Nucor 2015 Annual Report Download - page 41

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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 or raw materials facilities could hinder our ability to work through high-
priced scrap and scrap substitutes (particularly pig iron and iron ore), 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 independently 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 2015. 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, 2015; 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 5% decrease
in the projected cash flows of each of our asset groupings would not result in an impairment.
In the fourth quarter of 2015, we determined that certain assets, the majority of which are engineering and equipment related to
the current blast furnace project at our St. James Parish, Louisiana site, will not be utilized. As a result of this determination, Nucor
recorded an $84.1 million impairment charge for the entire balance of those assets, which are included in the raw materials segment.
The impairment charge is included in impairments and losses on assets in the consolidated statements of earnings. The assets that
were impaired, the majority of which were acquired in 2008, were a viable option that were anticipated to be utilized up until the
decision was made that such assets would not be utilized. The decision about whether or not to move forward with construction of
the blast furnace utilizing these assets was delayed to focus on the construction of the DRI plant at the site. The decision was further
delayed because of challenging conditions in domestic and global steel industries, particularly increased excess capacity, both
domestically and globally. In the meantime, technology advances and supply and demand in the raw materials market led management
to reconsider its plans for the previously proposed blast furnace. If we decide to proceed with a blast furnace at the site in the future,
the project design will be evaluated at that time utilizing new equipment and engineering.
Due to the current natural gas pricing environment, Nucor performed an impairment assessment of its producing natural gas well
assets in December 2015. One of the main assumptions that most significantly affects the undiscounted cash flows determination is
management’s estimate of future natural gas prices. The pricing used in this impairment assessment was developed by management
based on natural gas market supply and demand dynamics, in conjunction with a review of projections by numerous sources of market
data. This analysis was performed on each of Nucor’s three groups of wells, with each group defined by common geographic location.
Each of Nucor’s three groups of wells passed the impairment test. One of the groups of wells had estimated undiscounted cash flows
that were noticeably closer to its carrying value of $87.2 million as of December 31, 2015. Changes in the natural gas industry or a
prolonged low price environment beyond what had already been assumed in the analysis could cause management to revise the
natural gas price assumption, which could possibly result in an impairment of a portion or all of the groups of wells assets.
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