Nucor 2011 Annual Report Download - page 26

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$142.8 million in 2011 (a LIFO charge of $164.0 million in 2010). The increases in cost per ton and quantities were driven
by increases in the demand for steel and the related raw materials.
•฀฀ Pre-operating and start-up costs of new facilities decreased to $97.1 million in 2011, compared with $174.8 million in 2010.
The decrease in pre-operating and start-up costs was due to several projects coming out of start-up, including the SBQ mill
in Memphis, Tennessee, the wire rod products mill in Kingman, Arizona, and the galvanizing line in Decatur, Alabama. Nucor
defines pre-operating and start-up costs, all of which are expensed, as the losses attributable to facilities or major projects that
are either under construction or in the early stages of operation. Once these facilities or projects have attained a utilization rate
that is consistent with our similar operating facilities, they are no longer considered by Nucor to be in start-up.
• Total energy costs increased $1 per ton from 2010 to 2011 due primarily to higher electricity unit costs. Due to the efficiency of
Nucor’s steel mills, energy costs remained less than 6% of the sales dollar in 2011 and 2010.
• Gross margins were impacted in the fourth quarter of 2011 by a non-cash gain of $29.0 million as a result of the correction of
an actuarial calculation related to the medical plan covering certain eligible early retirees.
MARKETING, ADMINISTRATIVE AND OTHER EXPENSES
Two major components of marketing, administrative and other expenses are freight and profit sharing costs. Although freight
costs increased 3% over the prior year, unit freight costs increased only 1%. Higher fuel prices were partially offset by efficiencies
created by increased shipments. Profit sharing costs, which are based upon and fluctuate with pre-tax earnings, increased more
than fivefold from 2010 to 2011 due to the Company’s increased profitability in 2011. In 2011, profit sharing costs consisted of $117.7
million of contributions, including the Company’s matching contribution, made to the Company’s Profit Sharing and Retirement
Savings Plan for qualified employees ($22.1 million in 2010). Other bonus costs also fluctuate based on Nucor’s achievement of
certain financial performance goals, including comparisons of Nucor’s financial performance to peers in the steel industry and other
companies. Stock-based compensation included in marketing, administrative and other expenses increased 56% to $24.7 million in
2011 compared with $15.8 million in 2010 and includes costs associated with vesting of stock awards granted in prior years.
In 2011, marketing, administrative, and other expenses included a charge of $13.9 million for the impairment of a dust recycling
project. In 2010, Nucor and its joint venture partners agreed to permanently close the HIsmelt plant in Kwinana, Western Australia.
Nucor has a 25% interest in the joint venture that will be terminated. Nucor recorded a pre-tax charge of $10.0 million in 2010 for
our share of the estimated closure costs.
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES
Nucor incurred equity method investment losses of $10.0 million and $32.1 million in 2011 and 2010, respectively. Included in
equity method losses is amortization expense associated with the purchase of equity method investments. The decrease in the
equity method investment losses is primarily attributable to decreased losses incurred at the HIsmelt joint venture that was closed
in late 2010 and to increased earnings generated by NuMit LLC, of which Nucor acquired a 50% interest in the second quarter
of 2010. The markets served by Duferdofin Nucor continue to be negatively affected by the global economic recession and lower-
priced imports from foreign steel producers receiving government subsidies. Equity in earnings of unconsolidated affiliates was $4.1
million in the fourth quarter of 2011 compared with losses of $0.6 million in the fourth quarter of 2010 and $11.2 million in the
third quarter of 2011. The increase in equity method earnings for the fourth quarter of 2011 is due to the reversal of a deferred tax
asset valuation allowance of $7.1 million related to the Duferdofin Nucor joint venture’s Italian net operating loss carryforward. This
valuation allowance was recorded in the third quarter of 2011 and reversed in the fourth quarter as a result of changes in Italian tax
regulations in December 2011.
INTEREST EXPENSE (INCOME)
Net interest expense is detailed below:
(in thousands)
Year Ended December 31, 2011 2010
Interest expense $178,812 $161,140
Interest income (12,718) (8,047)
Interest expense, net $166,094 $153,093
The 11% increase in gross interest expense over 2010 is attributable to a 29% increase in average debt outstanding, partially offset
by a 14% decrease in the average interest rate. Gross interest income increased 58% due to a 76% increase in average investments,
partially offset by a 16% decrease in the average interest rate earned on investments.