Nucor 2015 Annual Report Download - page 38

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INVESTING ACTIVITIES
Our business is capital intensive; therefore, cash used in investing activities primarily represents capital expenditures for new facilities,
the expansion and upgrading of existing facilities and the acquisition of other companies. Nucor invested $374.1 million in new facilities
and expansion or upgrading of existing facilities in 2015 compared with $668.0 million in 2014. The decrease in capital expenditures
is due to the reduced spending with our natural gas working interest drilling programs, reduced spending at our Louisiana DRI facility
which was substantially completed in 2014 and reduced spending at our steel mills following significant capital expansion projects that
were completed in 2014. Additionally, Nucor invested $768.6 million in the acquisition of other companies in 2014, primarily Nucor
Steel Gallatin, compared with acquisitions of only $19.1 million in 2015. Another factor contributing to the decrease in cash used in
investing activities was an increase in proceeds from the sale of investments over the prior year period. These positive factors were
partially offset by the $122.0 million of repayment of advances to affiliates in 2014 (none in 2015) as our Steel Technologies LLC joint
venture obtained external financing and repaid all debts outstanding to Nucor in the prior year period.
FINANCING ACTIVITIES
Cash used in financing activities in 2015 was $789.8 million compared with cash used in financing activities of $359.0 million in 2014.
The majority of the change was due to the first quarter 2015 repayment of approximately $151 million of commercial paper that was
issued in 2014 and outstanding at year end 2014 to partially fund the acquisition of Nucor Steel Gallatin. Additionally, cash used to
repurchase treasury stock was $66.5 million in 2015 (none in 2014).
In 2015, Nucor increased its quarterly base dividend, resulting in dividends paid of $479.4 million in 2015 compared with $475.1
million in 2014.
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% at the end of 2015
and 2014, 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 2015 were 63% and 61%, respectively. A significant portion of our steel and
steel products segments sales are into the commercial, industrial and municipal construction markets. These markets continue to be
depressed when compared to historical levels, and the domestic steel industry continues to be negatively affected by imported steel.
Our largest single customer in 2015 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.
Nucor’s tax-exempt industrial revenue bonds (IDRBs), including the Gulf Opportunity Zone bonds, have variable interest rates that
are adjusted weekly. These IDRBs represent 23% of Nucor’s long-term debt outstanding at December 31, 2015. The remaining
77% 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, 2015, there were no
such 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 derivative instruments in the consolidated balance sheets at fair value.
The Company is exposed to foreign currency risk primarily through its operations in Canada, Europe and Trinidad. We periodically use
derivative contracts to mitigate the risk of currency fluctuations.