NUCOR CORP - Quarter Report: 2019 March (Form 10-Q)

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.

 

 

 

 

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

 

i

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.

 

1

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.

 

2

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.

 

3

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.

 

4

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.

 

5

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

 

6

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.

 

8

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).

 

9

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).

 

15

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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