Table of Contents

First Quarter 2019

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

☒

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

For the quarterly period ended March 30, 2019

OR

 

☐

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

For the transition period from                      to                     

Commission File Number: 1-4119

 

 

NUCOR CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-1860817

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

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

(704) 366-7000

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒      No    ☐

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

 

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

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

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

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which  registered

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

304,785,686 shares of the registrant’s common stock were outstanding at March 30, 2019.

 

 

 

 

Table of Contents

Nucor Corporation

Quarterly Report on Form 10-Q

For the Three Months Ended March 30, 2019

TABLE OF CONTENTS

 

               Page  
Part I    Financial Information

 

   Item 1    Financial Statements (Unaudited)   
      Condensed Consolidated Statements of Earnings - Three Months (13 Weeks) Ended March 30, 2019 and March 31, 2018      1  
      Condensed Consolidated Statements of Comprehensive Income - Three Months (13 Weeks) Ended March 30, 2019 and March 31, 2018      2  
      Condensed Consolidated Balance Sheets - March 30, 2019 and December 31, 2018      3  
      Condensed Consolidated Statements of Cash Flows - Three Months (13 Weeks) Ended March 30, 2019 and March 31, 2018      4  
      Notes to Condensed Consolidated Financial Statements      5  
   Item 2    Management’s Discussion and Analysis of Financial Condition and Results of Operations      22  
   Item 3    Quantitative and Qualitative Disclosures About Market Risk      29  
   Item 4    Controls and Procedures      31  
Part II    Other Information

 

   Item 1    Legal Proceedings      32  
   Item 1A    Risk Factors      32  
   Item 2    Unregistered Sales of Equity Securities and Use of Proceeds      32  
   Item 6    Exhibits      33  
Signatures      34  

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Nucor Corporation Condensed Consolidated Statements of Earnings (Unaudited)

(In thousands, except per share amounts)

 

     Three Months (13 Weeks) Ended  
     March 30, 2019     March 31, 2018  

Net sales

   $ 6,096,624     $ 5,568,419  
  

 

 

   

 

 

 

Costs, expenses and other:

    

Cost of products sold

     5,200,732       4,842,013  

Marketing, administrative and other expenses

     180,739       182,960  

Equity in earnings of unconsolidated affiliates

     (2,906 )      (9,580 ) 

Interest expense, net

     28,443       37,114  
  

 

 

   

 

 

 
     5,407,008       5,052,507  
  

 

 

   

 

 

 

Earnings before income taxes and noncontrolling interests

     689,616       515,912  

Provision for income taxes

     158,823       135,800  
  

 

 

   

 

 

 

Net earnings

     530,793       380,112  

Earnings attributable to noncontrolling interests

     28,987       25,933  
  

 

 

   

 

 

 

Net earnings attributable to Nucor stockholders

   $ 501,806     $ 354,179  
  

 

 

   

 

 

 

Net earnings per share:

    

Basic

   $ 1.63     $ 1.11  

Diluted

   $ 1.63     $ 1.10  

Average shares outstanding:

    

Basic

     306,585       319,421  

Diluted

     307,180       320,474  

See notes to condensed consolidated financial statements.

 

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Nucor Corporation Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

     Three Months (13 Weeks) Ended  
     March 30, 2019     March 31, 2018  

Net earnings

   $ 530,793     $ 380,112  
  

 

 

   

 

 

 

Other comprehensive income:

    

Net unrealized income (loss) on hedging derivatives, net of income taxes of $200 and $500 for the first quarter of 2019 and 2018, respectively

     731       (752 ) 

Reclassification adjustment for settlement of hedging derivatives included in net income, net of income taxes of ($200) and $0 for the first quarter of 2019 and 2018, respectively

     (631 )      (48 ) 

Foreign currency translation gain (loss), net of income taxes of $0 for both the first quarter of 2019 and 2018

     (6,640 )      6,115  
  

 

 

   

 

 

 
     (6,540 )      5,315  
  

 

 

   

 

 

 

Comprehensive income

     524,253       385,427  

Comprehensive income attributable to noncontrolling interests

     (28,987 )      (25,933 ) 
  

 

 

   

 

 

 

Comprehensive income attributable to Nucor stockholders

   $ 495,266     $ 359,494  
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

 

     March 30, 2019     Dec. 31, 2018  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 1,550,807     $ 1,398,886  

Short-term investments

     50,000       —    

Accounts receivable, net

     2,483,138       2,505,568  

Inventories, net

     4,445,228       4,553,500  

Other current assets

     121,170       178,311  
  

 

 

   

 

 

 

Total current assets

     8,650,343       8,636,265  

Property, plant and equipment, net

     5,573,237       5,334,748  

Goodwill

     2,183,677       2,184,336  

Other intangible assets, net

     806,888       828,504  

Other assets

     872,553       936,735  
  

 

 

   

 

 

 

Total assets

   $ 18,086,698     $ 17,920,588  
  

 

 

   

 

 

 

LIABILITIES

    

Current liabilities:

    

Short-term debt

   $ 71,438     $ 57,870  

Accounts payable

     1,429,776       1,428,191  

Salaries, wages and related accruals

     371,913       709,397  

Accrued expenses and other current liabilities

     694,888       610,842  
  

 

 

   

 

 

 

Total current liabilities

     2,568,015       2,806,300  

Long-term debt due after one year

     4,233,792       4,233,276  

Deferred credits and other liabilities

     782,225       679,044  
  

 

 

   

 

 

 

Total liabilities

     7,584,032       7,718,620  
  

 

 

   

 

 

 

EQUITY

    

Nucor stockholders’ equity:

    

Common stock

     152,061       152,061  

Additional paid-in capital

     2,083,339       2,073,715  

Retained earnings

     10,714,279       10,337,445  

Accumulated other comprehensive loss, net of income taxes

     (308,787 )      (304,133 ) 

Treasury stock

     (2,526,701 )      (2,467,010 ) 
  

 

 

   

 

 

 

Total Nucor stockholders’ equity

     10,114,191       9,792,078  

Noncontrolling interests

     388,475       409,890  
  

 

 

   

 

 

 

Total equity

     10,502,666       10,201,968  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 18,086,698     $ 17,920,588  
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

     Three Months (13 Weeks) Ended  
     March 30, 2019     March 31, 2018  

Operating activities:

    

Net earnings

   $ 530,793     $ 380,112  

Adjustments:

    

Depreciation

     158,171       158,665  

Amortization

     21,500       22,453  

Stock-based compensation

     12,492       10,463  

Deferred income taxes

     19,948       29,988  

Distributions from affiliates

     26,034       25,150  

Equity in earnings of unconsolidated affiliates

     (2,906 )      (9,580 ) 

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

    

Accounts receivable

     21,958       (343,982 ) 

Inventories

     107,907       (246,933 ) 

Accounts payable

     (11,397 )      157,836  

Federal income taxes

     105,573       86,746  

Salaries, wages and related accruals

     (325,866 )      (171,626 ) 

Other operating activities

     (13,499 )      28,629  
  

 

 

   

 

 

 

Cash provided by operating activities

     650,708       127,921  
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures

     (288,786 )      (172,203 ) 

Investment in and advances to affiliates

     (29 )      (55,901 ) 

Divestiture of affiliates

     67,591       —    

Disposition of plant and equipment

     12,910       5,967  

Acquisitions (net of cash acquired)

     (9,495 )      —    

Purchases of investments

     (50,000 )      —    

Proceeds from the sale of investments

     —         50,000  

Other investing activities

     2,176       975  
  

 

 

   

 

 

 

Cash used in investing activities

     (265,633 )      (171,162 ) 
  

 

 

   

 

 

 

Financing activities:

    

Net change in short-term debt

     13,568       21,203  

Issuance of common stock

     3,137       15,312  

Payment of tax withholdings on certain stock-based compensation

     (1,364 )      (4,430 ) 

Distributions to noncontrolling interests

     (50,402 )      (24,793 ) 

Cash dividends

     (123,400 )      (121,787 ) 

Acquisition of treasury stock

     (72,830 )      (29,193 ) 

Other financing activities

     (1,947 )      (1,844 ) 
  

 

 

   

 

 

 

Cash used in financing activities

     (233,238 )      (145,532 ) 
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     84       (77 ) 
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     151,921       (188,850 ) 

Cash and cash equivalents - beginning of year

     1,398,886       949,104  
  

 

 

   

 

 

 

Cash and cash equivalents - end of three months

   $ 1,550,807     $ 760,254  
  

 

 

   

 

 

 

Non-cash investing activity:

    

Change in accrued plant and equipment purchases and assets recorded under finance lease arrangements

   $ 12,925     $ (9,396 ) 
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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

 

1.

BASIS OF INTERIM PRESENTATION: The information furnished in this Item 1 reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented and are of a normal and recurring nature unless otherwise noted. The information furnished has not been audited; however, the December 31, 2018 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements in this Item 1 should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Adopted Accounting Pronouncements – In the first quarter of 2019, Nucor adopted new guidance related to lease accounting using the modified retrospective approach, which permits companies to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjusting the comparative periods prior to adoption. The new lease guidance requires all lessees to recognize on the balance sheet right-of-use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months, including operating leases. Expenses are recognized in the statement of earnings in a manner similar to previous accounting guidance.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new lease standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and the short-term lease exemption policy such that the new lease guidance was applied to leases greater than one year in duration. The adoption of the new lease standard did not have a material impact on our consolidated financial statements as it resulted in an increase of 0.5% and 1.2% to our total assets and total liabilities, respectively, on our consolidated balance sheet at January 1, 2019. The new lease standard did not materially impact our consolidated net earnings and had no impact on our cash flows. See Note 4 for further information.

In the first quarter of 2019, we also adopted new accounting guidance related to tax effects of the Tax Cuts and Jobs Act of 2017. As a result of the adoption of the new guidance, we elected to reclassify stranded tax effects from accumulated other comprehensive income to retained earnings, effective January 1, 2019. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

 

2.

INVENTORIES: Inventories consisted of approximately 40% raw materials and supplies and 60% finished and semi-finished products at March 30, 2019 (43% and 57%, respectively, at December 31, 2018). Nucor’s manufacturing process consists of a continuous, vertically integrated process from which products are sold to customers at various stages throughout the process. Since most steel products can be classified as either finished or semi-finished products, these two categories of inventory are combined.

 

3.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation of $9.32 billion at March 30, 2019 ($9.19 billion at December 31, 2018).

Nucor performed an impairment assessment of its proved producing natural gas well assets in September 2018. One of the main assumptions that most significantly affects the undiscounted cash flows determination is management’s estimate of future pricing of natural gas and natural gas liquids. The pricing used in the impairment assessment was developed by management based on projected natural gas market supply and demand dynamics, in conjunction with a review of projections by market analysts. Management also makes key estimates on the expected reserve levels and on the expected drilling production costs. The impairment assessment was performed on each of Nucor’s three groups (“fields”) of wells, with each field defined by common geographic location.

 

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As a result of the impairment assessment, Nucor recorded an impairment charge of $110.0 million relating to two fields of wells in the third quarter of 2018. The post-impairment combined carrying value of these two fields was $69.6 million at March 30, 2019 ($71.0 million at December 31, 2018). The third field was not impaired and had a carrying value of $50.7 million at March 30, 2019 ($51.8 million at December 31, 2018). Changes in the natural gas industry or a prolonged low price environment beyond what had already been assumed in the assessment could cause management to revise the natural gas and natural gas liquids price assumptions, the 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 fields of proved well assets.

 

4.

LEASES: We lease certain equipment, office space and land. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion and we consider these options in determining the lease term used to establish our right-of-use assets and lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or a purchase option reasonably certain of exercise.

We determine that a contract contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In evaluating whether we have the right to control an identified asset, we assess whether or not we have the right to direct the use of the identified asset and obtain substantially all of the economic benefit from the use of the identified asset.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.    

Certain of our lease agreements include payments that adjust periodically for consumption of goods provided by the right-of-use asset in excess of contractually determined minimum amounts and for inflation. These variable lease payments are not significant. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Total lease costs were $11.0 million in the first quarter of 2019. Finance lease costs were $5.2 million in the first quarter of 2019, with $2.3 million being included in costs of products sold related to amortization of leased assets and $2.9 million being included in interest expense, net related to interest on lease liabilities in the condensed consolidated statement of earnings. Operating lease costs were $5.8 million in the first quarter of 2019 and were included in cost of products sold in the condensed consolidated statement of earnings.

Supplemental cash flow information and non-cash activity related to our leases are as follows (in thousands):

 

     Three Months  
     (13 Weeks) Ended  
     March 30, 2019  

Other information

  

Cash paid for amounts included in measurement of lease liabilities:

  

Operating cash flows from operating leases

   $ 5,707  

Operating cash flows from finance leases

   $ 2,856  

Financing cash flows from finance leases

   $ 1,947  

 

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Supplemental balance sheet information related to our leases is as follows (in thousands):

 

          March 30, 2019  

Assets

     

Operating lease

  

Property, plant and equipment, net

   $ 94,578  

Finance lease

  

Property, plant and equipment, net

     67,123  
     

 

 

 

Total leased

      $ 161,701  
     

 

 

 

Liabilities

     

Current operating

  

Accrued expenses and other current liabilities

   $ 17,793  

Current finance

  

Accrued expenses and other current liabilities

     8,267  

Non-current operating

  

Deferred credits and other liabilities

     76,652  

Non-current finance

  

Deferred credits and other liabilities

     72,617  
     

 

 

 

Total leased

      $ 175,329  
     

 

 

 

Weighted-average remaining lease term and discount rate for our leases are as follows:

 

     March 30, 2019  

Weighted-average remaining lease term - operating leases

     9.6 years  

Weighted-average remaining lease term - finance leases

     10.8 years  

Weighted-average discount rate - operating leases

     3.8 % 

Weighted-average discount rate - finance leases

     31.8 % 

The reason for the substantial weighted-average discount rate – finance leases, of 31.8%, is due to Nucor’s past accounting for the respective finance leases following the former accounting guidance for capital leases. Pursuant to the former lease accounting guidance, the recognition of a capital lease asset and associated capital lease liability could not exceed the fair market value of the leased asset at lease commencement. Accordingly, the incremental borrowing rate was adjusted upward so that the present value of the minimum lease payments would equal the fair value of the asset.

Maturities of lease liabilities by fiscal year for our leases are as follows as of March 30, 2019 (in thousands):

 

     Operating Leases      Finance Leases  

Maturities of lease liabilities, year ending December 31,

     

2019

   $ 16,232      $ 14,430  
2020    17,613      18,231  
2021   

15,249

    

17,755

 
2022   

13,663

    

16,959

 
2023    10,764      15,112  

Thereafter

     41,800        78,568  
  

 

 

    

 

 

 

Total lease payments

   $ 115,321      $ 161,055  

Less imputed interest

     (20,876 )       (80,171 ) 
  

 

 

    

 

 

 

Present value of lease liabilities

   $ 94,445      $ 80,884  
  

 

 

    

 

 

 

Prior Period Disclosures

As a result of adopting the new lease accounting guidance on January 1, 2019 under the modified retrospective approach, the Company is required to present future minimum lease commitments for capital leases and operating leases having initial or noncancellable lease terms in excess of one year that were previously disclosed in our 2018 Annual Report on Form 10-K and accounted for under previous lease guidance.

Total future minimum lease payments related to capital leases at December 31, 2018 were $154.8 million, with the timing of those payments estimated at that date to be made as follows: $17.7 million in 2019; a total of $33.6 million to be paid between 2020 and 2021; a total of $30.0 million to be paid between 2022 and 2023; and $73.4 million to be paid thereafter.

Total future minimum lease payments related to operating leases having initial or noncancellable lease terms in excess of one year were $128.6 million, with the timing of those payments estimated at that date to be made as follows: $31.8 million in 2019; a total of $45.0 million to be paid between 2020 and 2021; a total of $28.4 million to be paid between 2022 and 2023; and $23.5 million to be paid thereafter.

The gross amount of assets recorded under capital leases was $89.4 million as of December 31, 2018, and were primarily buildings and improvements or machinery and equipment.

 

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5.

GOODWILL AND OTHER INTANGIBLE ASSETS: The change in the net carrying amount of goodwill for the three months ended March 30, 2019 by segment was as follows (in thousands):

 

     Steel Mills      Steel Products      Raw Materials      Total  

Balance at December 31, 2018

   $ 591,986      $ 862,773      $ 729,577      $ 2,184,336  

Translation

     —          (659 )       —          (659 ) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 30, 2019

   $ 591,986      $ 862,114      $ 729,577      $ 2,183,677  
  

 

 

    

 

 

    

 

 

    

 

 

 

Nucor completed its most recent annual goodwill impairment testing during the fourth quarter of 2018 and concluded that as of such time there was no impairment of goodwill for any of its reporting units.

The evaluation performed in 2018 used forward-looking projections and included significant expected improvements in the future cash flows of one of the Company’s reporting units, Rebar Fabrication. The fair value of this reporting unit exceeded its carrying value by approximately 8% in the most recent evaluation. The operating results of this reporting unit declined significantly and remained depressed throughout 2018. Nucor expects the operating results of this reporting unit to improve when the price of steel in relation to the reporting unit’s backlog pricing stabilizes. If our assessment of the relevant facts and circumstances changes, or the actual performance of this reporting unit falls short of expected results, noncash impairment charges may be required. Total goodwill associated with the Rebar Fabrication reporting unit was $352.5 million as of March 30, 2019 ($353.0 million as of December 31, 2018). An impairment of goodwill may also lead us to record an impairment of other intangible assets. Total finite-lived intangible assets associated with the Rebar Fabrication reporting unit were $74.0 million as of March 30, 2019 ($76.7 million as of December 31, 2018). There have been no triggering events requiring an interim assessment for impairment since the most recent annual goodwill impairment testing date.

During the first quarter of 2019, the operating results and updated future projections of one of the Company’s reporting units, Grating, decreased from the assumptions used in our most recent impairment assessment. The fair value of this reporting unit exceeded its carrying value by approximately 19% in that assessment. The short-term three-month decline in operating results was determined not to be indicative of a long-term decline representing a triggering event given the amount the fair value of the reporting unit exceeded its carrying amount in the most recent assessment. As of March 30, 2019, total goodwill and finite-lived intangible assets associated with the Grating reporting unit were $36.6 million and $3.6 million, respectively. Management will continue to monitor the Grating reporting unit for potential triggering events that would require an interim assessment for impairment.

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 March 30, 2019 and December 31, 2018 (in thousands):

 

     March 30, 2019      December 31, 2018  
     Gross
Amount 		     Accumulated
Amortization 		     Gross
Amount 		     Accumulated
Amortization 		 

Customer relationships

   $ 1,420,668      $ 731,454      $ 1,418,250      $ 713,656  

Trademarks and trade names

     177,525        90,234        176,046        87,680  

Other

     63,807        33,424        67,820        32,276  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,662,000      $ 855,112      $ 1,662,116      $ 833,612  
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible asset amortization expense for the first quarter of 2019 and 2018 was $21.5 million and $22.5 million, respectively. Annual amortization expense is estimated to be $87.1 million in 2019; $84.7 million in 2020; $83.5 million in 2021; $81.2 million in 2022; and $80.0 million in 2023.

 

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6.

EQUITY INVESTMENTS: The carrying value of our equity investments in domestic and foreign companies was $806.8 million at March 30, 2019 ($869.9 million at December 31, 2018) and is recorded in other assets in the condensed consolidated balance sheets.

NUMIT

Nucor owns a 50% economic and voting interest in NuMit LLC (“NuMit”). NuMit owns 100% of the equity interest in Steel Technologies LLC, an operator of 26 sheet processing facilities located throughout the United States, Canada and Mexico. Nucor accounts for the investment in NuMit (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the members. Nucor’s investment in NuMit was $316.6 million at March 30, 2019 ($337.2 million at December 31, 2018). Nucor received distributions of $26.0 million and $25.2 million from NuMit during the first quarter of 2019 and 2018, respectively.

DUFERDOFIN NUCOR

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

Nucor’s investment in Duferdofin Nucor was $260.8 million at March 30, 2019 ($269.1 million at December 31, 2018). Nucor’s 50% share of the total net assets of Duferdofin Nucor was $110.4 million at March 30, 2019, resulting in a basis difference of $150.4 million due to the step-up to fair value of certain assets and liabilities attributable to Duferdofin Nucor as well as the identification of goodwill ($86.5 million) and finite-lived intangible assets. This basis difference, excluding the portion attributable to goodwill, is being amortized based on the remaining estimated useful lives of the various underlying net assets, as appropriate. Amortization expense associated with the fair value step-up was $2.2 million and $2.4 million during the first quarter of 2019 and 2018, respectively.

As of March 30, 2019, Nucor had outstanding notes receivable of €35.0 million ($39.3 million) from Duferdofin Nucor (€35.0 million, or $40.2 million, as of December 31, 2018). The notes receivable bear interest at 0.84% and reset annually on September 30 to the 12-month Euro Interbank Offered Rate plus 1% per year. The maturity date of the principal amounts was extended to January 31, 2022 during the first quarter of 2018. As of March 30, 2019 and December 31, 2018, the notes receivable were classified in other assets in the condensed consolidated balance sheets.

Nucor has issued a guarantee for its ownership percentage (50%) of Duferdofin Nucor’s borrowings under Facility A of a Structured Trade Finance Facilities Agreement (“Facility A”). The fair value of the guarantee is immaterial. In April 2018, Duferdofin Nucor amended and extended Facility A to mature on April 16, 2021. The maximum amount Duferdofin Nucor could borrow under Facility A was €160.0 million ($179.5 million) at March 30, 2019. As of March 30, 2019, there was €153.0 million ($171.7 million) outstanding under that facility (€155.0 million, or $178.0 million, as of December 31, 2018). If Duferdofin Nucor fails to pay when due any amounts for which it is obligated under Facility A, Nucor could be required to pay 50% of such amounts pursuant to and in accordance with the terms of its guarantee. Any indebtedness of Duferdofin Nucor to Nucor is effectively subordinated to the indebtedness of Duferdofin Nucor under Facility A. Nucor has not recorded any liability associated with this guarantee.

NUCOR-JFE

Nucor owns a 50% economic and voting interest in Nucor-JFE Steel Mexico, S. de R.L. de C.V. (“Nucor-JFE”), a 50-50 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 a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the members. Nucor’s investment in Nucor-JFE was $134.6 million at March 30, 2019 ($135.7 million at December 31, 2018).

 

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On January 16, 2019, Nucor entered into an agreement to guarantee a percentage, equal to its ownership percentage (50%), of Nucor-JFE’s borrowings under the General Financing Agreement and Promissory Note (the “Facility”). The fair value of the guarantee is immaterial. Nucor’s guarantee expires on April 30, 2020. Under the Facility, the maximum amount Nucor-JFE could borrow was $65.0 million as of March 30, 2019. The Facility is uncommitted. As of March 30, 2019, there was $40.0 million outstanding under the Facility. If Nucor-JFE fails to pay when due any amounts for which it is obligated under the Facility, Nucor could be required to pay 50% of such amounts pursuant to and in accordance with the terms of its guarantee. Nucor has not recorded any liability associated with this guarantee.

ALL EQUITY INVESTMENTS

Nucor reviews its equity investments for impairment if and when circumstances indicate that a decline in fair value below their carrying amounts may have occurred. Nucor last assessed its equity investment in Duferdofin Nucor for impairment during the fourth quarter of 2017 due to the protracted challenging steel market conditions in Europe. After completing its assessment, the Company determined that the estimated fair value exceeded its carrying amount by a sufficient amount and that there was no need to record an impairment charge. The assumptions that most significantly affect the fair value determination include projected cash flows and the discount rate. It is reasonably possible that material deviation of future performance from the estimates used in our most recent valuation could result in 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.

 

7.

CURRENT LIABILITIES: Book overdrafts, included in accounts payable in the condensed consolidated balance sheets, were $161.0 million at March 30, 2019 ($89.8 million at December 31, 2018). Dividends payable, included in accrued expenses and other current liabilities in the condensed consolidated balance sheets, were $123.1 million at March 30, 2019 ($123.4 million at December 31, 2018).

 

8.

FAIR VALUE MEASUREMENTS: The following table summarizes information regarding Nucor’s financial assets and financial liabilities that were measured at fair value as of March 30, 2019 and December 31, 2018 (in thousands). Nucor does not have any non-financial assets or non-financial liabilities that are measured at fair value on a recurring basis.

 

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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 30, 2019

           

Assets:

           

Cash equivalents

   $ 1,213,175      $ 1,213,175      $ —        $ —    

Short-term investments

     50,000        50,000        —          —    

Derivative contracts

     785        —          785        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,263,960      $ 1,263,175      $ 785      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative contracts

   $ (9,366 )     $ —        $ (9,366 )     $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2018

           

Assets:

           

Cash equivalents

   $ 1,084,319      $ 1,084,319      $ —        $ —    

Derivative contracts

     4,772        —          4,772        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,089,091      $ 1,084,319      $ 4,772      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative contracts

   $ (8,600 )     $ —        $ (8,600 )     $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value measurements for Nucor’s cash equivalents and short-term investments are classified under Level 1 because such measurements are based on quoted market prices in active markets for identical assets. Our short-term investments are held in similar short-term investment instruments as described in Note 4 to the consolidated financial statements included in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2018. 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 $4.62 billion at March 30, 2019 ($4.45 billion at December 31, 2018). The debt fair value estimates are classified under Level 2 because such estimates are based on readily available market prices of our debt at March 30, 2019 and December 31, 2018, or similar debt with the same maturities, ratings and interest rates.

 

9.

CONTINGENCIES: Nucor is subject to environmental laws and regulations established by federal, state and local authorities and, accordingly, makes provisions for the estimated costs of compliance. Of the undiscounted total of $17.7 million of accrued environmental costs at March 30, 2019 ($18.4 million at December 31, 2018), $5.4 million was classified in accrued expenses and other current liabilities ($7.0 million at December 31, 2018) and $12.3 million was classified in deferred credits and other liabilities ($11.4 million at December 31, 2018). Inherent uncertainties exist in these estimates primarily due to unknown conditions, evolving remediation technology and changing governmental regulations and legal standards.

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

 

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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.

 

10.

STOCK-BASED COMPENSATION: Overview – The Company maintains the Nucor Corporation 2014 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) under which the Company may award stock-based compensation to key employees, officers and non-employee directors. The Company’s stockholders approved the Omnibus Plan on May 8, 2014. The Omnibus Plan permits the award of stock options, restricted stock units, restricted shares and other stock-based awards for up to 13.0 million shares of the Company’s common stock. As of March 30, 2019, 5.9 million shares remained available for award under the Omnibus Plan.

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 30, 2019, 1.6 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 and non-employee directors with exercise prices at 100% of the market value on the date of the grant. The stock options granted are generally exercisable at the end of three years and have a term of 10 years.

A summary of activity under Nucor’s stock option plans for the first quarter of 2019 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

     3,828      $ 49.71        

Granted

     —        $ —          

Exercised

     (88 )     $ 35.76         $ 2,157  

Canceled

     —        $ —          

Outstanding at March 30, 2019

     3,740      $ 50.04        6.3 years      $ 33,576  
  

 

 

          

Stock options exercisable at March 30, 2019

     2,024      $ 45.83        4.9 years      $ 25,618  
  

 

 

          

Stock options granted to employees who are eligible for retirement on the date of the 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 $0.3 million in the first quarter of 2019 ($0.4 million in the first quarter of 2018). As of March 30, 2019, unrecognized compensation expense related to stock options was $1.3 million, which is expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock Units – Nucor annually grants restricted stock units (“RSUs”) to key employees, officers and non-employee directors. The RSUs granted to key employees and officers vest and are converted to common stock in three equal installments on each of the first three anniversaries of the grant date, provided that a portion of the RSUs awarded to officers prior to 2018 vests only upon the

 

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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 a non-employee director are fully vested on the grant date and are payable to the non-employee director in the form of common stock after the termination of the director’s service on the Board of Directors.

RSUs granted to employees who are eligible for retirement on the date of the 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 price of Nucor’s common stock on the date of the grant . A summary of Nucor’s RSU activity for the first quarter of 2019 is as follows (shares in thousands):

 

     Shares      Grant
Date
Fair
Value 		 

Restricted stock units:

     

Unvested at beginning of year

     1,246      $ 59.09  
Granted    —        $    —    

Vested

     (40 )     $ 54.46  

Canceled

     (10 )     $ 62.98  
  

 

 

    

Unvested at March 30, 2019

     1,196      $ 59.21  
  

 

 

    

Compensation expense for RSUs was $6.8 million in the first quarter of 2019 ($5.7 million in the first quarter of 2018). As of March 30, 2019, unrecognized compensation expense related to unvested RSUs was $39.6 million, which is expected to be recognized over a weighted-average period of 1.6 years.

Restricted Stock Awards – Prior to their expiration effective December  31, 2017, the Nucor Corporation Senior Officers Long-Term Incentive Plan and the Nucor Corporation Senior Officers Annual Incentive Plan authorized 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 LTIP 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.

 

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

A summary of Nucor’s restricted stock activity under the AIP and the LTIP for the first quarter of 2019 is as follows (shares in thousands):

 

     Shares      Grant Date
Fair Value 		 

Restricted stock awards and units:

     

Unvested at beginning of year

     130      $ 62.97  

Granted

     316      $ 58.04  

Vested

     (280 )     $ 58.65  

Canceled

     —        $ —    
  

 

 

    

Unvested at March 30, 2019

     166      $ 60.87  
  

 

 

    

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 $5.4 million in the first quarter of 2019 ($4.4 million in the first quarter of 2018). As of March 30, 2019, unrecognized compensation expense related to unvested restricted stock awards was $3.0 million, which is expected to be recognized over a weighted-average period of 2.1 years.

 

11.

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 $71.2 million and $51.7 million in the first quarter of 2019 and 2018, respectively. The related liability for these benefits is included in salaries, wages and related accruals in the condensed consolidated balance sheets.

 

12.

INTEREST EXPENSE (INCOME): The components of net interest expense for the first quarter of 2019 and 2018 are as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30, 2019      March 31, 2018  

Interest expense

   $ 37,062      $ 40,178  

Interest income

     (8,619 )       (3,064 ) 
  

 

 

    

 

 

 

Interest expense, net

   $ 28,443      $ 37,114  
  

 

 

    

 

 

 

 

13.

INCOME TAXES: The effective tax rate for the first quarter of 2019 was 23.0% as compared to 26.3% for the first quarter of 2018. The decrease in the effective tax rate for the first quarter of 2019 as compared to the first quarter of 2018 was primarily due to the write-off of $21.8 million of deferred tax assets due to the change in the tax status of a subsidiary in the first quarter of 2018.

 

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Nucor has concluded U.S. federal income tax matters for years through 2014. The tax years 2015 through 2017 remain open to examination by the Internal Revenue Service. The Canada Revenue Agency has concluded its examination of the 2012 and 2013 Canadian returns for Harris Steel Group Inc. and certain related affiliates. The 2015 tax year is currently under examination by the Canada Revenue Agency. The Trinidad and Tobago Inland Revenue Division is examining the Nu-Iron Unlimited 2013 corporate income tax return. The tax years 2011 through 2017 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 $0.9 million at March 30, 2019 ($0.7 million at December 31, 2018). Non-current deferred tax liabilities included in deferred credits and other liabilities in the condensed consolidated balance sheets were $352.1 million at March 30, 2019 ($332.0 million at December 31, 2018).

 

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14.

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 three months ended March 30, 2019 and March 31, 2018 (in thousands):

 

          Nucor Stockholders        
          Common Stock     Additional
Paid-in
Capital 		    Retained
Earnings 		    Accumulated
Other
Comprehensive
Income (loss) 		    Treasury Stock
(at cost) 		    Total Nucor
Stockholders’
Equity 		    Noncontrolling
Interests 		 
    Total     Shares     Amount     Shares     Amount  

BALANCES, December 31, 2018

  $ 10,201,968       380,154     $ 152,061     $ 2,073,715     $ 10,337,445     $ (304,133 )      74,562     $ (2,467,010 )    $ 9,792,078     $ 409,890  

Net earnings

    530,793             501,806             501,806       28,987  

Other comprehensive income (loss)

    (6,540 )              (6,540 )          (6,540 )   

Stock options exercised

    3,136           233           (88 )      2,903       3,136    

Stock option expense

    312           312               312    

Issuance of stock under award plans, net of forfeitures

    18,715           8,479           (306 )      10,236       18,715    

Amortization of unearned compensation

    600           600               600    

Treasury stock acquired

    (72,830 )                1,200       (72,830 )      (72,830 )   

Cash dividends declared

    (123,086 )            (123,086 )            (123,086 )   

Distributions to noncontrolling interests

    (50,402 )                      (50,402 ) 

Other

    —               (1,886 )      1,886           —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCES, March 30, 2019

  $ 10,502,666       380,154     $ 152,061     $ 2,083,339     $ 10,714,279     $ (308,787 )      75,368     $ (2,526,701 )    $ 10,114,191     $ 388,475  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          Nucor Stockholders        
          Common Stock     Additional
Paid-in
Capital 		    Retained
Earnings 		    Accumulated
Other
Comprehensive
Income (loss) 		    Treasury Stock
(at cost) 		    Total Nucor
Stockholders’
Equity 		    Noncontrolling
Interests 		 
    Total     Shares     Amount     Shares     Amount  

BALANCES, December 31, 2017

  $ 9,084,788       379,900     $ 151,960     $ 2,021,339     $ 8,463,709     $ (254,681 )      61,931     $ (1,643,291 )    $ 8,739,036     $ 345,752  

Net earnings

    380,112             354,179             354,179       25,933  

Other comprehensive income (loss)

    5,315               5,315           5,315    

Stock options exercised

    12,280       210       84       10,103           (78 )      2,093       12,280    

Stock option expense

    350           350               350    

Issuance of stock under award plans, net of forfeitures

    15,241       43       17       8,805           (240 )      6,419       15,241    

Amortization of unearned compensation

    700           700               700    

Treasury stock acquired

    (29,193 )                443       (29,193 )      (29,193 )   

Cash dividends declared

    (121,881 )            (121,881 )            (121,881 )   

Distributions to noncontrolling interests

    (24,793 )                      (24,793 ) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCES, March 31, 2018

  $ 9,322,919       380,153     $ 152,061     $ 2,041,297     $ 8,696,007     $ (249,366 )      62,056     $ (1,663,972 )    $ 8,976,027     $ 346,892  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share were $0.40 per share in the first quarter of 2019 ($0.38 per share in the first quarter of 2018).

In September 2018, the Company announced that the Board of Directors had approved a share repurchase program under which the Company is authorized to repurchase up to $2.0 billion of the Company’s common stock. Share repurchases will be made from time to time in the open market at prevailing market prices, through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date. The Board of Directors also terminated any previously authorized share repurchase programs. As of March 30, 2019, the Company had approximately $1.4 billion remaining available for share repurchases under the program.

 

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15.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): The following tables reflect the changes in other accumulated comprehensive income (loss) by component for the three-month periods ended March 30, 2019 and March 31, 2018 (in thousands):

 

     Three-Month (13-Week) Period Ended March 30, 2019  
     Gains and Losses on
Hedging Derivatives 		     Foreign Currency
Gains and Losses 		     Adjustment to Early
Retiree Medical Plan 		     Total  

Accumulated other comprehensive income (loss) at December 31, 2018

   $ (6,500 )     $ (304,646 )     $ 7,013      $ (304,133 ) 

Other comprehensive income (loss) before reclassifications

     731        (6,640 )       —          (5,909 ) 

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

     (631 )       —          —          (631 ) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     100        (6,640 )       —          (6,540 ) 

Other

     —          —          1,886        1,886  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated other comprehensive income (loss) at March 30, 2019

   $ (6,400 )     $ (311,286 )     $ 8,899      $ (308,787 ) 
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three-Month (13-Week) Period Ended March 31, 2018  
     Gains and Losses on
Hedging Derivatives 		     Foreign Currency
Gains and Losses 		     Adjustment to Early
Retiree Medical Plan 		     Total  

Accumulated other comprehensive income (loss) at December 31, 2017

   $ (2,800 )     $ (257,513 )     $ 5,632      $ (254,681 ) 

Other comprehensive income (loss) before reclassifications

     (752 )       6,115        —          5,363  

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

     (48 )       —          —          (48 ) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     (800 )       6,115        —          5,315  

Accumulated other comprehensive income (loss) at March 31, 2018

   $ (3,600 )     $ (251,398 )     $ 5,632      $ (249,366 ) 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

Includes $(631) and $(48) of accumulated other comprehensive income (loss) reclassifications into cost of products sold for net losses on commodity contracts in the first quarter of 2019 and 2018, respectively. The tax impacts of those reclassifications were $(200) and $0 in the first quarter of 2019 and 2018, respectively.

 

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16.

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 trading businesses; rebar distribution businesses; and Nucor’s equity method investments in Duferdofin Nucor, NuMit and Nucor-JFE. The steel products segment includes steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, precision castings, steel fasteners, metal building systems, steel grating, tubular products businesses, piling products business, and wire and wire mesh. The raw materials segment includes The David J. Joseph Company and its affiliates, primarily a scrap broker and processor; Nu-Iron Unlimited and Nucor Steel Louisiana, two facilities that produce direct reduced iron used by the steel mills; and our natural gas production operations.

Net interest expense on long-term debt, charges and credits associated with changes in allowances to eliminate intercompany profit in inventory, 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.

 

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Nucor’s results by segment for the first quarter of 2019 and 2018 were as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30, 2019      March 31, 2018  

Net sales to external customers:

     

Steel mills

   $ 3,949,402      $ 3,580,694  

Steel products

     1,654,522        1,468,711  

Raw materials

     492,700        519,014  
  

 

 

    

 

 

 
   $ 6,096,624      $ 5,568,419  
  

 

 

    

 

 

 

Intercompany sales:

     

Steel mills

   $ 902,224      $ 898,326  

Steel products

     62,805        35,770  

Raw materials

     2,423,869        2,608,944  

Corporate/eliminations

     (3,388,898 )       (3,543,040 ) 
  

 

 

    

 

 

 
   $ —        $ —    
  

 

 

    

 

 

 

Earnings (loss) before income taxes and noncontrolling interests:

     

Steel mills

   $ 689,398      $ 560,503  

Steel products

     77,433        85,814  

Raw materials

     53,223        74,547  

Corporate/eliminations

     (130,438 )       (204,952 ) 
  

 

 

    

 

 

 
   $ 689,616      $ 515,912  
  

 

 

    

 

 

 
     March 30, 2019      Dec. 31, 2018  

Segment assets:

     

Steel mills

   $ 9,135,256      $ 9,244,086  

Steel products

     4,774,332        4,734,636  

Raw materials

     3,405,968        3,492,126  

Corporate/eliminations

     771,142        449,740  
  

 

 

    

 

 

 
   $ 18,086,698      $ 17,920,588  
  

 

 

    

 

 

 

 

17.

REVENUE: The following tables disaggregate our revenue by major source for the first quarter of 2019 and 2018 (in thousands):

 

     Three Months (13 Weeks) Ended March 30, 2019  
     Steel Mills      Steel Products      Raw Materials      Total  

Sheet

   $ 1,807,303      $ —        $ —        $ 1,807,303  

Bar

     1,115,130        —          —          1,115,130  

Structural

     433,929        —          —          433,929  

Plate

     593,040        —          —          593,040  

Tubular Products

     —          329,871        —          329,871  

Rebar Fabrication

     —          342,055        —          342,055  

Other Steel Products

     —          982,596        —          982,596  

Raw Materials

     —          —          492,700        492,700  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,949,402      $ 1,654,522      $ 492,700      $ 6,096,624  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     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  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,580,694      $ 1,468,711      $ 519,014      $ 5,568,419  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

18.

EARNINGS PER SHARE: The computations of basic and diluted net earnings per share for the first quarter of 2019 and 2018 are as follows (in thousands, except per share amounts):

 

     Three Months (13 Weeks) Ended  
     March 30, 2019      March 31, 2018  

Basic net earnings per share:

     

Basic net earnings

   $ 501,806      $ 354,179  

Earnings allocated to participating securities

     (1,968 )       (1,181 ) 
  

 

 

    

 

 

 

Net earnings available to common stockholders

   $ 499,838      $ 352,998  
  

 

 

    

 

 

 

Average shares outstanding

     306,585        319,421  
  

 

 

    

 

 

 

Basic net earnings per share

   $ 1.63      $ 1.11  
  

 

 

    

 

 

 

Diluted net earnings per share:

     

Diluted net earnings

   $ 501,806      $ 354,179  

Earnings allocated to participating securities

     (1,964 )       (1,177 ) 
  

 

 

    

 

 

 

Net earnings available to common stockholders

   $ 499,842      $ 353,002  
  

 

 

    

 

 

 

Diluted average shares outstanding:

     

Basic shares outstanding

     306,585        319,421  

Dilutive effect of stock options and other

     595        1,053  
  

 

 

    

 

 

 
     307,180        320,474  

Diluted net earnings per share

   $ 1.63      $ 1.10  
  

 

 

    

 

 

 

 

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The following stock options were excluded from the computation of diluted net earnings per share for the first quarter of 2019 because their effect would have been anti-dilutive (shares in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30, 2019      March 31, 2018  

Anti-dilutive stock options:

     

Weighted-average shares

     963        —    
  

 

 

    

 

 

 

Weighted-average exercise price

   $ 60.92      $ —    
  

 

 

    

 

 

 

 

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

Certain statements made in this Quarterly Report on Form 10-Q 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) the availability and cost of electricity and natural gas which could negatively affect our cost of steel production or result in a delay or cancellation 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 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 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 Form 10-K for the year ended December 31, 2018.

Overview

Nucor and its affiliates manufacture steel and steel products. Nucor also produces direct reduced iron (“DRI”) for use in its steel mills. Through The David J. Joseph Company and its affiliates (“DJJ”), the Company also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron 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 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 trading businesses; rebar distribution businesses; and Nucor’s equity method investments in Duferdofin Nucor, NuMit and Nucor-JFE. The steel products segment includes steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, precision castings, steel fasteners, metal building systems, steel grating, tubular products businesses, piling products business, and wire and wire mesh. The raw materials segment 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 production operations.

 

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The average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 87%, 67% and 71%, respectively, in the first quarter of 2019 compared with 92%, 71% and 74%, respectively, in the first quarter of 2018.

In March 2019, Nucor announced its plans to build a new state of the art steel plate mill in Brandenburg, Kentucky. The new plate mill will have an estimated annual capacity of 1.2 million tons and employ approximately 400 people. The project is expected to take approximately three years to complete. The new plate mill will significantly strengthen Nucor’s plate product portfolio, giving the Company the ability to produce approximately 97% of the products demanded in the current domestic plate market, including the specialty higher-margin products. The new plate mill will complement Nucor’s existing plate mills in North Carolina, Alabama and Texas and is expected to be fully operational in 2022.

Results of Operations

Net Sales – Net sales to external customers by segment for the first quarter of 2019 and 2018 were as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30,
2019 		     March 31,
2018 		     %
Change 		 

Steel mills

   $ 3,949,402      $ 3,580,694        10 % 

Steel products

     1,654,522        1,468,711        13 % 

Raw materials

     492,700        519,014        -5 % 
  

 

 

    

 

 

    

Total net sales to external customers

   $ 6,096,624      $ 5,568,419        9 % 
  

 

 

    

 

 

    

Net sales for the first quarter of 2019 increased 9% from the first quarter of 2018. Average sales price per ton increased 13% from $799 in the first quarter of 2018 to $901 in the first quarter of 2019. Total tons shipped to outside customers in the first quarter of 2019 were 6,767,000 tons, a 3% decrease from the first quarter of 2018.

In the steel mills segment, sales tons for the first quarter of 2019 and 2018 were as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30,
2019 		     March 31,
2018 		     %
Change 		 

Outside steel shipments

     4,772        5,016        -5 % 

Inside steel shipments

     1,217        1,252        -3 % 
  

 

 

    

 

 

    

Total steel shipments

     5,989        6,268        -4 % 
  

 

 

    

 

 

    

Net sales for the steel mills segment increased 10% in the first quarter of 2019 from the first quarter of 2018, due primarily to a 15% increase in the average sales price per ton from $717 to $826, partially offset by a 5% decrease in tons sold to outside customers. Our sheet, bar, beam and plate products all experienced higher average selling prices in the first quarter of 2019 as compared to the first quarter of 2018. Average selling prices for the steel mills increased throughout 2018, with the first quarter of 2018 experiencing the lowest average selling prices of the year. Average sales price per ton for the steel mills segment in the first quarter of 2019 decreased 4% from the fourth quarter of 2018.

 

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Outside sales tonnage for the steel products segment for the first quarter of 2019 and 2018 was as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30,
2019 		     March 31,
2018 		     %
Change 		 

Joist sales

     110        105        5 % 

Deck sales

     106        106        —    

Cold finish sales

     143        147        -3 % 

Fabricated concrete reinforcing steel sales

     259        290        -11 % 

Piling products sales

     138        126        10 % 

Tubular products sales

     263        284        -7 % 

Net sales for the steel products segment increased 13% in the first quarter of 2019 from the first quarter of 2018, due primarily to a 17% increase in the average sales price per ton from $1,270 to $1,480, which was partially offset by a 3% decrease in tons shipped to outside customers. Our piling and steel joists businesses experienced increased volumes in the first quarter of 2019 compared to the first quarter of 2018, while our rebar fabrication, tubular products and cold finished steel businesses experienced declines and our steel deck business was flat as compared to the first quarter of 2018.

Net sales for the raw materials segment decreased 5% in the first quarter of 2019 from the first quarter of 2018, primarily due to decreased average selling prices at DJJ’s brokerage operations, which were partially offset by increased volumes at DJJ’s brokerage operations. In the first quarter of 2019, approximately 89% of outside sales in the raw materials segment were from the brokerage operations of DJJ, and approximately 10% of the outside sales were from the scrap processing facilities (89% and 9%, respectively, in the first quarter of 2018).

Gross Margins – Nucor recorded gross margins of $895.9 million (15%) in the first quarter of 2019, which was an increase compared with $726.4 million (13%) in the first quarter of 2018.

 

  •  

In the steel mills segment, the average scrap and scrap substitutes cost per ton used in the first quarter of 2019 was $352, a 4% increase from $337 in the first quarter of 2018. However, metal margins for the steel mills segment increased as average selling prices outpaced the increase in scrap and scrap substitute costs and decreased volumes. Metal margin is the difference between the selling price of steel and the cost of scrap and scrap substitutes.

Metal margins for the steel mills segment in the first quarter of 2019 decreased from the fourth quarter of 2018 due to the 4% decrease in average sales price per ton from $860 to $826. The average scrap and scrap substitutes cost per ton used decreased 2% from $359 in the fourth quarter of 2018 to $352 in the first quarter of 2019.

Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. Scrap prices decreased during the first quarter of 2019, and we expect scrap prices to continue to decrease as we begin the second quarter of 2019.

 

  •  

Gross margins in the steel products segment decreased in the first quarter of 2019 as compared to the first quarter of 2018. Gross margin improvement in our building systems, joist and deck operations were offset by a decrease in gross margins in our tubular products and rebar fabrication operations.

 

  •  

Gross margins in the raw materials segment decreased in the first quarter of 2019 as compared to the first quarter of 2018, due primarily to the decreased profitability of our DRI facilities, which experienced lower average selling prices and increased iron ore costs in the first quarter of 2019.

 

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Also contributing to the decline in gross margins in the raw materials segment in the first quarter of 2019 as compared to the first quarter of 2018 was the decreased performance of DJJ’s scrap processing operations, which experienced margin compression per unit in the first quarter of 2019. Additionally, the flow of scrap into DJJ’s scrap yards declined in the first quarter of 2019 as compared to the first quarter of 2018.

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 $16.0 million in the first quarter of 2019 as compared to the first quarter of 2018 due to the increased profitability of the Company.

Included in marketing, administrative and other expenses in the first quarter of 2019 was a benefit of $33.7 million related to the gain on the sale of an equity method investment in the raw materials segment.

Equity in Earnings of Unconsolidated Affiliates – Equity in earnings of unconsolidated affiliates was $2.9 million and $9.6 million in the first quarter of 2019 and 2018, respectively. The decrease in equity method investment earnings was due to decreased earnings at NuMit and increased start-up costs at Nucor-JFE.

Interest Expense (Income) – Net interest expense for the first quarter of 2019 and 2018 was as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30,
2019 		     March 31,
2018 		 

Interest expense

   $ 37,062      $ 40,178  

Interest income

     (8,619 )       (3,064 ) 
  

 

 

    

 

 

 

Interest expense, net

   $ 28,443      $ 37,114  
  

 

 

    

 

 

 

Interest expense decreased in the first quarter of 2019 as compared to the first quarter of 2018 due to an increase in capitalized interest related to the significant capital projects being constructed in the first quarter of 2019. The increase in capitalized interest was partially offset by increased interest expense due to higher average debt outstanding in the first quarter of 2019 as compared to the first quarter of 2018 and interest expense related to leases caused by the adoption of the new lease accounting standard in the first quarter of 2019. Interest income increased in the first quarter of 2019 as compared to the first quarter of 2018 due to an increase in average investments and higher average interest rates on investments.

Earnings (Loss) Before Income Taxes and Noncontrolling Interests – Earnings (loss) before income taxes and noncontrolling interests by segment for the first quarter of 2019 and 2018 were as follows (in thousands):

 

     Three Months (13 Weeks) Ended  
     March 30,
2019 		     March 31,
2018 		 

Steel mills

   $ 689,398      $ 560,503  

Steel products

     77,433        85,814  

Raw materials

     53,223        74,547  

Corporate/eliminations

     (130,438 )       (204,952 ) 
  

 

 

    

 

 

 
   $ 689,616      $ 515,912  
  

 

 

    

 

 

 

 

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Earnings before income taxes and noncontrolling interests for the steel mills segment in the first quarter of 2019 increased from the first quarter of 2018, primarily due to the strong performance from our steel mills segment that benefited from higher average selling prices and increased metal margins. Improved earnings in the first quarter of 2019 at our plate, bar and structural mills were slightly offset by decreased earnings at our sheet mills as compared to the first quarter of 2018.

Earnings before income taxes and noncontrolling interests for the steel mills segment in the first quarter of 2019 decreased from the fourth quarter of 2018, primarily due to lower average selling prices and metal margins for sheet products. Our sheet mill customers are aggressively managing their inventory levels due to higher inventory levels at the end of 2018, a declining scrap price environment and additional domestic capacity that has come online over the recent months. We continue to be encouraged by the overall strength of our domestic end-use markets, and we believe that 21 of the 24 end-use markets we monitor are experiencing stable or improving demand. We expect 2019 to be another robust earnings year for Nucor.

In the steel products segment, earnings before income taxes and noncontrolling interests decreased in the first quarter of 2019 as compared to the first quarter of 2018, as decreased earnings in our tubular products and rebar fabrication operations offset increased performance in our building systems, joist and deck operations. The performance of the steel products segment in the first quarter of 2019 followed our typical seasonal trend, which was exacerbated by unusually challenging winter conditions that delayed shipments to certain nonresidential construction customers.

The profitability of our raw materials segment in the first quarter of 2019 decreased from the first quarter of 2018, primarily due to the decreased performance from our DRI facilities and DJJ’s scrap processing operations. Partially offsetting the decrease in profitability was a benefit of $33.7 million related to the gain on the sale of an equity method investment in the raw materials segment that occurred in the first quarter of 2019.

The performance of the raw materials segment decreased in the first quarter of 2019 as compared to the fourth quarter of 2018, due primarily to margin compression in Nucor’s DRI businesses, which has experienced declining average selling prices since the fourth quarter of 2018.

The decrease in the loss of the corporate/eliminations line in the first quarter of 2019 as compared to the first quarter of 2018 was primarily due to decreased intercompany eliminations of profit in inventory.

Noncontrolling Interests – Noncontrolling interests represent the income attributable to the noncontrolling partners of Nucor’s joint ventures, primarily Nucor-Yamato Steel Company (Limited Partnership) (“NYS”) of which Nucor owns 51%. The increase in earnings attributable to noncontrolling interests in the first quarter of 2019 as compared to the first quarter of 2018 was primarily due to the increased earnings of NYS, which was a result of the increased metal margin per ton in the first quarter of 2019 as compared to the first quarter of 2018. Under the NYS limited partnership agreement, the minimum amount of cash to be distributed each year to the partners is the amount needed by each partner to pay applicable U.S. federal and state income taxes. In the first quarter of 2019, the amount of cash distributed to noncontrolling interest holders exceeded the earnings attributable to noncontrolling interests based on mutual agreement of the general partners; however, the cumulative amount of cash distributed to partners was less than the cumulative net earnings of the partnership.

Provision for Income Taxes – The effective tax rate for the first quarter of 2019 was 23.0% as compared to 26.3% for the first quarter of 2018. The expected effective tax rate for the full year of 2019 will be approximately 23.1% compared with 23.2% for the full year of 2018. The decrease in the effective tax rate for the first quarter of 2019 as compared to the first quarter of 2018 was primarily due to the write-off of $21.8 million of deferred tax assets due to the change in the tax status of a subsidiary in the first quarter of 2018.

 

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We estimate that in the next 12 months our gross unrecognized tax benefits, which totaled $52.1 million at March 30, 2019, exclusive of interest, could decrease by as much as $7.4 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 2014. The tax years 2015 through 2017 remain open to examination by the Internal Revenue Service. The Canada Revenue Agency has concluded its examination of the 2012 and 2013 Canadian returns for Harris Steel Group Inc. and certain related affiliates. The 2015 tax year is currently under examination by the Canada Revenue Agency. The Trinidad and Tobago Inland Revenue Division is examining the Nu-Iron Unlimited 2013 corporate income tax return. The tax years 2011 through 2017 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 $501.8 million, or $1.63 per diluted share, in the first quarter of 2019 as compared to consolidated net earnings of $354.2 million, or $1.10 per diluted share, in the first quarter of 2018. Net earnings attributable to Nucor stockholders as a percentage of net sales were 8.2% and 6.4% in the first quarter of 2019 and 2018, respectively. Annualized return on average stockholders’ equity was 20.2% and 16.0% in the first quarter of 2019 and 2018, respectively.

Outlook – Earnings in the second quarter of 2019 are expected to be similar to the first quarter of 2019, excluding the gain on the sale of the equity method investment. The performance of the steel mills segment in the second quarter of 2019 is anticipated to be consistent as compared to the first quarter of 2019 as weakening margins for sheet and plate mill products are expected to be offset by improving margins for structural and bar mill products.

The profitability of Nucor’s steel products segment in the second quarter of 2019 is expected to significantly improve as compared to the first quarter of 2019, as typical seasonal patterns and improved weather conditions should benefit nonresidential construction markets.

The performance of the raw materials segment is expected to decrease in the second quarter of 2019 as compared to the first quarter of 2019, due to further margin compression in the Company’s DRI businesses.

Nucor’s largest exposure to market risk is via our steel mills and steel products segments. Our largest single customer in the first quarter of 2019 represented approximately 6% 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 the raw materials segment.

Liquidity and capital resources

Cash provided by operating activities was $650.7 million in the first quarter of 2019 as compared to $127.9 million in the first quarter of 2018. The primary reason for the increase in cash provided by operating activities was the $374.0 million reduction of cash used in operating assets and operating liabilities. Changes in operating assets and operating liabilities (exclusive of acquisitions) used cash of $115.3 million in the first quarter of 2019 as compared to $489.3 million of cash used in the first quarter of 2018. The funding of working capital in the first quarter of 2019 decreased from the prior year period due to the decrease in accounts receivable and inventories from year-end 2018 through the first three months of 2019 as compared to the larger increases in accounts receivable and inventories from year-end 2017 through the first three months of 2018. The average scrap and scrap substitutes cost per ton in inventory decreased 7% at the end of the first quarter of 2019 as compared to year-end 2018, and total inventory tons on hand at the end of the first quarter of 2019 decreased 4% from year-end 2018. Comparatively, the average scrap and scrap substitutes cost per ton in inventory at the end of the first quarter of 2018 increased 13% from year-end 2017 while total inventory tons on hand decreased only 1%. Accounts

 

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receivable at the end of the first quarter of 2019 decreased as compared to year-end 2018 as net sales for the first quarter of 2019 decreased 3% as compared to the fourth quarter of 2018. Cash used in funding working capital in the first quarter of 2018 increased due to higher accounts receivable balances at the end of the first quarter of 2018 as compared to year-end 2017, as net sales increased 9% in the first quarter of 2018 as compared to the fourth quarter of 2017. These decreases in cash used to fund working capital in the first quarter of 2019 as compared to the first quarter of 2018 were partially offset by an increase in cash used to fund salaries, wages and related accruals. The increase in cash used to fund salaries, wages and related accruals was primarily attributable to the increased payout of accrued profit sharing and other incentive compensation costs in the first quarter of 2019 as compared to payouts in the first quarter of 2018. The first quarter of 2019 payment was based on Nucor’s financial performance in 2018, which was a record earnings year. Also contributing to the increase in cash provided by operating activities in the first quarter of 2019 as compared to the first quarter of 2018 was the 40% increase in net earnings in the first quarter of 2019 over the first quarter of 2018.

The current ratio was 3.4 at the end of the first quarter of 2019 and 3.1 at year-end 2018. The main driver of the increase in the current ratio was the 48% decrease in salaries, wages and related accruals at March 30, 2019 as compared to December 31, 2018. The decrease in salaries, wages and related accruals was primarily due to the payout of accrued profit sharing and other incentive compensation costs in the first quarter of 2019, as mentioned above. Also contributing to the increase in the current ratio was a 14% increase in cash and cash equivalents and short-term investments. The increase in cash and cash equivalents was primarily due to the robust amount of cash generated by operations, partially offset by capital expenditures, dividends and treasury stock buybacks. In the first quarter of 2019, accounts receivable turned approximately every five weeks and inventories turned approximately every 11 weeks. These ratios compare with accounts receivable turnover of approximately every five weeks and inventory turnover of approximately every 10 weeks in the first quarter of 2018.

Cash used in investing activities during the first quarter of 2019 was $265.6 million as compared to $171.2 million in the prior year period. The primary driver for the increase in cash used in investing activities was that cash used for capital expenditures increased from $172.2 million in the first quarter of 2018 to $288.8 million in the first quarter of 2019. The higher levels of capital expenditures in the first quarter of 2019 over the first quarter of 2018 were primarily related to the new hot band galvanizing line and the sheet mill expansion at Nucor Steel Gallatin and the new micro mill greenfield expansion in Sedalia, Missouri. Cash provided by the divestiture of an affiliate of $67.6 million in the first quarter of 2019, related to the sale of an equity method investment, was partially offset by the $50.0 million purchase of investments in the same period. Cash used in investments and advances to affiliates of $55.9 million in the first quarter of 2018 was partially offset by cash provided from the sale of an investment of $50.0 million in the same period.

Cash used in financing activities during the first quarter of 2019 was $233.2 million as compared to $145.5 million in the prior year period. The majority of this change related to treasury stock repurchases of $72.8 million in the first quarter of 2019 as compared to $29.2 million in the first quarter of 2018. In addition, there was an increase in distributions to noncontrolling interests of $25.6 million in the first quarter of 2019 as compared to the first quarter of 2018.

Nucor’s conservative financial practices have served us well in the past and continue to serve us well today. Our cash and cash equivalents and short-term investments position remained strong at $1.6 billion as of March 30, 2019. Nucor’s solid cash and cash equivalents and short-term investments position provides many opportunities for prudent deployment of our capital. We have three approaches to allocating our capital. Nucor’s highest capital allocation priority is to reinvest in our business to ensure our continued profitable growth over the long term. We have historically done this by investing to optimize our existing operations, initiate greenfield expansions and make acquisitions. 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 supplement our base dividend with additional returns of capital to our stockholders when both our earnings and financial condition are

 

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strong. We intend to return a minimum of 40% of our net earnings to our stockholders while maintaining a debt-to-capital ratio that supports a strong investment grade credit rating. We will use stock repurchases or supplemental dividends to reach this level when our base dividend is not sufficient to meet this goal. The primary factor we will use to decide between share repurchases and supplemental dividends will be our assessment of the intrinsic value of a Nucor share. If we believe Nucor shares to be trading at a discount to their intrinsic value, we will likely employ repurchases to return capital to our stockholders. In September 2018, Nucor’s Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $2.0 billion of its common stock. As of March 30, 2019, the Company had approximately $1.4 billion remaining for share repurchases under the program.

Nucor’s $1.5 billion revolving credit facility is undrawn and was amended and restated in April 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 an A- long-term rating from Standard & 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.

Our credit facility includes only one financial covenant, which is a limit of 60% on the ratio of funded debt to total capitalization. In addition, the credit facility contains customary non-financial covenants, including a limit on Nucor’s ability to pledge the Company’s assets and a limit on consolidations, mergers and sales of assets. As of March 30, 2019, our funded debt to total capital ratio was 29%, and we were in compliance with all non-financial covenants under our credit facility. No borrowings were outstanding under the credit facility as of March 30, 2019.

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 2019 are expected to be approximately $1.8 billion as compared to $997.3 million in 2018. The increase in projected 2019 capital expenditures is primarily due to the fact that several major expansion projects will be underway in 2019. The projects that we anticipate will have the largest capital expenditures in 2019 are the hot band galvanizing line at Nucor Steel Arkansas, the hot band galvanizing line and the sheet mill expansion at Nucor Steel Gallatin, the two micro mill greenfield expansions in Sedalia, Missouri and Frostproof, Florida, the merchant bar rolling facility at Nucor Steel Kankakee and the recently announced steel plate mill in Brandenburg, Kentucky. In addition to these expansion projects, we also have a project underway at Nucor Steel Louisiana to improve the reliability and efficiency of the facility.

In February 2019, Nucor’s Board of Directors declared a quarterly cash dividend on Nucor’s common stock of $0.40 per share payable on May 10, 2019, to stockholders of record on March 29, 2019. This dividend is Nucor’s 184 th consecutive quarterly cash dividend.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

 

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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 risk has significantly changed since December 31, 2018. There were no interest rate swaps outstanding at March 30, 2019.

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 three months ended March 30, 2019, the volume of natural gas sold from our drilling operations was approximately 13% 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 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 March 30, 2019, accumulated other comprehensive loss, net of income taxes included $6.4 million in unrealized net-of-tax losses for the fair value of these derivative instruments. Changes in the fair values of derivatives not designated as hedges are recognized in earnings each period. The following table presents the negative effect on pre-tax earnings of a hypothetical change in the fair value of derivative instruments outstanding at March 30, 2019, due to an assumed 10% and 25% change in the market price of each of the indicated commodities (in thousands):

 

Commodity Derivative

   10%
Change 		     25%
Change 		 

Natural gas

   $ 11,312      $ 28,280  

Aluminum

   $ 3,549      $ 8,901  

Copper

   $ 1,894      $ 4,858  

Any resulting changes in fair value would be recorded as adjustments to accumulated other comprehensive 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 March 30, 2019 were insignificant.

 

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures – As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and 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 March 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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 Form 10-K for the year ended December 31, 2018.

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 March 30, 2019 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) 		 

January 1, 2019 - January 26, 2019

     —        $ —          —        $ 1,497,394  

January 27, 2019 - February 23, 2019

     1,125      $ 60.64        1,125      $ 1,429,174  

February 24, 2019 - March 30, 2019

     75      $ 61.43        75      $ 1,424,567  
  

 

 

    

 

 

    

 

 

    

 

 

 

For the Quarter Ended March 30, 2019

     1,200      $ 60.69        1,200      $ 1,424,567  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes commissions of $0.02 per share.

(2)

On September 6, 2018, the Company announced that the Board of Directors had approved a share repurchase program under which the Company is authorized to repurchase up to $2.0 billion of the Company’s common stock. This share repurchase authorization is discretionary and has no expiration date. The Board of Directors also terminated any previously authorized share repurchase programs.

 

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Item 6. Exhibits

 

Exhibit No.

  

Description of Exhibit

        3    Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed September 14, 2010 (File No. 001-04119))
        3.1    Bylaws as amended and restated September 15, 2016 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed September 20, 2016 (File No. 001-04119))
      31*    Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section  302 of the Sarbanes-Oxley Act of 2002
      31.1*    Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section  302 of the Sarbanes-Oxley Act of 2002
      32**    Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      32.1**    Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    101*    Financial Statements (Unaudited) from the Quarterly Report on Form 10-Q of Nucor Corporation for the quarter ended March 30, 2019, filed on May 8, 2019, formatted in XBRL: (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

 

*

Filed herewith.

**

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

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

NUCOR CORPORATION
By:    /s/ James D. Frias
 

James D. Frias

Chief Financial Officer, Treasurer and Executive Vice President

Dated: May 8, 2019

 

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