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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period

      ended March 31, 2021

OR

       Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0-21719

Steel Dynamics, Inc.

(Exact name of registrant as specified in its charter)

Indiana

    

35-1929476

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

7575 West Jefferson Blvd, Fort Wayne, IN

46804

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (260) 969-3500

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock voting, $0.0025 par value

STLD

NASDAQ Global Select Market

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act).

    

Large accelerated filer

    

Accelerated filer

    

Non-accelerated filer

Smaller reporting company  

Emerging growth company

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

As of April 19, 2021, Registrant had 211,218,956 outstanding shares of common stock.

Table of Contents

STEEL DYNAMICS, INC.

Table of Contents

PART I. Financial Information

Item 1.

Financial Statements:

Page

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

1

Consolidated Statements of Income for the three-month periods ended March 31, 2021 and 2020 (unaudited)

2

Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2021 and 2020 (unaudited)

3

Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2021 and 2020 (unaudited)

4

Notes to Consolidated Financial Statements (unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

21

Item 4.

Controls and Procedures

21

PART II. Other Information

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 3.

Defaults Upon Senior Securities

22

Item 4.

Mine Safety Disclosures

22

Item 5.

Other Information

22

Item 6.

Exhibits

23

Exhibit Index

23

Signature

24

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

March 31,

December 31,

2021

2020

Assets

(unaudited)

Current assets

Cash and equivalents

$

1,245,165

$

1,368,618

Accounts receivable, net

1,360,535

967,981

Accounts receivable-related parties

5,928

3,937

Inventories

2,217,534

1,843,548

Other current assets

67,744

74,363

Total current assets

4,896,906

4,258,447

Property, plant and equipment, net

4,340,411

4,105,569

Intangible assets, net

317,139

324,577

Goodwill

456,378

457,226

Other assets

117,062

119,743

Total assets

$

10,127,896

$

9,265,562

Liabilities and Equity

Current liabilities

Accounts payable

$

1,113,250

$

760,536

Accounts payable-related parties

21,422

8,919

Income taxes payable

52,969

2,386

Accrued payroll and benefits

182,044

201,778

Accrued interest

33,856

19,656

Accrued expenses

176,422

178,618

Current maturities of long-term debt

81,226

86,894

Total current liabilities

1,661,189

1,258,787

Long-term debt

3,016,200

3,015,782

Deferred income taxes

602,185

536,288

Other liabilities

113,125

106,479

Total liabilities

5,392,699

4,917,336

Commitments and contingencies

Redeemable noncontrolling interests

163,614

158,614

Equity

Common stock voting, $0.0025 par value; 900,000,000 shares authorized;

266,618,566 shares issued; and 211,218,956 and 210,914,264

shares outstanding, as of March 31, 2021 and December 31, 2020, respectively

648

648

Treasury stock, at cost; 55,399,610 and 55,704,302 shares,

as of March 31, 2021 and December 31, 2020, respectively

(1,614,866)

(1,623,747)

Additional paid-in capital

1,202,945

1,207,392

Retained earnings

5,134,398

4,758,969

Accumulated other comprehensive income

5,667

1,902

Total Steel Dynamics, Inc. equity

4,728,792

4,345,164

Noncontrolling interests

(157,209)

(155,552)

Total equity

4,571,583

4,189,612

Total liabilities and equity

$

10,127,896

$

9,265,562

See notes to consolidated financial statements.

1

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

Three-Month Periods Ended

March 31,

2021

2020

Net sales

Unrelated parties

$

3,537,625

$

2,571,544

Related parties

6,972

3,556

Total net sales

3,544,597

2,575,100

Costs of goods sold

2,744,331

2,159,871

Gross profit

800,266

415,229

Selling, general and administrative expenses

149,781

112,898

Profit sharing

48,848

21,454

Amortization of intangible assets

7,438

7,191

Operating income

594,199

273,686

Interest expense, net of capitalized interest

17,269

28,019

Other (income) expense, net

10,071

(2,589)

Income before income taxes

566,859

248,256

Income tax expense

128,104

57,420

Net income

438,755

190,836

Net income attributable to noncontrolling interests

(8,248)

(3,496)

Net income attributable to Steel Dynamics, Inc.

$

430,507

$

187,340

Basic earnings per share attributable to Steel Dynamics,

Inc. stockholders

$

2.04

$

0.88

Weighted average common shares outstanding

211,015

213,254

Diluted earnings per share attributable to Steel Dynamics, Inc.

stockholders, including the effect of assumed conversions

when dilutive

$

2.03

$

0.88

Weighted average common shares and share equivalents outstanding

212,254

214,024

Dividends declared per share

$

0.26

$

0.25

See notes to consolidated financial statements.

2

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three-Month Periods Ended

March 31,

2021

2020

Net income

$

438,755

$

190,836

Other comprehensive income - net unrealized gain on

cash flow hedging derivatives, net of income tax

3,765

37

Comprehensive income

442,520

190,873

Comprehensive income attributable to noncontrolling interests

(8,248)

(3,496)

Comprehensive income attributable to Steel Dynamics, Inc.

$

434,272

$

187,377

See notes to consolidated financial statements.

3

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three-Month Periods Ended

March 31,

2021

2020

Operating activities:

Net income

$

438,755

$

190,836

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

86,919

80,259

Equity-based compensation

17,040

17,844

Deferred income taxes

66,744

5,927

Other adjustments

(662)

(264)

Changes in certain assets and liabilities:

Accounts receivable

(394,545)

(154,072)

Inventories

(374,588)

44,505

Other assets

5,828

(1,541)

Accounts payable

360,681

51,596

Income taxes receivable/payable

59,593

52,385

Accrued expenses

(3,574)

(76,194)

Net cash provided by operating activities

262,191

211,281

Investing activities:

Purchases of property, plant and equipment

(309,863)

(217,535)

Purchases of short-term investments

-

(149,359)

Proceeds from maturities of short-term investments

-

192,340

Other investing activities

390

518

Net cash used in investing activities

(309,473)

(174,036)

Financing activities:

Issuance of current and long-term debt

297,441

216,261

Repayment of current and long-term debt

(304,284)

(235,757)

Dividends paid

(52,729)

(51,481)

Purchases of treasury stock

-

(106,529)

Other financing activities

(16,598)

(6,152)

Net cash used in financing activities

(76,170)

(183,658)

Decrease in cash, cash equivalents, and restricted cash

(123,452)

(146,413)

Cash, cash equivalents, and restricted cash at beginning of period

1,374,122

1,387,397

Cash, cash equivalents, and restricted cash at end of period

$

1,250,670

$

1,240,984

Supplemental disclosure information:

Cash paid for interest

$

11,315

$

8,785

Cash paid for income taxes, net

$

2,142

$

518

See notes to consolidated financial statements.

4

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Description of the Business and Significant Accounting Policies

Description of the Business

Steel Dynamics, Inc. (SDI), together with its subsidiaries (the company), is one of the largest and most diversified domestic steel producers and metals recycler. The company has three reporting segments: steel operations, metals recycling operations, and steel fabrication operations.

Steel Operations Segment. Steel operations include the company’s six operating electric arc furnace steel mills, including Butler Flat Roll Division, Columbus Flat Roll Division, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, and Steel of West Virginia, our under construction Southwest-Sinton Flat Roll Division; and steel coating and processing operations at The Techs galvanizing lines, Heartland Flat Roll Division, United Steel Supply (USS), and Vulcan Threaded Products, Inc. Steel operations accounted for 71% and 75% of the company’s consolidated net sales during the three-month periods ended March 31, 2021 and 2020, respectively.

Metals Recycling Operations Segment. Metals recycling operations include the company’s OmniSource ferrous and nonferrous processing, transportation, marketing, brokerage, and scrap management services primarily throughout the United States and in Central and Northern Mexico. Metals recycling operations accounted for 13% and 11% of the company’s consolidated net sales during the three-month periods ended March 31, 2021 and 2020, respectively.

Steel Fabrication Operations Segment. Steel fabrication operations include the company’s New Millennium Building Systems’ joist and deck plants located throughout the United States, and in Northern Mexico. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel deck used within the non-residential construction industry. Steel fabrication operations accounted for 7% and 9% of the company’s consolidated net sales during the three-month periods ended March 31, 2021 and 2020, respectively.

Other. Other operations consist of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of joint ventures, and our idle Minnesota ironmaking operations. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior unsecured credit facility, senior notes, certain other investments and certain profit sharing expenses.

Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of SDI, together with its wholly- and majority-owned or controlled subsidiaries, after elimination of intercompany accounts and transactions. Noncontrolling and redeemable noncontrolling interests represent the noncontrolling owner’s proportionate share in the equity, income, or losses of the company’s majority-owned or controlled consolidated subsidiaries. Redeemable noncontrolling interests related to USS (owned 75% by SDI) are $52.4 million at March 31, 2021 and $47.4 million at December 31, 2020. Redeemable noncontrolling interests related to Mesabi Nugget (owned 84% by SDI) are $111.2 million at March 31, 2021, and December 31, 2020.

Use of Estimates. These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, and accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, and goodwill; valuation allowances for trade receivables, inventories and deferred income tax assets; unrecognized tax benefits; potential environmental liabilities; and litigation claims and settlements. Actual results may differ from these estimates and assumptions.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Description of the Business and Significant Accounting Policies (Continued)

In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Cash and Equivalents, and Restricted Cash

Cash and equivalents include all highly liquid investments with a maturity of three months or less at the date of acquisition. Restricted cash is primarily funds held in escrow as required by various insurance and government organizations. The balance of cash, cash equivalents and restricted cash in the consolidated statements of cash flows includes restricted cash of $5.5 million at March 31, 2021, December 31, 2020, and March 31, 2020, and $5.9 million at December 31, 2019, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.

Goodwill

The company’s goodwill consisted of the following at March 31, 2021, and December 31, 2020, (in thousands):

March 31,

December 31,

2021

2020

Steel Operations Segment

$

272,133

$

272,133

Metals Recycling Operations Segment

182,320

183,168

Steel Fabrication Operations Segment

1,925

1,925

$

456,378

$

457,226

Metals Recycling Operations Segment goodwill decreased $848,000 from December 31, 2020 to March 31, 2021, in recognition of the 2021 tax benefit related to the normal amortization of the component of Metals Recycling Operations tax-deductible goodwill in excess of book goodwill.

Credit Losses

The company is exposed to credit risk in the event of nonpayment of accounts receivable by customers. The company mitigates its exposure to credit risk, which it generally extends on an unsecured basis, by performing ongoing credit evaluations and taking further action if necessary, such as requiring letters of credit or other security interests to support the customer receivable. The allowance for credit losses for accounts receivable is based on the company’s reasonable estimate of known credit risks and historical experience, adjusted for current and anticipated economic and other pertinent factors affecting the company’s customers, that may differ from historical experience. Customer accounts receivable are written off when all collection efforts have been exhausted and the amounts are deemed uncollectible.

At March 31, 2021, the company reported $1,366.5 million of accounts receivable, net of allowances for credit losses of $8.2 million. Changes in the allowance were not material for the three-month periods ended March 31, 2021 and 2020.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. Earnings Per Share

Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive restricted stock units, deferred stock units, restricted stock, and performance awards, and are excluded from the computation in periods in which they have an anti-dilutive effect. There were no anti-dilutive common share equivalents as of or for the three-month periods ended March 31, 2021 and 2020.

Three-Month Periods Ended March 31,

2021

2020

Weighted

Weighted

Average

Average

Net Income

Shares

Per Share

Net Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Basic earnings per share

$

430,507

211,015

$

2.04

$

187,340

213,254

$

0.88

Dilutive common share equivalents

-

1,239

-

770

Diluted earnings per share

$

430,507

212,254

$

2.03

$

187,340

214,024

$

0.88

Note 3. Inventories

Inventories are stated at lower of cost or net realizable value. Cost is determined using a weighted average cost method for raw materials and supplies, and on a first-in, first-out basis for other inventory. Inventory consisted of the following (in thousands):

March 31,

December 31,

2021

2020

Raw materials

$

1,090,025

$

790,324

Supplies

494,045

500,497

Work in progress

209,786

162,843

Finished goods

423,678

389,884

Total inventories

$

2,217,534

$

1,843,548

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Changes in Equity

The following tables provide a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to stockholders of Steel Dynamics, Inc., and equity and redeemable amounts attributable to noncontrolling interests (in thousands) for each three-month period ended March 31, 2021 and 2020:

Stockholders of Steel Dynamics, Inc.

Accumulated

Additional

Other

Redeemable

Common

Treasury

Paid-In

Retained

Comprehensive

Noncontrolling

Total

Noncontrolling

Stock

Stock

Capital

Earnings

Income (Loss)

Interests

Equity

Interests

Balances at December 31, 2020

$

648

$

(1,623,747)

$

1,207,392

$

4,758,969

$

1,902

$

(155,552)

$

4,189,612

$

158,614

Dividends declared

-

-

-

(54,917)

-

-

(54,917)

-

Noncontrolling investors, net

-

-

-

-

-

(9,905)

(9,905)

5,000

Equity-based compensation

-

8,881

(4,447)

(161)

-

-

4,273

-

Net income

-

-

-

430,507

-

8,248

438,755

-

Other comprehensive loss, net of tax

-

-

-

-

3,765

-

3,765

-

Balances at March 31, 2021

$

648

$

(1,614,866)

$

1,202,945

$

5,134,398

$

5,667

$

(157,209)

$

4,571,583

$

163,614

Stockholders of Steel Dynamics, Inc.

Accumulated

Additional

Other

Redeemable

Common

Treasury

Paid-In

Retained

Comprehensive

Noncontrolling

Total

Noncontrolling

Stock

Stock

Capital

Earnings

Income (Loss)

Interests

Equity

Interests

Balances at December 31, 2019

$

646

$

(1,525,113)

$

1,181,012

$

4,419,296

$

(7)

$

(154,593)

$

3,921,241

$

143,614

Dividends declared

-

-

-

(52,585)

-

-

(52,585)

-

Noncontrolling investors, net

-

-

-

-

-

(7,504)

(7,504)

7,400

Share repurchases

-

(106,529)

-

-

-

-

(106,529)

-

Equity-based compensation

-

6,834

2,764

(169)

-

-

9,429

-

Net income

-

-

-

187,340

-

3,496

190,836

-

Other comprehensive loss, net of tax

-

-

-

-

37

-

37

-

Balances at March 31, 2020

$

646

$

(1,624,808)

$

1,183,776

$

4,553,882

$

30

$

(158,601)

$

3,954,925

$

151,014

Note 5. Derivative Financial Instruments

The company is exposed to certain risks relating to its ongoing business operations. The company utilizes derivative instruments to mitigate commodity margin risk, and occasionally to mitigate foreign currency exchange rate risk, and have in the past to mitigate interest rate fluctuation risk. The company routinely enters into forward exchange traded futures and option contracts to manage the price risk associated with nonferrous metals inventory as well as purchases and sales of nonferrous and ferrous metals (primarily aluminum and copper). The company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under master netting agreements.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5. Derivative Financial Instruments (Continued)

Commodity Futures Contracts. If the company is “long” on futures contracts, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity. If the company is “short” on a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s significant futures contract commitments as of

March 31, 2021:

Commodity Futures

Long/Short

Metric Tons

Aluminum

Long

3,475

Aluminum

Short

7,025

Copper

Long

8,301

Copper

Short

22,725

The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets as of March 31, 2021, and December 31, 2020, and gains and losses related to derivatives included in the company’s statement of income for the three-month periods ended March 31, 2021, and 2020 (in thousands):

Asset Derivatives

Liability Derivatives

Balance sheet

Fair Value

Fair Value

 location

March 31, 2021

December 31, 2020

March 31, 2021

December 31, 2020

Derivative instruments designated as hedges

Commodity futures

Other current assets

$

17,009

$

5,092

$

3,825

$

4,635

Derivative instruments not designated as hedges

Commodity futures

Other current assets

2,967

1,705

1,680

2,807

Total derivative instruments

$

19,976

$

6,797

$

5,505

$

7,442

The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $15.6 million at March 31, 2021, and $13.2 million at

December 31, 2020, and are reflected in other current assets in the consolidated balance sheets.

Amount of gain (loss)

Amount of gain (loss)

recognized in income

Location of gain

recognized in income

Location of gain

on derivatives for the

(loss) recognized

on derivatives for the

(loss) recognized

three-month periods

Hedged items in

in income on

three-month periods

in income on

ended March 31,

fair value hedge

related hedged

ended March 31,

derivatives

2021

2020

relationships

items

2021

2020

Derivatives in fair value

hedging relationships

Commodity futures

Costs of goods sold

$

7,786

$

838

Firm commitments

Costs of goods sold

$

(1,898)

$

1,739

Inventory

Costs of goods sold

(498)

(1,239)

Derivatives not designated

$

(2,396)

$

500

as hedging instruments

Commodity futures

Costs of goods sold

$

(30,195)

$

10,939

Derivatives accounted for as fair value hedges had ineffectiveness resulting in gains of $21,000 and losses of $61,000 during the three-month periods ended March 31, 2021, and 2020, respectively. Gains excluded from hedge effectiveness testing of $5.4 million and $1.4 million decreased cost of goods sold during the three-month periods ended March 31, 2021 and 2020, respectively.

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STEEL DYNAMICS, INC.