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STEEL DYNAMICS INC - Quarter Report: 2017 September (Form 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, 2017



 



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



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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post 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 November 1, 2017, Registrant had 236,951,784 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 September 30, 2017 (unaudited) and December 31, 2016

1



 

 



Consolidated Statements of Income for the three and nine-month periods ended September 30, 2017 and 2016 (unaudited)

2



 

 



Consolidated Statements of Cash Flows for the three and nine-month periods ended  September 30, 2017 and 2016 (unaudited)

3



 

 



Notes to Consolidated Financial Statements (unaudited)

4



 

 

Item 2.

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

18



 

 

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



 

 



Signatures

28



 

 





 


 



STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)







 

 

 

 

 

 



 

 

 

 

 

 



September 30,

 

 

December 31,



2017

 

 

2016

Assets

(unaudited)

 

 

 

 

Current assets

 

 

 

 

 

 

  Cash and equivalents

$

1,101,964 

 

 

$

841,483 

  Accounts receivable, net

 

897,838 

 

 

 

703,565 

  Accounts receivable-related parties

 

25,179 

 

 

 

26,219 

  Inventories

 

1,487,516 

 

 

 

1,275,211 

  Other current assets

 

59,648 

 

 

 

83,197 

     Total current assets

 

3,572,145 

 

 

 

2,929,675 



 

 

 

 

 

 

Property, plant and equipment, net

 

2,708,777 

 

 

 

2,787,215 



 

 

 

 

 

 

Restricted cash

 

17,092 

 

 

 

18,060 

Intangible assets, net

 

263,357 

 

 

 

283,977 

Goodwill

 

388,518 

 

 

 

393,351 

Other assets

 

10,848 

 

 

 

11,454 

     Total assets

$

6,960,737 

 

 

$

6,423,732 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

  Accounts payable

$

512,290 

 

 

$

382,126 

  Accounts payable-related parties

 

16,393 

 

 

 

13,070 

  Income taxes payable

 

5,596 

 

 

 

5,593 

  Accrued payroll and benefits                

 

171,508 

 

 

 

164,543 

  Accrued interest

 

49,380 

 

 

 

30,295 

  Accrued expenses

 

128,701 

 

 

 

113,556 

  Current maturities of long-term debt

 

182,661 

 

 

 

3,632 

     Total current liabilities

 

1,066,529 

 

 

 

712,815 



 

 

 

 

 

 

Long-term debt

 

2,351,483 

 

 

 

2,353,194 

Deferred income taxes

 

461,399 

 

 

 

448,375 

Other liabilities

 

20,305 

 

 

 

20,649 

     Total liabilities

 

3,899,716 

 

 

 

3,535,033 



 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 



 

 

 

 

 

 

Redeemable noncontrolling interests

 

111,240 

 

 

 

111,240 



 

 

 

 

 

 

Equity

 

 

 

 

 

 

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

 

 

 

 

 

 

       264,161,359 and 264,130,544 shares issued; and 236,951,784 and 243,785,485    

 

 

 

 

 

 

       shares outstanding, as of September 30, 2017 and December 31, 2016, respectively

 

641 

 

 

 

641 

  Treasury stock, at cost; 27,209,575 and 20,345,059 shares,

 

 

 

 

 

 

       as of September 30, 2017 and December 31, 2016 respectively

 

(650,210)

 

 

 

(416,829)

  Additional paid-in capital

 

1,147,463 

 

 

 

1,132,749 

  Retained earnings

 

2,606,831 

 

 

 

2,210,459 

     Total Steel Dynamics, Inc. equity

 

3,104,725 

 

 

 

2,927,020 

  Noncontrolling interests

 

(154,944)

 

 

 

(149,561)

     Total equity

 

2,949,781 

 

 

 

2,777,459 

     Total liabilities and equity

$

6,960,737 

 

 

$

6,423,732 



See notes to consolidated financial statements.

1

 


 



STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



September 30,

 

September 30,



2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

  Unrelated parties

$

2,399,116 

 

$

2,060,596 

 

$

7,066,083 

 

$

5,737,584 

  Related parties

 

44,266 

 

 

40,714 

 

 

136,235 

 

 

128,929 

     Total net sales

 

2,443,382 

 

 

2,101,310 

 

 

7,202,318 

 

 

5,866,513 



 

 

 

 

 

 

 

 

 

 

 

Costs of goods sold

 

2,046,864 

 

 

1,692,807 

 

 

5,941,128 

 

 

4,841,591 

     Gross profit

 

396,518 

 

 

408,503 

 

 

1,261,190 

 

 

1,024,922 



 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

97,056 

 

 

95,185 

 

 

298,422 

 

 

279,899 

Profit sharing

 

21,175 

 

 

22,255 

 

 

69,714 

 

 

51,722 

Amortization of intangible assets

 

7,272 

 

 

7,208 

 

 

22,120 

 

 

21,359 

     Operating income

 

271,015 

 

 

283,855 

 

 

870,934 

 

 

671,942 



 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of capitalized interest

 

34,177 

 

 

36,199 

 

 

102,019 

 

 

109,888 

Other expense (income), net

 

2,526 

 

 

4,351 

 

 

(4,968)

 

 

741 

     Income before income taxes

 

234,312 

 

 

243,305 

 

 

773,883 

 

 

561,313 



 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

83,300 

 

 

88,892 

 

 

271,258 

 

 

205,139 

     Net income

 

151,012 

 

 

154,413 

 

 

502,625 

 

 

356,174 



 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

2,246 

 

 

2,984 

 

 

5,383 

 

 

5,929 

     Net income attributable to Steel Dynamics, Inc.

$

153,258 

 

$

157,397 

 

$

508,008 

 

$

362,103 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to Steel Dynamics,

 

 

 

 

 

 

 

 

 

 

 

  Inc. stockholders

$

0.64 

 

$

0.65 

 

$

2.11 

 

$

1.49 



 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

239,066 

 

 

243,761 

 

 

241,117 

 

 

243,539 



 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to Steel Dynamics, Inc.

 

 

 

 

 

 

 

 

 

 

 

  stockholders, including the effect of assumed conversions

 

 

 

 

 

 

 

 

 

 

 

  when dilutive

$

0.64 

 

$

0.64 

 

$

2.09 

 

$

1.48 



 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and share equivalents outstanding

 

240,880 

 

 

245,682 

 

 

242,816 

 

 

245,227 



 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.155 

 

$

0.140 

 

$

0.465 

 

$

0.420 





















See notes to consolidated financial statements.

2

 


 

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



September 30,

 

September 30,



2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

   Net income

$

151,012 

 

$

154,413 

 

$

502,625 

 

$

356,174 



 

 

 

 

 

 

 

 

 

 

 

   Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

 

 

 

       operating activities:

 

 

 

 

 

 

 

 

 

 

 

       Depreciation and amortization

 

75,210 

 

 

74,190 

 

 

224,068 

 

 

222,970 

       Equity-based compensation

 

6,875 

 

 

5,946 

 

 

24,558 

 

 

23,716 

       Deferred income taxes

 

3,284 

 

 

18,478 

 

 

17,849 

 

 

53,879 

       Other adjustments

 

8,202 

 

 

161 

 

 

8,055 

 

 

1,376 

       Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

           Accounts receivable

 

(36,123)

 

 

29,384 

 

 

(193,233)

 

 

(149,810)

           Inventories

 

(67,285)

 

 

(76,013)

 

 

(211,726)

 

 

(102,339)

           Other assets

 

(9,234)

 

 

694 

 

 

(1,703)

 

 

11,855 

           Accounts payable

 

44,887 

 

 

(49,171)

 

 

133,251 

 

 

117,220 

           Income taxes receivable/payable

 

(12,929)

 

 

(7,421)

 

 

5,803 

 

 

40,960 

           Accrued expenses

 

62,249 

 

 

45,701 

 

 

38,058 

 

 

69,361 

       Net cash provided by operating activities

 

226,148 

 

 

196,362 

 

 

547,605 

 

 

645,362 



 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

   Purchases of property, plant and equipment

 

(42,795)

 

 

(59,774)

 

 

(127,746)

 

 

(123,168)

   Acquisition of business, net of cash acquired

 

(5,518)

 

 

(109,065)

 

 

(5,518)

 

 

(109,065)

   Other investing activities

 

1,081 

 

 

1,507 

 

 

30,386 

 

 

5,767 

       Net cash used in investing activities

 

(47,232)

 

 

(167,332)

 

 

(102,878)

 

 

(226,466)



 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

   Issuance of current and long-term debt

 

450,215 

 

 

12,911 

 

 

501,448 

 

 

97,018 

   Repayment of current and long-term debt

 

(294,913)

 

 

(9,999)

 

 

(331,339)

 

 

(95,253)

   Dividends paid

 

(37,180)

 

 

(34,124)

 

 

(108,837)

 

 

(101,639)

   Purchases of treasury stock

 

(99,085)

 

 

 -

 

 

(237,154)

 

 

 -

   Other financing activities

 

(4,832)

 

 

1,005 

 

 

(8,364)

 

 

5,435 

       Net cash provided by (used in) financing activities

 

14,205 

 

 

(30,207)

 

 

(184,246)

 

 

(94,439)



 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and equivalents

 

193,121 

 

 

(1,177)

 

 

260,481 

 

 

324,457 

Cash and equivalents at beginning of period

 

908,843 

 

 

1,052,666 

 

 

841,483 

 

 

727,032 



 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents at end of period

$

1,101,964 

 

$

1,051,489 

 

$

1,101,964 

 

$

1,051,489 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure information:

 

 

 

 

 

 

 

 

 

 

 

   Cash paid for interest

$

13,530 

 

$

26,225 

 

$

80,155 

 

$

97,605 

   Cash paid for income taxes, net

$

93,123 

 

$

75,860 

 

$

246,793 

 

$

104,124 













See notes to consolidated financial statements.

 

3

 


 

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 reporting 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, Structural and Rail Division, Engineered Bar Products Division, Vulcan Threaded Products, Inc. – acquired August 1, 2016, 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 and numerous downstream coating and bar processing lines. Steel operations accounted for 73% and 74% of the company’s consolidated external net sales during the three months ended September 30, 2017 and 2016, respectively, and 73% and 72% of the company’s consolidated external net sales during the nine months ended September 30, 2017 and 2016, 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 consulting services. Metals recycling operations accounted for 14% and 15% of the company’s consolidated external net sales during the three months ended September 30, 2017 and 2016, respectively, and 15% of the company’s consolidated external net sales for the nine months ended September 30, 2017 and 2016.

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 September 30, 2017 and 2016, respectively, and 8% and 9% during the nine months ended September 30, 2017 and 2016, respectively.

Other. Other operations consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our idled Minnesota ironmaking operations and other smaller joint ventures. 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 or controlled subsidiaries, after elimination of significant 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 or controlled consolidated subsidiaries. 



Use of Estimates.  These 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 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 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, 2016.



4

 


 

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 is allocated to the following reporting units at September 30, 2017, and December 31, 2016, (in thousands):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

September 30,

 

December 31,

 



 

 

2017

 

2016

 



Steel Operations Segment:

 

 

 

 

 

 

 



     Columbus Flat Roll Division

 

$

19,682 

 

$

19,682 

 



     The Techs

 

 

142,783 

 

 

142,783 

 



     Vulcan Threaded Products

 

 

7,824 

 

 

7,824 

 



     Roanoke Bar Division

 

 

29,041 

 

 

29,041 

 



Metals Recycling Operations Segment:

 

 

 

 

 

 

 



     Butler Flat Roll Division, Structural and Rail Division, and

 

 

 

 

 

 

 



         Engineered Bar Division

 

 

95,000 

 

 

95,000 

 



     OmniSource

 

 

92,263 

 

 

97,096 

 



Steel Fabrication Operations Segment

 

 

1,925 

 

 

1,925 

 



 

 

$

388,518 

 

$

393,351 

 



OmniSource goodwill decreased $4.8 million from December 31, 2016 to September 30, 2017, in recognition of the 2017 tax benefit related to the normal amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.



Recently Adopted/Issued Accounting Standards



In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11), which requires an entity to measure inventory at the lower of cost and net realizable value, rather than at the lower of cost or market. The company adopted ASU 2015-11 as required in the first quarter of 2017 on a prospective basis, and the adoption had no impact on its financial condition, results of operations, or cash flow. 

In May 2014, the FASB issued ASU 2014-09, which is codified in ASC 606, Revenue Recognition – Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition.  FASB has since issued clarifying guidance in the form of ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Consideration (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contract with Customers : Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, collectively (ASC 606). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires additional disclosures to help users of financial statements better understand the nature, amount, timing, and potential uncertainty of revenue that is recognized. ASC 606 guidance is effective for annual and interim periods beginning after December 15, 2017, but can be early adopted for annual and interim periods ending after December 15, 2016, using a full retrospective or modified retrospective approach.  The company is finalizing its adoption plan in which it has identified current revenue streams and analyzed those revenue streams pursuant to the new accounting requirements. The company will complete the adoption plan during the fourth quarter of 2017, including assessment of new required disclosures.  Based on our analysis within the adoption plan completed to date, the company does not believe there will be significant change in the amount or timing of revenue recognized under the new standard, or significant changes required to the company’s functions, processes or systems. The company intends to adopt ASU 2014-09 effective January 1, 2018, using the modified retrospective approach.  

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): which establishes 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 (ASU 2016-02).  Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.  This new guidance is effective for annual and interim periods beginning after December 15, 2018, but can be early adopted.  The company is currently evaluating the impact of the provisions of ASU 2016-02, including the timing of adoption. 

Reclassifications



The company early adopted, effective December 31, 2016, Improvement to Employee Share-based Payment Accounting (ASU 2016-09). Cash paid to tax authorities from shares withheld to satisfy the company’s statutory income tax withholding obligation of $2.2 million were reclassified to financing activities from operating activities in the nine-month period ended September 30, 2016, statement of cash flows. 







5

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 2.  Earnings Per Share



Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive restricted stock units, deferred stock units, stock options and other equity-based 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 at or for the three and nine months ended September 30, 2017 and 2016.



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 and nine months ended September 30, 2017 and 2016 (in thousands, except per share data):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,



2017

 

2016



Net Income

 

 

Shares

 

Per Share

 

Net Income

 

 

Shares

 

Per Share



(Numerator)

 

 

(Denominator)

 

Amount

 

(Numerator)

 

 

(Denominator)

 

Amount

Basic earnings per share

$

153,258 

 

 

239,066 

 

$

0.64 

 

$

157,397 

 

 

243,761 

 

$

0.65 

Dilutive common share equivalents

 

 -

 

 

1,814 

 

 

 

 

 

 -

 

 

1,921 

 

 

 

Diluted earnings per share

$

153,258 

 

 

240,880 

 

$

0.64 

 

$

157,397 

 

 

245,682 

 

$

0.64 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Nine Months Ended September 30,



2017

 

2016



Net Income

 

Shares

 

Per Share

 

Net Income

 

Shares

 

Per Share



(Numerator)

 

(Denominator)

 

Amount

 

(Numerator)

 

(Denominator)

 

Amount

Basic earnings per share

$

508,008 

 

 

241,117 

 

$

2.11 

 

$

362,103 

 

 

243,539 

 

$

1.49 

Dilutive common share equivalents

 

 -

 

 

1,699 

 

 

 

 

 

 -

 

 

1,688 

 

 

 

Diluted earnings per share

$

508,008 

 

 

242,816 

 

$

2.09 

 

$

362,103 

 

 

245,227 

 

$

1.48 











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,

 

 



 

 

2017

 

2016

 

 



 

Raw materials

$

677,187 

 

$

515,924 

 

 



 

Supplies

 

376,984 

 

 

383,134 

 

 



 

Work in progress

 

119,735 

 

 

103,606 

 

 



 

Finished goods

 

313,610 

 

 

272,547 

 

 



 

Total inventories

$

1,487,516 

 

$

1,275,211 

 

 







6

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 



Note 4.  Debt



In September 2017, the company issued $350.0 million of 4.125% senior notes due 2025 (the "2025 Notes"), the proceeds of which, along with available cash, were used to fund the September 2017 tender to purchase at a redemption price of 103.563%, $182.9 million principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, of the company's 6.375% senior notes due 2022 (the "2022 Notes"), and the October 2017 call and repayment at a redemption price of 103.188% of the $167.1 million remaining outstanding principal amount of the 2022 Notes, plus accrued and unpaid interest to, but not including, the date of repayment. The $167.1 remaining outstanding principal amount is included in current maturities of long-term debt in the company’s September 30, 2017, balance sheet.  The company recorded expenses related to tender premiums, write off of unamortized debt issuance costs, and other expenses of $8.0 million, which are reflected in other expenses in the consolidated statements of income for the three- and nine-months ended September 30, 2017. Additional call premiums of $6.6 million related to the October 2017 call and repayment will be recorded as other expenses in the consolidated statements of income for the three months and year ended

December 31, 2017.



Note 5.  Changes in Equity



The following table provides 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 the noncontrolling interests (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Stockholders of Steel Dynamics, Inc.

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Additional

 

 

 

 

 

 

 

Redeemable



Common

 

Treasury

 

Paid-In

 

Retained

 

Noncontrolling

 

Total

 

Noncontrolling



Stock

 

Stock

 

Capital

 

Earnings

 

Interests

 

Equity

 

Interests

Balances at December 31, 2016

$

641 

 

$

(416,829)

 

$

1,132,749 

 

$

2,210,459 

 

$

(149,561)

 

$

2,777,459 

 

$

111,240 

Dividends declared

 

 -

 

 

 -

 

 

 -

 

 

(111,435)

 

 

 -

 

 

(111,435)

 

 

 -

Share repurchases

 

 -

 

 

(237,154)

 

 

 -

 

 

 -

 

 

 -

 

 

(237,154)

 

 

 -

Equity-based compensation

 

 -

 

 

3,773 

 

 

14,714 

 

 

(201)

 

 

 -

 

 

18,286 

 

 

 -

Comprehensive and net income (loss)

 

 -

 

 

 -

 

 

 -

 

 

508,008 

 

 

(5,383)

 

 

502,625 

 

 

 -

Balances at September 30, 2017

$

641 

 

$

(650,210)

 

$

1,147,463 

 

$

2,606,831 

 

$

(154,944)

 

$

2,949,781 

 

$

111,240 









Note 6.  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, interest rate risk and foreign currency exchange rate 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 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 futures contract commitments as of September 30, 2017:







 

 

 

 

 

 



 

 

 

 

 

 



Commodity Futures

 

Long/Short

 

Metric Tons

 



Aluminum

 

Long

 

1,275 

 



Aluminum

 

Short

 

2,250 

 



Copper

 

Long

 

4,251 

 



Copper

 

Short

 

21,727 

 



 

 

 

 

 

 



The following summarizes the location and amounts of the fair values reported on the company’s balance sheets as of September 30, 2017, and December 31, 2016, and gains and losses related to derivatives included in the company’s statement of income for the three and nine months ended September 30, 2017 and 2016 (in thousands):

7

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 6.  Derivative Financial Instruments (Continued)









 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



Asset Derivatives

 

Liability Derivatives



Balance sheet

 

Fair Value

 

Fair Value



 location

 

September 30, 2017

 

December 31, 2016

 

September 30, 2017

 

December 31, 2016

Derivative instruments designated

 

 

 

 

 

 

 

 

 

 

 

 

 

as fair value hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

Other current assets

 

$

2,576 

 

$

2,910 

 

$

396 

 

$

1,300 



 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments not designated

 

 

 

 

 

 

 

 

 

 

 

 

 

as hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

Other current assets

 

 

1,573 

 

 

1,150 

 

 

497 

 

 

783 

Total derivative instruments

 

 

$

4,149 

 

$

4,060 

 

$

893 

 

$

2,083 



The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $6.0 million at September 30, 2017, and $3.2 million at December 31, 2016, are reflected in other current assets in the consolidated balance sheets.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Amount of gain (loss) recognized

 

 

 

Location of gain

 

Amount of gain (loss) recognized



 

Location of gain

 

in income on derivatives 

 

 

 

(loss) recognized

 

in income on related hedged items



 

(loss) recognized

 

for the three months ended

 

Hedged items in

 

in income on

 

for the three months ended



 

in income on

 

September 30,

 

September 30,

 

fair value hedge

 

related hedged

 

September 30,

 

September 30,



 

derivatives

 

2017

 

2016

 

relationships

 

items

 

2017

 

2016

Derivatives in fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

hedging relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

 

Costs of goods sold

 

$

4,122 

 

$

826 

 

Firm commitments

 

Costs of goods sold

 

$

(1,711)

 

$

(793)



 

 

 

 

 

 

 

 

 

Inventory

 

Costs of goods sold

 

 

(1,330)

 

 

(177)

Derivatives not designated

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(3,041)

 

$

(970)

as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

 

Costs of goods sold

 

$

(10,566)

 

$

(638)

 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Amount of gain (loss) recognized

 

 

 

Location of gain

 

Amount of gain (loss) recognized



 

Location of gain

 

 in income on derivatives

 

 

 

(loss) recognized

 

in income on related hedged items



 

(loss) recognized

 

for the nine months ended

 

Hedged items in

 

in income on

 

for the nine months ended



 

in income on

 

September 30,

 

September 30,

 

fair value hedge

 

on related

 

September 30,

 

September 30,



 

derivatives

 

2017

 

2016

 

relationships

 

hedged items

 

2017

 

2016

Derivatives in fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

hedging relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

 

Costs of goods sold

 

$

571 

 

$

1,281 

 

Firm commitments

 

Costs of goods sold

 

$

995 

 

$

(2,223)



 

 

 

 

 

 

 

 

 

Inventory

 

Costs of goods sold

 

 

179 

 

 

642 

Derivatives not designated

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,174 

 

$

(1,581)

as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

 

Costs of goods sold

 

$

(12,528)

 

$

(394)

 

 

 

 

 

 

 

 

 

 



Derivatives accounted for as fair value hedges had ineffectiveness resulting in losses of $35,000 and $84,000 during the three-month periods ended September 30, 2017 and 2016, respectively; and a gain of $62,000 and loss of  $175,000 during the nine-month periods ended September 30, 2017 and 2016, respectively.  Gains excluded from hedge effectiveness testing of $1.1 million decreased cost of goods sold during the three-month period ended September 30, 2017, and losses excluded from hedge effectiveness testing of $60,000 increased costs of goods sold during the three-month period ended September 30, 2016.  Gains of $1.7 million decreased costs of goods sold during the nine-month period ended September 30, 2017, and losses of $125,000 increased costs of goods sold during the nine month period ended September 30, 2016.   







8

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 7.  Fair Value Measurements

FASB accounting standards provide a comprehensive framework for measuring fair value and sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs.  Levels within the hierarchy are defined as follows: 



·

Level 1—Unadjusted quoted prices for identical assets and liabilities in active markets;

·

Level 2—Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable for the asset or liability, either directly or indirectly; and

·

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.



The following table sets forth financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheet and the respective levels to which the fair value measurements are classified within the fair value hierarchy as of September 30, 2017, and December 31, 2016 (in thousands):    







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

Quoted Prices

 

Significant

 

 

 



 

 

 

in Active

 

Other

 

Significant



 

 

 

Markets for

 

Observable

 

Unobservable



 

 

 

Identical Assets

 

Inputs

 

Inputs



Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

Commodity futures – financial assets

$

4,149 

 

$

 -

 

$

4,149 

 

$

 -

Commodity futures – financial liabilities

 

893 

 

 

 -

 

 

893 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Commodity futures – financial assets

$

4,060 

 

$

 -

 

$

4,060 

 

$

 -

Commodity futures – financial liabilities

 

2,083 

 

 

 -

 

 

2,083 

 

 

 -



The carrying amounts of financial instruments including cash and equivalents approximate fair value. The fair values of commodity futures contracts are estimated by the use of quoted market prices, estimates obtained from brokers, and other appropriate valuation techniques based on references available. The fair value of long-term debt, including current maturities, as determined by quoted market prices (Level 2), was approximately $2.6 billion and $2.5 billion at September 30, 2017 and December 31, 2016, respectively (with a corresponding carrying amount in the consolidated balance sheet of $2.5 and $2.4 billion at September 30, 2017, and December 31, 2016, respectively). 



Note 8.  Commitments and Contingencies



The company is involved in various routine litigation matters, including administrative proceedings, regulatory proceedings, governmental investigations, environmental matters, and commercial and construction contract disputes, none of which are expected to have a material impact on our financial condition, results of operations, or liquidity



Note 9.  Segment Information



The company’s operations are primarily organized and managed by reportable operating segments, which are steel operations, metals recycling operations, and steel fabrication operations. The segment operations are more fully described in Note 1 to these financial statements. Operating segment performance and resource allocations are primarily based on operating results before income taxes. The accounting policies of the reportable segments are consistent with those described in Note 1 to these financial statements. Intra‑segment sales and any related profits are eliminated in consolidation. Amounts included in the category “Other” are from subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our Minnesota ironmaking operations and several small joint ventures. In addition, “Other” also includes certain unallocated corporate accounts, such as the company’s senior secured credit facility, senior notes, certain other investments and certain profit sharing expenses.



9

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 9.  Segment Information (Continued)



The company’s segment results are as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Metals

 

Steel

 

 

 

 

 

 

 

 

 

For the three months ended

 

Steel

 

Recycling

 

Fabrication

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Operations

 

Operations

 

Operations

 

Other

 

Eliminations

 

Consolidated



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  External

 

$

1,700,707 

 

$

301,422 

 

$

211,271 

 

$

101,057 

 

$

 -

 

$

2,314,457 

  External Non-U.S.

 

 

82,098 

 

 

46,793 

 

 

34 

 

 

 -

 

 

 -

 

 

128,925 

  Other segments

 

 

65,321 

 

 

360,982 

 

 

89 

 

 

116 

 

 

(426,508)

 

 

 -



 

 

1,848,126 

 

 

709,197 

 

 

211,394 

 

 

101,173 

 

 

(426,508)

 

 

2,443,382 

Operating income (loss)

 

 

276,547 

 

 

17,624 

 

 

21,862 

 

 

(44,326)

(1)

 

(692)

 

 

271,015 

Income (loss) before income taxes

 

 

255,539 

 

 

16,020 

 

 

20,199 

 

 

(56,754)

 

 

(692)

 

 

234,312 

Depreciation and amortization

 

 

57,644 

 

 

12,020 

 

 

2,866 

 

 

2,680 

 

 

 -

 

 

75,210 

Capital expenditures

 

 

31,654 

 

 

8,589 

 

 

1,524 

 

 

1,028 

 

 

 -

 

 

42,795 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

4,353,904 

 

$

1,032,018 

 

$

381,931 

 

$

1,346,968 

(2)

$

(154,084)

(3)

$

6,960,737 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

 



Footnotes related to the three months ended September 30, 2017, segment results (in millions):



 

 

 

 

 

 

 

 

 

(1)

Corporate SG&A

$

(12.1)

 

 

(3)

Elimination of intra-company receivables

$

(130.4)



Company-wide equity-based compensation

 

(6.8)

 

 

 

Elimination of intra-company debt

 

(10.7)



Profit sharing

 

(20.2)

 

 

 

Other  

 

(13.0)



Other, net

 

(5.2)

 

 

 

 

$

(154.1)



 

$

(44.3)

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

(2)

Cash and equivalents

$

1,065.9 

 

 

 

 

 

 



Accounts receivable

 

14.0 

 

 

 

 

 

 



Inventories

 

42.8 

 

 

 

 

 

 



Property, plant and equipment, net

 

162.4 

 

 

 

 

 

 



Intra-company debt

 

10.7 

 

 

 

 

 

 



Other

 

51.2 

 

 

 

 

 

 



 

$

1,347.0 

 

 

 

 

 

 

10

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 9.  Segment Information (Continued)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Metals

 

Steel

 

 

 

 

 

 

 

 

 

For the three months ended

 

Steel

 

Recycling

 

Fabrication

 

 

 

 

 

 

 

 

 

September 30, 2016

 

Operations

 

Operations

 

Operations

 

Other

 

Eliminations

 

Consolidated



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  External

 

$

1,502,726 

 

$

260,518 

 

$

177,341 

 

$

60,282 

 

$

 -

 

$

2,000,867 

  External Non-U.S.

 

 

54,776 

 

 

45,574 

 

 

88 

 

 

 

 

 -

 

 

100,443 

  Other segments

 

 

70,384 

 

 

259,171 

 

 

1,211 

 

 

1,108 

 

 

(331,874)

 

 

 -



 

 

1,627,886 

 

 

565,263 

 

 

178,640 

 

 

61,395 

 

 

(331,874)

 

 

2,101,310 

Operating income (loss)

 

 

307,553 

 

 

6,154 

 

 

17,744 

 

 

(47,687)

(1)

 

91 

 

 

283,855 

Income (loss) before income taxes

 

 

285,131 

 

 

2,437 

 

 

15,645 

 

 

(59,999)

 

 

91 

 

 

243,305 

Depreciation and amortization

 

 

53,456 

 

 

13,836 

 

 

2,848 

 

 

4,101 

 

 

(51)

 

 

74,190 

Capital expenditures

 

 

49,200 

 

 

9,506 

 

 

747 

 

 

321 

 

 

 -

 

 

59,774 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

Footnotes related to the three months ended September 30, 2016, segment results (in millions):



 

 

 

 

 

 

 

 

(1)

Corporate SG&A

$

(12.6)

 

 

 

 

 



Company-wide equity-based compensation

 

(6.1)

 

 

 

 

 



Profit sharing

 

(21.0)

 

 

 

 

 



Other, net

 

(8.0)

 

 

 

 

 



 

$

(47.7)

 

 

 

 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Metals

 

Steel

 

 

 

 

 

 

 

 

 

For the nine months ended

 

Steel

 

Recycling

 

Fabrication

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Operations

 

Operations

 

Operations

 

Other

 

Eliminations

 

Consolidated



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  External

 

$

5,025,310 

 

$

910,830 

 

$

603,140 

 

$

281,091 

 

$

 -

 

$

6,820,371 

  External Non-U.S.

 

 

237,070 

 

 

144,750 

 

 

127 

 

 

 -

 

 

 -

 

 

381,947 

  Other segments

 

 

183,374 

 

 

1,067,770 

 

 

244 

 

 

1,065 

 

 

(1,252,453)

 

 

 -



 

 

5,445,754 

 

 

2,123,350 

 

 

603,511 

 

 

282,156 

 

 

(1,252,453)

 

 

7,202,318 

Operating income (loss)

 

 

895,008 

 

 

51,968 

 

 

65,735 

 

 

(141,406)

(1)

 

(371)

 

 

870,934 

Income (loss) before income taxes

 

 

830,865 

 

 

46,674 

 

 

61,171 

 

 

(164,456)

 

 

(371)

 

 

773,883 

Depreciation and amortization

 

 

170,125 

 

 

37,048 

 

 

8,743 

 

 

8,152 

 

 

 -

 

 

224,068 

Capital expenditures

 

 

101,939 

 

 

18,539 

 

 

5,748 

 

 

1,520 

 

 

 -

 

 

127,746 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

Footnotes related to the nine months ended September 30, 2017, segment results (in millions):



 

 

 

 

 

 

 

 

(1)

Corporate SG&A

$

(37.9)

 

 

 

 

 



Company-wide equity-based compensation

 

(23.5)

 

 

 

 

 



Profit sharing

 

(66.8)

 

 

 

 

 



Other, net

 

(13.2)

 

 

 

 

 



 

$

(141.4)

 

 

 

 

 



11

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 9.  Segment Information (Continued)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Metals

 

Steel

 

 

 

 

 

 

 

 

 

For the nine months ended

 

Steel

 

Recycling

 

Fabrication

 

 

 

 

 

 

 

 

 

September 30, 2016

 

Operations

 

Operations

 

Operations

 

Other

 

Eliminations

 

Consolidated



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  External

 

$

4,068,688 

 

$

769,260 

 

$

527,859 

 

$

210,358 

 

$

 -

 

$

5,576,165 

  External Non-U.S.

 

 

172,694 

 

 

117,299 

 

 

167 

 

 

188 

 

 

 -

 

 

290,348 

  Other segments

 

 

178,190 

 

 

756,613 

 

 

2,415 

 

 

3,603 

 

 

(940,821)

 

 

 -



 

 

4,419,572 

 

 

1,643,172 

 

 

530,441 

 

 

214,149 

 

 

(940,821)

 

 

5,866,513 

Operating income (loss)

 

 

712,939 

 

 

20,014 

 

 

73,230 

 

 

(125,186)

(1)

 

(9,055)

(2)

 

671,942 

Income (loss) before income taxes

 

 

645,189 

 

 

10,300 

 

 

67,175 

 

 

(152,296)

 

 

(9,055)

 

 

561,313 

Depreciation and amortization

 

 

159,614 

 

 

42,666 

 

 

8,431 

 

 

12,413 

 

 

(154)

 

 

222,970 

Capital expenditures

 

 

103,202 

 

 

17,068 

 

 

1,918 

 

 

980 

 

 

 -

 

 

123,168 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

Footnotes related to the nine months ended September 30, 2016, segment results (in millions):



 

 

 

 

 

 

 

 

(1)

Corporate SG&A

$

(38.5)

 

(2)

Gross profit decrease from intra-company sales

$

(9.1)



Company-wide equity-based compensation

 

(20.4)

 

 

 

 

 



Profit sharing

 

(47.7)

 

 

 

 

 



Other, net

 

(18.6)

 

 

 

 

 



 

$

(125.2)

 

 

 

 

 





12

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information



Certain 100% owned subsidiaries of SDI have fully and unconditionally guaranteed all of the indebtedness relating to the issuance of the company’s senior unsecured notes due 2021, 2023, 2024, 2025 and 2026. Following are the company’s condensed consolidating financial statements, including the guarantors, which present the financial position, results of operations, and cash flows of (i) SDI (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries of SDI, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information on a consolidated basis. The following statements should be read in conjunction with the accompanying consolidated financial statements and the company’s Annual Report on Form 10-K for the year ended December 31, 2016.









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidating Balance Sheets (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

As of September 30, 2017

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

Cash and equivalents

 

$

1,064,499 

 

$

32,968 

 

$

4,497 

 

$

 -

 

$

1,101,964 

Accounts receivable, net

 

 

294,753 

 

 

1,450,968 

 

 

48,082 

 

 

(870,786)

 

 

923,017 

Inventories

 

 

669,076 

 

 

754,526 

 

 

72,990 

 

 

(9,076)

 

 

1,487,516 

Other current assets

 

 

36,828 

 

 

21,404 

 

 

5,124 

 

 

(3,708)

 

 

59,648 

  Total current assets

 

 

2,065,156 

 

 

2,259,866 

 

 

130,693 

 

 

(883,570)

 

 

3,572,145 

Property, plant and equipment, net

 

 

873,015 

 

 

1,634,215 

 

 

201,547 

 

 

 -

 

 

2,708,777 

Intangible assets, net

 

 

 -

 

 

231,838 

 

 

31,519 

 

 

 -

 

 

263,357 

Goodwill

 

 

 -

 

 

380,695 

 

 

7,823 

 

 

 -

 

 

388,518 

Other assets, including investments in subs

 

 

2,611,965 

 

 

7,060 

 

 

5,578 

 

 

(2,596,663)

 

 

27,940 

  Total assets

 

$

5,550,136 

 

$

4,513,674 

 

$

377,160 

 

$

(3,480,233)

 

$

6,960,737 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

196,177 

 

$

348,347 

 

$

106,208 

 

$

(122,049)

 

$

528,683 

Accrued expenses

 

 

224,156 

 

 

251,694 

 

 

9,437 

 

 

(130,102)

 

 

355,185 

Current maturities of long-term debt

 

 

167,840 

 

 

 -

 

 

40,482 

 

 

(25,661)

 

 

182,661 

  Total current liabilities

 

 

588,173 

 

 

600,041 

 

 

156,127 

 

 

(277,812)

 

 

1,066,529 

Long-term debt

 

 

2,324,240 

 

 

 -

 

 

172,243 

 

 

(145,000)

 

 

2,351,483 

Other liabilities

 

 

(467,002)

 

 

983,737 

 

 

27,238 

 

 

(62,269)

 

 

481,704 

  Total liabilities

 

 

2,445,411 

 

 

1,583,778 

 

 

355,608 

 

 

(485,081)

 

 

3,899,716 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

 -

 

 

 -

 

 

111,240 

 

 

 -

 

 

111,240 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

641 

 

 

1,727,859 

 

 

14,908 

 

 

(1,742,767)

 

 

641 

Treasury stock

 

 

(650,210)

 

 

 -

 

 

 -

 

 

 -

 

 

(650,210)

Additional paid-in-capital

 

 

1,147,463 

 

 

128,076 

 

 

791,196 

 

 

(919,272)

 

 

1,147,463 

Retained earnings (deficit)

 

 

2,606,831 

 

 

1,073,961 

 

 

(740,848)

 

 

(333,113)

 

 

2,606,831 

  Total Steel Dynamics, Inc. equity

 

 

3,104,725 

 

 

2,929,896 

 

 

65,256 

 

 

(2,995,152)

 

 

3,104,725 

Noncontrolling interests

 

 

 -

 

 

 -

 

 

(154,944)

 

 

 -

 

 

(154,944)

  Total equity

 

 

3,104,725 

 

 

2,929,896 

 

 

(89,688)

 

 

(2,995,152)

 

 

2,949,781 

  Total liabilities and equity

 

$

5,550,136 

 

$

4,513,674 

 

$

377,160 

 

$

(3,480,233)

 

$

6,960,737 



13

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information (Continued)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

As of December 31, 2016

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

Cash and equivalents

 

$

766,685 

 

$

54,677 

 

$

20,121 

 

$

 -

 

$

841,483 

Accounts receivable, net

 

 

229,148 

 

 

1,257,245 

 

 

23,689 

 

 

(780,298)

 

 

729,784 

Inventories

 

 

587,319 

 

 

639,148 

 

 

58,696 

 

 

(9,952)

 

 

1,275,211 

Other current assets

 

 

45,049 

 

 

36,062 

 

 

4,447 

 

 

(2,361)

 

 

83,197 

  Total current assets

 

 

1,628,201 

 

 

1,987,132 

 

 

106,953 

 

 

(792,611)

 

 

2,929,675 

Property, plant and equipment, net

 

 

899,370 

 

 

1,679,751 

 

 

208,094 

 

 

 -

 

 

2,787,215 

Intangible assets, net

 

 

 -

 

 

251,919 

 

 

32,058 

 

 

 -

 

 

283,977 

Goodwill

 

 

 -

 

 

385,527 

 

 

7,824 

 

 

 -

 

 

393,351 

Other assets, including investments in subs

 

 

2,769,884 

 

 

7,335 

 

 

5,832 

 

 

(2,753,537)

 

 

29,514 

  Total assets

 

$

5,297,455 

 

$

4,311,664 

 

$

360,761 

 

$

(3,546,148)

 

$

6,423,732 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

141,089 

 

$

265,764 

 

$

89,659 

 

$

(101,316)

 

$

395,196 

Accrued expenses

 

 

198,085 

 

 

220,917 

 

 

8,793 

 

 

(113,808)

 

 

313,987 

Current maturities of long-term debt

 

 

674 

 

 

700 

 

 

29,347 

 

 

(27,089)

 

 

3,632 

  Total current liabilities

 

 

339,848 

 

 

487,381 

 

 

127,799 

 

 

(242,213)

 

 

712,815 

Long-term debt

 

 

2,324,298 

 

 

 -

 

 

168,566 

 

 

(139,670)

 

 

2,353,194 

Other liabilities

 

 

(293,711)

 

 

1,219,444 

 

 

42,482 

 

 

(499,191)

 

 

469,024 

  Total liabilities

 

 

2,370,435 

 

 

1,706,825 

 

 

338,847 

 

 

(881,074)

 

 

3,535,033 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

 -

 

 

 -

 

 

111,240 

 

 

 -

 

 

111,240 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

641 

 

 

1,727,859 

 

 

14,908 

 

 

(1,742,767)

 

 

641 

Treasury stock

 

 

(416,829)

 

 

 -

 

 

 -

 

 

 -

 

 

(416,829)

Additional paid-in-capital

 

 

1,132,749 

 

 

128,076 

 

 

779,678 

 

 

(907,754)

 

 

1,132,749 

Retained earnings (deficit)

 

 

2,210,459 

 

 

748,904 

 

 

(734,351)

 

 

(14,553)

 

 

2,210,459 

  Total Steel Dynamics, Inc. equity

 

 

2,927,020 

 

 

2,604,839 

 

 

60,235 

 

 

(2,665,074)

 

 

2,927,020 

Noncontrolling interests

 

 

 -

 

 

 -

 

 

(149,561)

 

 

 -

 

 

(149,561)

  Total equity

 

 

2,927,020 

 

 

2,604,839 

 

 

(89,326)

 

 

(2,665,074)

 

 

2,777,459 

  Total liabilities and equity

 

$

5,297,455 

 

$

4,311,664 

 

$

360,761 

 

$

(3,546,148)

 

$

6,423,732 

14

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information (Continued)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidating Statements of Operations (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended,

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

September 30, 2017

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

Net sales

 

$

946,136 

 

$

2,641,067 

 

$

161,556 

 

$

(1,305,377)

 

$

2,443,382 

Costs of goods sold

 

 

763,310 

 

 

2,402,670 

 

 

157,564 

 

 

(1,276,680)

 

 

2,046,864 

  Gross profit

 

 

182,826 

 

 

238,397 

 

 

3,992 

 

 

(28,697)

 

 

396,518 

Selling, general and administrative

 

 

51,464 

 

 

74,151 

 

 

4,896 

 

 

(5,008)

 

 

125,503 

  Operating income (loss)

 

 

131,362 

 

 

164,246 

 

 

(904)

 

 

(23,689)

 

 

271,015 

Interest expense, net of capitalized interest

 

 

18,831 

 

 

14,481 

 

 

3,181 

 

 

(2,316)

 

 

34,177 

Other (income) expense, net

 

 

2,660 

 

 

(2,492)

 

 

42 

 

 

2,316 

 

 

2,526 

Income (loss) before income taxes and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  equity in net income of subsidiaries

 

 

109,871 

 

 

152,257 

 

 

(4,127)

 

 

(23,689)

 

 

234,312 

Income taxes

 

 

35,309 

 

 

55,183 

 

 

1,169 

 

 

(8,361)

 

 

83,300 



 

 

74,562 

 

 

97,074 

 

 

(5,296)

 

 

(15,328)

 

 

151,012 

Equity in net income of subsidiaries

 

 

78,696 

 

 

 -

 

 

 -

 

 

(78,696)

 

 

 -

Net loss attributable to noncontrolling interests

 

 

 -

 

 

 -

 

 

2,246 

 

 

 -

 

 

2,246 

Net income (loss) attributable to Steel Dynamics, Inc.

 

$

153,258 

 

$

97,074 

 

$

(3,050)

 

$

(94,024)

 

$

153,258 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended,

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

September 30, 2016

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

Net sales

 

$

845,585 

 

$

2,258,466 

 

$

96,409 

 

$

(1,099,150)

 

$

2,101,310 

Costs of goods sold

 

 

647,983 

 

 

2,016,874 

 

 

100,470 

 

 

(1,072,520)

 

 

1,692,807 

  Gross profit (loss)

 

 

197,602 

 

 

241,592 

 

 

(4,061)

 

 

(26,630)

 

 

408,503 

Selling, general and administrative

 

 

52,995 

 

 

72,605 

 

 

4,134 

 

 

(5,086)

 

 

124,648 

  Operating income (loss)

 

 

144,607 

 

 

168,987 

 

 

(8,195)

 

 

(21,544)

 

 

283,855 

Interest expense, net of capitalized interest

 

 

17,818 

 

 

17,741 

 

 

2,847 

 

 

(2,207)

 

 

36,199 

Other (income) expense, net

 

 

2,342 

 

 

3,937 

 

 

(4,135)

 

 

2,207 

 

 

4,351 

Income (loss) before income taxes and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  equity in net income of subsidiaries

 

 

124,447 

 

 

147,309 

 

 

(6,907)

 

 

(21,544)

 

 

243,305 

Income taxes

 

 

40,242 

 

 

55,684 

 

 

797 

 

 

(7,831)

 

 

88,892 



 

 

84,205 

 

 

91,625 

 

 

(7,704)

 

 

(13,713)

 

 

154,413 

Equity in net income of subsidiaries

 

 

73,192 

 

 

 -

 

 

 -

 

 

(73,192)

 

 

 -

Net loss attributable to noncontrolling interests

 

 

 -

 

 

 -

 

 

2,984 

 

 

 -

 

 

2,984 

Net income (loss) attributable to Steel Dynamics, Inc.

 

$

157,397 

 

$

91,625 

 

$

(4,720)

 

$

(86,905)

 

$

157,397 

15

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information (Continued)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended,

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

September 30, 2017

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

Net sales

 

$

2,797,557 

 

$

7,827,981 

 

$

449,902 

 

$

(3,873,122)

 

$

7,202,318 

Costs of goods sold

 

 

2,241,936 

 

 

7,054,938 

 

 

432,657 

 

 

(3,788,403)

 

 

5,941,128 

  Gross profit (loss)

 

 

555,621 

 

 

773,043 

 

 

17,245 

 

 

(84,719)

 

 

1,261,190 

Selling, general and administrative

 

 

164,061 

 

 

226,153 

 

 

15,253 

 

 

(15,211)

 

 

390,256 

  Operating income (loss)

 

 

391,560 

 

 

546,890 

 

 

1,992 

 

 

(69,508)

 

 

870,934 

Interest expense, net of capitalized interest

 

 

55,353 

 

 

44,245 

 

 

9,494 

 

 

(7,073)

 

 

102,019 

Other (income) expense, net

 

 

(4,463)

 

 

(7,305)

 

 

(273)

 

 

7,073 

 

 

(4,968)

Income (loss) before income taxes and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  equity in net income of subsidiaries

 

 

340,670 

 

 

509,950 

 

 

(7,229)

 

 

(69,508)

 

 

773,883 

Income taxes

 

 

106,036 

 

 

184,891 

 

 

4,651 

 

 

(24,320)

 

 

271,258 



 

 

234,634 

 

 

325,059 

 

 

(11,880)

 

 

(45,188)

 

 

502,625 

Equity in net income of subsidiaries

 

 

273,374 

 

 

 -

 

 

 -

 

 

(273,374)

 

 

 -

Net loss attributable to noncontrolling interests

 

 

 -

 

 

 -

 

 

5,383 

 

 

 -

 

 

5,383 

Net income (loss) attributable to Steel Dynamics, Inc.

 

$

508,008 

 

$

325,059 

 

$

(6,497)

 

$

(318,562)

 

$

508,008 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended,

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

September 30, 2016

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

Net sales

 

$

2,297,389 

 

$

6,322,158 

 

$

271,694 

 

$

(3,024,728)

 

$

5,866,513 

Costs of goods sold

 

 

1,823,408 

 

 

5,676,265 

 

 

286,486 

 

 

(2,944,568)

 

 

4,841,591 

  Gross profit (loss)

 

 

473,981 

 

 

645,893 

 

 

(14,792)

 

 

(80,160)

 

 

1,024,922 

Selling, general and administrative

 

 

145,596 

 

 

212,613 

 

 

9,352 

 

 

(14,581)

 

 

352,980 

  Operating income (loss)

 

 

328,385 

 

 

433,280 

 

 

(24,144)

 

 

(65,579)

 

 

671,942 

Interest expense, net of capitalized interest

 

 

53,842 

 

 

54,493 

 

 

7,558 

 

 

(6,005)

 

 

109,888 

Other (income) expense, net

 

 

(2,137)

 

 

8,012 

 

 

(11,139)

 

 

6,005 

 

 

741 

Income (loss) before income taxes and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  equity in net income of subsidiaries

 

 

276,680 

 

 

370,775 

 

 

(20,563)

 

 

(65,579)

 

 

561,313 

Income taxes (benefit)

 

 

89,210 

 

 

139,958 

 

 

(63)

 

 

(23,966)

 

 

205,139 



 

 

187,470 

 

 

230,817 

 

 

(20,500)

 

 

(41,613)

 

 

356,174 

Equity in net income of subsidiaries

 

 

174,633 

 

 

 -

 

 

 -

 

 

(174,633)

 

 

 -

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

5,929 

 

 

 

 

 

5,929 

Net income (loss) attributable to Steel Dynamics, Inc.

 

$

362,103 

 

$

230,817 

 

$

(14,571)

 

$

(216,246)

 

$

362,103 



16

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information (Continued)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidating Statements of Cash Flows (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended,

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

September 30, 2017

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided (used in) by operating activities

 

$

126,267 

 

$

434,450 

 

$

(17,762)

 

$

4,650 

 

$

547,605 

Net cash used in investing activities

 

 

(48,799)

 

 

(50,975)

 

 

(7,006)

 

 

3,902 

 

 

(102,878)

Net cash provided by (used in) financing activities

 

 

220,346 

 

 

(405,184)

 

 

9,144 

 

 

(8,552)

 

 

(184,246)

Increase (decrease) in cash and equivalents

 

 

297,814 

 

 

(21,709)

 

 

(15,624)

 

 

 -

 

 

260,481 

  Cash and equivalents at beginning of period

 

 

766,685 

 

 

54,677 

 

 

20,121 

 

 

 -

 

 

841,483 

  Cash and equivalents at end of period

 

$

1,064,499 

 

$

32,968 

 

$

4,497 

 

$

 -

 

$

1,101,964 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended,

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

September 30, 2016

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

282,918 

 

$

358,657 

 

$

52 

 

$

3,735 

 

$

645,362 

Net cash used in investing activities

 

 

(143,427)

 

 

(81,983)

 

 

(3,935)

 

 

2,879 

 

 

(226,466)

Net cash provided by (used in) financing activities

 

 

196,242 

 

 

(297,596)

 

 

13,529 

 

 

(6,614)

 

 

(94,439)

Increase (decrease) in cash and equivalents

 

 

335,733 

 

 

(20,922)

 

 

9,646 

 

 

 -

 

 

324,457 

  Cash and equivalents at beginning of period

 

 

636,877 

 

 

81,976 

 

 

8,179 

 

 

 -

 

 

727,032 

  Cash and equivalents at end of period

 

$

972,610 

 

$

61,054 

 

$

17,825 

 

$

 -

 

$

1,051,489 











 

17

 


 

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Forward-Looking Statements



This report contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics’ revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements, which we generally precede or accompany by such typical conditional words as "anticipate," "intend," "believe," "estimate," "plan," "seek," "project" or "expect," or by the words "may," "will," or "should," are intended to be made as “forward-looking,” subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of uncertain economic conditions; (2) cyclical and changing industrial demand; (3) changes in conditions in any of the steel or scrap-consuming sectors of the economy which affect demand for our products, including the strength of the non-residential and residential construction, automotive, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials (including steel scrap, iron units, and energy costs) and our ability to pass on any cost increases; (5) the impact of domestic and foreign import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired businesses; (7) risks and uncertainties involving product and/or technology development; and (8) occurrences of unexpected plant outages or equipment failures.



More specifically, we refer you to our more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth under the headings Special Note Regarding Forward-Looking Statements and Risk Factors, in our most recent Annual Report on Form 10-K for the year ended December 31, 2016,  in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These reports are available publicly on the Securities and Exchange Commission website, www.sec.gov, and on our website,  www.steeldynamics.com under “Investors – SEC Filings. 



Description of the Business

We are one of the largest domestic steel producers and metal recyclers in the United States based on current estimated steelmaking and coating capacity of 11 million tons and actual metals recycling volumes. The primary source of revenues are from the manufacture and sale of steel products, processing and sale of recycled ferrous and nonferrous metals, and fabrication and sale of steel joists and deck products. We have three reportable segments: steel operations, metals recycling operations, and steel fabrication operations.



Operating Statement Classifications



Net SalesNet sales from our operations are a factor of volumes shipped, product mix and related pricing. We charge premium prices for certain grades of steel, product dimensions, certain smaller volumes, and for value-added processing or coating of the steel products.  Except for the steel fabrication operations, we recognize revenues from sales and the allowance for estimated returns and claims from these sales at the time the title of the product transfers, upon shipment. Provision is made for estimated product returns and customer claims based on historical experience. If the historical data used in the estimates does not reflect future returns and claims trends, additional provision may be necessary. Our steel fabrication operations recognizes revenues from construction contracts utilizing a percentage of completion methodology based on steel tons used on completed units to date as a percentage of estimated total steel tons required for each contract.  



Costs of Goods SoldOur costs of goods sold represent all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are scrap and scrap substitutes (which represent the most significant single component of our consolidated costs of goods sold), steel, direct and indirect labor and related benefits, alloys, zinc, transportation and freight, repairs and maintenance, electricity, and depreciation.



Selling, General and Administrative ExpensesSelling, general and administrative expenses consist of all costs associated with our sales, finance and accounting, and administrative departments. These costs include, among other items, labor and related benefits, professional services, insurance premiums, property taxes, company-wide profit sharing, and amortization of intangible assets.



Interest Expense, net of Capitalized Interest.  Interest expense consists of interest associated with our senior credit facilities and other debt net of interest costs that are required to be capitalized during the construction period of certain capital investment projects. 



Other Expense (Income), net.  Other income consists of interest income earned on our temporary cash deposits and investments; any other non-operating income activity, including income from non-consolidated investments accounted for under the equity method. Other expense consists of any non-operating costs, such as certain acquisition and financing expenses.



Results Overview  

Consolidated operating income decreased $12.8 million, or 5%, to $271.0 million for the third quarter 2017, compared to the third quarter 2016. Third quarter 2017 net income attributable to Steel Dynamics, Inc. decreased $4.1 million, or 3%, to $153.3 million, compared to the third quarter 2016.



18

 


 

 

Consolidated operating income increased $199.0 million, or 30%, to $870.9 million for the first nine months of 2017, compared to $671.9 million for the first nine months of 2016. First nine months 2017 net income attributable to Steel Dynamics, Inc. increased $145.9 million, or 40%, to $508.0 million, compared to the first nine months of 2016.



Our consolidated results for the third quarter and first nine months of 2017 benefited from continued strong demand primarily for our sheet and special-bar-quality steel products coupled with continued low customer inventory levels. However, increased import levels continued hindering the ability of domestic steel prices to keep pace with raw material costs. Decreased scrap volumes for our metals recycling operations were offset by improved pricing and ferrous metal spreads and reduced operating expenses, resulting in significantly increased operating income during the 2017 third quarter and year-to-date periods compared to the same periods in 2016. The non-residential construction market remained strong, resulting in record quarterly shipments for our steel fabrication operations for the third straight quarter. 



Segment Operating Results 2017 vs. 2016  (dollars in thousands)











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,

 

Nine Months Ended September 30,



2017

 

% Change

 

 

2016

 

2017

 

% Change

 

2016

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Steel Operations Segment

$

1,848,126 

 

14%

 

$

1,627,886 

 

$

5,445,754 

 

23%

 

$

4,419,572 

  Metals Recycling Operations Segment

 

709,197 

 

25%

 

 

565,263 

 

 

2,123,350 

 

29%

 

 

1,643,172 

  Steel Fabrication Operations Segment

 

211,394 

 

18%

 

 

178,640 

 

 

603,511 

 

14%

 

 

530,441 

  Other

 

101,173 

 

65%

 

 

61,395 

 

 

282,156 

 

32%

 

 

214,149 



 

2,869,890 

 

 

 

 

2,433,184 

 

 

8,454,771 

 

 

 

 

6,807,334 

  Intra-company

 

(426,508)

 

 

 

 

(331,874)

 

 

(1,252,453)

 

 

 

 

(940,821)



$

2,443,382 

 

16%

 

$

2,101,310 

 

$

7,202,318 

 

23%

 

$

5,866,513 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Steel Operations Segment

$

276,547 

 

(10)%

 

$

307,553 

 

$

895,008 

 

26%

 

$

712,939 

  Metals Recycling Operations Segment

 

17,624 

 

186%

 

 

6,154 

 

 

51,968 

 

160%

 

 

20,014 

  Steel Fabrication Operations Segment

 

21,862 

 

23%

 

 

17,744 

 

 

65,735 

 

(10)%

 

 

73,230 

  Other

 

(44,326)

 

7%

 

 

(47,687)

 

 

(141,406)

 

(13)%

 

 

(125,186)



 

271,707 

 

 

 

 

283,764 

 

 

871,305 

 

 

 

 

680,997 

  Intra-company

 

(692)

 

 

 

 

91 

 

 

(371)

 

 

 

 

(9,055)



$

271,015 

 

(5)%

 

$

283,855 

 

$

870,934 

 

30%

 

$

671,942 









Steel Operations Segment



Steel Operations Segment.  Steel operations consist of our six electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills and eleven downstream steel coating lines, and several bar processing lines, as well as Iron Dynamics, our liquid pig iron production facility that supplies solely the Butler Flat Roll Division. Our steel operations sell directly to end-users, steel fabricators, and service centers. These products are used in numerous industry sectors, including the construction, automotive,  manufacturing, transportation, heavy and agriculture equipment, and pipe and tube (including OCTG) markets. Steel operations accounted for 73% and 74% of our consolidated external net sales during the third quarter of 2017 and 2016, respectively, and 73% and 72% of our consolidated external net sales during the first nine months of 2017 and 2016, respectively.



Sheet Steel Products.  Our sheet steel products operations consist of Butler and Columbus Flat Roll Divisions, and downstream coating lines. These operations sell a broad range of sheet steel products, consisting of hot roll, cold roll and coated steel products, including a wide variety of specialty products, such as light gauge hot roll, galvanized, Galvalume®, and painted products. The Techs is comprised of three galvanizing lines which sell specialized galvanized sheet steels used in primarily non-automotive applications.  

Long Products.    Our Structural and Rail Division sells structural steel beams and pilings to the construction market, as well as standard‑grade and premium rail to the railroad industry. Our Engineered Bar Products Division primarily sells engineered special-bar-quality, merchant-bar-quality, round‑cornered squares, and smaller-diameter engineered round bars. Vulcan Threaded Products produces threaded rod products and also cold drawn and heat treated bar. Our Roanoke Bar Division primarily sells merchant steel products, including angles, merchant rounds, flats and channels, and reinforcing bar. Steel of West Virginia primarily sells beams, channels and specialty steel sections.



19

 


 

 

Steel Operations Segment Shipments (tons):





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,

 

Nine Months Ended September 30,



2017

 

% Change

 

2016

 

2017

 

% Change

 

2016



 

 

 

 

 

 

 

 

 

 

 

Total shipments

2,458,992 

 

8%

 

2,271,230 

 

7,362,636 

 

5%

 

7,039,801 

   Intra-segment shipments

(88,211)

 

 

 

(65,438)

 

(279,567)

 

 

 

(216,217)

Steel Operations Segment Shipments

2,370,781 

 

7%

 

2,205,792 

 

7,083,069 

 

4%

 

6,823,584 



 

 

 

 

 

 

 

 

 

 

 

External shipments

2,279,228 

 

8%

 

2,104,219 

 

6,830,877 

 

5%

 

6,517,253 



Picture 3



Segment Results 2017 vs. 2016



Overall domestic steel demand remained strong, but elevated levels of steel imports persisted during the quarter, hindering the ability for domestic steel prices to keep pace with raw material costs.  Steel operations segment shipments increased 7% in the third quarter 2017, as compared to the same period in 2016, driven by improved flat roll and engineered bar shipments. Demand from the construction sector continues to improve, and energy has shown a continued positive demand trend. Demand has also improved for heavy off-road equipment and more general industrial manufacturing. Conversely, demand from the domestic automotive sectors has softened somewhat, but still remains near historically high levels. Our steel mill utilization rate averaged 92% for the third quarter 2017, as compared to 85% in the third quarter 2016. Sheet steel average selling prices increased 4% in the third quarter 2017 compared to the same period in 2016, while long products rose 8%. Net sales for the steel operations increased 14% in the third quarter 2017, when compared to the same period in 2016,  due to an increase of $39 per ton, or 5%, in average selling prices combined with a 7%  increase in steel operations shipments. Net sales for the steel operations increased 23% in the first nine months of 2017, when compared to the same period in 2016, due to a 4% increase in steel operations segment shipments combined with an increase of $118 per ton, or 18%, in average selling prices. The increase in shipments and pricing for the first nine months of 2017 was the result of much stronger markets in the first and third quarters 2017, compared to the same periods in 2016.



Metallic raw materials used in our electric arc furnaces represent our single most significant steel manufacturing cost, generally comprising approximately 60% of our steel operations’ manufacturing costs, excluding the operations of The Techs and Vulcan, which purchase, rather than produce, the steel they further process. Our metallic raw material cost per net ton consumed in our steel operations increased $55, or 22%, in the third quarter 2017, compared to the same period in 2016, consistent with overall increased domestic scrap pricing. In the first nine months of 2017, our metallic raw material cost per net ton consumed increased $70, or 32%, compared to the same period in 2016.



20

 


 

 

Operating income for the steel operations decreased 10%, to $276.5 million, in the third quarter 2017, compared to the same period in 2016, due to a 3% decrease in metal spread (which we define as the difference between average selling prices and the cost of ferrous scrap consumed) more than offsetting increased steel shipments. Operating income for the first nine months 2017 increased 26%, to $895.0 million, compared to the first nine months of 2016, due to an  11%  expansion of steel segment operations metal spread, coupled with a 4% increase in steel shipments.









Metals Recycling Operations Segment



Metals Recycling Operations Segment.  Metals recycling operations consists solely of OmniSource and includes both ferrous and nonferrous scrap metal processing, transportation, marketing, brokerage, and consulting services strategically located primarily in close proximity to our steel mills and other end-user scrap consumers throughout the eastern half of the United States.  In addition, OmniSource designs, installs, and manages customized scrap management programs for industrial manufacturing companies at hundreds of locations throughout North America. Our steel mills utilize a large portion (61% - 63% for the periods presented) of the ferrous scrap sold by OmniSource as raw material in our steelmaking operations, and the remainder is sold to other consumers, such as other steel manufacturers and foundries. Our metals recycling operations accounted for 14% and 15% of our consolidated external net sales during the third quarter of 2017 and 2016, respectively, and 15% for each of the first nine months of 2017 and 2016.

Metals Recycling Operations Shipments:





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,

 

Nine Months Ended September 30,



2017

 

% Change

 

2016

 

2017

 

% Change

 

2016

Ferrous metal (gross tons)

 

 

 

 

 

 

 

 

 

 

 

  Total

1,219,582 

 

(2)%

 

1,243,277 

 

3,780,958 

 

(3)%

 

3,894,755 

  Inter-company

(756,899)

 

 

 

(774,779)

 

(2,366,355)

 

 

 

(2,383,223)

     External shipments

462,683 

 

(1)%

 

468,498 

 

1,414,603 

 

(6)%

 

1,511,532 



 

 

 

 

 

 

 

 

 

 

 

Nonferrous metals (thousands of pounds)

 

 

 

 

 

 

 

 

 

 

 

  Total

261,716 

 

(7)%

 

280,107 

 

815,763 

 

(2)%

 

828,715 

  Inter-company

(37,316)

 

 

 

(25,185)

 

(107,863)

 

 

 

(83,741)

     External shipments

224,400 

 

(12)%

 

254,922 

 

707,900 

 

(5)%

 

744,974 



Segment Results 2017 vs. 2016



Metals recycling operations operating income in the third quarter 2017 of $17.6 million was 186% higher than the third quarter 2016 operating income of $6.2 million, due to improvements in ferrous and nonferrous metal spread (which we define as the difference between average selling prices and the cost of purchased scrap), and reduced operating costs. Net sales increased 25% in the third quarter 2017 as compared to the same period in 2016, driven by increased pricing, which more than offset decreased shipments. Overall domestic steel mill utilization was 75% in the third quarter of 2017, compared to 70% in the same 2016 period. Ferrous shipments to our own steel mills decreased by 2% in the third quarter 2017, compared to the same period in 2016. Ferrous scrap average selling prices increased 30% during the third quarter 2017 compared to the same period in 2016, while nonferrous average selling prices increased 36% compared to the same period in 2016, resulting in ferrous metal spread increasing 11%, and nonferrous metal spread increasing 2%.



Metals recycling operations operating income in the first nine months of 2017 of $52.0 million was 160% higher than the first nine months 2016 operating income of $20.0 million, due to increased selling prices resulting in a 17% improvement in ferrous metal spread, and reduced operating expenses. Net sales increased 29% in the first nine months of 2017 as compared to the same period in 2016, driven by increased pricing for both ferrous and nonferrous products, which increased 40%  and 27%, respectively, during the first nine months of 2017 compared to the same period in 2016.







Steel Fabrication Operations Segment



Steel fabrication operations include our 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 steel joists, trusses, girders and steel deck used within the non-residential construction industry.  Steel fabrication operations accounted for 9% and 8% of  our consolidated external net sales during the third quarter of 2017 and 2016, respectively, and 8% and 9% during the first nine months of 2017 and 2016, respectively.  

21

 


 

 

Picture 1

Segment Results 2017 vs. 2016

The overall non-residential construction market has continued to remain strong, demonstrating a positive growth profile, as our fabrication operations achieved a third consecutive quarterly shipments record in the third quarter of 2017. Net sales for the steel fabrication operations increased $32.8 million, or 18%, during the third quarter 2017,  compared to the same period in 2016,  as shipments increased 13%, while average selling prices increased $64 per ton, or 5%. Net sales for the segment increased $73.1 million, or 14%, in the first nine months of 2017, compared to the first nine months of 2016, as volumes increased 7% and selling prices increased 6%. Our steel fabrication operations continue to realize strength in order activity and resulting shipments, as we continue to leverage our national operating footprint to sustain and improve market share, and market demand continues to improve.



The purchase of various steel products is the largest single cost of production for our steel fabrication operations, generally representing approximately two-thirds of the total cost of manufacturing. The average cost of steel consumed increased by 12% in the third quarter 2017, as compared to the same period in 2016, while average selling prices increased only 5%,  resulting in metal spread (which we define as the difference between average selling prices and the cost of purchased steel) declining 2%. However, operating income increased 23% to $21.9 million in the third quarter 2017 compared to the same period in 2016, as increased shipments more than offset metal spread contraction. Segment operating income of $65.7 million in the first nine months of 2017 decreased 10%, from $73.2 million in the first nine months of 2016, despite a 7% increase in shipments, as metal spreads decreased 7% year over year.







Other Operations



Other operations consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our idled Minnesota ironmaking operations and smaller joint ventures. 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.



Third Quarter Consolidated Results 2017 vs. 2016 



Selling, General and Administrative Expenses. Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $125.5 million during the third quarter 2017 were consistent with the  $124.6 million during the third quarter 2016,  representing approximately 5.1% and 5.9% of net sales, respectively.



Interest Expense, net of Capitalized Interest.  During the third quarter 2017, interest expense decreased 6% to $34.2 million from $36.2 million during the same period in 2016, due primarily to the December 2016 refinancing of $400.0 million of 6.125% senior notes due 2019 with 5.000% senior notes due 2026. In addition, in December 2016 we repaid the remaining $228.1 million of outstanding Senior Term Loan debt, which was set to mature on November 14, 2019.



Income Tax Expense.  During the third quarter 2017, our income tax expense was $83.3 million at an effective income tax rate of 35.6%, as compared to $88.9 million at an effective income tax rate of 36.5%, during the third quarter 2016. The lower effective tax rate in 2017 is due

22

 


 

 

primarily to additional permanent tax benefit items, most notably the 2017 domestic manufacturing deduction, resulting from increases in taxable income.



First Nine Months Consolidated Results 2017 vs. 2016

Selling, General and Administrative Expenses. Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $390.3 million during the first nine months of 2017 increased 11% from $353.0 million during the first nine months of 2016, representing approximately 5.4% and 6.0% of net sales, respectively. The increase in the first nine months 2017 expenses compared to the same period in 2016 is due most notably to increased performance-based incentive compensation, including profit sharing, associated with our increased profitability.



Interest Expense, net of Capitalized Interest.  During the first nine months of 2017, interest expense decreased $7.9 million to $102.0 million, when compared to the same period in 2016. The decrease in interest expense is due primarily to the December 2016 refinancing of $400.0 million of 6.125% senior notes due 2019 with 5.000% senior notes due 2026. In addition, in December 2016 we repaid the remaining $228.1 million of outstanding Senior Term Loan debt, which was set to mature on November 14, 2019.



Income Tax Expense.  During the first nine months of 2017, our income tax expense was $271.3 million at an effective income tax rate of 35.1%, as compared to $205.1 million at an effective income tax rate of 36.5%, during the first nine months of 2016. The lower effective tax rate in 2017 is due primarily to additional permanent tax benefit items, most notably the 2017 domestic manufacturing deduction, resulting from increases in taxable income.

Liquidity and Capital Resources

Capital Resources and Long‑term Debt. Our business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of equipment used in our steel, metals recycling, and steel fabrication operations, and to remain in compliance with environmental laws. Our short-term and long-term liquidity needs arise primarily from working capital requirements, capital expenditures, principal and interest payments related to our outstanding indebtedness, dividends to our shareholders, and acquisitions. We have met these liquidity requirements primarily with cash provided by operations and long-term borrowings, and we also have availability under our Revolver. Our liquidity at September 30, 2017, is as follows (in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

Cash and equivalents*

 

$

934,750 

 

 

 



 

 

Revolver availability

 

 

1,188,121 

 

 

 



 

 

Total liquidity

 

$

2,122,871 

 

 

 



 

 

 

 

 

 

 

 

 



* Adjusted to reflect the October 13, 2017, repayment of the remaining $167.1 million 6.375% Senior Notes due 2022.

 



Our total outstanding debt remained relatively unchanged during the first nine months of 2017 at $2.4 billion (adjusted to reflect the October 13, 2017, repayment of the remaining $167.1 million 6.375% Senior Notes due 2022). Our total adjusted long-term debt to capitalization ratio (representing our long-term debt, including current maturities, divided by the sum of our long-term debt, redeemable noncontrolling interests, and our total stockholders’ equity) was 43.9% at September 30, 2017,  compared to 44.9% at December 31, 2016.



23

 


 

 

In September 2017, we issued $350.0 million of 4.125% senior notes due 2025 (the "2025 Notes"), the proceeds of which, along with available cash, were used to fund the September 2017 tender to purchase at a redemption price of 103.563%, $182.9 million principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, of our 6.375% senior notes due 2022 (the "2022 Notes"), and the October 2017 call and repayment at a redemption price of 103.188% of the $167.1 million remaining outstanding principal amount of the 2022 Notes, plus accrued and unpaid interest to, but not including, the date of repayment. The $167.1 remaining outstanding principal amount is included in current maturities of long-term debt in our September 30, 2017, balance sheet.



Our November 2014 senior secured credit facility (Facility), which provides a $1.2 billion Revolver, matures November 2019. Subject to certain conditions, we have the opportunity to increase the Revolver size by at least $750.0 million. The Facility is guaranteed by certain of our subsidiaries; and is secured by substantially all of our and our wholly-owned subsidiaries’ receivables and inventories, and by pledges of all shares of our wholly-owned subsidiaries’ capital stock or other equity interests, and intercompany debt held by us as collateral. The Revolver is available to fund working capital, capital expenditures, and other general corporate purposes. The Facility contains financial covenants and other covenants pertaining to our ability (which may under certain circumstances be limited) to make capital expenditures; incur indebtedness; permit liens on property; enter into transactions with affiliates; make restricted payments or investments; enter into mergers, acquisitions or consolidations; conduct asset sales; pay dividends or distributions, or enter into other specified transactions and activities. Our ability to borrow funds within the terms of the Revolver is dependent upon our continued compliance with the financial and other covenants. At September 30,  2017, we had $1.2 billion of availability on the Revolver, $11.9 million of outstanding letters of credit and other obligations which reduce availability, and there were no borrowings outstanding.



The financial covenants under our Facility state that we must maintain an interest coverage ratio of not less than 2.50:1.00. Our interest coverage ratio is calculated by dividing our last-twelve-months (LTM) consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain other non-cash transactions as allowed in the Facility) by our LTM gross interest expense, less amortization of financing fees. In addition, a net debt (as defined in the Facility) to consolidated LTM adjusted EBITDA (net debt leverage ratio) of not more than 5.00:1.00 must be maintained. If the net debt leverage ratio exceeds 3.50:1:00 at any time, our ability to make certain payments as defined in the Facility (which includes cash dividends to stockholders and share purchases, among other things), is limited. At September 30,  2017, our interest coverage ratio and net debt leverage ratio were 10.22:1.00 and 1.49:1.00, respectively. We were, therefore, in compliance with these covenants at September 302017, and we anticipate we will continue to be in compliance during the next twelve months.  



Working Capital. We generated cash flow from operations of $547.6 million in the first nine months of 2017. Operational working capital (representing amounts invested in trade receivables and inventories, less current liabilities other than income taxes payable and debt) increased $230.9 million to $1.5 billion at September 30, 2017. Increases in volumes, pricing and profitability resulted in increased accounts receivable, and related increases in inventory, which were only partially offset by related increases in accounts payable. 



Capital Investments.    During the first nine months of 2017, we invested $127.7 million in property, plant and equipment, primarily within our steel operations segment, compared with $123.2 million invested during the same period in 2016.



Cash Dividends.    As a reflection of continued confidence in our current and future cash flow generation ability and financial position, we increased our quarterly cash dividend by 11% to $0.155 per share in the first quarter 2017 (from $0.140 per share in 2016), resulting in declared cash dividends of $111.4 million during the first nine months of 2017, compared to $102.3 million during the same period in 2016. We paid cash dividends of $108.8 million and $101.6 million during the first nine months of 2017 and 2016, respectively. Our board of directors, along with executive management, approves the payment of dividends on a quarterly basis. The determination to pay cash dividends in the future is at the discretion of our board of directors, after taking into account various factors, including our financial condition, results of operations, outstanding indebtedness, current and anticipated cash needs and growth plans. In addition, the terms of our Facility and the indentures relating to our senior notes may restrict the amount of cash dividends we can pay.



Other.    In 2016, the board of directors authorized a share repurchase program of up to $450 million of our common stock. Under the share repurchase program, purchases will take place as and when we determine in open market or private transactions made based upon the market price of our common stock, the nature of other investment opportunities or growth projects, our cash flows from operations, and general economic conditions.  The share repurchase program does not require us to acquire any specific number of shares, and may be modified, suspended, extended or terminated by us at any time.  We acquired 7.0 million shares of our common stock for $237.2 million in the first nine months of 2017 pursuant to this program. See Part II Other Information, Item 2 Unregistered Sales of Equity Securities and Use of Proceeds for additional information.



Our ability to meet our debt service obligations and reduce our total debt will depend upon our future performance which, in turn, will depend upon general economic, financial and business conditions, along with competition, legislation and regulatory factors that are largely beyond our control. In addition, we cannot assure that our operating results, cash flows, access to credit markets and capital resources will be sufficient for repayment of our indebtedness in the future. We believe that based upon current levels of operations and anticipated growth, cash flows from operations, together with other available sources of funds, including if necessary borrowings under our Revolver through its term, will be adequate for the next twelve months for making required payments of principal and interest on our indebtedness, funding working capital requirements, and anticipated capital expenditures. 





24

 


 

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Commodity Risk



In the normal course of business we are exposed to the market risk and price fluctuations related to the sale of our products and to the purchase of raw materials used in our operations, such as metallic raw materials, electricity, natural gas and its transportation services, fuel, air products, and zinc. Our risk strategy associated with product sales has generally been to obtain competitive prices for our products and to allow operating results to reflect market price movements dictated by supply and demand.

Our risk strategy associated with the purchase of raw materials utilized within our operations has generally been to make some commitments with suppliers relating to future expected requirements for some commodities such as electricity, natural gas and its transportation services, fuel, air products, and zinc. Certain of these commitments contain provisions which require us to “take or pay” for specified quantities without regard to actual usage for periods of up to 4 years for physical commodity requirements and commodity transportation requirements, and for up to 12 years for air products.  We utilized such “take or pay” requirements during the past three years under these contracts, except for certain air products at our Minnesota ironmaking operations which were idled in May 2015. We believe that production requirements will be such that consumption of the products or services purchased under these commitments will occur in the normal production process, other than certain air products related to our Minnesota ironmaking operations during the idle period. We also purchase electricity consumed at our Butler Flat Roll Division pursuant to a contract which extends through December 2017. The contract designates 160 hours annually as “interruptible service” and establishes an agreed fixed-rate energy charge per Mill/kWh consumed for each year through the expiration of the agreement.

In our metals recycling operations, we have certain fixed price contracts with various customers and suppliers for future delivery of nonferrous metals. Our risk strategy has been to enter into base metal financial contracts with the goal to protect the profit margin, within certain parameters, that was contemplated when we entered into the transaction with the customer or vendor. At September 30, 2017, we had a cumulative unrealized gain associated with these financial contracts of $3.3 million, substantially all of which have a settlement date within the next twelve months. We believe the customer contracts associated with the financial contracts will be fully consummated.  



ITEM 4.CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and ProceduresOur management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective.



(b)  Changes in Internal Controls Over Financial ReportingNo change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting

25

 


 

 

PART II OTHER INFORMATION



ITEM 1.LEGAL PROCEEDINGS



We are involved in various routine litigation matters, including administrative proceedings, regulatory proceedings, governmental investigations, environmental matters, and commercial and construction contract disputes, none of which are expected to have a material impact on our financial condition, results of operations, or liquidity.    



We may also be involved from time to time in various governmental investigations, regulatory proceedings or judicial actions seeking remediation under federal, state and local environmental laws and regulations. The United States EPA has conducted such investigations and proceedings involving us, in some instances along with state environmental regulators, under various environmental laws, including RCRA, CERCLA, the Clean Water Act and the Clean Air Act. Some of these matters have resulted in fines or penalties, for which a total of $420,000 is recorded in our financial statements as of September 30, 2017.



ITEM 1A.RISK FACTORS



No material changes have occurred to the indicated risk factors as disclosed in our Annual Report on Form 10-K for the year ended 
December 31, 2016.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



(c) Issuer Purchases of Equity Securities



We purchased the following equity securities registered by us pursuant to Section 12 of the Exchange Act during the three months ended
September 30, 2017.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Period

 

Total Number of Shares Purchased

 

Average Price Paid per Share

 

Total Number of Shares Purchased as Part of Publicly Announced Program (1)

 

Maximum Dollar Value of Shares That May Yet be Purchased Under the Program (in thousands)  (1)

 



Quarter ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



    July 1 - 31

 

 -

 

 

$

 -

 

 

 -

 

 

$

286,897 

 



    August 1 - 31

 

947,396 

 

 

 

34.41 

 

 

947,396 

 

 

 

254,296 

 



    September 1 - 30

 

1,973,694 

 

 

 

33.69 

 

 

1,973,694 

 

 

 

187,812 

 



 

 

2,921,090 

 

 

 

 

 

 

2,921,090 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

On October 18, 2016, we announced that our board of directors had authorized a share repurchase program of up to $450.0 million of our common stock.  Our board of directors cancelled the previously authorized program with respect to which no shares had been repurchased for a number of years.



ITEM 3.DEFAULTS UPON SENIOR SECURITIES



None.

ITEM 4.MINE SAFETY DISCLOSURES



Information normally required to be furnished, in Exhibit 95 to this Quarterly Report, pursuant to Item 4 concerning mine safety disclosure matters, if applicable, by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104), is not included in this report, as there are no applicable mine safety disclosure matters to report for the three months ended September 30, 2017. Accordingly, there is no Exhibit 95 attached to this report.



ITEM 5.OTHER INFORMATION



None.

26

 


 

 







 

 

ITEM 6.

 

EXHIBITS





Articles of Incorporation



3.2c*

 

Amended and Restated Bylaws of Steel Dynamics, Inc., reflecting amended and replaced Article XI, made as of September 25, 2017, and effective only upon approval and adoption by stockholders, at the 2018 Annual Meeting of Stockholders, of a conforming amendment to the Amended and Restated Articles of Incorporation.





Executive Officer Certifications



 

 

31.1*

 

Certification of Principal Executive Officer required by Item 307 of Regulation S-K as promulgated by the Securities and Exchange Commission and pursuant to Section 302 of the SarbanesOxley Act of 2002.



 

 

31.2*

 

Certification of Principal Financial Officer required by Item 307 of Regulation S-K as promulgated by the Securities and Exchange Commission and pursuant to Section 302 of the SarbanesOxley Act of 2002.



 

 

32.1*

 

Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the SarbanesOxley Act of 2002.



 

 

32.2*

 

Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the SarbanesOxley Act of 2002.  

   

 

 

Other

 

 



 

 

95**

 

Mine Safety Disclosures.



 

 

XBRL Documents

 



 

 

101.INS*

 

XBRL Instance Document



 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document



 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Document



 

 

101.DEF*

 

XBRL Taxonomy Definition Document



 

 

101.LAB*

 

XBRL Taxonomy Extension Label Document



 

 

101.PRE*

 

XBRL Taxonomy Presentation Document



_____________________________________________________________________________________________________________

*Filed concurrently herewith

**Inapplicable for purposes of this report

27

 


 

 

SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



November 9, 2017





 

 

STEEL DYNAMICS, INC.



 

 

By:

 

/s/ Theresa E. Wagler



 

Theresa E. Wagler



 

Executive Vice President and Chief Financial Officer



 

(Principal Financial Officer and Principal Accounting Officer)









28