Company Quick10K Filing
Quick10K
Steel Dynamics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$32.42 223 $7,230
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-17 Other Events, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-04-22 Earnings, Exhibits
8-K 2019-03-18 Other Events, Exhibits
8-K 2019-02-14 Other Events, Exhibits
8-K 2019-02-01 Other Events, Exhibits
8-K 2019-01-22 Other Events, Exhibits
8-K 2019-01-22 Other Events, Exhibits
8-K 2019-01-14 Other Events, Exhibits
8-K 2018-12-18 Other Events, Exhibits
8-K 2018-11-26 Other Events, Exhibits
8-K 2018-11-19 Other Events, Exhibits
8-K 2018-10-17 Officers, Amend Bylaw, Other Events, Exhibits
8-K 2018-10-17 Earnings, Exhibits
8-K 2018-09-18 Other Events, Exhibits
8-K 2018-09-17 Other Events, Exhibits
8-K 2018-09-04 Other Events, Exhibits
8-K 2018-08-20 Other Events, Exhibits
8-K 2018-07-23 Earnings, Exhibits
8-K 2018-06-29 Other Events, Exhibits
8-K 2018-06-28 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-06-26 Other Events, Exhibits
8-K 2018-06-15 Other Events, Exhibits
8-K 2018-06-12 Other Events, Exhibits
8-K 2018-05-17 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-05-14 Other Events, Exhibits
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-03-16 Other Events, Exhibits
8-K 2018-02-20 Other Events, Exhibits
8-K 2018-01-22 Earnings, Exhibits
NEE Nextera Energy 90,330
GWRE Guidewire Software 8,410
RRC Range Resources 2,410
SPAR Spartan Motors 340
ERA Era Group 208
UNAM Unico American 32
DELT Delta Technology Holdings 0
GAIF Graham Alternative Investment Fund I 0
EACO Eaco 0
IVDN Innovative Designs 0
STLD 2019-03-31
Note 1. Description of The Business and Significant Accounting Policies
Note 2. Acquisition – United Steel Supply, Llc
Note 3. Leases
Note 4. Earnings per Share
Note 5. Inventories
Note 6. Changes in Equity
Note 7. Derivative Financial Instruments
Note 8. Fair Value Measurements
Note 9. Commitments and Contingencies
Note 10. Segment Information
Note 11. Condensed Consolidating Information
Item 2.Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 stld-20190331xex31_1.htm
EX-31.2 stld-20190331xex31_2.htm
EX-32.1 stld-20190331xex32_1.htm
EX-32.2 stld-20190331xex32_2.htm

Steel Dynamics Earnings 2019-03-31

STLD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 stld-20190331x10q.htm FORM 10-Q 20190331 Q1



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, 2019



 



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, $0.025 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). 





 

 

 

(Check one): 

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 May 1, 2019, Registrant had 222,245,142 outstanding shares of common stock.


 



 

 

STEEL DYNAMICS, INC.

Table of Contents



PART I.  Financial Information



Item 1.

Financial Statements:

Page



 

 



Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018

1



 

 



Consolidated Statements of Income for the three month periods ended March 31, 2019 and 2018 (unaudited)

2



 

 



Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2019 and 2018 (unaudited)

3



 

 



Consolidated Statements of Cash Flows for the three month periods ended March 31, 2019 and 2018 (unaudited)

4



 

 



Notes to Consolidated Financial Statements (unaudited)

5



 

 

Item 2.

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

18



 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

24



 

 

Item 4.

Controls and Procedures

24



 

 



 

 



 

 



PART II.  Other Information

 



 

 

Item 1.

Legal Proceedings

25



 

 

Item 1A.

Risk Factors

25



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25



 

 

Item 3.

Defaults Upon Senior Securities

25



 

 

Item 4.

Mine Safety Disclosures

25



 

 

Item 5.

Other Information

25



 

 

Item 6.

Exhibits

25



 

 

Exhibit Index

 

26



 

 

Signature

 

27



 

 

 


 



STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)







 

 

 

 

 

 



 

 

 

 

 

 



March 31,

 

 

December 31,



2019

 

 

2018

Assets

(unaudited)

 

 

 

 

Current assets

 

 

 

 

 

 

  Cash and equivalents

$

791,444 

 

 

$

828,220 

  Short-term investments

 

173,723 

 

 

 

228,783 

  Accounts receivable, net

 

1,141,038 

 

 

 

1,040,220 

  Accounts receivable-related parties

 

2,357 

 

 

 

3,536 

  Inventories

 

1,867,700 

 

 

 

1,859,168 

  Other current assets

 

52,628 

 

 

 

72,730 

     Total current assets

 

4,028,890 

 

 

 

4,032,657 



 

 

 

 

 

 

Property, plant and equipment, net

 

2,936,893 

 

 

 

2,945,767 



 

 

 

 

 

 

Intangible assets, net

 

263,315 

 

 

 

270,328 

Goodwill

 

530,716 

 

 

 

429,645 

Other assets

 

97,419 

 

 

 

25,166 

     Total assets

$

7,857,233 

 

 

$

7,703,563 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

  Accounts payable

$

582,284 

 

 

$

536,743 

  Accounts payable-related parties

 

9,183 

 

 

 

14,011 

  Income taxes payable

 

26,896 

 

 

 

7,468 

  Accrued payroll and benefits                

 

114,575 

 

 

 

264,542 

  Accrued interest

 

47,955 

 

 

 

25,526 

  Accrued expenses

 

141,239 

 

 

 

146,613 

  Current maturities of long-term debt

 

80,958 

 

 

 

24,234 

     Total current liabilities

 

1,003,090 

 

 

 

1,019,137 



 

 

 

 

 

 

Long-term debt

 

2,354,427 

 

 

 

2,352,489 

Deferred income taxes

 

447,087 

 

 

 

435,838 

Other liabilities

 

63,171 

 

 

 

8,870 

     Total liabilities

 

3,867,775 

 

 

 

3,816,334 



 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 



 

 

 

 

 

 

Redeemable noncontrolling interests

 

139,930 

 

 

 

111,240 



 

 

 

 

 

 

Equity

 

 

 

 

 

 

  Common stock voting, $.0025 par value; 900,000,000 shares authorized;

 

 

 

 

 

 

       265,552,825 and 265,822,402 shares issued; and 222,931,285 and 225,272,174    

 

 

 

 

 

 

       shares outstanding, as of March 31, 2019 and December 31, 2018, respectively

 

645 

 

 

 

645 

  Treasury stock, at cost; 42,621,540 and 40,550,228 shares,

 

 

 

 

 

 

       as of March 31, 2019 and December 31, 2018, respectively

 

(1,261,837)

 

 

 

(1,184,243)

  Additional paid-in capital

 

1,160,139 

 

 

 

1,160,048 

  Retained earnings

 

4,109,034 

 

 

 

3,958,320 

  Accumulated other comprehensive income

 

130 

 

 

 

301 

     Total Steel Dynamics, Inc. equity

 

4,008,111 

 

 

 

3,935,071 

  Noncontrolling interests

 

(158,583)

 

 

 

(159,082)

     Total equity

 

3,849,528 

 

 

 

3,775,989 

     Total liabilities and equity

$

7,857,233 

 

 

$

7,703,563 

See notes to consolidated financial statements.

1

 


 



STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,



2019

 

2018



 

 

 

 

 

Net sales

 

 

 

 

 

  Unrelated parties

$

2,814,486 

 

$

2,597,312 

  Related parties

 

2,949 

 

 

6,563 

     Total net sales

 

2,817,435 

 

 

2,603,875 



 

 

 

 

 

Costs of goods sold

 

2,383,865 

 

 

2,140,459 

     Gross profit

 

433,570 

 

 

463,416 



 

 

 

 

 

Selling, general and administrative expenses

 

111,038 

 

 

106,431 

Profit sharing

 

23,677 

 

 

26,662 

Amortization of intangible assets

 

7,013 

 

 

6,926 

     Operating income

 

291,842 

 

 

323,397 



 

 

 

 

 

Interest expense, net of capitalized interest

 

31,122 

 

 

31,896 

Other (income) expense, net

 

(6,343)

 

 

(4,463)

     Income before income taxes

 

267,063 

 

 

295,964 



 

 

 

 

 

Income tax expense

 

62,236 

 

 

70,489 

     Net income

 

204,827 

 

 

225,475 



 

 

 

 

 

Net (income) loss attributable to noncontrolling interests

 

(499)

 

 

2,076 

     Net income attributable to Steel Dynamics, Inc.

$

204,328 

 

$

227,551 



 

 

 

 

 



 

 

 

 

 



 

 

 

 

 

Basic earnings per share attributable to Steel Dynamics,

 

 

 

 

 

  Inc. stockholders

$

0.91 

 

$

0.96 



 

 

 

 

 

Weighted average common shares outstanding

 

224,058 

 

 

236,623 



 

 

 

 

 

Diluted earnings per share attributable to Steel Dynamics, Inc.

 

 

 

 

 

  stockholders, including the effect of assumed conversions

 

 

 

 

 

  when dilutive

$

0.91 

 

$

0.96 



 

 

 

 

 

Weighted average common shares and share equivalents outstanding

 

224,962 

 

 

237,723 



 

 

 

 

 

Dividends declared per share

$

0.2400 

 

$

0.1875 





















See notes to consolidated financial statements.

2

 


 



 

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,



2019

 

2018



 

 

 

 

 

Net income

$

204,827 

 

$

225,475 

Other comprehensive loss - net unrealized loss on cash flow

 

 

 

 

 

    hedging derivatives, net of income tax benefit of $54 

 

 

 

 

 

    for the three months ended March 31, 2019

 

(171)

 

 

 -

Comprehensive income

 

204,656 

 

 

225,475 



 

 

 

 

 

Comprehensive (income) loss attributable to noncontrolling interests

 

(499)

 

 

2,076 

     Comprehensive income attributable to Steel Dynamics, Inc.

$

204,157 

 

$

227,551 

























































































See notes to consolidated financial statements.

3

 


 





STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,



2019

 

2018



 

 

 

 

 

Operating activities:

 

 

 

 

 

   Net income

$

204,827 

 

$

225,475 



 

 

 

 

 

   Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

       operating activities:

 

 

 

 

 

       Depreciation and amortization

 

80,174 

 

 

76,135 

       Equity-based compensation

 

15,308 

 

 

12,841 

       Deferred income taxes

 

12,091 

 

 

9,545 

       Other adjustments

 

728 

 

 

30 

       Changes in certain assets and liabilities:

 

 

 

 

 

           Accounts receivable

 

(61,062)

 

 

(118,818)

           Inventories

 

39,469 

 

 

(80,711)

           Other assets

 

301 

 

 

(105)

           Accounts payable

 

3,206 

 

 

66,332 

           Income taxes receivable/payable

 

49,850 

 

 

63,962 

           Accrued expenses

 

(163,339)

 

 

(76,751)

       Net cash provided by operating activities

 

181,553 

 

 

177,935 



 

 

 

 

 

Investing activities:

 

 

 

 

 

   Purchases of property, plant and equipment

 

(54,436)

 

 

(50,606)

   Purchases of short-term investments

 

(49,677)

 

 

(40,000)

   Proceeds from maturities of short-term investments

 

104,737 

 

 

 -

   Acquisition of business, net of cash and restricted cash acquired

 

(93,412)

 

 

 -

   Other investing activities

 

364 

 

 

229 

       Net cash used in investing activities

 

(92,424)

 

 

(90,377)



 

 

 

 

 

Financing activities:

 

 

 

 

 

   Issuance of current and long-term debt

 

121,234 

 

 

93,058 

   Repayment of current and long-term debt

 

(115,271)

 

 

(113,034)

   Dividends paid

 

(42,239)

 

 

(36,797)

   Purchases of treasury stock

 

(84,308)

 

 

(69,269)

   Other financing activities

 

(5,720)

 

 

(5,180)

       Net cash used in financing activities

 

(126,304)

 

 

(131,222)



 

 

 

 

 

Decrease in cash, cash equivalents, and restricted cash

 

(37,175)

 

 

(43,664)

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

 

834,423 

 

 

1,035,085 



 

 

 

 

 

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

$

797,248 

 

$

991,421 



 

 

 

 

 



 

 

 

 

 

Supplemental disclosure information:

 

 

 

 

 

   Cash paid for interest

$

8,606 

 

$

8,629 

   Cash paid (received) for income taxes, net

$

1,839 

 

$

(1,045)







See notes to consolidated financial statements.

 

4

 


 

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 a domestic manufacturer of steel products 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 Butler Flat Roll Division, Columbus Flat Roll Division, The Techs galvanizing lines, Heartland Flat Roll Division, United Steel Supply (acquired 75% equity interest March 1, 2019), Structural and Rail Division, Engineered Bar Products Division, Vulcan Threaded Products, Inc., Roanoke Bar Division, Steel of West Virginia, and Iron Dynamics, a liquid pig iron (scrap substitute) production facility that supplies solely the Butler Flat Roll Division. These operations include electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, with several downstream coating and bar processing lines. Steel operations accounted for 75% and 74% of the company’s consolidated external net sales during the three months ended March 31, 2019 and 2018, respectively.

Metals Recycling Operations Segment. Metals recycling operations consists solely of OmniSource Corporation (OmniSource), and includes both ferrous and nonferrous processing, transportation, marketing, brokerage, and scrap management services. Metals recycling operations accounted for 13% and 15% of the company’s consolidated external net sales during the three months ended March 31, 2019 and 2018, 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 8% of the company’s consolidated external net sales during the three months ended March 31, 2019 and 2018.

Other. Other operations consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of smaller joint ventures, and the idle Minnesota ironmaking operations. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior secured 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/ controlled subsidiaries, after elimination of intercompany accounts and transactions. Noncontrolling interests represent the noncontrolling owner’s proportionate share in the equity, income, or losses of the company’s majority-owned/controlled consolidated subsidiaries. 



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, 2018.



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 $5.8 million, $6.2 million, $5.6 million, and $6.4 million at March 31, 2019, December 31, 2018, March 31, 2018, and December 31, 2017, respectively, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.







5

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

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



Goodwill    



The company’s goodwill consisted of the following reporting units at March 31, 2019, and December 31, 2018, (in thousands):



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

March 31,

 

December 31,

 



 

 

2019

 

2018

 



Steel Operations Segment

 

 

 

 

 

 

 



     Columbus Flat Roll Division

 

$

19,682 

 

$

19,682 

 



     The Techs

 

 

142,783 

 

 

142,783 

 



     Heartland Flat Roll Division

 

 

46,143 

 

 

46,143 

 



     United Steel Supply

 

 

101,918 

 

 

 -

 



     Vulcan Threaded Products

 

 

7,824 

 

 

7,824 

 



     Roanoke Bar Division

 

 

29,041 

 

 

29,041 

 



Metals Recycling Operations Segment – OmniSource

 

 

181,400 

 

 

182,247 

 



Steel Fabrication Operations Segment – New Millennium Building Systems

 

 

1,925 

 

 

1,925 

 



 

 

$

530,716 

 

$

429,645 

 



The company acquired a 75% equity interest in United Steel Supply on March 1, 2019 (refer to Note 2 Acquisition – United Steel Supply, LLC), resulting in a preliminary purchase price allocation in which $101.9 million of goodwill was recorded. OmniSource goodwill decreased $847,000 from December 31, 2018 to March 31, 2019, in recognition of the 2019 tax benefit related to the normal amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.



Recently Issued Accounting Standards



In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: which requires an entity to use a forward-looking expected loss model versus the current incurred loss model for most financial instruments, including accounts receivable.  This new guidance is effective for annual and interim periods beginning after December 15, 2019, but can be early adopted.  The company is currently evaluating the impact ASU 2016-13 will have in its consolidated financial statements and related disclosure.





Note 2. Acquisition – United Steel Supply, LLC 



On March 1, 2019, the company purchased 75% of the equity interest of United Steel Supply, LLC (USS) for cash consideration of $93.4 million, subject to customary actual working capital purchase price adjustments. Additionally, the company has an option to purchase, and the sellers have the option to require the company to purchase, the remaining 25% equity interest of USS in the future.  Headquartered in Austin, Texas, USS is a leading distributor of painted Galvalume® flat roll steel used for roofing and siding applications, with distribution centers strategically located in Mississippi, Indiana, Arkansas, and Oregon. USS provides the company a new, complementary distribution channel and connects it to a rapidly growing industry segment with customers that do not traditionally purchase steel directly from a steel producer.  USS’s operating results from and after March 1, 2019, are reflected in the company’s financial statements in the steel operations reporting segment.



The aggregate purchase price was preliminarily allocated to the opening balance sheet of USS as of March 1, 2019. The following initial allocation of the purchase price (in thousands) is preliminary based on the information available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed.  The accounting for the acquisition has not yet been completed because the company has not finalized the valuations of the acquired assets, assumed liabilities and identifiable intangible assets, if any, including goodwill. 







 

 

 

 

 

 

 



 

Current assets, net of cash acquired

$

94,020 

 

 

 



 

Property, plant & equipment

 

7,388 

 

 

 



 

Intangible assets and goodwill

 

101,918 

 

 

 



 

Total assets acquired

 

203,326 

 

 

 



 

Liabilities assumed

 

81,224 

 

 

 



 

Redeemable noncontrolling interest

 

28,690 

 

 

 



 

Net cash consideration

$

93,412 

 

 

 







6

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 3.  Leases



In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) and its subsequent corresponding updates; which established a new lease accounting model that requires lessees to recognize a right-of-use asset and related lease liability for most leases having lease terms of more than 12 months. The company adopted ASC 842 effective January 1, 2019, using the optional transition method, thereby applying the new guidance at the effective date, without retrospective application to prior periods. The company elected practical expedients permitted under the transition guidance which allowed the company to not reassess under the new standard its prior conclusions regarding lease identification and classification. The company elected to use hindsight when determining the lease term. The company also elected the short-term lease exemption, and did not recognize right-of-use assets and lease liabilities for short-term leases, those with lease commencement date terms of 12 months or less. The company recognized right-of-use assets and lease liabilities of $76.3 million, with no impact on retained earnings, in the consolidated balance sheet on   January 1, 2019, and the standard did not have a significant impact on the company’s operating results or cash flows for the three-month period ended March 31, 2019.



The company has operating leases relating principally to transportation and other equipment, and some real estate. The company determines if an arrangement contains a lease at inception, which generally occurs when the arrangement identifies a specific asset that the company has the right to direct the use of and obtain substantially all of the economic benefit from use of the identified asset. Certain of our lease agreements contain rent escalation clauses (including fixed and index-based escalations), and options to extend or terminate the lease. For purposes of calculating operating lease obligations under the standard, the company's lease terms include options to extend the lease when it is reasonably certain that the company will exercise such option. The company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is the rate of interest the company could borrow on a collateralized basis over a similar term with similar payments. Operating lease expense is recognized on a straight-line basis over the lease terms.



Operating lease right-of-use assets and lease obligations included in the consolidated balance sheet at March 31, 2019, are as follows (in thousands):





 

 

 

 

 

 



 

Right-of-use assets under operating leases:

 

 

 

 



 

    Other assets - noncurrent

$

72,219 

 

 



 

Lease obligations under operating leases:

 

 

 

 



 

    Accrued liabilities

$

16,378 

 

 



 

    Other liabilities - noncurrent

 

56,215 

 

 



 

 

$

72,593 

 

 



The weighted average remaining lease term for our operating leases is 6.3 years and the weighted-average discount rate is 4.00% as of

March 31, 2019. Future operating lease liabilities as of March 31, 2019, for the next five years and thereafter are as follows (in thousands):







 

 

 

 

 

 



 

2019 - for the remaining nine months

$

14,565 

 

 



 

2020

 

17,316 

 

 



 

2021

 

14,165 

 

 



 

2022

 

10,891 

 

 



 

2023

 

7,924 

 

 



 

Thereafter

 

20,503 

 

 



 

Total undiscounted cash flows

 

85,364 

 

 



 

    Less imputed interest

 

(12,771)

 

 



 

Lease obligations under operating leases

$

72,593 

 

 



Operating and short-term lease expense included in the consolidated statement of income was $4.7 million and $4.4 million, respectively, for the three-month period ended March 31, 2019. Cash paid related to operating lease obligations was $4.8 million for the three-month period ended

March 31, 2019. Variable lease costs were not material for the three-month period ended March 31, 2019.

 



7

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 4.  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 months ended March 31, 2019 and 2018.



The following tables present a reconciliation of the numerators and the denominators of the company’s basic and diluted earnings per share computations for the three months ended March 31, 2019 and 2018 (in thousands, except per share data):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended March 31,



2019

 

2018



 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

Average

 

 

 

 

 

 

 

Average

 

 

 



Net Income

 

Shares

 

Per Share

 

Net Income

 

Shares

 

Per Share



(Numerator)

 

(Denominator)

 

Amount

 

(Numerator)

 

(Denominator)

 

Amount

Basic earnings per share

$

204,328 

 

 

224,058 

 

$

0.91 

 

$

227,551 

 

 

236,623 

 

$

0.96 

Dilutive common share equivalents

 

 -

 

 

904 

 

 

 

 

 

 -

 

 

1,100 

 

 

 

Diluted earnings per share

$

204,328 

 

 

224,962 

 

$

0.91 

 

$

227,551 

 

 

237,723 

 

$

0.96 









Note 5.  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,

 

 



 

 

2019

 

2018

 

 



 

Raw materials

$

828,733 

 

$

810,766 

 

 



 

Supplies

 

450,584 

 

 

436,828 

 

 



 

Work in progress

 

184,866 

 

 

195,224 

 

 



 

Finished goods

 

403,517 

 

 

416,350 

 

 



 

Total inventories

$

1,867,700 

 

$

1,859,168 

 

 





















8

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 6.  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 the three months ended

March 31, 2019 and 2018:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Stockholders of Steel Dynamics, Inc.

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Redeemable



Common

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Noncontrolling

 

Total

 

Noncontrolling



Stock

 

Stock

 

Capital

 

Earnings

 

Loss

 

Interests

 

Equity

 

Interests

Balances at December 31, 2018

$

645 

 

$

(1,184,243)

 

$

1,160,048 

 

$

3,958,320 

 

$

301 

 

$

(159,082)

 

$

3,775,989 

 

$

111,240 

Dividends declared

 

 -

 

 

 -

 

 

 -

 

 

(53,504)

 

 

 -

 

 

 -

 

 

(53,504)

 

 

 -

Noncontrolling investors of USS

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

28,690 

Share repurchases

 

 -

 

 

(84,308)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(84,308)

 

 

 -

Equity-based compensation

 

 -

 

 

6,714 

 

 

91 

 

 

(110)

 

 

 -

 

 

 -

 

 

6,695 

 

 

 -

Net income

 

 -

 

 

 -

 

 

 -

 

 

204,328 

 

 

 -

 

 

499 

 

 

204,827 

 

 

 -

Other comprehensive loss, net of tax

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(171)

 

 

 -

 

 

(171)

 

 

 -

Balances at March 31, 2019

$

645 

 

$

(1,261,837)

 

$

1,160,139 

 

$

4,109,034 

 

$

130 

 

$

(158,583)

 

$

3,849,528 

 

$

139,930 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Stockholders of Steel Dynamics, Inc.

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Redeemable



Common

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Noncontrolling

 

Total

 

Noncontrolling



Stock

 

Stock

 

Capital

 

Earnings

 

Loss

 

Interests

 

Equity

 

Interests

Balances at December 31, 2017

$

644 

 

$

(665,297)

 

$

1,141,534 

 

$

2,874,693 

 

$

 -

 

$

(156,506)

 

$

3,195,068 

 

$

111,240 

Dividends declared

 

 -

 

 

 -

 

 

 -

 

 

(44,269)

 

 

 -

 

 

 -

 

 

(44,269)

 

 

 -

Share repurchases

 

 -

 

 

(69,269)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(69,269)

 

 

 -

Equity-based compensation

 

 -

 

 

3,866 

 

 

1,337 

 

 

(71)

 

 

 -

 

 

 -

 

 

5,132 

 

 

 -

Comprehensive and net income (loss)

 

 -

 

 

 -

 

 

 -

 

 

227,551 

 

 

 -

 

 

(2,076)

 

 

225,475 

 

 

 -

Balances at March 31, 2018

$

644 

 

$

(730,700)

 

$

1,142,871 

 

$

3,057,904 

 

$

 -

 

$

(158,582)

 

$

3,312,137 

 

$

111,240 







Note 7.  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, 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. 



9

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 7.  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 futures contract commitments as of March 31, 2019:



 

 

 

 

 

 



 

 

 

 

 

 



Commodity Futures

 

Long/Short

 

Metric Tons

 



Aluminum

 

Long

 

3,075 

 



Aluminum

 

Short

 

5,925 

 



Copper

 

Long

 

12,440 

 



Copper

 

Short

 

22,759 

 



 

 

 

 

 

 



The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets as of March 31, 2019, and December 31, 2018, and gains and losses related to derivatives included in the company’s statement of income for the three months ended March 31, 2019 and 2018 (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Asset Derivatives

 

Liability Derivatives



Balance sheet

 

Fair Value

 

Fair Value



 location

 

March 31, 2019

 

December 31, 2018

 

March 31, 2019

 

December 31, 2018

Derivative instruments designated as hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

Other current assets

 

$

552 

 

$

2,999 

 

$

1,068 

 

$

1,837 



 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments not designated as hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

Other current assets

 

 

1,480 

 

 

1,559 

 

 

1,752