Nucor 2015 Annual Report Download - page 27

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EVALUATING OUR OPERATING PERFORMANCE
We report our results of operations in three segments: steel mills, steel products and raw materials. Most of the steel we produce in our
mills is sold to outside customers, but a significant percentage is used internally by some of the facilities in our steel products segment.
We begin measuring our performance by comparing our net sales, both in total and by individual segment, during a reporting period with
our net sales in the corresponding period in the prior year. In doing so, we focus on changes in and the reasons for such changes in the
two key variables that have the greatest influence on our net sales: average sales price per ton during the period and total tons shipped
to outside customers.
We also focus on both dollar and percentage changes in gross margins, which are key drivers of our profitability, and the reasons for
such changes. There are many factors from period to period that can affect our gross margins. One consistent area of focus for us
is changes in “metal margins,” which is the difference between the selling price of steel and the cost of scrap and scrap substitutes.
Increases in the cost of scrap and scrap substitutes that are not offset by increases in the selling price of steel can quickly compress
our margins and reduce our profitability.
Another factor affecting our gross margins in any given period is the application of the last-in, first-out (LIFO) method of accounting to a
substantial portion of our inventory (48% of total inventories as of December 31, 2015). LIFO charges or credits for interim periods are
based on management’s interim period-end estimates, after considering current and anticipated market conditions, of both inventory
costs and quantities at fiscal year end. The actual year end amounts may differ significantly from these estimated interim amounts.
Annual LIFO charges or credits are largely based on the relative changes in cost and quantities year over year, primarily with raw
material inventory in the steel mills segment.
Because energy is a key input to our manufacturing processes, material changes in energy costs per ton can significantly affect our
gross margins as well. Lower energy costs per ton increase our gross margins. Generally, our energy costs per ton are lower when the
average utilization rates of all operating facilities in our steel mills segment are higher.
Changes in marketing, administrative and other expenses, particularly profit sharing costs, can have a material effect on our results of
operations for a reporting period as well. Profit sharing costs vary significantly from period to period as they are based upon changes
in our pre-tax earnings and are a reflection of our pay-for-performance system that is closely tied to our levels of production.
EVALUATING OUR FINANCIAL CONDITION
We evaluate our financial condition each reporting period by focusing primarily on the amounts of and reasons for changes in cash
provided by operating activities, our current ratio, the turnover rate of our accounts receivable and inventories, the amount and reasons
for changes in cash used in or provided by investing activities and financing activities and our cash and cash equivalents and short-term
investments position at period end. Our conservative financial practices have served us well in the past and are serving us well today.
As a result, our financial position remains strong despite the negative effects on our business of global overcapacity and the continued
weakness in the global economy.
COMPARISON OF 2015 TO 2014
RESULTS OF OPERATIONS
NET SALES
Net sales to external customers by segment for 2015 and 2014 were as follows:
(in thousands)
Year Ended December 31, 2015 2014 % Change
Steel mills $11,084,331 $14,723,642 -25%
Steel products 3,966,895 4,032,385 -2%
Raw materials 1,388,050 2,349,114 -41%
Total net sales to external customers $16,439,276 $21,105,141 -22%