| 10. | Equity Investments |
The carrying value of our equity investments in domestic and foreign companies was $936.0 million at December 31, 2013 ($855.9 million at December 31, 2012) and is recorded in other assets in the consolidated balance sheets.
DUFERDOFIN NUCOR
Nucor owns a 50% economic and voting interest in Duferdofin Nucor S.r.l. (Duferdofin Nucor), an Italian steel manufacturer, and accounts for the investment (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between the members.
Nucor’s investment in Duferdofin Nucor at December 31, 2013 was $465.4 million ($454.1 million at December 31, 2012). Nucor’s 50% share of the total net assets of Duferdofin Nucor was $55.4 million at December 31, 2013, resulting in a basis difference of $410.0 million due to the step-up to fair value of certain assets and liabilities attributable to Duferdofin Nucor as well as the identification of goodwill ($332.9 million) and finite-lived intangible assets. This basis difference, excluding the portion attributable to goodwill, is being amortized based on the remaining estimated useful lives of the various underlying net assets, as appropriate. Amortization expense and other purchase accounting adjustments associated with the fair value step-up were $11.2 million in 2013 ($11.1 million in 2012 and $11.5 million in 2011).
As of December 31, 2013, Nucor had outstanding notes receivable of €35.0 million ($48.2 million) from Duferdofin Nucor (€35.0 million as of December 31, 2012). The notes receivable bear interest at 1.539% and will reset annually on September 30 to the twelve-month Euro Interbank Offered Rate (Euribor) plus 1% per year. The principal amounts are due on January 31, 2016. As of December 31, 2013 and December 31, 2012, the note receivable was classified in other assets.
Nucor has issued a guarantee for its ownership percentage (50%) of Duferdofin Nucor’s borrowings under Facility A of a Structured Trade Finance Facilities Agreement that matures on April 26, 2016. In the second quarter of 2013, Duferdofin Nucor amended the loan agreement, increasing the maximum amount that it can borrow under Facility A to €122.5 million ($168.9 million) as of December 31, 2013. As of December 31, 2013, it had €112.0 million ($154.4 million) outstanding under that facility (€102.0 million, or $134.8 million, at December 31, 2012). If Duferdofin Nucor fails to pay when due any amounts for which it is obligated under Facility A, Nucor could be required to pay 50% of such amounts pursuant to and in accordance with the terms of its guarantee. Any indebtedness of Duferdofin Nucor to Nucor is effectively subordinated to the indebtedness of Duferdofin Nucor under the Structured Trade Finance Facilities Agreement. Nucor has not recorded any liability associated with the guarantee.
NUMIT
Nucor has a 50% economic and voting interest in NuMit LLC (NuMit). NuMit owns 100% of the equity interest in Steel Technologies LLC, an operator of 24 sheet processing facilities located throughout the U.S., Canada and Mexico. Nucor accounts for the investment in NuMit (on a one-month lag basis) under the equity method as control and risk of loss are shared equally between NuMit’s members.
Nucor’s investment in NuMit at December 31, 2013 was $318.4 million ($288.4 million as of December 31, 2012). The value of the investment is comprised of the purchase price of approximately $221.3 million plus subsequent additional capital contributions and equity method earnings less distributions since acquisition. Nucor also has recorded a $40.0 million note receivable from Steel Technologies LLC that bears interest at 1.15% and resets quarterly to the three-month London Interbank Offered Rate (LIBOR) plus 90 basis points. The principal amount is due on October 21, 2014. In addition, Nucor has extended a $100.0 million line of credit (of which $17.0 million was outstanding at December 31, 2013) to Steel Technologies LLC. As of December 31, 2013, the amounts outstanding on the line of credit bear interest at 1.37% and mature on April 1, 2014. As of December 31, 2013 and December 31, 2012, the amount outstanding on the line of credit was classified in other current assets in the consolidated balance sheet. The note receivable was classified in other current assets as of December 31, 2013, but it was classified in other assets as of December 31, 2012.
HUNTER RIDGE
In November 2012, Nucor acquired a 50% economic and voting interest in Hunter Ridge. Hunter Ridge provides services for the gathering, separation and compression of energy products including natural gas produced by Nucor’s working interest drilling program. Nucor accounts for the investment (on a one-month lag basis) under the equity method, as control and risk of loss are shared equally between Hunter Ridge’s members. Nucor’s investment in Hunter Ridge at December 31, 2013 was $134.5 million ($95.4 million at December 31, 2012). The acquisition did not result in a significant amount of goodwill or intangible assets.
ALL EQUITY INVESTMENTS
Nucor reviews its equity investments for impairment if and when circumstances indicate that a decline in value below their carrying amounts may have occurred. In the second quarter of 2012, Nucor concluded that a triggering event occurred requiring assessment for impairment of its equity investment in Duferdofin Nucor due to the continued declines in the global demand for steel, the escalated economic and political turmoil in Europe and continued operating performance well below budgeted levels through the first half of 2012. Another contributing factor was that Duferdofin Nucor had a recently updated unfavorable forecast of future operating performance. The diminished demand combined with the continued lower than budgeted levels of operating performance significantly impacted the financial results of Duferdofin Nucor through the first half of 2012. After completing its assessment, Nucor determined that the carrying amount exceeded its estimated fair value and recorded a $30.0 million impairment charge against the Company’s investment in Duferdofin Nucor. This charge is included in impairment of non-current assets in the consolidated statements of earnings.
Although the operating results of Duferdofin Nucor have improved since 2012 and there have been no significant deteriorations in near-term financial projections or other key assumptions since the last impairment test performed in the fourth quarter of 2012, Nucor concluded that it was appropriate to reassess its equity investment in Duferdofin Nucor for impairment during the fourth quarter of 2013 due to the protracted challenging steel market conditions in Europe. After completing its assessment, the Company determined that the estimated fair value exceeded its carrying amount by a sufficient amount and that there was no indication of impairment. The assumptions that most significantly affect the fair value determination include projected revenues and the discount rate. It is reasonably possible that material deviation of future performance from the estimates used in our most recent valuation could result in further impairment of our investment in Duferdofin Nucor.
In the third quarter of 2011, the Company concluded that an equity investment in a dust recycling project had been impaired, resulting in an impairment charge of $13.9 million. This charge is included in impairment of non-current assets in the consolidated statements of earnings.