News Column

NUCOR CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 13, 2014

Certain statements made in this quarterly report are forward-looking statements that involve risks and uncertainties. The words "believe," "expect," "project," "will," "should," "could" and similar expressions are intended to identify those forward-looking statements. These forward-looking statements reflect the Company's best judgment based on current information, and although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this report. Factors that might cause the Company's actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: (1) 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; (2) availability and cost of electricity and natural gas which could negatively affect our cost of steel production or could result in a delay or cancellation of existing or future drilling within our natural gas working interest drilling programs; (3) critical equipment failures and business interruptions; (4) market demand for steel products, which, in the case of many of our products, is driven by the level of nonresidential construction activity in the U.S.; (5) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (6) impairment in the recorded value of inventory, equity investments, fixed assets, goodwill or other long-lived assets; (7) uncertainties surrounding the global economy, including the severe economic downturn in construction markets and excess world capacity for steel production; (8) fluctuations in currency conversion rates; (9) U.S. and foreign trade policy affecting steel imports or exports; (10) significant changes in laws or government regulations affecting environmental compliance, including legislation and regulations that result in greater regulation of greenhouse gas emissions that could increase our energy costs and our capital expenditures and operating costs or cause one or more of our permits to be revoked or make it more difficult to obtain permit modifications; (11) the cyclical nature of the steel industry; (12) capital investments and their impact on our performance; and (13) our safety performance. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements included elsewhere in this report, as well as the audited consolidated financial statements, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Nucor's Annual Report on Form 10-K for the year ended December 31, 2013. Overview Nucor and its affiliates manufacture steel and steel products. Nucor also produces direct reduced iron (DRI) for use in its steel mills. Through The David J. Joseph Company and its affiliates (DJJ), the Company also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (HBI) and DRI. Most of Nucor's operating facilities and customers are located in North America, but increasingly, Nucor is doing business outside of North America as well. Nucor's operations include several international trading and sales companies that buy and sell steel and steel products manufactured by the Company and others. Nucor is North America's largest recycler, using scrap steel as the primary raw material in producing steel and steel products. Nucor reports its results in three segments: steel mills, steel products and raw materials. In the steel mills segment, Nucor produces sheet steel (hot and cold-rolled), plate steel, structural steel (wide-flange beams, beam blanks, H-piling and sheet piling) and bar steel (blooms, billets, concrete reinforcing bar, merchant bar and special bar quality). Nucor manufactures steel principally from scrap steel and scrap steel substitutes using electric arc furnaces, continuous casting and automated rolling mills. The steel mills segment also includes Nucor's equity method investments in Duferdofin Nucor and NuMit, as well as Nucor's steel trading businesses and rebar distribution businesses. In the steel products segment, Nucor produces steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold-finished steel, steel fasteners, metal building systems, steel grating and expanded metal, and wire and wire mesh. In the raw materials segment, Nucor produces DRI; brokers ferrous and nonferrous metals, pig iron, HBI and DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap metal. The raw materials segment also includes certain equity method investments including our natural gas drilling working interests. 22



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We continue to be pleased with the progress of our new direct reduced iron plant in St. James Parish, Louisiana. The Louisiana DRI plant underwent a three week outage in the second quarter to implement adjustments that will improve yield and conversion costs. The Louisiana DRI plant has continued to exceed our volume expectations while producing excellent quality DRI units. In March, a jury in the U.S. District Court for the Southern District of Texas returned a verdict of $52.0 million in damages against Nucor and five other co-defendants, jointly and severally, in an antitrust lawsuit brought by plaintiff MM Steel, LP, a steel plate service center located in Houston. The amount was trebled to $160.8 million (inclusive of costs and attorneys' fees) under the federal antitrust laws in a judgment awarded by the court on June 1, 2014. Nucor has appealed the judgment to the U.S. Court of Appeals for the Fifth Circuit and believes that MM Steel, LP's claims against Nucor are meritless and that Nucor acted entirely within its legal rights. Nucor believes that the likelihood that the judgment will be affirmed is not probable, and, accordingly, we have not recorded any reserves or contingencies related to this legal matter. The average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 77%, 61% and 64%, respectively, in the first six months of 2014 compared with 73%, 56% and 61%, respectively, in the first six months of 2013.



Results of Operations

Net Sales Net sales to external customers by segment for the second quarter and first six months of 2014 and 2013 were as follows (in thousands):

Three Months (13 Weeks) Ended Six Months (26 Weeks) Ended July 5, 2014 June 29, 2013 % Change July 5, 2014 June 29, 2013 % Change Steel mills $ 3,674,140$ 3,197,433 15 % $ 7,281,904$ 6,465,587 13 % Steel products 1,035,923 937,104 11 % 1,910,092 1,726,451 11 % Raw materials 581,012 531,051 9 % 1,207,523 1,024,322 18 % Net sales $ 5,291,075$ 4,665,588 13 % $ 10,399,519$ 9,216,360 13 % Net sales for the second quarter of 2014 increased 13% over the second quarter of 2013. Average sales price per ton increased 4% from $799 in the second quarter of 2013 to $831 in the second quarter of 2014, while total tons shipped to outside customers increased 9% over the same period last year.



Net sales for the first six months of 2014 increased 13% over the first six months of 2013. Average sales price per ton increased 4% from $798 in the first half of 2013 to $828 in the first half of 2014, while total tons shipped to outside customers increased 9% over last year.

In the steel mills segment, production and sales tons were as follows (in thousands): Three Months (13 Weeks) Ended Six Months (26 Weeks) Ended July 5, 2014 June 29, 2013 % Change July 5, 2014 June 29, 2013 % Change Steel production 5,324 4,892 9 % 10,518 9,710 8 % Outside steel shipments 4,646 4,274 9 % 9,246 8,608 7 % Inside steel shipments 831 751 11 % 1,663 1,492 11 % Total steel shipments 5,477 5,025 9 % 10,909 10,100 8 % Net sales for the steel mills segment increased 15% over the second quarter of 2013 due to a 6% increase in the average sales price per ton from $746 to $789, and a 9% increase in tons shipped to outside customers. Our sheet, bar, structural and plate products all experienced higher average sales 23



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prices in the second quarter of 2014 compared with the second quarter of 2013 due to stronger demand and new product offerings. Volumes for sheet products also increased during the second quarter in part due to supply disruptions at some of our domestic competitors. Steel mill sales were negatively impacted by a planned three week outage at Nucor-Yamato Steel related to a capital project that will expand its sheet piling production capabilities. The outage resulted in lower shipments for structural steel in the second quarter of 2014 as compared with the first quarter of 2014. Though average sales prices increased for the steel mills segment in the second quarter of 2014 compared to the second quarter of 2013, imports continued to apply downward pressure on pricing during the second quarter of 2014, preventing a larger increase in average sales prices from occurring. In its most recent monthly report, the Steel Import Monitoring and Analysis System reported a 31.8% increase in year-to-date 2014 U.S. imports of steel mill products from the same period in 2013. The 13% increase in sales from the first half of 2014 to the first half of 2013 in the steel mills segment was attributable to the 7% increase in tons sold to outside customers and the 5% increase in average sales price per ton from $751 in the first half of 2013 to $786 in the first half of 2014.



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

Three Months (13 weeks) Ended Six Months (26 weeks) Ended July 5, 2014 June 29, 2013 % Change July 5, 2014 June 29, 2013 % Change Joist sales 97 91 7 % 189 162 17 % Deck sales 101 83 22 % 188 152 24 % Cold finish sales 133 124 7 % 271 246 10 % Fabricated concrete reinforcing steel sales 321 280 15 % 560 508 10 % The 11% increase in the steel products segment's sales for the second quarter of 2014 over the second quarter of 2013 was due to an 11% increase in volume that was partially offset by a slight decrease in average sales price per ton from $1,374 to $1,367. The 11% increase in the steel products segment's sales for the first half of the year was due to a 12% increase in volume partially offset by a 1% decrease in average sales price per ton from $1,377 to $1,358. The improvement in sales for the steel products segment in the second quarter and first half of 2014 compared with the same periods in the prior year is due to improving conditions in the nonresidential construction markets. Though conditions in the nonresidential constructions markets have improved, the improvements are from historically low levels. Sales for the steel products segment in the second quarter of 2014 increased from the first quarter of 2014 due to higher volumes resulting from improved weather conditions from the harsh conditions experienced in the first quarter of 2014. The sales for the raw materials segment increased 9% from the second quarter of 2013 and 18% from the first half of 2013 primarily due to increased volumes at our natural gas drilling working interests and DJJ's recycling and brokerage businesses. In the second quarter of 2014, approximately 79% of outside sales in the raw materials segment were from the brokerage operations of DJJ and approximately 12% of the outside sales were from the scrap processing facilities (83% and 14%, respectively, in the second quarter of 2013). In the first half of 2014, approximately 78% of outside sales for the raw materials segment were from the brokerage operations and approximately 14% of outside sales were from the scrap processing facilities of DJJ (84% and 13%, respectively, in the first half of 2013). 24



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Gross Margins For the second quarter of 2014 , Nucor recorded gross margins of $415.9 million (8%), compared with $313.1 million (7%) in the second quarter of 2013. The gross margin was impacted by a 4% increase in average sales price per ton and a 9% increase in tons shipped to outside customers, along with the following factors:



In the steel mills segment, the average scrap and scrap substitute cost

per ton used increased 2% from $377 in the second quarter of 2013 to $384

in the second quarter of 2014; however, metal margin per ton also

increased from the second quarter of 2013 due to the increase in average

selling prices and volumes. The average scrap and scrap substitute cost

per ton decreased 4% from $398 in the first quarter of 2014 to $384 in the

second quarter of 2014; however, metal margins per ton also increased from

the first quarter of 2014. Metal margin is the difference between the

selling price of steel and the cost of scrap and scrap substitutes.

Scrap prices are driven by the global supply and demand for scrap and other iron based raw materials used to make steel. Scrap prices experienced a gradual decline during the second quarter of 2014 with low volatility. As we begin the third quarter, we expect continued low volatility in scrap prices.



Nucor's gross margins can be significantly impacted by the application of

the LIFO method of accounting. LIFO charges or credits for interim periods

are based on management's current estimates of both inventory costs and

quantities at year-end. The actual amounts will likely differ from these

estimated amounts, and such differences may be significant. Annual charges

or credits are largely based on the relative changes in cost and

quantities year-over-year, primarily within raw material inventory in the

steel mills segment. No LIFO charge or credit was recorded for the second

quarter of 2014 or 2013. Gross margins in the steel products segment increased in the second



quarter of 2014 over the second quarter of 2013 and first quarter of 2014

due in large part to the improving conditions in the nonresidential

construction markets. Though conditions in the nonresidential construction

markets are improving, the improvement is from historically low levels.

Our deck, rebar, cold finish, and building systems operations experienced

margin improvement in the second quarter of 2014 compared with the second

quarter of 2013. Our joist, deck, rebar and building systems operations

experienced margin improvement in the second quarter of 2014 compared with

the first quarter of 2014.



Steel mill energy costs increased $1 per ton in the second quarter of 2014

over the second quarter of 2013 due to increased natural gas and electricity unit costs.



Our Nucor Steel Louisiana DRI facility experienced significant operational

losses, including start-up costs of $19.4 million in the second quarter of

2014 compared with start-up costs of $5.4 million in the second quarter of

2013, which negatively impacted gross margins.

For the first half of 2014, Nucor recorded gross margins of $793.1 million (8%), compared to $616.3 million (7%) in the first half of 2013. The gross margin was impacted by a 4% increase in average sales price per ton and a 9% increase in shipments to external customers in the first six months of 2014 as compared to the first six months of 2013. Gross margins were also impacted by the following factors: In the steel mills segment, the average scrap and scrap substitute cost per ton used increased 3% from $378 in the first half of 2013 to $391 in the first half of 2014; however, metal margins also increased. Gross margins in the steel products segment increased in the first half of 2014 over the first half of 2013 for the reasons described above. 25



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Gross margins were negatively impacted by a $14.5 million and $18.0

million LIFO charge in the first half of 2014 and 2013, respectively.

Energy costs increased approximately $3 per ton in the first half of 2014

over the first half of 2013 due mainly to increased natural gas and

electricity unit costs stemming from the harsh weather conditions in the

first quarter of 2014 that drove up energy demand and costs.



The Nucor Steel Louisiana DRI facility experienced significant operational

losses, including start-up costs of $40.1 million in the first half of

2014 compared with start-up costs of $9.2 million in the first half of

2013.



Within the raw materials segment, DJJ's gross margins for the first half

of 2014 improved significantly over the first half of 2013, particularly

within DJJ's recycling business. Third party sales volumes and margins have improved significantly year-over-year despite the impact of recent price declines in both ferrous and nonferrous markets. Marketing, Administrative and Other Expenses The 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 $8.9 million in the second quarter of 2014 compared to the second quarter of 2013, and increased $14.9 million in the first half of 2014 compared to the first half of 2013, due to the increased profitability of the Company. Profit sharing and other incentive compensation costs increased $16.2 million in the second quarter of 2014 compared to the first quarter of 2014 due to the annual restricted stock unit grant and the stock option grant that occurred in the second quarter of 2014. Included in marketing, administrative and other expenses in the first half of 2014 is a $9.0 million charge related to the disposal of assets within the steel mill segment (none in the first half of 2013). Equity in Earnings of Unconsolidated Affiliates Equity method investment earnings, including amortization expense and other purchase accounting adjustments, were $3.2 million and $1.6 million in the second quarter of 2014 and 2013, respectively, and $7.7 million and $0.4 million in the first half of 2014 and 2013, respectively. The increase in the equity method investment earnings is primarily due to a decrease in losses at Duferdofin Nucor S.r.l. and higher equity method earnings at NuMit LLC during both the second quarter and the first half of 2014 compared with the respective prior year periods. In the fourth quarter of 2013, Nucor assessed its equity investment in Duferdofin Nucor for impairment 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 and that there was no need for impairment. Steel market conditions in Europe have continued to be challenging through the first half of 2014, and, therefore, it is reasonably possible that material deviation of future performance from the estimates used in our most recent valuation could result in further impairment of our investment in Duferdofin Nucor. Nucor recorded a $30.0 million impairment charge against its investment in Duferdofin Nucor in the second quarter of 2012.



Interest Expense (Income) Net interest expense for the second quarter and first half of 2014 and 2013 was as follows (in thousands):

Three Months (13 Weeks) Ended Six Months (26 Weeks) Ended July 5, 2014 June 29, 2013 July 5, 2014 June 29, 2013 Interest expense $ 45,878$ 40,676$ 87,771$ 74,356 Interest income (1,487 ) (1,448 ) (2,639 ) (2,637 ) Interest expense, net $ 44,391$ 39,228$ 85,132$ 71,719 26



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In the second quarter of 2014, gross interest expense increased 13% from the second quarter of 2013 due to a 23% increase in average debt outstanding. Gross interest income increased 3% due mainly to increases in average investments outstanding. In the first half of 2014, gross interest expense increased 18% from the first half of 2013 due to a 22% increase in average debt outstanding. Gross interest income remained flat between the first half of 2014 and 2013. Earnings Before Income Taxes and Noncontrolling Interests Earnings before income taxes and noncontrolling interests by segment for the second quarter and first half of 2014 and 2013 were as follows (in thousands): Three Months (13 Weeks) Ended



Six Months (26 Weeks) Ended

July 5, 2014 June 29, 2013 July 5, 2014 June 29, 2013 Steel mills $ 368,138$ 237,102$ 685,935$ 509,360 Steel products 42,612 32,073 44,332 20,149 Raw materials (9,635 ) 12,218 (1,276 ) 13,754 Corporate/eliminations (159,250 ) (129,061 ) (279,625 ) (237,603 ) $ 241,865$ 152,332$ 449,366$ 305,660 Earnings before income taxes and noncontrolling interests in the steel mills segment for the second quarter and first six months of 2014 increased significantly from the second quarter and first six months of 2013 due to higher sales volume, higher average sales prices and higher metal margins resulting from factors discussed above. Our recent capital project expansions have allowed us to broaden our product offerings and market share, particularly in the special bar quality, cold rolled and galvanized sheet and plate steel products. These higher value product offerings benefited the profitability of the steel mills segment in the second quarter and first half of 2014. Structural steel shipments and earnings were negatively impacted by the planned three week outage at Nucor-Yamato Steel related to a capital project that will expand its sheet piling production capabilities. The improved results of the steel mills segment were achieved despite imports being at levels not seen since 2006. Earnings before income taxes and noncontrolling interests in the steel mills segment for the second quarter of 2014 increased from the first quarter of 2014 due to higher average sales prices, higher volumes and higher metal margins. Market conditions improved in the second quarter of 2014 as the weather conditions improved from the severe conditions experienced in the first quarter of 2014. The profitability of the steel mills segment in the second quarter and first half of 2014 also benefited from improved results from the NuMit and Duferdofin Nucor equity method investments as compared with the respective prior year periods. Partially offsetting these factors were the increased energy costs and a $9.0 million charge related to the disposal of assets within the steel mills segment in the first half of 2014 (none in the first half of 2013). In the steel products segment, earnings before income taxes and noncontrolling interests increased significantly from the second quarter and first half of 2013. Profitability at our deck, rebar, cold finish and building systems operations increased in the second quarter and first half of 2014 compared with the respective periods in the prior year. The steel products segment has benefited from the improving conditions in the nonresidential construction markets. Though conditions in the nonresidential construction markets are improving, the improvement is from historically low levels. Earnings before income taxes and noncontrolling interests in the steel products segment increased significantly from the first quarter of 2014 due to typical seasonality that occurs in the second quarter as improved weather conditions benefit nonresidential construction markets. This seasonality was exacerbated in the current year due to extreme weather conditions that were experienced in the first quarter of 2014. 27



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The decrease in profitability of our raw materials segment for the second quarter and first half of 2014 as compared to the second quarter and first half of 2013 is due primarily to increased operational losses, which included increased start-up costs, at our new Louisiana DRI facility. The Louisiana DRI plant underwent a three week outage in the second quarter to implement adjustments that will improve yield and conversion costs. Partially offsetting the losses at the Louisiana DRI plant was increased profitability from DJJ's brokerage and scrap processing operations due to increased volumes and margin improvement, and increased profitability from our natural gas working interest drilling investment. Noncontrolling Interests Noncontrolling interests represent the income attributable to the noncontrolling partners of Nucor's joint ventures, primarily Nucor-Yamato Steel Company (NYS), of which Nucor owns 51%. The decrease in earnings attributable to noncontrolling interests in the second quarter of 2014 as compared to the second quarter of 2013 was primarily attributable to a planned three week outage this quarter associated with a capital project. The decrease in earnings attributable to noncontrolling interests in the first half of 2014 from the first half of 2013 is mainly the result of lower selling prices and margins in the first quarter of 2014 compared with the first quarter of 2013 and the planned three week outage mentioned above. Selling prices and margins at NYS in the second quarter of 2014 increased over both the first quarter of 2014 and the second quarter of 2013. 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 six months of 2013, 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 Nucor had an effective tax rate of 31.0% in the second quarter of 2014 compared with 30.2% in the second quarter of 2013. The expected rate for the full year of 2014 will be approximately 32.3% compared with 26.0% for the full year of 2013. The increase in the effective tax rate for the second quarter of 2014 as compared to the second quarter of 2013 is primarily due to the change in relative proportions of net earnings attributable to noncontrolling interests to total pre-tax earnings between the periods. The increase in the expected rate for the full year of 2014 as compared to the full year of 2013 is due to a charge of $12.8 million which is primarily related to tax legislation changes in the state of New York during the first quarter of 2014 and the $21.3 million favorable non-cash out-of-period adjustment to deferred tax balances in the fourth quarter of 2013. We estimate that in the next twelve months our gross uncertain tax positions, which totaled $68.5 million at July 5, 2014 exclusive of interest, could decrease by as much as $12.2 million as a result of the expiration of the statute of limitations, substantially all of which would impact the effective tax rate. The Internal Revenue Service (IRS) is currently examining Nucor's 2012 federal income tax return. Management believes that the Company has adequately provided for any adjustments that may arise from this audit. Nucor has concluded U.S. federal income tax matters for years through 2009. The 2010, 2011, and 2013 tax years also are open to examination by the IRS. The tax years 2009 through 2013 remain open to examination by other major taxing jurisdictions to which Nucor is subject (primarily Canada and state and local jurisdictions). Net Earnings Attributable to Nucor Stockholders and Return on Equity Nucor reported consolidated net earnings of $147.0 million, or $0.46 per diluted share, in the second quarter of 2014 compared with consolidated net earnings of $85.1 million, or $0.27 per diluted share, in the second quarter of 2013. Net earnings attributable to Nucor stockholders as a percentage of net sales were 3% and 2% in the second quarter of 2014 and 2013, respectively. Nucor reported consolidated net earnings of $258.1 million, or $0.80 per diluted share, in the first half of 2014, compared to consolidated net earnings of $169.9 million, or $0.53 per diluted share, in the first half of 2013. Net earnings attributable to Nucor stockholders as a percentage of net sales was 2% in both the first half of 2014 and 2013. Return on average stockholders' equity was approximately 7% and 4% in the first half of 2014 and 2013, respectively. 28



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Outlook We currently expect to see a stronger improvement in earnings for the third quarter of 2014. Although non-residential construction markets remain at historically low levels, they are improving at a moderate pace. We therefore expect further increased operating profits in our downstream products businesses. Steel mill profitability is also expected to improve in the third quarter of 2014 as our Nucor-Yamato Steel division has no planned outage and sheet and plate margins continue to benefit from positive pricing trends. We also expect improvement in the performance of the Louisiana DRI facility in the third quarter, with profitable performance anticipated by the end of the year. Nucor's largest exposure to market risk is via our steel mills and steel products segments. Our largest single customer in the first half of 2014 represented approximately 5% of sales and consistently pays within terms. In the raw materials segment, we are exposed to price fluctuations related to the purchase of scrap steel and iron ore. Our exposure to market risk is mitigated by the fact that our steel mills use a significant portion of the products of this segment.



Liquidity and capital resources

Cash provided by operating activities was $443.3 million in the first half of 2014, compared with cash provided by operating activities of $485.0 million in the first half of 2013. The year-over-year decrease is primarily due to changes in operating assets and liabilities, which were ($257.5) million in the first half of 2014 compared with ($81.6) million in the first half of 2013. The change in operating assets and liabilities was partially offset by higher net earnings which included increased levels of depreciation expense. The funding of our working capital increased over the prior year period due mainly to increases in accounts receivable and inventories and a decrease in accounts payable. Accounts receivable increased due to increased outside shipments in the second quarter of 2014 over the fourth quarter of 2013, as well as an increase in the sales price per ton during that same period. There was also an increase in cash used to purchase inventory during the first half of 2014 as inventory tons on hand increased approximately 3% from year-end 2013 to the end of the second quarter of 2014 resulting from improved customer demand. Cash used to purchase inventories decreased from year-end 2012 to the end of the second quarter of 2013 as inventory tons on hand decreased slightly and scrap cost per ton in ending inventory decreased. The decrease in cash used to fund accounts payable during the first half of 2014 is due to a significant decrease in accrued plant and equipment purchases and a decrease in scrap cost per ton in ending inventory from year-end 2013 to the end of the second quarter. Partially offsetting the net decrease in cash from changes in operating assets and liabilities was the $79.6 million increase in net earnings from the first half of 2013 to the first half of 2014. The higher net earnings included $68.0 million of additional depreciation expense over the first half of 2013. The increase in depreciation expense is primarily due to the completion of our DRI facility in Louisiana and additional assets related to our natural gas drilling working interests. The current ratio was 3.2 at the end of the second quarter of 2014 and 3.3 at year-end 2013. Accounts receivable and inventories increased 14% and 5%, respectively, since year-end, while sales for the second quarter of 2014 increased by 8% from the fourth quarter of 2013. In the second quarter of 2014, total accounts receivable turned approximately every five weeks and inventories turned approximately every seven weeks, which is consistent with the second quarter of 2013 turnover. The current ratio was also impacted by a 23% decrease in cash and cash equivalents and short-term investments from year-end 2013. The decrease in cash and cash equivalents and short-term investments is primarily attributable to their use in capital project spending and the payment of dividends. Cash used in investing activities increased $232.3 million over the prior year period. The largest factor contributing to the increase in cash used in investing activities was the net decrease of $330.6 million in proceeds from the sale of investments and restricted investments (net of purchases) and changes in restricted cash from 2013. Additionally, cash used to fund several small acquisitions was $38.5 million in the first half of 2014 compared with none in 2013. Partially offsetting those changes was a $174.5 million decrease in capital expenditures in large part due to the completion of our Louisiana DRI facility and reduced spending with our natural gas working interest drilling program. 29



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Cash used in financing activities decreased by $278.5 million from the first half of 2013 due primarily to the repayment of a $250.0 million note in June 2013. Nucor's conservative financial practices have served us well in the past and are serving us well today. Our cash and cash equivalents and short-term investments position remains strong at $1.17 billion as of July 5, 2014. Our $1.5 billion revolving credit facility is undrawn and does not expire until August 2018. 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 metals and mining company in North America, with an A rating from Standard and Poor's and a Baa1 rating from Moody's. Based upon these factors, we expect to continue to have adequate access to the capital markets at a reasonable cost of funds for liquidity purposes when needed. Our credit 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 July 5, 2014, our funded debt to total capital ratio was 36%, and we were in compliance with all other covenants under our credit facility. No borrowings were outstanding under the credit facility as of July 5, 2014. In challenging market conditions such as we are experiencing today, 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 2014 are projected to be approximately $600 million compared to $1.2 billion in 2013. The decrease in projected 2014 capital expenditures is primarily due to decreased capital expenditures related to our DRI facility in Louisiana and the suspension of drilling new natural gas wells associated with our drilling program that was announced in the fourth quarter of 2013.



In June 2014, Nucor's board of directors declared a quarterly cash dividend on Nucor's common stock of $0.37 per share payable on August 11, 2014 to stockholders of record on June 30, 2014. This dividend is Nucor's 165th 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.


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