Nucor 2015 Annual Report Download - page 40

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Although we expect the first quarter operating results to be somewhat similar to the fourth quarter 2015 results excluding the LIFO
credit and the impairment charges recorded in the fourth quarter, they will be in the face of continued significant headwinds that
weighed heavily on the steel industry throughout 2015. The collapse in global oil prices triggered inventory reductions among pipe
and tube producers serving energy markets, an important customer group for Nucor as well as the domestic steel industry. With
oil prices continuing to languish and additional supply entering the market, it is hard to predict when growth in energy markets will
return. Also, given the relative health of the domestic steel markets, imports increased dramatically in 2014 and this trend carried
through 2015. We are anticipating a more positive trend in earnings as we enter into the second quarter of 2016 and then into the
second half of the year. We are therefore cautiously optimistic regarding full-year volume, pricing and profitability. Backlogs in both
the steel and steel products segments have remained consistent and we believe several end-use markets such as automotive and
nonresidential construction will experience some demand improvement that may gain momentum throughout 2016. However, the
effect this improvement in demand will have on our operating rates will be challenged by excess foreign steel capacity and the threat
of continued increases in imported steel. We are aggressively fighting to stem the tide of unfairly traded imports and are encouraged
by recent trade legislation that puts our nation in a much stronger position to hold foreign governments accountable when violating
U.S. trade laws. We expect that scrap prices will increase slightly over the balance of 2016 and that we will continue to experience
fluctuations in raw material costs throughout the year. We have made significant investments in our raw materials segment and will
continue to utilize our unmatched global supply chain to optimize our raw material costs.
We are committed to executing on the opportunities we see ahead to reward Nucor stockholders with very attractive long-term
returns on their valuable capital invested in our company. Nucor is the only steel producer headquartered in North America with the
extremely important competitive advantage of an investment-grade credit rating. Our industry-leading financial strength allows us to
support investments in our facilities that will prepare us for increased profitability as we enter into more favorable market conditions.
In 2016, as we have in our past, we will allocate capital to investments that build our long-term earnings power. Capital expenditures
are currently projected to be approximately $500 million in 2016, considerably higher than our spending in 2015 and more in line
with 2014. Included in this $500 million total are primarily investments in our core operations to expand our product offerings and
keep them state-of-the-art and globally cost-competitive.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at year end and the reported amount of revenues and expenses
during the year. On an ongoing basis, we evaluate our estimates, including those related to the valuation allowances for receivables,
the carrying value of non-current assets, reserves for environmental obligations and income taxes. Our estimates are based on
historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Accordingly, actual costs could differ materially from these estimates under different assumptions or conditions. We believe
the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated
financial statements.
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.