Nucor 10-Q 2021-10-02

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended October 2, 2021

OR

For the transition period from to

Commission File Number: 1-4119

NUCOR CORPORATION

(Exact name of registrant as specified in its charter)

(704) 366-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

285,798,874 shares of the registrant’s common stock were outstanding at October 2, 2021.

Nucor Corporation

Quarterly Report on Form 10-Q

For the Three Months and Nine Months Ended October 2, 2021

Table of Contents

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PART I. FINANCIAL INFORMATION

Nucor Corporation Condensed Consolidated Statements of Earnings (Unaudited)

(In thousands, except per share amounts)

See notes to condensed consolidated financial statements.

Nucor Corporation Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

See notes to condensed consolidated financial statements.

Nucor Corporation Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

See notes to condensed consolidated financial statements.

Nucor Corporation Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

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Certain statements made in this Quarterly Report on Form 10-Q, or in other public filings, press releases, or other written or oral communications made by Nucor, which are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties which we expect will or may occur in the future and may impact our business, financial condition and results of operations. The words “anticipate,” “believe,” “expect,” “intend,” “project,” “may,” “will,” “should,” “could” and similar expressions are intended to identify those forward-looking statements. These forward-looking statements reflect the Company’s best judgment based on current information, and, although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this report. Factors that might cause the Company’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: (1) competitive pressure on sales and pricing, including pressure from imports and substitute materials; (2) U.S. and foreign trade policies affecting steel imports or exports; (3) the sensitivity of the results of our operations to prevailing market steel prices and changes in the supply and cost of raw materials, including pig iron, iron ore and scrap steel; (4) the availability and cost of electricity and natural gas, which could negatively affect our cost of steel production or result in a delay or cancellation of existing or future drilling within our natural gas drilling programs; (5) critical equipment failures and business interruptions; (6) market demand for steel products, which, in the case of many of our products, is driven by the level of nonresidential construction activity in the United States; (7) impairment in the recorded value of inventory, equity investments, fixed assets, goodwill or other long-lived assets; (8) uncertainties surrounding the global economy, including excess world capacity for steel production; (9) fluctuations in currency conversion rates; (10) significant changes in laws or government regulations affecting environmental compliance, including legislation and regulations that result in greater regulation of greenhouse gas emissions that could increase our energy costs, capital expenditures and operating costs or cause one or more of our permits to be revoked or make it more difficult to obtain permit modifications; (11) the cyclical nature of the steel industry; (12) capital investments and their impact on our performance; (13) our safety performance; (14) the impact of the COVID-19 pandemic and any variants of the virus; and (15) the risks discussed in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and elsewhere in this report.

Caution should be taken not to place undue reliance on the forward-looking statements included in this report. We assume no obligation to update any forward-looking statements except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in our reports and other filings with the Securities and Exchange Commission.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report, as well as the audited consolidated financial statements and the notes thereto, “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

Nucor and its affiliates manufacture steel and steel products. Nucor also produces DRI for use in its steel mills. Through DJJ, the Company also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron and DRI. Most of Nucor’s operating facilities and customers are located in North America. Nucor’s operations include international trading and sales companies that buy and sell steel and steel products manufactured by the Company and others. Nucor is North America’s largest recycler, using scrap steel as the primary raw material in producing steel and steel products.

Nucor reports its results in the following segments: steel mills, steel products and raw materials. The steel mills segment includes carbon and alloy steel in sheet, bars, structural and plate; steel trading businesses; rebar distribution businesses; and Nucor’s equity method investments in NuMit and Nucor-JFE. The steel products segment includes steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, precision castings, steel fasteners, metal building systems, insulated metal panels, steel grating, tubular products businesses, steel racking, piling products business and wire and wire mesh. The raw materials segment includes DJJ, primarily a scrap broker and processor; Nu-Iron Unlimited and Nucor Steel Louisiana, two facilities that produce DRI used by the steel mills; and our natural gas production operations.

On August 9, 2021, Nucor acquired the assets of the IMP business of Cornerstone Building Brands, Inc. for a cash purchase price of approximately $1 billion. The Company believes this acquisition is strategically compelling and will broaden the value-added solutions that Nucor Buildings Group provides to targeted end markets such as warehousing, distribution and data centers. We expect these end-use markets to continue to grow in the coming years and that the use of

IMP products within them will also increase. IMPs facilitate cost-effective climate control in the built environment and reduce energy usage and overall operations-related greenhouse gas emissions for owners and lessees. The IMP business Nucor acquired is comprised of two industry leading brands, CENTRIA and Metl-Span, and has seven manufacturing facilities located throughout North America, complementing the Company’s existing IMP business, Truecore.

On August 20, 2021, Nucor acquired Hannibal for a cash purchase price of approximately $370 million. Hannibal is a leading national provider of steel racking solutions to warehouses. We expect that Hannibal’s business, serving customers in the e-commerce, industrial, food storage and retail segments, will also continue to grow in the coming years. Hannibal has manufacturing facilities in Los Angeles and Houston, as well as three distribution centers.

Together, the acquisitions of the IMP business and Hannibal reflect Nucor’s strategy to target the fastest growing segments of steel intensive construction markets.

The average utilization rates of all operating facilities in the steel mills, steel products and raw materials segments were approximately 96%, 77% and 75%, respectively, in the first nine months of 2021 compared with approximately 80%, 71% and 65%, respectively, in the first nine months of 2020.

Results of Operations

For the third quarter in a row, Nucor reported the most profitable quarter in the Company’s history. The Company reported record consolidated net earnings of $2.13 billion, or $7.28 per diluted share, in the third quarter of 2021. This surpassed the previous quarterly record for consolidated net earnings of $1.51 billion, or $5.04 per diluted share, that was set in the second quarter of 2021.

Demand for steel and steel products has been very strong throughout the first nine months of 2021. The average selling prices realized by our steel mills and steel products segments in the third quarter of 2021 were the highest they have been all year, leading both segments to report record quarterly profitability in the third quarter of 2021. Demand remains robust across most end-use markets that we serve, and backlogs in our steel mills and steel products segments remain elevated compared to historical levels.

The profitability of the raw materials segment improved in the third quarter of 2021 compared to the second quarter of 2021. However, the difference was mainly due to the $42.0 million impairment charge related to our leasehold interest in unproved oil and natural gas properties recorded in the second quarter of 2021.

Nucor reported consolidated net earnings of $193.4 million, or $0.63 per diluted share, in the third quarter of 2020. The onset of the COVID-19 pandemic late in the first quarter of 2020 has had a major negative impact on the markets that we serve. The worst of these negative impacts were felt in the second quarter of 2020, but nonresidential construction markets continued to be resilient and other end markets would begin to recover in the third quarter of 2020. The acceleration of the recovery over the remainder of 2020 and into 2021, combined with lean inventory levels across the supply chains, contributed to the dramatic increase in average selling prices in the third quarter of 2021 as compared to the third quarter of 2020.

The following discussion will provide greater quantitative and qualitative analysis of Nucor’s performance in the third quarter and first nine months of 2021 as compared to the third quarter and first nine months of 2020.

Net Sales

Net sales to external customers by segment for the third quarter and first nine months of 2021 and 2020 were as follows (in thousands):

Net sales for the third quarter of 2021 increased 109% from the third quarter of 2020. Average sales price per ton increased 86% from $774 in the third quarter of 2020 to $1,438 in the third quarter of 2021. Total tons shipped to outside customers in the third quarter of 2021 were 7,172,000 tons, a 13% increase from the third quarter of 2020.

Net sales for the first nine months of 2021 increased 76% from the first nine months of 2020. Average sales price per ton increased 53% from $782 in the first nine months of 2020 to $1,196 in the first nine months of 2021. Total tons shipped to outside customers in the first nine months of 2021 were 21,830,000, a 15% increase from the first nine months of 2020.

In the steel mills segment, sales tons for the third quarter and first nine months of 2021 and 2020 were as follows (in thousands):

Net sales for the steel mills segment increased 141% in the third quarter of 2021 from the third quarter of 2020, due primarily to a 110% increase in the average sales price per ton from $639 to $1,339 as well as a 16% increase in tons sold to outside customers. Average selling prices increased across all product groups within the steel mills segment in the third quarter of 2021 as compared to the third quarter of 2020.

Net sales for the steel mills segment increased 96% in the first nine months of 2021 from the first nine months of 2020, due to a 67% increase in the average sales price per ton from $664 to $1,112 and a 17% increase in tons sold to outside customers.

Outside sales tonnage for the steel products segment for the third quarter and first nine months of 2021 and 2020 was as follows (in thousands):

Net sales for the steel products segment increased 58% in the third quarter of 2021 compared to the third quarter of 2020, due to a 53% increase in the average sales price per ton from $1,371 to $2,101 and a 3% increase in tons sold to outside customers. Average selling prices increased across all businesses within the steel products segment in the third quarter of 2021 as compared to the third quarter of 2020, most notably at our tubular products businesses.

Net sales for the steel products segment increased 36% in the first nine months of 2021 compared to the first nine months of 2020, due to a 29% increase in the average sales price per ton from $1,372 to $1,776 and a 5% increase in tons sold to outside customers. Average selling prices increased across all businesses within the steel products segment in the first nine months of 2021 as compared to the first nine months of 2020, most notably at our tubular products businesses.

Net sales for the raw materials segment increased 103% and 91% in the third quarter and first nine months of 2021, respectively, from the respective prior year periods. The increases were due to increased average selling prices and volumes at DJJ’s brokerage and scrap processing operations. In the third quarter of 2021, approximately 91% of outside sales for the raw materials segment were from the brokerage operations of DJJ, and approximately 7% of outside sales were from the scrap processing operations of DJJ (89% and 9%, respectively, in the third quarter of 2020). In the first nine months of 2021, approximately 90% of outside sales for the raw materials segment were from the brokerage operations of DJJ, and approximately 8% of outside sales were from the scrap processing operations of DJJ (89% and 9%, respectively, in the first nine months of 2020).

Gross Margins

Nucor recorded gross margins of $3.41 billion (33%) in the third quarter of 2021, which was a significant increase compared with $502.2 million (10%) in the third quarter of 2020.

Scrap and scrap substitutes are the most significant element in the total cost of steel production. The average scrap and scrap substitute cost per gross ton used in the third quarter of 2021 was $511, an 84% increase compared to $277 in the third quarter of 2020. The increase in the average scrap and scrap substitute cost per gross ton used was more than offset by the previously mentioned increases in average selling prices and volumes.

Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. Scrap prices have increased dramatically since the beginning of 2021 and we expect continued strong demand for scrap and some volatility in scrap prices as we begin the fourth quarter.

Nucor recorded gross margins of $7.50 billion (29%) in the first nine months of 2021, which was a significant increase compared with $1.51 billion (10%) in the first nine months of 2020.

Marketing, Administrative and Other Expenses

A major component of marketing, administrative and other expenses is profit sharing and other incentive compensation costs. These costs, which are based upon and fluctuate with Nucor’s financial performance, increased by $341.1 million in the third quarter of 2021 as compared to the third quarter of 2020, and increased by $692.6 million in the first nine months of 2021 as compared to the first nine months of 2020. These increases were due to Nucor’s increased profitability in the third quarter and first nine months of 2021 as compared to the respective prior year periods, which resulted

in significantly increased accruals related to profit sharing.

Included in marketing, administrative and other expenses in the first nine months of 2020 was $18.2 million of restructuring charges related to the realignment of Nucor’s metal buildings business in the steel products segment. Of that amount, $16.4 million was recorded in the third quarter of 2020.

Equity in (Earnings) Losses of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $32.5 million and $0.5 million in the third quarter of 2021 and 2020, respectively, and $65.1 million and losses of $14.4 million in the first nine months of 2021 and 2020, respectively. The increases in equity method investment earnings were primarily due to increased earnings at NuMit and Nucor-JFE.

Losses on Assets

Included in the first nine months of 2021 earnings was a non-cash loss on assets of $42.0 million related to our leasehold interest in unproved oil and natural gas properties in the raw materials segment. Also included in the first nine months of 2021 earnings were losses on assets of $9.0 million in the steel products segment.

Included in the first nine months of 2020 earnings were losses on assets of $299.5 million related to our equity method investment in Duferdofin Nucor S.r.l. (“Duferdofin Nucor”) that we have since exited. Nucor determined that a triggering event occurred in the first quarter of 2020 due to adverse developments in the joint venture’s commercial outlook, which were exacerbated by the COVID‐19 pandemic, all of which negatively impacted the joint venture’s strategic direction.

Interest Expense (Income)

Net interest expense for the third quarter and first nine months of 2021 and 2020 was as follows (in thousands):

Interest expense increased in the third quarter of 2021 compared to the third quarter of 2020 due to a decrease in capitalized interest in the third quarter of 2021. Interest expense decreased in the first nine months of 2021 compared to the first nine months of 2020 due primarily to the lower average interest rates on debt and an increase in capitalized interest in the first nine months of 2021.

Interest income decreased in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 due to a decrease in average interest rates on investments.

Earnings (Losses) Before Income Taxes and Noncontrolling Interests

Earnings (losses) before income taxes and noncontrolling interests by segment for the third quarter and first nine months of 2021 and 2020 were as follows (in thousands). The changes between periods were driven by the quantitative and qualitative factors previously discussed.

Noncontrolling Interests

Noncontrolling interests represent the income attributable to the noncontrolling partners of Nucor’s joint ventures, primarily NYS of which Nucor owns 51%. The increase in earnings attributable to noncontrolling interests in the third quarter and first nine months of 2021 as compared to the third quarter and first nine months of 2020 was primarily due to the increased earnings of NYS, which was a result of the increased metal margins. Under the NYS limited partnership agreement, the minimum amount of cash to be distributed each year to the partners is the amount needed by each partner to pay applicable U.S. federal and state income taxes. In the first nine months of 2020, the amount of cash distributed to noncontrolling interest holders exceeded the earnings attributable to noncontrolling interests based on mutual agreement of the general partners.

Provision for Income Taxes

The effective tax rate for the third quarter of 2021 was 22.5% compared to 23.3% for the third quarter of 2020. The expected effective rate for the full year of 2021 is approximately 22.9%.

We estimate that in the next 12 months our gross unrecognized tax benefits, which totaled $67.1 million at October 2, 2021, exclusive of interest, could decrease by as much as $5.7 million as a result of the expiration of the statute of limitations and closures of examinations, substantially all of which would impact the effective tax rate.

Nucor has concluded U.S. federal income tax matters for tax years through 2014 and for tax year 2016. The tax years 2015 and 2017 through 2020 remain open to examination by the Internal Revenue Service. The 2015 Canadian income tax returns for Harris Steel Group Inc. and certain related affiliates are currently under examination by the Canada Revenue Agency. The tax years 2014 through 2020 remain open to examination by other major taxing jurisdictions to which Nucor is subject (primarily Canada and other state and local jurisdictions).

Net Earnings Attributable to Nucor Stockholders and Return on Equity

Nucor reported consolidated net earnings of $2.13 billion, or $7.28 per diluted share, in the third quarter of 2021 as compared to consolidated net earnings of $193.4 million, or $0.63 per diluted share, in the third quarter of 2020. Net earnings attributable to Nucor stockholders as a percentage of net sales were 21% and 4% in the third quarter of 2021 and 2020, respectively.

Nucor reported consolidated net earnings of $4.58 billion, or $15.34 per diluted share, in the first nine months of 2021 as compared to consolidated net earnings of $322.6 million, or $1.06 per diluted share, in the first nine months of 2020. Net earnings attributable to Nucor stockholders as a percentage of net sales were 18% and 2% in the first nine months of 2021 and 2020, respectively. Annualized return on average stockholders’ equity was 50% and 4% in the first nine months of 2021 and 2020, respectively.

Outlook

We expect continued strong results for the fourth quarter of 2021, potentially exceeding the net earnings record set in the third quarter of 2021. Demand remains robust across most end-use markets, a trend we expect will continue well into 2022. Backlogs in our steel mills and steel products segments remain elevated compared to historical levels.

We expect the profitability of the steel mills segment to improve in the fourth quarter of 2021 as compared to the third quarter of 2021, driven by additional earnings growth at our sheet and plate mills. We expect the profitability of the steel products segment to increase in the fourth quarter of 2021 compared to the third quarter of 2021. The raw materials segment's earnings in the fourth quarter of 2021 are expected to decrease compared to the third quarter of 2021 due primarily to margin compression at our DRI facilities.

Nucor’s largest exposure to market risk is via our steel mills and steel products segments. Our largest single customer in the third quarter of 2021 represented approximately 5% of sales and has consistently paid within terms. In the raw materials segment, we are exposed to price fluctuations related to the purchase of scrap and scrap substitutes, pig iron 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 the raw materials segment.

Liquidity and Capital Resources

Nucor operates a capital-intensive business in highly cyclical markets. We therefore attempt to utilize conservative financial practices that maximize our financial strength during economic downturns like the one we experienced as a result

of the COVID-19 pandemic. Our liquidity position, consisting of cash and cash equivalents, short-term investments and restricted cash and cash equivalents, remained strong at $2.29 billion as of October 2, 2021. Additionally, Nucor has no significant debt maturities until September 2022.

We believe that our conservative financial practices have served us well in the past and are serving us well today. Nucor’s financial strength allows for a consistent, balanced approach to capital allocation throughout the business cycle. Nucor’s highest capital allocation priority is to reinvest in our business to ensure our continued profitable growth over the long term. We have historically done this by investing to optimize our existing operations, initiate greenfield expansions and make acquisitions. Our second priority is to return capital to our stockholders through cash dividends and share repurchases. We intend to return a minimum of 40% of our net earnings to our stockholders, while maintaining a debt-to-capital ratio that supports a strong investment grade credit rating. In May 2021, Nucor’s Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $3.00 billion of its common stock and contemporaneously terminated any previously authorized share repurchase programs. As of October 2, 2021, the Company had approximately $1.94 billion remaining for share repurchases under the program.

Cash provided by operating activities was $3.62 billion in the first nine months of 2021 as compared to $2.21 billion in the prior year period. Net earnings in the first nine months of 2021 improved by $4.37 billion over the prior year period. Included in the first nine months of 2021 earnings was a non-cash loss on assets of $42.0 million related to our leasehold interest in unproved oil and natural gas properties in the raw materials segment. Included in the first nine months of 2020 earnings was a non-cash loss on assets of $299.5 million related to our previously held equity method investment in Duferdofin Nucor. Changes in operating assets and operating liabilities (exclusive of acquisitions) resulted in a cash reduction of $2.04 billion in the first nine months of 2021 compared with a cash increase of $693.2 million in the first nine months of 2020. The funding of our working capital in the first nine months of 2021 increased as compared to the first nine months of 2020 mainly due to increases in inventories and accounts receivable, partially offset by changes in salaries, wages, and other accruals. Inventory tons increased by 14% at the end of the third quarter of 2021 compared to year-end 2020, and the cost of scrap and scrap substitutes in our inventory increased 57% from year-end 2020. Inventories at the end of the third quarter of 2020 decreased by over one million tons, or 17%, compared to year-end 2019 due to working capital reduction initiatives focused on maintaining inventory levels at our anticipated near-term production requirements in response to the COVID-19 pandemic. Accounts receivable increased in the first nine months of 2021 from year-end 2020 due to a 78% increase in composite sales price in the third quarter of 2021 compared to the fourth quarter of 2020, whereas the prior year period saw relatively little change in composite sales price. The increase in salaries, wages and other accruals on the balance sheet in the first nine months of 2021 provided cash of $835.4 million versus using cash of $69.2 million in the prior year period mainly due to increased profit-sharing and other incentive compensation accruals from the significantly higher earnings of the Company.

The current ratio was 2.5 at the end of the third quarter of 2021 and 3.6 at year-end 2020. The current ratio decreased due to the following: a 186% increase in salaries, wages, and related accruals due to the previously discussed incentive compensation; reclassification of $600.0 million in bonds due September 2022 from long-term to short-term debt; and a 31% increase in accounts payable driven by the previously discussed increased inventory costs. Partially offsetting these items were a 78% and 59% increase in accounts receivable and inventories, respectively, due to the previously discussed increases in inventory costs and selling prices. In the first nine months of 2021, accounts receivable turned approximately every five weeks and inventories turned approximately every 10 weeks, compared to six and 10 weeks, respectively, in the first nine months of 2020.

Cash used in investing activities during the first nine months of 2021 was $2.38 billion as compared to $1.33 billion in the prior year period. The increase in cash used in investing activities was primarily due to a $1.33 billion increase in cash used to fund acquisitions, mainly the purchases of the IMP business and Hannibal in August 2021.

Cash used in financing activities for the first nine months of 2021 was $1.95 billion as compared to cash provided by financing activities of $596.6 million in the prior year period. The largest driver of this change was the $1.77 billion of stock repurchases in the first nine months of 2021 as compared to $39.5 million in the prior year period. Another significant component of this change was the issuance of $500.0 million of 2.000% Notes due 2025 and $500.0 million of 2.700% Notes due 2030 in the first nine months of 2020. Offsetting the increase in cash used for acquisition of stock in the first nine months of 2021 was $143.9 million of proceeds from the exercise of stock options.

Nucor’s revolving credit facility is undrawn and was amended and restated on November 5, 2021 to extend the maturity date to November 5, 2026 and to increase its borrowing capacity from $1.50 billion to $1.75 billion. We believe our financial strength is a key strategic advantage among domestic steel producers, particularly during recessionary business cycles. Nucor continues to have the strongest credit rating in the North American steel sector (Baa1/A-) with stable outlooks at both Moody's and Standard & Poor's. Our credit ratings are dependent, however, upon a number of factors, both

qualitative and quantitative, and are subject to change at any time. The disclosure of our credit ratings is made in order to enhance investors’ understanding of our sources of liquidity and the impact of our credit ratings on our cost of funds.

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. As of October 2, 2021, our funded debt to total capital ratio was 28.9% and we were in compliance with all non-financial covenants under our credit facility. No borrowings were outstanding under the credit facility as of October 2, 2021.

Our financial strength allows a number of capital preservation options. Nucor’s robust capital investment and maintenance practices give us the flexibility to reduce spending by prioritizing our capital projects, potentially rescheduling certain projects and selectively allocating capital to investments with the greatest impact on our long-term earnings power. Nucor currently estimates its 2021 capital expenditures to be $1.70 billion. The projects that we anticipate will have the largest capital expenditures in 2021 are the plate mill under construction in Brandenburg, Kentucky, the sheet mill expansion at Nucor Steel Gallatin, and the hot band galvanizing line at Nucor Steel Arkansas.

In September 2021, Nucor’s Board of Directors declared a quarterly cash dividend on Nucor’s common stock of $0.405 per share payable on November 10, 2021, to stockholders of record on September 30, 2021. This dividend is Nucor’s 194th consecutive quarterly cash dividend.

Funds provided from operations, cash and cash equivalents, short-term investments, restricted cash and cash equivalents and new borrowings under our existing credit facilities are expected to be adequate to meet future capital expenditures, acquisitions and working capital requirements for existing operations for at least the next 24 months.

In the ordinary course of business, Nucor is exposed to a variety of market risks. We continually monitor these risks and develop strategies to manage them.

Interest Rate Risk

Nucor manages interest rate risk by using a combination of variable-rate and fixed-rate debt. Nucor also occasionally makes use of interest rate swaps to manage net exposure to interest rate changes. Management does not believe that Nucor’s exposure to interest rate risk has significantly changed since December 31, 2020. There were no interest rate swaps outstanding at October 2, 2021.

Commodity Price Risk

In the ordinary course of business, Nucor is exposed to market risk for price fluctuations of raw materials and energy, principally scrap steel, other ferrous and nonferrous metals, alloys and natural gas. We attempt to negotiate the best prices for our raw material and energy requirements and to obtain prices for our steel products that match market price movements in response to supply and demand. In periods of strong or stable demand for our products, we are more likely to be able to effectively reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand for our products is weaker, this becomes more challenging. Our DRI facilities in Trinidad and Louisiana provide us with flexibility in managing our input costs. DRI is particularly important for operational flexibility when demand for prime scrap increases due to increased domestic steel production.

Natural gas produced by Nucor’s drilling operations is being sold to third parties to offset our exposure to changes in the price of natural gas consumed by our Louisiana DRI facility and our steel mills in the United States.

Nucor also periodically uses derivative financial instruments to hedge a portion of our exposure to price risk related to natural gas purchases used in the production process and to hedge a portion of our scrap, aluminum and copper purchases and sales. Gains and losses from derivatives designated as hedges are deferred in accumulated other comprehensive loss, net of income taxes on the condensed consolidated balance sheets and recognized in net earnings in the same period as the underlying physical transaction. At October 2, 2021, accumulated other comprehensive loss, net of income taxes included $21.8 million in unrealized net-of-tax gains for the fair value of these derivative instruments. Changes in the fair values of derivatives not designated as hedges are recognized in net earnings each period.

The following table presents the negative effect on pre-tax earnings of a hypothetical change in the fair value of derivative instruments outstanding at October 2, 2021, due to an assumed 10% and 25% change in the market price of each of the indicated commodities (in thousands):

Any resulting changes in fair value would be recorded as adjustments to accumulated other comprehensive loss, net of income taxes or recognized in net earnings, as appropriate. These hypothetical losses would be partially offset by the benefit of lower prices paid or higher prices received for the physical commodities.

Foreign Currency Risk

Nucor is exposed to foreign currency risk primarily through its operations in Canada, Europe and Mexico. We periodically use derivative contracts to mitigate the risk of currency fluctuations. Open foreign currency derivative contracts at October 2, 2021 were insignificant.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the evaluation date.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended October 2, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Nucor is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows. Nucor maintains liability insurance with self-insurance limits for certain risks.

There were no proceedings that were pending or contemplated under federal, state or local environmental laws that the Company reasonably believes may result in monetary sanctions of at least $1.0 million (the threshold chosen by Nucor as permitted by Item 103 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, and which Nucor believes is reasonably designed to result in disclosure of any such proceeding that is material to its business or financial condition).

There have been no material changes in Nucor’s risk factors from those included in “Item 1A. Risk Factors” in Nucor’s Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Our share repurchase program activity for each of the three months and the quarter ended October 2, 2021 was as follows (in thousands, except per share amounts):

On November 5, 2021, Nucor amended and restated its revolving credit facility to increase the borrowing capacity from $1.50 billion to $1.75 billion and to extend its maturity date to November 5, 2026. The amended and restated revolving credit facility was entered into by and among Nucor Corporation and certain subsidiaries of Nucor Corporation as borrowers, Bank of America, N.A. as administrative agent, and other financial institutions from time to time party thereto as lenders. The lenders on the revolving credit facility are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the lenders and their respective affiliates have engaged in, and may in the future engage in, commercial and investment banking and other commercial dealings in the ordinary course of business with Nucor or its affiliates. They have received, or may in the future receive, customary fees and commissions or other payments for these transactions. Further, U.S. Bank National Association, one of the lenders, is the trustee for certain series of Nucor’s notes. For an understanding of the terms and provisions of the revolving credit facility, reference should be made to the copy of that agreement attached as Exhibit 10 to this Form 10-Q and incorporated by reference herein.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 10, 2021