibility when demand for prime scrap increases due to increased domestic 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 ninethree months ended September 30, 2017,March 31, 2018, the volume of natural gas sold from our drilling operations was approximately 21%15% 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),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 September 30, 2017,March 31, 2018, accumulated other comprehensive income (loss),loss, net of income taxes included $0.3$3.6 million in unrealizednet-of-tax gainslosses for the fair value of these derivative instruments. Changes in the fair values of derivatives not designated as hedges are recognized
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in earnings each period. The following table presents the negative effect onpre-tax earnings of a hypothetical change in the fair value of derivative instruments outstanding at September 30, 2017,March 31, 2018, 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 | 10% Change | 25% Change | ||||||||||||
Natural gas | $ | 7,390 | $ | 18,470 | $ | 14,427 | $ | 36,070 | ||||||||
Aluminum | 3,938 | 8,634 | 3,308 | 8,274 | ||||||||||||
Copper | 2,740 | 6,829 | 2,134 | 4,897 |
Any resulting changes in fair value would be recorded as adjustments to accumulated other comprehensive income (loss),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 Mexico. We periodically use derivative contracts to mitigate the risk of currency fluctuations. Open foreign currency derivative contracts at September 30, 2017March 31, 2018 were insignificant.
Item 4. Controls4.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 the 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 September 30, 2017,March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHERII.OTHER INFORMATION
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 with self-insurance limits for certain risks that is subject to certain self-insurance limits.risks.
There have been no material changes in Nucor’s risk factors from those included in “Item 1A. Risk Factors” in Nucor’s Annual Report on Form10-K for the year ended December 31, 2016.2017.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Our share repurchase program activity for each of the three months and the quarter ended September 30, 2017March 31, 2018 was as follows (in thousands, except per share amounts):
Total Number of Shares Purchased | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||||||||||
July 2, 2017 - July 29, 2017 | 491 | $ | 59.28 | 491 | $ | 799,226 | ||||||||||
July 30, 2017 - August 26, 2017 | 300 | $ | 57.19 | 300 | 782,069 | |||||||||||
August 27, 2017 - September 30, 2017 | 800 | $ | 55.05 | 800 | 738,029 | |||||||||||
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For the Quarter Ended September 30, 2017 | 1,591 | $ | 56.76 | 1,591 | $ | 738,029 | ||||||||||
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Total Number of Shares Purchased | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||||||||||
January 1, 2018 - January 27, 2018 | — | $ | — | — | $ | 738,029 | ||||||||||
January 28, 2018 - February 24, 2018 | 443 | $ | 65.86 | 443 | 708,853 | |||||||||||
February 25, 2018 - March 31, 2018 | — | $ | — | — | 708,853 | |||||||||||
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For the Quarter Ended March 31, 2018 | 443 | $ | 65.86 | 443 | $ | 708,853 | ||||||||||
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(1) | Includes commissions of $0.02 per share. |
(2) | On September 2, 2015, the Company announced that the Board of Directors had approved a |
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* | Filed herewith. |
** | Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of RegulationS-K. |
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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 | |||||
Chief Financial Officer, Treasurer and Executive Vice President | ||||||
Dated: May 9, 2018
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