Nucor 2013 Annual Report Download - page 36

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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. Our funded debt to total capital ratio was 36% and 32% at year-end 2013 and 2012,
respectively, and we were in compliance with all other covenants under our credit facility.
MARKET RISK
Nucor’s largest exposure to market risk is in our steel mills and steel products segments. Our utilization rates for the steel mills and
steel products facilities for the fourth quarter of 2013 were 75% and 58%, respectively. A significant portion of our steel and steel
products segments sales are into the commercial, industrial and municipal construction markets, which continue to be depressed.
Our largest single customer in 2013 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.
The majority of Nucor’s tax-exempt industrial revenue bonds (IDRBs), including the Gulf Opportunity Zone bonds, have variable
interest rates that are adjusted weekly, with the rate of one IDRB adjusted annually. These IDRBs represent 24% of Nucor’s long-term
debt outstanding at December 31, 2013. The remaining 76% of Nucor’s long-term debt is at fixed rates. Future changes in interest
rates are not expected to significantly impact earnings. From time to time, Nucor makes use of interest rate swaps to manage interest
rate risk. As of December 31, 2013, there were no such interest rate swap contracts outstanding. Nucor’s investment practice is
to invest in securities that are highly liquid with short maturities. As a result, we do not expect changes in interest rates to have a
significant impact on the value of our investment securities recorded as short-term investments.
Nucor also uses derivative financial instruments from time to time to partially manage its exposure to price risk related to natural gas
purchases used in the production process as well as scrap, copper and aluminum purchased for resale to its customers. In addition,
Nucor uses forward foreign exchange contracts from time to time to hedge cash flows associated with certain assets and liabilities,
firm commitments and anticipated transactions. Nucor generally does not enter into derivative instruments for any purpose other
than hedging the cash flows associated with specific volumes of commodities that will be purchased and processed or sold in future
periods and hedging the exposures related to changes in the fair value of outstanding fixed rate debt instruments and foreign currency
transactions. Nucor recognizes all material derivative instruments in the consolidated balance sheets at fair value.
The Company is exposed to foreign currency risk through its operations in Canada, Europe, Trinidad and Colombia. We periodically
use derivative contracts to mitigate the risk of currency fluctuations.
CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
The following table sets forth our contractual obligations and other commercial commitments as of December 31, 2013 for the
periods presented:
(in thousands)
Payments Due By Period
Contractual Obligations Total 2014 2015 - 2016 2017 - 2018 2019 and thereafter
Long-term debt $ 4,380,200 $ 3,300 $ 16,300 $1,100,000 $3,260,600
Estimated interest on long-term debt(1) 2,519,614 179,775 359,436 304,911 1,675,492
Capital leases 34,200 3,420 6,840 6,840 17,100
Operating leases 92,171 26,781 32,955 17,984 14,451
Raw material purchase commitments(2) 4,595,800 1,246,713 2,021,166 1,072,757 255,164
Utility purchase commitments(2) 1,093,797 325,193 235,216 113,923 419,465
Natural gas drilling commitments 4,709,322 42,920 584,916 927,168 3,154,318
Other unconditional purchase obligations(3) 166,10 6 147,563 3,441 3,356 11,746
Other long-term obligations(4) 355, 173 188,333 60,690 26,757 79,393
Total contractual obligations $17,946,383 $2,163,998 $3,320,960 $3,573,696 $8,887,729
(1) Interest is estimated using applicable rates at December 31, 2013 for Nucor’s outstanding fixed and variable rate debt.
(2) Nucor enters into contracts for the purchase of scrap and scrap substitutes, iron ore, electricity, natural gas and other raw materials and related services. These contracts include
multi-year commitments and minimum annual purchase requirements and are valued at prices in effect on December 31, 2013, or according to the contract language. These
contracts are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such commitments will adversely affect our liquidity position.
(3) Purchase obligations include commitments for capital expenditures on operating machinery and equipment.
(4) Other long-term obligations include amounts associated with Nucor’s early-retiree medical benefits, management compensation and guarantees.
Note: In addition to the amounts shown in the table above, $66.0 million of unrecognized tax benefits have been recorded as liabilities, and we are uncertain as to if or when such
amounts may be settled. Related to these unrecognized tax benefits, we have also recorded a liability for potential penalties and interest of $37.2 million at December 31, 2013.