Nucor Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone fourth-quarter report. Nucor manufactures steel and steel products, produces direct reduced iron (DRI), and processes and brokers metals and scrap. The steel mills segment accounted for approximately 70% of 2014 external sales.
Financial and operating performance
- Revenue, earnings and cash flow: The filing states that profitability increased from 2013, but the supplied text does not provide clear consolidated revenue, net income, operating margin, or cash-flow values. The financial statements and detailed MD&A are incorporated by reference to the 2014 Annual Report and are not reproduced in the supplied text.
- Debt and liquidity: Debt balances, cash balances and liquidity ratios are not clearly stated in the supplied text. Nucor had a $1.5 billion unsecured revolving credit facility. At year-end, 23% of long-term debt was variable-rate industrial revenue bonds and 77% was fixed-rate debt.
- Capital investment: Approximately $4 billion had been spent on capital expenditures since 2009; capital expenditures excluding acquisitions totaled approximately $3.61 billion over the five years through 2014. The company reported nearly $6 billion of investment over six years, about two-thirds in capital expenditures and one-third in acquisitions.
- Operations: Average utilization was approximately 78% for steel mills, 64% for steel products and 63% for raw materials. Nucor recycled approximately 19.0 million tons of scrap steel in 2014.
- Backlog: Steel mills backlog was approximately $1.56 billion at December 31, 2014, down from $1.77 billion a year earlier. Steel products backlog was approximately $1.49 billion, up from $1.27 billion; most orders were expected to be filled within one year.
- Dividend: Nucor paid $1.48 per share in 2014, versus $1.47 in 2013, and raised its quarterly dividend to $0.3725 per share in December 2014.
Material changes versus 2013
- Nucor acquired Gallatin Steel in 2014 for $779 million in cash. The Kentucky mill has annual sheet-steel capacity of approximately 1.8 million tons and expands Nucor’s Midwest presence and pipe-and-tube offerings.
- U.S. steel imports increased 38% compared with 2013 and represented 34% of the U.S. market for finished and semi-finished steel products, intensifying price competition.
- Steel mills backlog declined year over year, while steel products backlog increased.
- The Louisiana DRI plant encountered outages and a process-gas-heater failure in November 2014; production was suspended, with restart estimated for late in the first quarter of 2015.
- Nucor and Encana extended the suspension of new natural-gas-well drilling through 2015, apart from a small number of wells needed to retain leasehold rights.
Outlook, risks and contingencies
- Management reported improved profitability in 2014 but described the U.S. and global economic outlook as uncertain, with demand still below pre-recession levels. The filing provides no specific financial guidance.
- Management emphasized cost reduction, raw-material security, and growth in higher-value products. The SBQ expansion projects were expected to be completed in 2015.
- Key risks include cyclical demand, global steel overcapacity and imports, volatile scrap and energy costs, and the possibility that Nucor cannot pass higher input costs through to customers. Environmental rules, permit delays, cyber threats, operating interruptions and acquisition integration are also cited risks.
- The Louisiana DRI outage creates execution and production risk. Natural gas from Nucor’s working-interest programs equaled approximately 66% of the volume consumed at its domestic steelmaking and DRI facilities in 2014; drilling suspension may affect that offset.
- In the MM Steel antitrust case, a jury returned a $52.0 million damages verdict against defendants jointly and severally; the court entered a $160.8 million judgment after trebling and including costs and attorneys’ fees. Nucor appealed and recorded no reserve. A separate steel-purchaser class action remained pending; Nucor said it could not estimate its potential exposure and recorded no reserve.
- Nucor said it was in substantial compliance with environmental requirements and did not expect identified new regulations to materially harm results, cash flows or financial condition. Estimated environmental-compliance capital expenditures for 2015 and 2016 were less than $100 million per year.
Important facts for investors to verify
- Review the incorporated 2014 Annual Report for consolidated revenue, earnings, margins, cash flows, balance-sheet liquidity and total debt, which are not clearly available in the supplied filing text.
- Track the Louisiana DRI plant’s repair, restart timing, operating performance and related costs.
- Monitor the MM Steel appeal and the unresolved class-action litigation, including any changes to potential exposure or reserves.
- Assess the effect of rising imports and steel-market pricing on volumes, margins and backlog conversion.
- Check whether the Encana drilling suspension and natural-gas production affect Nucor’s energy-cost exposure.