STEEL DYNAMICS INC [STLD] Filings

10-Q 1 stld-20210930x10q.htm 10-Q

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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 September 30, 2021

☐ 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 October 29, 2021, Registrant had 198,451,226 outstanding shares of common stock.

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STEEL DYNAMICS, INC.

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PART I. Financial Information

Item 1.	Financial Statements:	Page

	Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	1

	Consolidated Statements of Income for the three and nine-month periods ended September 30, 2021 and 2020 (unaudited)	2

	Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2021 and 2020 (unaudited)	3

	Consolidated Statements of Cash Flows for the three and nine-month periods ended September 30, 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	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

Item 4.	Controls and Procedures	25



	PART II. Other Information

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	27

Item 6.	Exhibits	28

Exhibit Index		28

Signature		29

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STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30,		December 31,
	2021		2020
Assets	(unaudited)
Current assets
Cash and equivalents	$	1,095,701	$	1,368,618
Accounts receivable, net		1,886,759		967,981
Accounts receivable-related parties		6,036		3,937
Inventories		2,894,970		1,843,548
Other current assets		104,106		74,363
Total current assets		5,987,572		4,258,447

Property, plant and equipment, net		4,654,192		4,105,569

Intangible assets, net		302,522		324,577
Goodwill		454,683		457,226
Other assets		137,016		119,743
Total assets	$	11,535,985	$	9,265,562
Liabilities and Equity
Current liabilities
Accounts payable	$	1,208,499	$	760,536
Accounts payable-related parties		11,938		8,919
Income taxes payable		80,167		2,386
Accrued payroll and benefits		406,538		201,778
Accrued interest		33,540		19,656
Accrued expenses		258,551		178,618
Current maturities of long-term debt		55,056		86,894
Total current liabilities		2,054,289		1,258,787

Long-term debt		3,019,175		3,015,782
Deferred income taxes		722,220		536,288
Other liabilities		117,367		106,479
Total liabilities		5,913,051		4,917,336

Commitments and contingencies

Redeemable noncontrolling interests		186,814		158,614

Equity
Common stock voting, $0.0025 par value; 900,000,000 shares authorized;
266,618,566 shares issued; and 199,778,688 and 210,914,264
shares outstanding, as of September 30, 2021 and December 31, 2020, respectively		648		648
Treasury stock, at cost; 66,839,878 and 55,704,302 shares,
as of September 30, 2021 and December 31, 2020, respectively		(2,344,477)		(1,623,747)
Additional paid-in capital		1,219,438		1,207,392
Retained earnings		6,721,734		4,758,969
Accumulated other comprehensive income		10,583		1,902
Total Steel Dynamics, Inc. equity		5,607,926		4,345,164
Noncontrolling interests		(171,806)		(155,552)
Total equity		5,436,120		4,189,612
Total liabilities and equity	$	11,535,985	$	9,265,562

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)



	Three-Month Periods Ended				Nine-Month Periods Ended
	September 30,				September 30,
	2021		2020		2021		2020

Net sales
Unrelated parties	$	5,081,476	$	2,327,224	$	13,072,657	$	6,991,732
Related parties		6,812		3,608		25,536		8,505
Total net sales		5,088,288		2,330,832		13,098,193		7,000,237

Costs of goods sold		3,487,659		2,038,017		9,497,606		6,007,762
Gross profit		1,600,629		292,815		3,600,587		992,475

Selling, general and administrative expenses		157,526		118,235		461,686		340,432
Profit sharing		113,880		11,778		244,868		42,324
Amortization of intangible assets		7,178		6,946		22,054		21,327
Operating income		1,322,045		155,856		2,871,979		588,392

Interest expense, net of capitalized interest		12,704		18,950		44,871		74,671
Other (income) expense, net		6,776		3,546		26,886		29,060
Income before income taxes		1,302,565		133,360		2,800,222		484,661

Income tax expense		302,406		29,083		649,105		110,783
Net income		1,000,159		104,277		2,151,117		373,878

Net income attributable to noncontrolling interests		(9,396)		(4,134)		(27,556)		(10,899)
Net income attributable to Steel Dynamics, Inc.	$	990,763	$	100,143	$	2,123,561	$	362,979



Basic earnings per share attributable to Steel
Dynamics, Inc. stockholders	$	4.89	$	0.48	$	10.22	$	1.72

Weighted average common shares outstanding		202,450		210,366		207,704		211,321

Diluted earnings per share attributable to Steel
Dynamics, Inc. stockholders, including the effect
of assumed conversions when dilutive	$	4.85	$	0.47	$	10.15	$	1.71

Weighted average common shares and share equivalents outstanding		204,167		211,926		209,222		212,443

Dividends declared per share	$	0.26	$	0.25	$	0.78	$	0.75

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)



	Three-Month Periods Ended				Nine-Month Periods Ended
	September 30,				September 30,
	2021		2020		2021		2020

Net income	$	1,000,159	$	104,277	$	2,151,117	$	373,878
Other comprehensive income - net unrealized gain (loss) on cash
flow hedging derivatives, net of income tax of $(6,797), $(38),
$2,711, and $32, for the three and nine-month periods ended
September 30, 2021 and 2020, respectively		(21,761)		(121)		8,681		102
Comprehensive income		978,398		104,156		2,159,798		373,980

Comprehensive income attributable to noncontrolling interests		(9,396)		(4,134)		(27,556)		(10,899)
Comprehensive income attributable to Steel Dynamics, Inc.	$	969,002	$	100,022	$	2,132,242	$	363,081

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



	Three-Month Periods Ended				Nine-Month Periods Ended
	September 30,				September 30,
	2021		2020		2021		2020

Operating activities:
Net income	$	1,000,159	$	104,277	$	2,151,117	$	373,878

Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		87,407		81,752		261,373		240,732
Equity-based compensation		9,917		9,486		36,765		36,850
Deferred income taxes		71,008		10,388		188,474		30,949
Other adjustments		(781)		17,237		(2,915)		21,701
Changes in certain assets and liabilities:
Accounts receivable		(321,771)		(58,271)		(920,877)		(57,991)
Inventories		(412,952)		(38,236)		(1,052,475)		83,790
Other assets		(20,361)		(3,894)		(18,818)		5,702
Accounts payable		48,726		645		472,562		121,764
Income taxes receivable/payable		(353)		(27,127)		86,791		33,251
Accrued expenses		169,817		55,533		278,240		(41,545)
Net cash provided by operating activities		630,816		151,790		1,480,237		849,081

Investing activities:
Purchases of property, plant and equipment		(214,629)		(327,647)		(801,698)		(854,898)
Purchases of short-term investments		-		-		-		(149,359)
Proceeds from maturities of short-term investments		-		69,545		-		411,533
Acquisition of business, net of cash and restricted cash acquired		-		(59,012)		-		(59,012)
Other investing activities		1,024		380		3,273		1,701
Net cash used in investing activities		(213,605)		(316,734)		(798,425)		(650,035)

Financing activities:
Issuance of current and long-term debt		343,007		295,814		1,059,912		1,611,849
Repayment of current and long-term debt		(382,489)		(305,911)		(1,095,338)		(1,645,482)
Dividends paid		(53,380)		(52,592)		(161,025)		(156,657)
Purchases of treasury stock		(337,616)		-		(730,814)		(106,529)
Other financing activities		(4,776)		(1,587)		(27,468)		(16,502)
Net cash used in financing activities		(435,254)		(64,276)		(954,733)		(313,321)

Decrease in cash, cash equivalents, and restricted cash		(18,043)		(229,220)		(272,921)		(114,275)
Cash, cash equivalents, and restricted cash at beginning of period		1,119,244		1,502,342		1,374,122		1,387,397

Cash, cash equivalents, and restricted cash at end of period	$	1,101,201	$	1,273,122	$	1,101,201	$	1,273,122


Supplemental disclosure information:
Cash paid for interest	$	9,174	$	8,597	$	62,216	$	77,050
Cash paid for income taxes, net	$	222,691	$	43,900	$	370,835	$	45,848

See notes to consolidated financial statements.

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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 reportable 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, and the 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 72% and 73% of the company’s consolidated net sales during the three-month periods ended September 30, 2021 and 2020, respectively, and 72% and 75% of the company’s consolidated net sales during the nine-month periods ended September 30, 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 12% of the company’s consolidated net sales during the three-month periods ended September 30, 2021 and 2020, and 12% and 10% of the company’s consolidated net sales during the nine-month periods ended September 30, 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 10% of the company’s consolidated net sales during the three-month periods ended September 30, 2021 and 2020, and 8% and 10% of the company’s consolidated net sales during the nine-month periods ended September 30, 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 $75.6 million at September 30, 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 September 30, 2021, and December 31, 2020.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

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 September 30, 2021, June 30, 2021, December 31, 2020, and September 30, 2020, and $5.9 million at June 30, 2020 and 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 September 30, 2021, and December 31, 2020 (in thousands):



	September 30,		December 31,
	2021		2020

Steel Operations Segment	$	272,133	$	272,133
Metals Recycling Operations Segment		180,625		183,168
Steel Fabrication Operations Segment		1,925		1,925
	$	454,683	$	457,226

Metals Recycling Operations Segment goodwill decreased $2.5 million from December 31, 2020 to September 30, 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.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 September 30, 2021, the company reported $1,892.8 million of accounts receivable, net of allowances for credit losses of $7.9 million. Changes in the allowance were not material for the three and nine-month periods ended September 30, 2021 and 2020.

Subsequent Event

On October 14, 2021, the company entered into a definitive agreement to acquire a 45% minority equity interest in New Process Steel, L.P., a metals solutions and distribution supply-chain management company headquartered in Houston, Texas, with a focus toward growing its value-added manufacturing applications. This transaction is subject to customary closing conditions and receipt of regulatory approvals.

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 and nine-month periods ended September 30, 2021 and 2020.



	Three-Month Periods Ended September 30,
	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	$	990,763		202,450	$	4.89	$	100,143		210,366	$	0.48
Dilutive common share equivalents		-		1,717				-		1,560
Diluted earnings per share	$	990,763		204,167	$	4.85	$	100,143		211,926	$	0.47

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. Earnings Per Share (Continued)



	Nine-Month Periods Ended September 30,
	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	$	2,123,561		207,704	$	10.22	$	362,979		211,321	$	1.72
Dilutive common share equivalents		-		1,518				-		1,122
Diluted earnings per share	$	2,123,561		209,222	$	10.15	$	362,979		212,443	$	1.71

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):


	September 30,		December 31,
	2021		2020
Raw materials	$	1,480,799	$	790,324
Supplies		534,248		500,497
Work in progress		305,288		162,843
Finished goods		574,635		389,884
Total inventories	$	2,894,970	$	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 of the three and nine-month periods ended September 30, 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		-		-		-		-