Nucor 2013 Annual Report Download - page 28

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27
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12 4th Q 12 13 4th Q 1311 4th Q 11
dollars
AVERAGE SCRAP AND SCRAP SUBSTITUTE
COST PER TON USED
GROSS MARGIN
In 2013, Nucor recorded gross margins of $1.41 billion (7%) compared to $1.51 billion (8%) in 2012. The year-over-year
dollar and gross margin percentage decreases were primarily the result of the 5% decrease in the average sales price per ton,
partially offset by the 3% increase in tons shipped to outside customers. Additionally, gross margins were impacted by the
following factors:
• In the steel mills segment, the average scrap and scrap substitute cost per ton used decreased 8% from $407 in 2012 to
$376 in 2013; however, metal margins also decreased for our sheet, bar and plate products from 2012 due to the previously
mentioned decreases in selling prices in those categories. Metal margin dollars for all of our steel mill products increased in
the fourth quarter of 2013 as compared to the fourth quarter of 2012. Metal margins increased in the fourth quarter of 2013
as compared to the third quarter of 2013 due to increased metal margins from our sheet, structural and plate products.
Scrap prices are driven by global supply and demand for scrap and other
iron-based raw materials used to make steel. We experienced less quarterly
volatility in scrap costs during 2013 than in 2012. We expect that early 2014
conditions in the domestic scrap market will be very dependent on the
region of the country where they are located. Some regions are experiencing
less export demand while weather conditions in other regions are negatively
impacting the flow of scrap into scrap yards. We anticipate low volatility
in scrap costs going forward until we see stronger market demand either
domestically or globally.
• Nucor’s gross margins are significantly impacted by the application of the
LIFO method of accounting. LIFO 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. The average scrap and
scrap substitute cost per ton in ending inventory within our steel mills
segment at December 31, 2013 increased 3% as compared to December 31,
2012. Ending inventory quantities also increased as compared to December 31,
2012. As a result of these factors, Nucor recorded a LIFO charge of $17.4
million in 2013 (a LIFO credit of $155.9 million in 2012). The increases in
cost per ton were driven by market conditions at the end of 2013, which
experienced stronger demand for steel and raw materials than market
conditions at the end of 2012.
In the fourth quarter of 2013, Nucor recorded a LIFO charge of $17.4 million compared with a LIFO credit of $71.9 million in
the fourth quarter of 2012.
• Nucor’s 2012 gross margins were negatively impacted by $48.8 million in inventory-related purchase accounting adjustments
associated with our acquisition of Skyline (none in 2013). Purchase accounting adjustments related to Skyline were $12.0
million in the fourth quarter of 2012 with none being recorded in the fourth quarter of 2013.
• Gross margins at our rebar fabrication businesses increased significantly in 2013 as compared to 2012 due to higher average sales prices
and the effects of management initiatives that have resulted in lower costs, better selling strategies and improved supplier relationships.
With the exception of the fourth quarter, in which margins were down slightly from the prior year fourth quarter, the rebar fabrication
businesses had higher gross margins in each quarter of 2013 than in the comparable quarter of 2012.
• Total energy costs decreased approximately $1 per ton from 2012 to 2013, primarily due to the negative impact of natural gas hedge
settlements on our overall natural gas costs in 2012. Due to the efficiency of Nucor’s steel mills, energy costs remained less than 6% of
the sales dollar in 2013 and 2012.
In the fourth quarter of 2013, total energy costs decreased approximately $2 per ton from the third quarter of 2013 due primarily to lower
electricity unit costs, and decreased approximately $3 per ton from the fourth quarter of 2012 primarily due to natural gas hedge
settlement costs in the fourth quarter of last year.
• Gross margins related to DJJ’s scrap processing operations decreased significantly during 2013 compared to 2012 due to
excess shredding capacity increasing DJJ’s cost of scrap purchases and weather-related effects in the first quarter of 2013
that reduced the flow of scrap into our scrap processing operations.