Company Quick10K Filing
Steel Dynamics
Price29.38 EPS4
Shares222 P/E8
MCap6,528 P/FCF7
Net Debt1,348 EBIT1,114
TEV7,877 TEV/EBIT7
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-02-27
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-02
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-08
10-K 2013-12-31 Filed 2014-03-03
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-07
10-Q 2013-03-31 Filed 2013-05-09
10-K 2012-12-31 Filed 2013-02-27
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-31 Filed 2012-02-27
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-05
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-02-23
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-04
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-02-22
8-K 2020-06-18
8-K 2020-06-03
8-K 2020-05-22
8-K 2020-05-08
8-K 2020-04-20
8-K 2020-03-18
8-K 2020-03-02
8-K 2020-02-20
8-K 2020-01-22
8-K 2019-12-30
8-K 2019-12-16
8-K 2019-12-09
8-K 2019-12-03
8-K 2019-11-22
8-K 2019-10-16
8-K 2019-09-17
8-K 2019-08-26
8-K 2019-07-22
8-K 2019-07-22
8-K 2019-06-17
8-K 2019-05-17
8-K 2019-05-16
8-K 2019-04-22
8-K 2019-03-18
8-K 2019-03-01
8-K 2019-02-14
8-K 2019-02-01
8-K 2019-01-22
8-K 2019-01-14
8-K 2018-12-18
8-K 2018-11-26
8-K 2018-11-19
8-K 2018-10-17
8-K 2018-10-17
8-K 2018-09-18
8-K 2018-09-17
8-K 2018-09-04
8-K 2018-08-20
8-K 2018-07-23
8-K 2018-06-29
8-K 2018-06-28
8-K 2018-06-26
8-K 2018-06-15
8-K 2018-06-12
8-K 2018-05-17
8-K 2018-05-14
8-K 2018-04-18
8-K 2018-03-16
8-K 2018-02-20
8-K 2018-01-22

STLD 10Q Quarterly Report

Note 1. Description of The Business and Significant Accounting Policies
Note 2. Earnings per Share
Note 3. Inventories
Note 4. Changes in Equity
Note 5. Derivative Financial Instruments
Note 6. Fair Value Measurements
Note 7. Commitments and Contingencies
Note 8. Segment 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-20200331xex31d1.htm
EX-31.2 stld-20200331xex31d2.htm
EX-32.1 stld-20200331xex32d1.htm
EX-32.2 stld-20200331xex32d2.htm
EX-95 stld-20200331xex95.htm

Steel Dynamics Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
3.93.12.21.40.5-0.32012201420172020
Rev, G Profit, Net Income
1.30.70.1-0.5-1.1-1.72012201420172020
Ops, Inv, Fin

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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, 2020

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).

(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, 2020, Registrant had 210,332,119 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, 2020 (unaudited) and December 31, 2019

1

Consolidated Statements of Income for the three-month periods ended March 31, 2020 and 2019 (unaudited)

2

Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2020 and 2019 (unaudited)

3

Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2020 and 2019 (unaudited)

4

Notes to Consolidated Financial Statements (unaudited)

5

Item 2.

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

12

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

19

Item 4.

Controls and Procedures

20

PART II. Other Information

Item 1.

Legal Proceedings

21

Item 1A.

Risk Factors

21

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,

2020

2019

Assets

(unaudited)

Current assets

Cash and equivalents

$

1,235,478

$

1,381,460

Short-term investments

219,193

262,174

Accounts receivable, net

995,324

841,378

Accounts receivable-related parties

3,084

2,958

Inventories

1,644,538

1,689,043

Other current assets

45,351

76,012

Total current assets

4,142,968

4,253,025

Property, plant and equipment, net

3,327,605

3,135,886

Intangible assets, net

320,711

327,901

Goodwill

452,068

452,915

Other assets

101,571

106,038

Total assets

$

8,344,923

$

8,275,765

Liabilities and Equity

Current liabilities

Accounts payable

$

602,875

$

509,687

Accounts payable-related parties

9,285

3,657

Income taxes payable

17,806

2,014

Accrued payroll and benefits

124,181

208,287

Accrued interest

39,749

18,292

Accrued expenses

167,718

175,405

Current maturities of long-term debt

70,106

89,356

Total current liabilities

1,031,720

1,006,698

Long-term debt

2,646,012

2,644,988

Deferred income taxes

489,248

484,169

Other liabilities

72,004

75,055

Total liabilities

4,238,984

4,210,910

Commitments and contingencies

Redeemable noncontrolling interests

151,014

143,614

Equity

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

266,079,627 and 266,072,787 shares issued; and 210,338,959 and 214,502,639

shares outstanding, as of March 31, 2020 and December 31, 2019, respectively

646

646

Treasury stock, at cost; 55,740,668 and 51,570,148 shares,

as of March 31, 2020 and December 31, 2019, respectively

(1,624,808)

(1,525,113)

Additional paid-in capital

1,183,776

1,181,012

Retained earnings

4,553,882

4,419,296

Accumulated other comprehensive income (loss)

30

(7)

Total Steel Dynamics, Inc. equity

4,113,526

4,075,834

Noncontrolling interests

(158,601)

(154,593)

Total equity

3,954,925

3,921,241

Total liabilities and equity

$

8,344,923

$

8,275,765

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 Months Ended

March 31,

2020

2019

Net sales

Unrelated parties

$

2,571,544

$

2,814,486

Related parties

3,556

2,949

Total net sales

2,575,100

2,817,435

Costs of goods sold

2,159,871

2,383,865

Gross profit

415,229

433,570

Selling, general and administrative expenses

112,898

111,038

Profit sharing

21,454

23,677

Amortization of intangible assets

7,191

7,013

Operating income

273,686

291,842

Interest expense, net of capitalized interest

28,019

31,122

Other income, net

(2,589)

(6,343)

Income before income taxes

248,256

267,063

Income tax expense

57,420

62,236

Net income

190,836

204,827

Net income attributable to noncontrolling interests

(3,496)

(499)

Net income attributable to Steel Dynamics, Inc.

$

187,340

$

204,328

Basic earnings per share attributable to Steel Dynamics,

Inc. stockholders

$

0.88

$

0.91

Weighted average common shares outstanding

213,254

224,058

Diluted earnings per share attributable to Steel Dynamics, Inc.

stockholders, including the effect of assumed conversions

when dilutive

$

0.88

$

0.91

Weighted average common shares and share equivalents outstanding

214,024

224,962

Dividends declared per share

$

0.2500

$

0.2400

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three Months Ended

March 31,

2020

2019

Net income

$

190,836

$

204,827

Other comprehensive income (loss) - net unrealized gain (loss) on

cash flow hedging derivatives, net of income tax

37

(171)

Comprehensive income

190,873

204,656

Comprehensive income attributable to noncontrolling interests

(3,496)

(499)

Comprehensive income attributable to Steel Dynamics, Inc.

$

187,377

$

204,157

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three Months Ended

March 31,

2020

2019

Operating activities:

Net income

$

190,836

$

204,827

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

80,259

80,174

Equity-based compensation

17,844

15,308

Deferred income taxes

5,927

12,091

Other adjustments

(264)

728

Changes in certain assets and liabilities:

Accounts receivable

(154,072)

(61,062)

Inventories

44,505

39,469

Other assets

(1,541)

301

Accounts payable

51,596

3,206

Income taxes receivable/payable

52,385

49,850

Accrued expenses

(76,194)

(163,339)

Net cash provided by operating activities

211,281

181,553

Investing activities:

Purchases of property, plant and equipment

(217,535)

(54,436)

Purchases of short-term investments

(149,359)

(49,677)

Proceeds from maturities of short-term investments

192,340

104,737

Acquisition of business, net of cash and restricted cash acquired

-

(93,412)

Other investing activities

518

364

Net cash used in investing activities

(174,036)

(92,424)

Financing activities:

Issuance of current and long-term debt

216,261

121,234

Repayment of current and long-term debt

(235,757)

(115,271)

Dividends paid

(51,481)

(42,239)

Purchases of treasury stock

(106,529)

(84,308)

Other financing activities

(6,152)

(5,720)

Net cash used in financing activities

(183,658)

(126,304)

Decrease in cash, cash equivalents, and restricted cash

(146,413)

(37,175)

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

1,387,397

834,423

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

$

1,240,984

$

797,248

Supplemental disclosure information:

Cash paid for interest

$

8,785

$

8,606

Cash paid for income taxes, net

$

518

$

1,839

See notes to consolidated financial statements.

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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 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, 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 coating and processing lines. Steel operations accounted for 75% of the company’s consolidated external net sales during the three months ended March 31, 2020 and 2019.

Metals Recycling Operations Segment. Metals recycling operations consists solely of OmniSource, LLC (OmniSource), and includes both ferrous and nonferrous processing, transportation, marketing, brokerage, and scrap management services. Metals recycling operations accounted for 11% and 13% of the company’s consolidated external net sales during the three months ended March 31, 2020 and 2019, 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 9% and 8% of the company’s consolidated external net sales during the three months ended March 31, 2020 and 2019, respectively.

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 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.

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; allowances for credit losses 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, 2019.

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 and equivalents 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, $5.9 million, $5.8 million, and $6.2 million at March 31, 2020, December 31, 2019, March 31, 2019, and December 31, 2018, respectively, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.

5

Table of Contents

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 at March 31, 2020, and December 31, 2019, (in thousands):

March 31,

December 31,

2020

2019

Steel Operations Segment

$

272,133

$

272,133

Metals Recycling Operations Segment

178,010

178,857

Steel Fabrication Operations Segment

1,925

1,925

$

452,068

$

452,915

Metals Recycling Operations Segment goodwill decreased $847,000 from December 31, 2019 to March 31, 2020, in recognition of the 2020 tax benefit related to the normal amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.

Credit Losses

ASU 2016-13, Financial Instruments - Credit Losses and its subsequent corresponding updates (ASC 326), requires an entity to use a forward-looking expected loss model versus the incurred loss model for most financial instruments, including accounts receivable. The company adopted ASC 326 effective January 1, 2020, using the modified retrospective transition method, with no impact on the company’s financial position, results of operations or cash flows.

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, 2020, we reported $998.4 million of accounts receivable, net of allowances for credit losses of $6.9 million. Changes in the allowance were not material for the three-month period ended March 31, 2020.

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, 2020 and 2019.

Three Months Ended March 31,

2020

2019

Weighted

Weighted

Average

Average

Net Income

Shares

Per Share

Net Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Basic earnings per share

$

187,340

213,254

$

0.88

$

204,328

224,058

$

0.91

Dilutive common share equivalents

-

770

-

904

Diluted earnings per share

$

187,340

214,024

$

0.88

$

204,328

224,962

$

0.91

6

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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,

2020

2019

Raw materials

$

650,140

$

686,831

Supplies

490,401

498,298

Work in progress

160,831

154,669

Finished goods

343,166

349,245

Total inventories

$

1,644,538

$

1,689,043

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 quarterly period ended March 31, 2020 and 2019:

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, 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 of USS

-

-

-

-

-

(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

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

7

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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, 2020:

Commodity Futures

Long/Short

Metric Tons

Aluminum

Long

1,425

Aluminum

Short

4,475

Copper

Long

8,766

Copper

Short

13,562

The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets as of March 31, 2020, and December 31, 2019, and gains and losses related to derivatives included in the company’s statement of income for the three-month periods ended March 31, 2020, and 2019 (in thousands):

Asset Derivatives

Liability Derivatives

Balance sheet

Fair Value

Fair Value

 location

March 31, 2020

December 31, 2019

March 31, 2020

December 31, 2019

Derivative instruments designated as hedges

Commodity futures

Other current assets

$

3,283

$

966

$

2,441

$

1,011

Derivative instruments not designated as hedges

Commodity futures

Other current assets

2,111

310

2,598

721

Total derivative instruments

$

5,394

$

1,276

$

5,039

$

1,732

The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $2.6 million at March 31, 2020, and $3.7 million at December 31, 2019, 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 months ended

Hedged items in

in income on

three months ended

in income on

March 31,

fair value hedge

related hedged

March 31,

derivatives

2020

2019

relationships

items

2020

2019

Derivatives in fair value

hedging relationships