STEEL DYNAMICS INC [STLD] Filings

10-Q 1 stld-20220930x10q.htm 10-Q

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 quarterly period

ended September 30, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______

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

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

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 the 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 21, 2022, Registrant had 175,571,409 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 September 30, 2022 (unaudited) and December 31, 2021	1

	Consolidated Statements of Income for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited)	2

	Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited)	3

	Consolidated Statements of Cash Flows for the three and nine-month periods ended September 30, 2022 and 2021 (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	26

Item 6.	Exhibits	27

Exhibit Index		27

Signature		28

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STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30,		December 31,
	2022		2021
Assets	(unaudited)
Current assets
Cash and equivalents	$	1,420,497	$	1,243,868
Short-term investments		583,211		-
Accounts receivable, net		2,255,206		1,911,385
Accounts receivable-related parties		78,788		5,049
Inventories		3,376,532		3,531,130
Other current assets		99,210		209,591
Total current assets		7,813,444		6,901,023

Property, plant and equipment, net		5,146,606		4,751,430

Intangible assets, net		276,586		295,345
Goodwill		451,594		453,835
Other assets		359,468		129,601
Total assets	$	14,047,698	$	12,531,234
Liabilities and Equity
Current liabilities
Accounts payable	$	1,153,299	$	1,266,833
Accounts payable-related parties		11,848		13,722
Income taxes payable		41,121		13,746
Accrued payroll and benefits		545,311		539,812
Accrued interest		33,535		17,533
Accrued expenses		323,331		278,549
Current maturities of long-term debt		22,951		97,174
Total current liabilities		2,131,396		2,227,369

Long-term debt		3,012,120		3,008,702
Deferred income taxes		856,650		854,905
Other liabilities		112,327		120,087
Total liabilities		6,112,493		6,211,063

Commitments and contingencies

Redeemable noncontrolling interests		172,403		211,414

Equity
Common stock voting, $0.0025 par value; 900,000,000 shares authorized;
267,228,549 and 267,224,622 shares issued; and 176,563,632 and 194,997,922
shares outstanding, as of September 30, 2022 and December 31, 2021, respectively		649		649
Treasury stock, at cost; 90,664,917 and 72,226,700 shares,
as of September 30, 2022 and December 31, 2021, respectively		(4,046,555)		(2,674,267)
Additional paid-in capital		1,219,947		1,218,933
Retained earnings		10,799,863		7,761,417
Accumulated other comprehensive income (loss)		(2,748)		(2,091)
Total Steel Dynamics, Inc. equity		7,971,156		6,304,641
Noncontrolling interests		(208,354)		(195,884)
Total equity		7,762,802		6,108,757
Total liabilities and equity	$	14,047,698	$	12,531,234

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,
	2022		2021		2022		2021

Net sales
Unrelated parties	$	5,438,747	$	5,081,476	$	16,814,051	$	13,072,657
Related parties		212,960		6,812		620,436		25,536
Total net sales		5,651,707		5,088,288		17,434,487		13,098,193

Costs of goods sold		4,187,278		3,487,659		12,304,203		9,497,606
Gross profit		1,464,429		1,600,629		5,130,284		3,600,587

Selling, general and administrative expenses		132,627		157,526		403,019		461,686
Profit sharing		105,122		113,880		373,333		244,868
Amortization of intangible assets		6,836		7,178		21,158		22,054
Operating income		1,219,844		1,322,045		4,332,774		2,871,979

Interest expense, net of capitalized interest		25,347		12,704		67,683		44,871
Other (income) expense, net		(13,975)		6,776		2,472		26,886
Income before income taxes		1,208,472		1,302,565		4,262,619		2,800,222

Income tax expense		289,997		302,406		1,022,138		649,105
Net income		918,475		1,000,159		3,240,481		2,151,117

Net income attributable to noncontrolling interests		(4,150)		(9,396)		(12,671)		(27,556)
Net income attributable to Steel Dynamics, Inc.	$	914,325	$	990,763	$	3,227,810	$	2,123,561



Basic earnings per share attributable to Steel
Dynamics, Inc. stockholders	$	5.07	$	4.89	$	17.33	$	10.22

Weighted average common shares outstanding		180,264		202,450		186,288		207,704

Diluted earnings per share attributable to Steel
Dynamics, Inc. stockholders, including the effect
of assumed conversions when dilutive	$	5.03	$	4.85	$	17.21	$	10.15

Weighted average common shares and share equivalents outstanding		181,613		204,167		187,531		209,222

Dividends declared per share	$	0.34	$	0.26	$	1.02	$	0.78

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,
	2022		2021		2022		2021

Net income	$	918,475	$	1,000,159	$	3,240,481	$	2,151,117
Other comprehensive income - net unrealized gain (loss) on cash
flow hedging derivatives, net of income tax (benefit) of $703,
($6,797), ($205), and $2,711 for the three and nine-month periods
ended September 30, 2022 and 2021, respectively		2,251		(21,761)		(657)		8,681
Comprehensive income		920,726		978,398		3,239,824		2,159,798

Comprehensive income attributable to noncontrolling interests		(4,150)		(9,396)		(12,671)		(27,556)
Comprehensive income attributable to Steel Dynamics, Inc.	$	916,576	$	969,002	$	3,227,153	$	2,132,242

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,
	2022		2021		2022		2021

Operating activities:
Net income	$	918,475	$	1,000,159	$	3,240,481	$	2,151,117

Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		98,714		87,407		281,961		261,373
Equity-based compensation		12,093		9,917		39,681		36,765
Deferred income taxes		3,990		71,008		3,986		188,474
Other adjustments		(12,409)		(781)		(1,892)		(2,915)
Changes in certain assets and liabilities:
Accounts receivable		326,731		(321,771)		(417,550)		(920,877)
Inventories		270,628		(412,952)		154,391		(1,052,475)
Other assets		(15,789)		(20,361)		(9,274)		(18,818)
Accounts payable		(264,313)		48,726		(152,763)		472,562
Income taxes receivable/payable		8,269		(353)		146,822		86,791
Accrued expenses		149,766		169,817		31,132		278,240
Net cash provided by operating activities		1,496,155		630,816		3,316,975		1,480,237

Investing activities:
Purchases of property, plant and equipment		(241,229)		(214,629)		(564,701)		(801,698)
Purchases of short-term investments		(283,188)		-		(634,698)		-
Proceeds from maturities of short-term investments		49,794		-		49,794		-
Business combination		(47,638)		-		(47,638)		-
Investments in unconsolidated affiliates		-		-		(222,480)		-
Other investing activities		4,113		1,024		9,340		3,273
Net cash used in investing activities		(518,148)		(213,605)		(1,410,383)		(798,425)

Financing activities:
Issuance of current and long-term debt		348,286		343,007		1,050,933		1,059,912
Repayment of current and long-term debt		(363,060)		(382,489)		(1,127,051)		(1,095,338)
Dividends paid		(62,088)		(53,380)		(177,131)		(161,025)
Purchases of treasury stock		(481,676)		(337,616)		(1,387,890)		(730,814)
Other financing activities		(6,057)		(4,776)		(88,825)		(27,468)
Net cash used in financing activities		(564,595)		(435,254)		(1,729,964)		(954,733)

Increase (decrease) in cash, cash equivalents, and restricted cash		413,412		(18,043)		176,628		(272,921)
Cash, cash equivalents, and restricted cash at beginning of period		1,012,585		1,119,244		1,249,369		1,374,122

Cash, cash equivalents, and restricted cash at end of period	$	1,425,997	$	1,101,201	$	1,425,997	$	1,101,201


Supplemental disclosure information:
Cash paid for interest	$	9,214	$	9,174	$	59,496	$	62,216
Cash paid for income taxes, net	$	276,948	$	222,691	$	867,350	$	370,835

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 reporting segments: steel operations, metals recycling operations, and steel fabrication operations.

Steel Operations Segment. Steel operations include the company’s electric arc furnace (EAF) steel mills, including Butler Flat Roll Division, Columbus Flat Roll Division, Southwest-Sinton Flat Roll Division, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, and Steel of West Virginia; and steel coating and processing operations at The Techs, Heartland Flat Roll Division, United Steel Supply (USS), and Vulcan Threaded Products, Inc (Vulcan). Steel operations accounted for 66% and 72% of the company’s consolidated net sales during the three-month periods ended September 30, 2022 and 2021, respectively, and 67% and 72% of the company’s consolidated net sales during the nine-month periods ended September 30, 2022 and 2021, 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 8% and 12% of the company’s consolidated net sales during the three-month periods ended September 30, 2022 and 2021, respectively, and 10% and 12% of the company’s consolidated net sales during the nine-month periods ended September 30, 2022 and 2021, 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 20% and 10% of the company’s consolidated net sales during the three-month periods ended September 30, 2022 and 2021, respectively, and 18% and 8% of the company’s consolidated net sales during the nine-month periods ended September 30, 2022 and 2021, respectively.

Other. Other operations consist of subsidiary operations that are below the company’s quantitative thresholds required for reportable segments and primarily consist of joint ventures, and the company’s 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 the company’s profit sharing component, representing 8% of consolidated pretax income.

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of SDI, together with its wholly- and majority-owned or controlled consolidated subsidiaries, after elimination of intercompany accounts and transactions. Noncontrolling and redeemable noncontrolling interests represent the noncontrolling owners’ 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 87.5% by SDI) are $61.2 million at September 30, 2022 and $100.2 million at December 31, 2021. Noncontrolling members of USS exercised their put option to require the company to purchase an additional 12.5% of the equity interest of USS effective April 1, 2022. Redeemable noncontrolling interests related to Mesabi Nugget (owned 85% by SDI) are $111.2 million at September 30, 2022, and December 31, 2021.

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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, 2021.

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 for all periods presented, 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, 2022, and December 31, 2021 (in thousands):



	September 30,		December 31,
	2022		2021

Steel Operations Segment	$	272,133	$	272,133
Metals Recycling Operations Segment		177,536		179,777
Steel Fabrication Operations Segment		1,925		1,925
	$	451,594	$	453,835

Metals Recycling Operations Segment goodwill decreased $2.2 million from December 31, 2021 to September 30, 2022, in recognition of the 2022 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, 2022, the company reported $2.3 billion of accounts receivable, net of allowances for credit losses of $6.3 million. Changes in the allowance were not material for each of the three and nine-month periods ended September 30, 2022 and 2021.

Note 2. Investments in Unconsolidated Affiliates and Business Combinations

On January 31, 2022, the company purchased a 45% minority equity interest in New Process Steel, L.P. (NPS), a metals solutions and distribution supply-chain management company headquartered in Houston, Texas, with a focus toward growing its value-added manufacturing applications. On February 28, 2022, the company also purchased a minority equity interest in Aymium, a producer of renewable biocarbon products. As the company does not have power to control these entities, the company accounts for these investments using the equity method of accounting, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.

On July 29, 2022, the company attained a 94.4% equity interest in a joint venture concurrently formed with Unity Aluminum, Inc., for the construction and operation of a new state-of-the-art low-carbon aluminum flat rolled mill. Operating results from and after July 29, 2022, are reflected in the company’s consolidated financial statements, in other operations. On October 1, 2022, the company acquired 100% of ROCA ACERO, S.A. de C.V. (“ROCA”), as part of its North American raw material procurement strategy. ROCA is headquartered in Monterrey, Mexico, and operates five ferrous and nonferrous scrap facilities strategically positioned near high-volume industrial scrap sources located throughout Central and Northern Mexico. Both transactions were funded with available cash.

Note 3. 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, 2022 and 2021.



	Three-Month Periods Ended September 30,
	2022						2021
			Weighted						Weighted
			Average						Average
	Net Income		Shares		Per Share		Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Basic earnings per share	$	914,325		180,264	$	5.07	$	990,763		202,450	$	4.89
Dilutive common share equivalents		-		1,349				-		1,717
Diluted earnings per share	$	914,325		181,613	$	5.03	$	990,763		204,167	$	4.85

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3. Earnings Per Share (Continued)



	Nine-Month Periods Ended September 30,
	2022						2021
			Weighted						Weighted
			Average						Average
	Net Income		Shares		Per Share		Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Basic earnings per share	$	3,227,810		186,288	$	17.33	$	2,123,561		207,704	$	10.22
Dilutive common share equivalents		-		1,243				-		1,518
Diluted earnings per share	$	3,227,810		187,531	$	17.21	$	2,123,561		209,222	$	10.15

Note 4. 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,
	2022		2021
Raw materials	$	1,797,858	$	1,870,300
Supplies		601,480		552,616
Work in progress		314,658		402,207
Finished goods		662,536		706,007
Total inventories	$	3,376,532	$	3,531,130

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5. 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, 2022 and 2021:



	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, 2021	$	649	$	(2,674,267)	$	1,218,933	$	7,761,417	$	(2,091)	$	(195,884)	$	6,108,757	$	211,414
Dividends declared		-		-		-		(64,344)		-		-		(64,344)		-
Noncontrolling investors, net		-		-		-		-		-		(21,633)		(21,633)		16,500
Share repurchases		-		(389,190)		-		-		-		-		(389,190)		-
Equity-based compensation		-		12,960		(14,910)		(121)		-		-		(2,071)		-
Net income		-		-		-		1,103,931		-		3,423		1,107,354		-
Other comprehensive income, net of tax		-		-		-		-