Nucor 2013 Annual Report Download - page 38

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ALLOWANCES FOR DOUBTFUL ACCOUNTS
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
INVENTORIES
Inventories are stated at the lower of cost or market. All inventories held by the parent company and Nucor-Yamato Steel Company
are valued using the LIFO method of accounting except for supplies that are consumed indirectly in the production process, which
are valued using the first-in, first-out (FIFO) method of accounting. All inventories held by the parent company’s other subsidiaries are
valued using the FIFO method of accounting. The Company records any amount required to reduce the carrying value of inventory to
net realizable value as a charge to cost of products sold.
If steel selling prices were to decline in future quarters, write-downs of inventory could result. Specifically, the valuation of raw material
inventories purchased during periods of peak market pricing held by subsidiaries valued using the FIFO method of accounting would
most likely be impacted. Low utilization rates at our steel mills could hinder our ability to work through high-priced scrap and scrap
substitutes (particularly pig iron), leading to period-end exposure when comparing carrying value to net realizable value.
LONG-LIVED ASSET IMPAIRMENTS
We evaluate our property, plant and equipment and finite-lived intangible assets for potential impairment on an individual asset basis
or at the lowest level asset grouping for which cash flows can be separately identified. Asset impairments are assessed whenever
circumstances indicate that the carrying amounts of those productive assets could exceed their projected undiscounted cash flows.
In developing estimated values for assets that we currently use in our operations, we utilize judgments and assumptions of future
undiscounted cash flows that the assets will produce. When it is determined that an impairment exists, the related assets are written
down to estimated fair market value.
Certain long-lived asset groupings were tested for impairment during the fourth quarter of 2013. Undiscounted cash flows for each asset
grouping were estimated using management’s long-range estimates of market conditions associated with each asset grouping over the
estimated useful life of the principal asset within the group. Our undiscounted cash flow analysis indicated that those long-lived asset
groupings were recoverable as of December 31, 2013; however, if our projected cash flows are not realized, either because of an extended
recessionary period or other unforeseen events, impairment charges may be required in future periods. A 20% decrease in the projected
cash flows of each of our asset groupings would not result in an impairment, with the exception of one asset grouping included in the
steel products segment that has $34.9 million of property, plant and equipment and $34.1 million of finite-lived intangible assets at
December 31, 2013.
GOODWILL
Goodwill is tested annually for impairment and whenever events or circumstances change that would make it more likely than not that an
impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each year. The evaluation
of impairment involves comparing the current estimated fair value of each reporting unit to the recorded value, including goodwill.
When appropriate, Nucor performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. For certain reporting units it is necessary to perform a quantitative analysis. In these instances, a
discounted cash flow model is used to determine the current estimated fair value of these reporting units. Key assumptions used to
determine the fair value of each reporting unit as part of our annual testing (and any required interim testing) include: (a) expected
cash flow for the five-year period following the testing date (including market share, sales volumes and prices, costs to produce and
estimated capital needs); (b) an estimated terminal value using a terminal year growth rate determined based on the growth prospects
of the reporting unit; (c) a discount rate based on management’s best estimate of the after-tax weighted average cost of capital; and
(d) a probability-weighted scenario approach by which varying cash flows are assigned to certain scenarios based on the likelihood of
occurrence. Management considers historical and anticipated future results, general economic and market conditions, the impact of
planned business and operational strategies and all available information at the time the fair values of its reporting units are estimated.
Our fourth quarter 2013 annual goodwill impairment analysis did not result in an impairment charge. And, management does not currently
believe that future impairment of these reporting units is probable. However, the performance of certain businesses that comprise our
reporting units requires continued improvement. An increase of approximately 50 basis points in the discount rate, a critical assumption
in which a minor change can have a significant impact on the estimated fair value, would not result in an impairment charge.