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STEEL DYNAMICS INC - Quarter Report: 2021 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period

      ended September 30, 2021

OR

       Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0-21719

Steel Dynamics, Inc.

(Exact name of registrant as specified in its charter)

Indiana

    

35-1929476

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

7575 West Jefferson Blvd, Fort Wayne, IN

46804

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (260) 969-3500

Securities registered pursuant to Section 12(b) of the Act.

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock voting, $0.0025 par value

STLD

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (see definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act).

    

Large accelerated filer

    

Accelerated filer

    

Non-accelerated filer

Smaller reporting company  

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

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

Table of Contents

STEEL DYNAMICS, INC.

Table of Contents

PART I. Financial Information

Item 1.

Financial Statements:

Page

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

1

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

2

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

3

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

4

Notes to Consolidated Financial Statements (unaudited)

5

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

Item 4.

Controls and Procedures

25

PART II. Other Information

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

27

Item 6.

Exhibits

28

Exhibit Index

28

Signature

29

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

September 30,

December 31,

2021

2020

Assets

(unaudited)

Current assets

Cash and equivalents

$

1,095,701

$

1,368,618

Accounts receivable, net

1,886,759

967,981

Accounts receivable-related parties

6,036

3,937

Inventories

2,894,970

1,843,548

Other current assets

104,106

74,363

Total current assets

5,987,572

4,258,447

Property, plant and equipment, net

4,654,192

4,105,569

Intangible assets, net

302,522

324,577

Goodwill

454,683

457,226

Other assets

137,016

119,743

Total assets

$

11,535,985

$

9,265,562

Liabilities and Equity

Current liabilities

Accounts payable

$

1,208,499

$

760,536

Accounts payable-related parties

11,938

8,919

Income taxes payable

80,167

2,386

Accrued payroll and benefits

406,538

201,778

Accrued interest

33,540

19,656

Accrued expenses

258,551

178,618

Current maturities of long-term debt

55,056

86,894

Total current liabilities

2,054,289

1,258,787

Long-term debt

3,019,175

3,015,782

Deferred income taxes

722,220

536,288

Other liabilities

117,367

106,479

Total liabilities

5,913,051

4,917,336

Commitments and contingencies

Redeemable noncontrolling interests

186,814

158,614

Equity

Common stock voting, $0.0025 par value; 900,000,000 shares authorized;

266,618,566 shares issued; and 199,778,688 and 210,914,264

shares outstanding, as of September 30, 2021 and December 31, 2020, respectively

648

648

Treasury stock, at cost; 66,839,878 and 55,704,302 shares,

as of September 30, 2021 and December 31, 2020, respectively

(2,344,477)

(1,623,747)

Additional paid-in capital

1,219,438

1,207,392

Retained earnings

6,721,734

4,758,969

Accumulated other comprehensive income

10,583

1,902

Total Steel Dynamics, Inc. equity

5,607,926

4,345,164

Noncontrolling interests

(171,806)

(155,552)

Total equity

5,436,120

4,189,612

Total liabilities and equity

$

11,535,985

$

9,265,562

See notes to consolidated financial statements.

1

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

Three-Month Periods Ended

Nine-Month Periods Ended

September 30,

September 30,

2021

2020

2021

2020

Net sales

Unrelated parties

$

5,081,476

$

2,327,224

$

13,072,657

$

6,991,732

Related parties

6,812

3,608

25,536

8,505

Total net sales

5,088,288

2,330,832

13,098,193

7,000,237

Costs of goods sold

3,487,659

2,038,017

9,497,606

6,007,762

Gross profit

1,600,629

292,815

3,600,587

992,475

Selling, general and administrative expenses

157,526

118,235

461,686

340,432

Profit sharing

113,880

11,778

244,868

42,324

Amortization of intangible assets

7,178

6,946

22,054

21,327

Operating income

1,322,045

155,856

2,871,979

588,392

Interest expense, net of capitalized interest

12,704

18,950

44,871

74,671

Other (income) expense, net

6,776

3,546

26,886

29,060

Income before income taxes

1,302,565

133,360

2,800,222

484,661

Income tax expense

302,406

29,083

649,105

110,783

Net income

1,000,159

104,277

2,151,117

373,878

Net income attributable to noncontrolling interests

(9,396)

(4,134)

(27,556)

(10,899)

Net income attributable to Steel Dynamics, Inc.

$

990,763

$

100,143

$

2,123,561

$

362,979

Basic earnings per share attributable to Steel

Dynamics, Inc. stockholders

$

4.89

$

0.48

$

10.22

$

1.72

Weighted average common shares outstanding

202,450

210,366

207,704

211,321

Diluted earnings per share attributable to Steel

Dynamics, Inc. stockholders, including the effect

of assumed conversions when dilutive

$

4.85

$

0.47

$

10.15

$

1.71

Weighted average common shares and share equivalents outstanding

204,167

211,926

209,222

212,443

Dividends declared per share

$

0.26

$

0.25

$

0.78

$

0.75

See notes to consolidated financial statements.

2

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three-Month Periods Ended

Nine-Month Periods Ended

September 30,

September 30,

2021

2020

2021

2020

Net income

$

1,000,159

$

104,277

$

2,151,117

$

373,878

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

flow hedging derivatives, net of income tax of $(6,797), $(38),

$2,711, and $32, for the three and nine-month periods ended

September 30, 2021 and 2020, respectively

(21,761)

(121)

8,681

102

Comprehensive income

978,398

104,156

2,159,798

373,980

Comprehensive income attributable to noncontrolling interests

(9,396)

(4,134)

(27,556)

(10,899)

Comprehensive income attributable to Steel Dynamics, Inc.

$

969,002

$

100,022

$

2,132,242

$

363,081

See notes to consolidated financial statements.

3

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three-Month Periods Ended

Nine-Month Periods Ended

September 30,

September 30,

2021

2020

2021

2020

Operating activities:

Net income

$

1,000,159

$

104,277

$

2,151,117

$

373,878

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

87,407

81,752

261,373

240,732

Equity-based compensation

9,917

9,486

36,765

36,850

Deferred income taxes

71,008

10,388

188,474

30,949

Other adjustments

(781)

17,237

(2,915)

21,701

Changes in certain assets and liabilities:

Accounts receivable

(321,771)

(58,271)

(920,877)

(57,991)

Inventories

(412,952)

(38,236)

(1,052,475)

83,790

Other assets

(20,361)

(3,894)

(18,818)

5,702

Accounts payable

48,726

645

472,562

121,764

Income taxes receivable/payable

(353)

(27,127)

86,791

33,251

Accrued expenses

169,817

55,533

278,240

(41,545)

Net cash provided by operating activities

630,816

151,790

1,480,237

849,081

Investing activities:

Purchases of property, plant and equipment

(214,629)

(327,647)

(801,698)

(854,898)

Purchases of short-term investments

-

-

-

(149,359)

Proceeds from maturities of short-term investments

-

69,545

-

411,533

Acquisition of business, net of cash and restricted cash acquired

-

(59,012)

-

(59,012)

Other investing activities

1,024

380

3,273

1,701

Net cash used in investing activities

(213,605)

(316,734)

(798,425)

(650,035)

Financing activities:

Issuance of current and long-term debt

343,007

295,814

1,059,912

1,611,849

Repayment of current and long-term debt

(382,489)

(305,911)

(1,095,338)

(1,645,482)

Dividends paid

(53,380)

(52,592)

(161,025)

(156,657)

Purchases of treasury stock

(337,616)

-

(730,814)

(106,529)

Other financing activities

(4,776)

(1,587)

(27,468)

(16,502)

Net cash used in financing activities

(435,254)

(64,276)

(954,733)

(313,321)

Decrease in cash, cash equivalents, and restricted cash

(18,043)

(229,220)

(272,921)

(114,275)

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

1,119,244

1,502,342

1,374,122

1,387,397

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

$

1,101,201

$

1,273,122

$

1,101,201

$

1,273,122

Supplemental disclosure information:

Cash paid for interest

$

9,174

$

8,597

$

62,216

$

77,050

Cash paid for income taxes, net

$

222,691

$

43,900

$

370,835

$

45,848

See notes to consolidated financial statements.

4

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Description of the Business and Significant Accounting Policies

Description of the Business

Steel Dynamics, Inc. (SDI), together with its subsidiaries (the company), is one of the largest and most diversified domestic steel producers and metals recycler. The company has three reportable segments: steel operations, metals recycling operations, and steel fabrication operations.

Steel Operations Segment. Steel operations include the company’s six operating electric arc furnace steel mills, including Butler Flat Roll Division, Columbus Flat Roll Division, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, and Steel of West Virginia, and the under construction Southwest-Sinton Flat Roll Division; and steel coating and processing operations at The Techs galvanizing lines, Heartland Flat Roll Division, United Steel Supply (USS), and Vulcan Threaded Products, Inc. Steel operations accounted for 72% and 73% of the company’s consolidated net sales during the three-month periods ended September 30, 2021 and 2020, respectively, and 72% and 75% of the company’s consolidated net sales during the nine-month periods ended September 30, 2021 and 2020, respectively.

Metals Recycling Operations Segment. Metals recycling operations include the company’s OmniSource ferrous and nonferrous processing, transportation, marketing, brokerage, and scrap management services primarily throughout the United States and in Central and Northern Mexico. Metals recycling operations accounted for 12% of the company’s consolidated net sales during the three-month periods ended September 30, 2021 and 2020, and 12% and 10% of the company’s consolidated net sales during the nine-month periods ended September 30, 2021 and 2020, respectively.

Steel Fabrication Operations Segment. Steel fabrication operations include the company’s New Millennium Building Systems joist and deck plants located throughout the United States, and in Northern Mexico. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel deck used within the non-residential construction industry. Steel fabrication operations accounted for 10% of the company’s consolidated net sales during the three-month periods ended September 30, 2021 and 2020, and 8% and 10% of the company’s consolidated net sales during the nine-month periods ended September 30, 2021 and 2020, respectively.

Other. Other operations consist of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of joint ventures, and our idle Minnesota ironmaking operations. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior unsecured credit facility, senior notes, certain other investments and certain profit sharing expenses.

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of SDI, together with its wholly- and majority-owned or controlled subsidiaries, after elimination of intercompany accounts and transactions. Noncontrolling and redeemable noncontrolling interests represent the noncontrolling owner’s proportionate share in the equity, income, or losses of the company’s majority-owned or controlled consolidated subsidiaries. Redeemable noncontrolling interests related to USS (owned 75% by SDI) are $75.6 million at September 30, 2021 and $47.4 million at December 31, 2020. Redeemable noncontrolling interests related to Mesabi Nugget (owned 84% by SDI) are $111.2 million at September 30, 2021, and December 31, 2020.

5

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Use of Estimates

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, and accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, and

goodwill; valuation allowances for trade receivables, inventories and deferred income tax assets; unrecognized tax benefits; potential environmental liabilities; and litigation claims and settlements. Actual results may differ from these estimates and assumptions.

In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Cash and Equivalents, and Restricted Cash

Cash and equivalents include all highly liquid investments with a maturity of three months or less at the date of acquisition. Restricted cash is primarily funds held in escrow as required by various insurance and government organizations. The balance of cash, cash equivalents and restricted cash in the consolidated statements of cash flows includes restricted cash of $5.5 million at September 30, 2021, June 30, 2021, December 31, 2020, and September 30, 2020, and $5.9 million at June 30, 2020 and December 31, 2019, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.

Goodwill

The company’s goodwill consisted of the following at September 30, 2021, and December 31, 2020 (in thousands):

September 30,

December 31,

2021

2020

Steel Operations Segment

$

272,133

$

272,133

Metals Recycling Operations Segment

180,625

183,168

Steel Fabrication Operations Segment

1,925

1,925

$

454,683

$

457,226

Metals Recycling Operations Segment goodwill decreased $2.5 million from December 31, 2020 to September 30, 2021, in recognition of the 2021 tax benefit related to the normal amortization of the component of Metals Recycling Operations tax-deductible goodwill in excess of book goodwill.

6

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Credit Losses

The company is exposed to credit risk in the event of nonpayment of accounts receivable by customers. The company mitigates its exposure to credit risk, which it generally extends on an unsecured basis, by performing ongoing credit evaluations and taking further action if necessary, such as requiring letters of credit or other security interests to support the customer receivable. The allowance for credit losses for accounts receivable is based on the company’s reasonable estimate of known credit risks and historical experience, adjusted for current and anticipated economic and other pertinent factors affecting the company’s customers, that may differ from historical experience. Customer accounts receivable are written off when all collection efforts have been exhausted and the amounts are deemed uncollectible.

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

Subsequent Event

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

Note 2. Earnings Per Share

Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive restricted stock units, deferred stock units, restricted stock, and performance awards, and are excluded from the computation in periods in which they have an anti-dilutive effect. There were no anti-dilutive common share equivalents as of or for the three and nine-month periods ended September 30, 2021 and 2020.

Three-Month Periods Ended September 30,

2021

2020

Weighted

Weighted

Average

Average

Net Income

Shares

Per Share

Net Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Basic earnings per share

$

990,763

202,450

$

4.89

$

100,143

210,366

$

0.48

Dilutive common share equivalents

-

1,717

-

1,560

Diluted earnings per share

$

990,763

204,167

$

4.85

$

100,143

211,926

$

0.47

7

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. Earnings Per Share (Continued)

Nine-Month Periods Ended September 30,

2021

2020

Weighted

Weighted

Average

Average

Net Income

Shares

Per Share

Net Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Basic earnings per share

$

2,123,561

207,704

$

10.22

$

362,979

211,321

$

1.72

Dilutive common share equivalents

-

1,518

-

1,122

Diluted earnings per share

$

2,123,561

209,222

$

10.15

$

362,979

212,443

$

1.71

Note 3. Inventories

Inventories are stated at lower of cost or net realizable value. Cost is determined using a weighted average cost method for raw materials and supplies, and on a first-in, first-out basis for other inventory. Inventory consisted of the following (in thousands):

September 30,

December 31,

2021

2020

Raw materials

$

1,480,799

$

790,324

Supplies

534,248

500,497

Work in progress

305,288

162,843

Finished goods

574,635

389,884

Total inventories

$

2,894,970

$

1,843,548

8

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Changes in Equity

The following tables provide a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to stockholders of Steel Dynamics, Inc., and equity and redeemable amounts attributable to noncontrolling interests (in thousands) for each of the three and nine-month periods ended September 30, 2021 and 2020:

Stockholders of Steel Dynamics, Inc.

Accumulated

Additional

Other

Redeemable

Common

Treasury

Paid-In

Retained

Comprehensive

Noncontrolling

Total

Noncontrolling

Stock

Stock

Capital

Earnings

Income (Loss)

Interests

Equity

Interests

Balances at December 31, 2020

$

648

$

(1,623,747)

$

1,207,392

$

4,758,969

$

1,902

$

(155,552)

$

4,189,612

$

158,614

Dividends declared

-

-

-

(54,917)

-

-

(54,917)

-

Noncontrolling investors, net

-

-

-

-

-

(9,905)

(9,905)

5,000

Equity-based compensation

-

8,881

(4,447)

(161)

-

-

4,273

-

Net income

-

-

-

430,507

-

8,248

438,755

-

Other comprehensive income, net of tax

-

-

-

-

3,765

-

3,765

-

Balances at March 31, 2021

648

(1,614,866)

1,202,945

5,134,398

5,667

(157,209)

4,571,583

163,614

Dividends declared

-

-

-

(53,380)

-

-

(53,380)

-

Noncontrolling investors, net

-

-

-

-

-

(18,879)

(18,879)

12,800

Share repurchases

-

(393,198)

-

-

-

-

(393,198)

-

Equity-based compensation

-

1,169

7,888

(125)

-

-

8,932

-

Net income

-

-

-

702,291

-

9,912

712,203

-

Other comprehensive income, net of tax

-

-

-

-

26,677

-

26,677

-

Balances at June 30, 2021

648

(2,006,895)

1,210,833

5,783,184

32,344

(166,176)

4,853,938

176,414

Dividends declared

-

-

-

(51,942)

-

-

(51,942)

-

Noncontrolling investors, net

-

-

-

(150)

-

(15,026)

(15,176)

10,400

Share repurchases

-

(337,616)

-

-

-

-

(337,616)

-

Equity-based compensation

-

34

8,605

(121)

-

-

8,518

-

Net income

-

-

-

990,763

-

9,396

1,000,159

-

Other comprehensive (loss), net of tax

-

-

-

-

(21,761)

-

(21,761)

-

Balances at September 30, 2021

$

648

$

(2,344,477)

$

1,219,438

$

6,721,734

$

10,583

$

(171,806)

$

5,436,120

$

186,814

Stockholders of Steel Dynamics, Inc.

Accumulated

Additional

Other

Redeemable

Common

Treasury

Paid-In

Retained

Comprehensive

Noncontrolling

Total

Noncontrolling

Stock

Stock

Capital

Earnings

Income (Loss)

Interests

Equity

Interests

Balances at December 31, 2019

$

646

$

(1,525,113)

$

1,181,012

$

4,419,296

$

(7)

$

(154,593)

$

3,921,241

$

143,614

Dividends declared

-

-

-

(52,585)

-

-

(52,585)

-

Noncontrolling investors, net

-

-

-

-

-

(7,504)

(7,504)

7,400

Share repurchases

-

(106,529)

-

-

-

-

(106,529)

-

Equity-based compensation

-

6,834

2,764

(169)

-

-

9,429

-

Net income

-

-

-

187,340

-

3,496

190,836

-

Other comprehensive income, net of tax

-

-

-

-

37

-

37

-

Balances at March 31, 2020

646

(1,624,808)

1,183,776

4,553,882

30

(158,601)

3,954,925

151,014

Dividends declared

-

-

-

(52,591)

-

-

(52,591)

-

Noncontrolling investors, net

-

-

-

-

-

(2,410)

(2,410)

1,400

Equity-based compensation

-

953

7,838

(158)

-

-

8,633

-

Net income

-

-

-

75,496

-

3,269

78,765

-

Other comprehensive income, net of tax

-

-

-

-

186

-

186

-

Balances at June 30, 2020

646

(1,623,855)

1,191,614

4,576,629

216

(157,742)

3,987,508

152,414

Dividends declared

-

-

-

(52,592)

-

-

(52,592)

-

Noncontrolling investors, net

-

-

-

-

-

(4,190)

(4,190)

3,000

Equity-based compensation

-

50

8,707

(161)

-

-

8,596

-

Net income

-

-

-

100,143

-

4,134

104,277

-

Other comprehensive (loss), net of tax

-

-

-

-

(121)

-

(121)

-

Balances at September 30, 2020

$

646

$

(1,623,805)

$

1,200,321

$

4,624,019

$

95

$

(157,798)

$

4,043,478

$

155,414

9

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5. Derivative Financial Instruments

The company is exposed to certain risks relating to its ongoing business operations. The company utilizes derivative instruments to mitigate commodity margin risk, and occasionally to mitigate foreign currency exchange rate risk, and have in the past to mitigate interest rate fluctuation risk. The company routinely enters into forward exchange traded futures and option contracts to manage the price risk associated with nonferrous metals inventory as well as purchases and sales of nonferrous and ferrous metals (primarily aluminum and copper). The company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under master netting agreements.

Commodity Futures Contracts. If the company is “long” on futures contracts, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity. If the company is “short” on a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s significant futures contract commitments as of September 30, 2021:

Commodity Futures

Long/Short

Metric Tons

Aluminum

Long

3,450

Aluminum

Short

7,400

Copper

Long

14,390

Copper

Short

26,025

The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets as of September 30, 2021, and December 31, 2020, and gains and losses related to derivatives included in the company’s statement of income for the three-month and nine-month periods ended September 30, 2021 and 2020 (in thousands):

Asset Derivatives

Liability Derivatives

Balance sheet

Fair Value

Fair Value

 location

September 30, 2021

December 31, 2020

September 30, 2021

December 31, 2020

Derivative instruments designated as hedges

Commodity futures

Other current assets

$

26,669

$

5,092

$

10,055

$

4,635

Derivative instruments not designated as hedges

Commodity futures

Other current assets

2,943

1,705

5,775

2,807

Total derivative instruments

$

29,612

$

6,797

$

15,830

$

7,442

10

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5. Derivative Financial Instruments (Continued)

The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $43.7 million at September 30, 2021, and $13.2 million at

December 31, 2020, and are reflected in other current assets in the consolidated balance sheets.

Amount of gain (loss)

Amount of gain (loss)

recognized in income

Location of gain

recognized in income

Location of gain

on derivatives for the

(loss) recognized

on derivatives for the

(loss) recognized

three-month periods

Hedged items in

in income on

three-month periods

in income on

ended September 30,

fair value hedge

related hedged

ended September 30,

derivatives

2021

2020

relationships

items

2021

2020

Derivatives in fair value

hedging relationships

Commodity futures

Costs of goods sold

$

(5,205)

$

3,545

Firm commitments

Costs of goods sold

$

4,404

$

(2,156)

Inventory

Costs of goods sold

500

(1,682)

Derivatives not designated

$

4,904

$

(3,838)

as hedging instruments

Commodity futures

Costs of goods sold

$

12,160

$

(10,289)

Amount of gain (loss)

Amount of gain (loss)

recognized in income

Location of gain

recognized in income

Location of gain

on derivatives for the

(loss) recognized

on derivatives for the

(loss) recognized

nine-month periods

Hedged items in

in income on

nine-month periods

in income on

ended September 30,

fair value hedge

related hedged

ended September 30,

derivatives

2021

2020

relationships

items

2021

2020

Derivatives in fair value

hedging relationships

Commodity futures

Costs of goods sold

$

4,765

$

1,096

Firm commitments

Costs of goods sold

$

187

$

(901)

Inventory

Costs of goods sold

(1,705)

(342)

Derivatives not designated

$

(1,518)

$

(1,243)

as hedging instruments

Commodity futures

Costs of goods sold

$

(33,620)

$

(639)

Derivatives accounted for as fair value hedges had ineffectiveness resulting in a loss of $1.6 million and a gain of $110,000 during the three-month periods ended September 30, 2021 and 2020, respectively, and gains of $17,000 and $51,000 during the nine-month periods ended September 30, 2021 and 2020, respectively. Gains excluded from hedge effectiveness testing of $1.3 million decreased cost of goods sold during the during the three-month period ended September 30, 2021, and losses excluded from hedge effectiveness testing of $403,000 increased cost of goods sold during the three-month period ended September 30, 2020. Gains excluded from hedge effectiveness testing of $3.2 million decreased cost of goods sold during the during the nine-month period ended September 30, 2021, and losses excluded from hedge effectiveness testing of $198,000 increased cost of goods sold during the nine-month period ended September 30, 2020.

Derivatives accounted for as cash flow hedges resulted in net losses of $2.3 million and $274,000 recognized in other comprehensive income for the three-month periods ended September 30, 2021 and 2020, respectively, and net gains of $41.8 million and $217,000 for the nine-month periods ended September 30, 2021 and 2020, respectively. Net gains of $23.2 million and net losses of $115,000 were reclassified from accumulated other comprehensive income for the three-month periods ended September 30, 2021 and 2020, respectively, and net gains of $30.4 million and $84,000 were reclassified from accumulated other comprehensive income for the nine-month periods ended September 30, 2021 and 2020, respectively. At September 30, 2021, the company expects to reclassify all $13.9 million of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months due to the settlement of futures contracts. The maximum term over which the company is hedging its exposure to the variability of future cash flows for forecasted transactions is less than 12 months.

11

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Fair Value Measurements

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, 2021, and December 31, 2020 (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, 2021

Commodity futures – financial assets

$

29,612

$

-

$

29,612

$

-

Commodity futures – financial liabilities

15,830

-

15,830

-

December 31, 2020

Commodity futures – financial assets

$

6,797

$

-

$

6,797

$

-

Commodity futures – financial liabilities

7,442

-

7,442

-

The carrying amounts of financial instruments including cash and equivalents, and restricted cash approximate fair value (Level 1). The fair values of the 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 (Level 2). The fair value of long-term debt, including current maturities, as determined by quoted market prices (Level 2), was approximately $3.2 billion and $3.4 billion at September 30, 2021, and December 31, 2020, respectively (with a corresponding carrying amount in the consolidated balance sheet of $3.1 billion at September 30, 2021, and December 31, 2020).

Note 7. 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 the company’s financial condition, results of operations, or liquidity.

12

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. 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 the consolidated 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 the consolidated 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 smaller joint ventures, and the idle Minnesota ironmaking operations. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior unsecured credit facility, senior notes, certain other investments and certain profit sharing expenses.

The company’s segment results, including disaggregated revenue by segment to external, external non-United States, and other segment customers, are as follows (in thousands):

Metals

Steel

For the three-month period ended

Steel

Recycling

Fabrication

September 30, 2021

Operations

Operations

Operations

Other

Eliminations

Consolidated

Net sales - disaggregated revenue

External

$

3,503,964

$

430,087

$

493,452

$

337,011

$

-

$

4,764,514

External Non-U.S.

163,754

157,005

352

2,663

-

323,774

Other segments

243,455

625,025

122

453

(869,055)

-

3,911,173

1,212,117

493,926

340,127

(869,055)

5,088,288

Operating income (loss)

1,346,967

43,616

89,389

(138,576)

(1)

(19,351)

1,322,045

Income (loss) before income taxes

1,341,051

43,328

88,892

(150,992)

(19,714)

1,302,565

Depreciation and amortization

65,852

14,054

2,263

5,238

-

87,407

Capital expenditures

200,721

6,870

3,458

3,580

-

214,629

As of September 30, 2021

Assets

$

8,287,664

$

1,298,990

$

812,741

$

1,265,945

(2)

$

(129,355)

(3)

$

11,535,985

Footnotes related to the three-month period ended September 30, 2021, segment results (in millions):

(1)

Corporate SG&A

$

(17.0)

(2)

Cash and equivalents

$

950.6

Companywide equity-based compensation

(10.7)

Accounts receivable

45.5

Profit sharing

(111.1)

Inventories

79.3

Other, net

0.2

Property, plant and equipment, net

128.9

$

(138.6)

Intra-company debt

14.4

Other

47.2

$

1,265.9

(3)

Elimination of intra-company receivables

$

(60.0)

Elimination of intra-company debt

(14.4)

Other

(55.0)

$

(129.4)

13

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Segment Information (Continued)

Metals

Steel

For the three-month period ended

Steel

Recycling

Fabrication

September 30, 2020

Operations

Operations

Operations

Other

Eliminations

Consolidated

Net sales - disaggregated revenue

External

$

1,634,122

$

202,034

$

241,440

$

120,175

$

-

$

2,197,771

External Non-U.S.

62,409

70,429

98

125

-

133,061

Other segments

79,253

364,010

5,052

62

(448,377)

-

1,775,784

636,473

246,590

120,362

(448,377)

2,330,832

Operating income (loss)

139,466

12,668

39,231

(34,384)

(1)

(1,125)

155,856

Income (loss) before income taxes

126,825

12,051

38,374

(42,484)

(1,406)

133,360

Depreciation and amortization

63,538

12,368

2,634

3,212

-

81,752

Capital expenditures

309,421

5,674

5,113

7,439

-

327,647

Footnotes related to the three-month period ended September 30, 2020, segment results (in millions):

(1)

Corporate SG&A

$

(14.2)

Companywide equity-based compensation

(9.6)

Profit sharing

(10.5)

Other, net

(0.1)

$

(34.4)

Metals

Steel

For the nine-month period ended

Steel

Recycling

Fabrication

September 30, 2021

Operations

Operations

Operations

Other

Eliminations

Consolidated

Net sales - disaggregated revenue

External

$

8,991,273

$

1,243,837

$

1,081,123

$

960,953

$

-

$

12,277,186

External Non-U.S.

421,648

388,961

518

9,880

-

821,007

Other segments

535,541

1,810,337

3,020

2,125

(2,351,023)

-

9,948,462

3,443,135

1,084,661

972,958

(2,351,023)

13,098,193

Operating income (loss)

2,997,375

141,775

127,652

(357,183)

(1)

(37,640)

2,871,979

Income (loss) before income taxes

2,970,465

141,063

125,827

(398,485)

(38,648)

2,800,222

Depreciation and amortization

198,170

41,994

7,344

13,865

-

261,373

Capital expenditures

740,569

38,112

9,156

13,861

-

801,698

Footnotes related to the nine-month period ended September 30, 2021, segment results (in millions):

(1)

Corporate SG&A

$

(53.2)

Companywide equity-based compensation

(56.6)

Profit sharing

(238.2)

Other, net

(9.2)

$

(357.2)

14

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Segment Information (Continued)

Metals

Steel

For the nine-month period ended

Steel

Recycling

Fabrication

September 30, 2020

Operations

Operations

Operations

Other

Eliminations

Consolidated

Net sales - disaggregated revenue

External

$

5,072,959

$

563,685

$

677,326

$

334,791

$

-

$

6,648,761

External Non-U.S.

193,305

157,217

398

556

-

351,476

Other segments

225,070

960,998

8,735

150

(1,194,953)

-

5,491,334

1,681,900

686,459

335,497

(1,194,953)

7,000,237

Operating income (loss)

595,903

9,481

95,549

(112,828)

(1)

287

588,392

Income (loss) before income taxes

551,392

3,702

92,251

(162,169)

(515)

484,661

Depreciation and amortization

186,651

36,510

8,119

9,452

-

240,732

Capital expenditures

803,873

27,718

11,566

11,741

-

854,898

Footnotes related to the nine-month period ended September 30, 2020, segment results (in millions):

(1)

Corporate SG&A

$

(45.9)

Companywide equity-based compensation

(27.5)

Profit sharing

(40.0)

Other, net

0.6

$

(112.8)

15

Table of Contents

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 domestic or global economies, conditions in steel and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned 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) domestic and global economic factors; (2) global steelmaking overcapacity and steel imports, together with increased scrap prices; (3) pandemics, epidemics, widespread illness or other health issues, such as the COVID-19 pandemic; (4) the cyclical nature of the steel industry and the industries we serve; (5) volatility and major fluctuations in prices and availability of scrap metal, scrap substitutes, and our potential inability to pass higher costs on to our customers; (6) cost and availability of electricity, natural gas, oil, or other resources are subject to volatile market conditions; (7) compliance with and changes in environmental and remediation requirements; (8) increased regulation associated with the environment, climate change, greenhouse gas emissions and sustainability; (9) significant price and other forms of competition from other steel producers, scrap processors and alternative materials; (10) availability of an adequate source of supply for our metals recycling operations; (11) cybersecurity threats and risks to the security of our sensitive data and information technology; (12) the implementation of our growth strategy; (13) litigation and legal compliance; (14) unexpected equipment downtime or shutdowns; (15) governmental agencies may refuse to grant or renew some of our licenses and permits; (16) our senior unsecured credit facility contains, and any future financing agreements may contain, restrictive covenants that may limit our flexibility; and (17) the impacts of impairment.

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 in our most recent Annual Report on Form 10-K under the headings Special Note Regarding Forward-Looking Statements and Risk Factors for the year ended December 31, 2020, 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 estimated current steelmaking and coating capacity of approximately 13 million tons and actual metals recycling volumes, with one of the most diversified product and end-market portfolios in the domestic steel industry. Our primary sources of revenue are from the manufacture and sale of steel products, the processing and sale of recycled ferrous and nonferrous metals, and the 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 Sales. Net 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 our 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 point in time control of the product transfers to the customer, upon shipment or delivery. Our steel fabrication operations recognize revenues over time based on completed fabricated tons to date as a percentage of total tons required for each contract.

16

Table of Contents

Costs of Goods Sold. Our 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 substrate, direct and indirect labor and related benefits, alloys, zinc, transportation and freight, repairs and maintenance, utilities such as electricity and natural gas, and depreciation.

Selling, General and Administrative Expenses. Selling, 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, and property taxes. Company-wide profit sharing and amortization of intangible assets are each separately presented in the statement of income.

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 (Income) Expense, net. Other income consists of interest income earned on our temporary cash deposits and short-term 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

Our consolidated results for the third quarter of 2021 were highlighted by record net sales of $5.1 billion, operating income of $1.3 billion, net income of $990.8 million, and cash flow from operations of $630.8 million. Our steel fabrication segment achieved record quarterly shipments and operating income, while our steel segment achieved record quarterly operating income. During the third quarter of 2021, steel demand remained strong as product pricing continued its positive trajectory in our steel and fabrication operations. Higher realized steel selling values drove significant metal spread expansion and were again most prominent within our flat roll steel operations, as continued demand strength and low customer inventories persisted throughout the supply chain and supported prices. Domestic steel consumption was strong from the automotive, construction, and industrial sectors, while the energy sector continued to show signs of recovery. Operating results for the third quarter and first nine months of 2021 were significantly improved over the same periods in 2020, which was negatively impacted by the global COVID-19 pandemic, most notably in the second quarter 2020. Volumes and selling values strengthened during the second half of 2020 and have continued through the first nine months of 2021.

Consolidated operating income increased $1.2 billion, or 748%, to $1.3 billion for the third quarter 2021, compared to the third quarter 2020. Third quarter 2021 net income attributable to Steel Dynamics, Inc. increased $890.6 million, or 889%, to $990.8 million, compared to the third quarter 2020, consistent with the increased operating income.

Consolidated operating income increased $2.3 billion, or 388%, to $2.9 billion for the first nine months of 2021, compared to the first nine months of 2020. First nine months 2021 net income attributable to Steel Dynamics, Inc. increased $1.8 billion, or 485%, to $2.1 billion, compared to the first nine months of 2020, consistent with the increased operating income.

17

Table of Contents

Segment Operating Results 2021 vs. 2020 (dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

% Change

2020

2021

% Change

2020

Net sales:

Steel Operations Segment

$

3,911,173

120%

$

1,775,784

$

9,948,462

81%

$

5,491,334

Metals Recycling Operations Segment

1,212,117

90%

636,473

3,443,135

105%

1,681,900

Steel Fabrication Operations Segment

493,926

100%

246,590

1,084,661

58%

686,459

Other

340,127

183%

120,362

972,958

190%

335,497

5,957,343

2,779,209

15,449,216

8,195,190

Intra-company

(869,055)

(448,377)

(2,351,023)

(1,194,953)

$

5,088,288

118%

$

2,330,832

$

13,098,193

87%

$

7,000,237

Operating income (loss):

Steel Operations Segment

$

1,346,967

866%

$

139,466

$

2,997,375

403%

$

595,903

Metals Recycling Operations Segment

43,616

244%

12,668

141,775

1395%

9,481

Steel Fabrication Operations Segment

89,389

128%

39,231

127,652

34%

95,549

Other

(138,576)

(303)%

(34,384)

(357,183)

(217)%

(112,828)

1,341,396

156,981

2,909,619

588,105

Intra-company

(19,351)

(1,125)

(37,640)

287

$

1,322,045

748%

$

155,856

$

2,871,979

388%

$

588,392

Steel Operations Segment

Steel operations consist of our six operating electric arc furnace steel mills and our under-construction Southwest-Sinton Flat Roll Steel Division, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, and numerous value-added downstream steel coating and processing operations. 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 72% and 73% of our consolidated net sales during the three months ended September 30, 2021 and 2020, respectively, and 72% and 75% of our consolidated net sales during the nine months ended September 30, 2021 and 2020, respectively.

Steel Operations Segment Shipments (tons):

Three Months Ended September 30,

Nine Months Ended September 30,

2021

% Change

2020

2021

% Change

2020

Total shipments

2,803,571

5%

2,682,686

8,517,121

6%

8,047,887

Intra-segment shipments

(291,868)

(244,185)

(841,743)

(754,881)

Steel Operations Segment shipments

2,511,703

3%

2,438,501

7,675,378

5%

7,293,006

External shipments

2,366,928

2%

2,310,004

7,281,752

5%

6,958,024

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Graphic

Steel Operations Segment Results 2021 vs. 2020

During the third quarter of 2021, steel demand remained strong and product pricing continued its positive trajectory across our entire steel operations segment. Low customer inventories persisted throughout the supply chain, supporting further increased steel selling prices. Domestic steel consumption remained strong from the automotive, construction, and industrial sectors, with the energy sector showing signs of recovery. Third quarter 2021 average selling prices increased 114%, or $829 per ton, compared to third quarter 2020. Steel operations segment shipments increased 3% in the third quarter 2021, as compared to the same period in 2020. Net sales for the steel operations were 120% higher in the third quarter 2021 when compared to the same period in 2020, due to these increased average steel selling prices and volumes. Net sales for the steel operations increased 81% in the first nine months of 2021 when compared to the same period in 2020, due to the 5% increase in steel shipments, and a 73% increase in average selling prices.

Metallic raw materials used in our electric arc furnaces represent our single most significant steel manufacturing cost, generally comprising approximately 55% to 65% of our steel mill operations’ manufacturing costs. Our metallic raw material cost per net ton consumed in our steel operations increased $230, or 89%, in the third quarter 2021, compared to the same period in 2020, consistent with overall increased domestic scrap pricing noted below. In the first nine months of 2021, our metallic raw material cost per net ton increased $169, or 64%, compared to the same period in 2020.

As a result of average selling prices increasing more than scrap costs, metal spread (which we define as the difference between average steel mill selling prices and the cost of ferrous scrap consumed in our steel mills) increased 123% in the third quarter 2021 compared to the third quarter 2020. As a result of this metal spread expansion and the 3% increase in shipping volumes, operating income for the steel operations increased 866%, to a record $1.3 billion, in the third quarter 2021, compared to the same period in 2020. First nine months 2021 operating income increased 403%, to $3.0 billion, compared to the first nine months of 2020, due to the increased metal spread and the 5% increase in steel shipping volumes.

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Metals Recycling Operations Segment

Metals recycling operations includes both ferrous and nonferrous scrap metal processing, transportation, marketing, brokerage, and scrap management services. Our steel mills utilize a large portion of the ferrous scrap sold by our metals recycling operations as raw material in our steelmaking operations, and the remainder is sold to other consumers, such as other steel manufacturers and foundries. In the third quarter 2021, 65% of the metals recycling operations ferrous scrap was sold to our own steel mills, as our steel mills utilization increased to 93% in the third quarter of 2021 compared to 85% in the same 2020 period. Our metals recycling operations accounted for 12% of our consolidated net sales during the three months ended September 30, 2021 and 2020, and 12% and 10% of our consolidated net sales during the nine months ended September 30, 2021 and 2020, respectively.

Metals Recycling Operations Segment Shipments:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

% Change

2020

2021

% Change

2020

Ferrous metal (gross tons)

Total

1,371,126

9%

1,256,351

4,167,416

28%

3,250,565

Inter-company

(895,559)

1%

(886,775)

(2,733,941)

19%

(2,289,368)

External shipments

475,567

29%

369,576

1,433,475

49%

961,197

Nonferrous metals (thousands of pounds)

Total

271,325

1%

267,338

818,993

16%

706,330

Inter-company

(31,840)

(42,026)

(103,324)

(122,244)

External shipments

239,485

6%

225,312

715,669

23%

584,086

Metals Recycling Operations Segment Results 2021 vs. 2020

Our metals recycling operations continued to benefit from strong steel market demand, driving increased domestic steel mill utilization and continued strong ferrous scrap shipments in the third quarter of 2021. Domestic steel mill utilization rates increased to approximately 85% in the third quarter 2021 from 81% in the sequential second quarter, significantly higher than the COVID-19 impacted utilization rates of the third quarter 2020 of 65%. Net sales increased 90% during the third quarter of 2021 compared to the same period in 2020, driven by increased ferrous shipments, including those from the Mexican scrap company acquired in August 2020, and higher average selling prices. Ferrous scrap average selling prices increased 96% during the third quarter 2021 compared to the same period in 2020, while average nonferrous scrap prices increased 59%. Ferrous metal spread (which we define as the difference between average selling prices and the cost of purchased scrap) increased 41%, while nonferrous metal spread increased 60% during the third quarter 2021 compared to the same period in 2020. This resulted in metals recycling operations operating income improving 244% to $43.6 million in the third quarter 2021 compared to the third quarter 2020.

Net sales for our metals recycling operations increased 105% in the first nine months of 2021 as compared to the same period in 2020, driven by increased shipments and pricing. Ferrous scrap average selling prices increased 78% during the first nine months of 2021 compared to the same period in 2020, while nonferrous average selling prices increased 51%. Ferrous metal spread increased 41%, while nonferrous metal spread increased 69% in the first nine months of 2021 compared to the first nine months of 2020. Metals recycling operations operating income in the first nine months of 2021 of $141.8 million improved $132.3 million from the first nine months of 2020, due to increased ferrous and nonferrous shipments and metal spread.

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Steel Fabrication Operations Segment

Steel fabrication operations include seven 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 10% of our consolidated net sales during the three months ended September 30, 2021 and 2020, and 8% and 10% of our consolidated net sales during the nine months ended September 30, 2021 and 2020, respectively.

Graphic

Steel Fabrication Operations Segment Results 2021 vs. 2020

Our steel fabrication operations continue to benefit from a robust non-residential construction market, as order activity remains strong, resulting in record customer order backlogs at the end of the third quarter 2021. Net sales for the steel fabrication operations doubled during the third quarter 2021 compared to the same period in 2020, as average selling prices increased 70%, or $964 per ton, while shipments increased 18% to a quarterly record 211,000 tons. Net sales for the segment increased 58% during the first nine months of 2021, compared to the same period in 2020, as shipments increased 16%, and average selling prices increased 36%, or $490 per ton.

The purchase of various steel products is the largest single cost of production for our steel fabrication operations, historically representing approximately two-thirds of the total cost of manufacturing, however closer to three-fourths in 2021 with the increased steel costs. The average cost of steel consumed increased 107% in the third quarter 2021, as compared to the same period in 2020, consistent with increased steel selling prices in our steel operations. As a result of selling prices per ton increasing more than steel input costs per ton, metal spread (which we define as the difference between average selling prices and the cost of purchased steel) increased 32% in the third quarter 2021 compared to the same period in 2020. This expanded metal spread, coupled with record shipments, resulted in record operating income of $89.4 million in the third quarter 2021 compared to $39.2 million in the same period in 2020. For the first nine months of 2021 operating income increased 34% to $127.7 million, compared to the first nine months of 2020, driven by a 5% increase in metal spread and a 16% increase in shipments.

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Other Operations

Third Quarter Consolidated Results 2021 vs. 2020

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $157.5 million during the third quarter 2021 increased 33% from the $118.2 million during the third quarter 2020 on increased profitability and Southwest-Sinton Flat Roll Division start-up expenses. Selling, general and administrative expenses represented 3.1% and 5.1% of net sales during third quarter 2021 and 2020, respectively. Profit sharing expense during the third quarter of 2021 of $113.9 million was up more than nine-fold from the $11.81 million during the same period in 2020. The company-wide profit sharing plan represents 8% of pretax earnings; therefore, our higher third quarter 2021 earnings resulted in higher profit sharing.

Interest Expense, net of Capitalized Interest. During the third quarter 2021, interest expense of $12.7 million decreased 33% from $19.0 million during the third quarter of 2020, due primarily increased capitalized interest in 2021 in conjunction with construction of our new Southwest-Sinton Flat Roll Division.

Income Tax Expense. Third quarter 2021 income tax expense of $302.4 million, at an effective income tax rate of 23.2%, was up significantly from the $29.1 million, at an effective income tax rate of 21.8%, during the third quarter 2020, consistent with increased income before income taxes.

First Nine Months Consolidated Results 2021 vs. 2020

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $461.7 million during the first nine months of 2021 increased 36% compared to the $340.4 million during the first nine months of 2020 on increased profitability and Southwest-Sinton Flat Roll Division start-up expenses. Selling, general and administrative expenses represented 3.5% and 4.9% of net sales during first nine months of 2021 and 2020, respectively. Profit sharing expense during the first nine months of 2021 of $244.9 million increased 479% from the $42.3 million during the same period in 2020, consistent with increased profitability.

Interest Expense, net of Capitalized Interest. During the first nine months of 2021, interest expense of $44.9 million decreased 40% from $74.7 million during the first nine months of 2020, due to decreased interest rates from our June 2020 and October 2020 refinancing of $1.6 billion of high yield senior notes with lower rate interest senior notes, and increased capitalized interest in 2021 in conjunction with construction of our new Southwest-Sinton Flat Roll Division.

Income Tax Expense. First nine months 2021 income tax expense of $649.1 million, at an effective income tax rate of 23.2%, was up 486% from the $110.8 million, at an effective income tax rate of 22.9%, during the first nine months of 2020, consistent with increased income before income taxes.

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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, currently including those related to our new Southwest-Sinton Flat Roll Division, principal and interest payments related to our outstanding indebtedness (no significant principal payments until 2024), dividends to our shareholders, and potential stock repurchases 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 unsecured Revolver. Our liquidity at September 30, 2021, is as follows (in thousands):

Cash and equivalents

$

1,095,701

Revolver availability

1,187,941

Total liquidity

$

2,283,642

Our total outstanding debt remained consistent at $3.1 billion during the first nine months of 2021. Our total 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 35.4% and 41.6% at September 30, 2021, and December 31, 2020, respectively.

Our unsecured credit agreement has a senior unsecured revolving credit facility (Facility), which provides a $1.2 billion unsecured Revolver, and matures in December 2024. Subject to certain conditions, we have the opportunity to increase the Facility size by $500.0 million. The unsecured 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 to incur indebtedness and permit liens on property. Our ability to borrow funds within the terms of the unsecured Revolver is dependent upon our continued compliance with the financial and other covenants. At September 30, 2021, we had $1.2 billion of availability on the Revolver, $12.1 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 debt to capitalization ratio of not more than 0.60:1.00 must be maintained. At September 30, 2021, our interest coverage ratio and debt to capitalization ratio were 33.39:1.00 and 0.35:1.00, respectively. We were, therefore, in compliance with these covenants at September 30, 2021, and we anticipate we will continue to be in compliance during the next twelve months.

Working Capital. We generated cash flow from operations of $1.5 billion in the first nine months of 2021 compared to $849.1 million in the comparable 2020 period. Operational working capital (representing amounts invested in trade receivables and inventories, less current liabilities other than income taxes payable and debt) increased $1.2 billion, or 74%, to $2.9 billion at September 30, 2021, due primarily to increased accounts receivable and inventory, consistent with increased net sales and inventory costs.

Capital Investments. During the first nine months of 2021, we invested $801.7 million in property, plant and equipment, primarily within our steel operations segment, compared with $854.9 million invested during the same period in 2020. We invested $666.2 million in our new Southwest-Sinton Flat Roll Steel Division in the first nine months of 2021, and $639.7 million in the first nine months of 2020. We entered 2021 with ample liquidity of $2.6 billion to provide for our planned 2021 capital requirements, including those necessary to finish construction of our new steel mill. Fourth quarter 2021 capital investments are estimated to exceed $200.0 million.

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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 4% to $0.26 per share in the first quarter 2021 (from $0.25 per share in 2020), resulting in declared cash dividends of $160.2 million during the first nine months of 2021, compared to $157.8 million during the same period in 2020. We paid cash dividends of $161.0 million and $156.7 million during the first nine months of 2021 and 2020, 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.

Other. In February 2020, our board of directors authorized share repurchase program of up to $500.0 million of our common stock. This program was exhausted in July 2021. In July 2021, our board of directors authorized an additional share repurchase program of up to $1.0 billion of our common stock. Under the share repurchase programs, purchases 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 programs do not require us to acquire any specific number of shares, and may be modified, suspended, extended or terminated by us at any time. The share repurchase programs do not have an expiration date. There were $730.8 million and $106.5 million of share repurchases during the first nine months of 2021 and 2020, respectively. As of September 30, 2021, we had $713.2 million remaining available to purchase under the 2021 share repurchase program.

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, business and ongoing COVID-19 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 borrowings under our Revolver, if necessary, 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 noted above.

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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, zinc, and electrodes. 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, water, natural gas and its transportation services, fuel, air products, zinc, and electrodes. Certain of these commitments contain provisions which require us to “take or pay” for specified quantities without regard to actual usage for periods of generally up to 5 years for physical commodity requirements and commodity transportation requirements, with some extending beyond, and for up to 11 remaining 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 idle Minnesota ironmaking operations. 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 while idle.

In our metals recycling and steel operations, we have certain fixed price contracts with various customers and suppliers for future delivery of nonferrous and ferrous 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, 2021, we had a cumulative unrealized gain associated with these financial contracts of $13.8 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 Procedures

As required, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2021, the end of the period covered by this quarterly report, our disclosure controls and procedures were designed to provide and were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in Internal Controls Over Financial Reporting

No changes 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, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

We are involved in various litigation matters, including administrative proceedings, regulatory proceedings, governmental investigations, environmental matters, and commercial and construction contract disputes, none of which are currently 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 penalties, injunctive relief, and/or 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, exclusive of interest and costs, which did not exceed $1 million in aggregate, as of September 30, 2021.

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, 2020.

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-month period ended September 30, 2021.

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Programs (1) (2)

Maximum Dollar Value of Shares That May Yet be Purchased Under the Programs
(
in thousands) (1) (2)

Quarter ended September 30, 2021

July 1 - 31

1,728,066

$

60.48

1,728,066

$

946,295

August 1 - 31

1,773,977

67.25

1,773,977

826,997

September 1 - 30

1,807,150

62.97

1,807,150

713,196

5,309,193

5,309,193

(1)On February 26, 2020, we announced that our board of directors had authorized a share purchase program of up to $500.0 million of our common stock. This program was completed in July 2021.
(2)On July 6, 2021, we announced that our board of directors had authorized an additional share purchase program of up to $1.0 billion of our common stock.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

None.

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ITEM 5.    OTHER INFORMATION

None.

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ITEM 6.    EXHIBITS

Reference is made to the Exhibit Index preceding the signature page hereto, which Exhibit Index is hereby incorporated into this item.

EXHIBIT INDEX

HIDDEN_ROW

Articles of Incorporation

3.1

Amended and Restated Articles of Incorporation of Steel Dynamics, Inc., reflecting all amendments thereto through May 17, 2018, incorporated herein by reference from Exhibit 3.1e to our Form 10-Q filed August 9, 2018.

3.2

Amended and Restated Bylaws of Steel Dynamics, Inc., reflecting all amendments thereto through October 17, 2018, incorporated herein by reference from Exhibit 3.2d to our Form 10-Q filed November 7, 2018.

Executive Officer Certifications

31.1*

Certification of Chief 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 Sarbanes-Oxley Act of 2002.

31.2*

Certification of Chief 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 Sarbanes-Oxley 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 Sarbanes-Oxley 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 Sarbanes-Oxley Act of 2002.

XBRL Documents

101.INS*

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Document

101.DEF*

Inline XBRL Taxonomy Definition Document

101.LAB*

Inline XBRL Taxonomy Extension Label Document

101.PRE*

Inline XBRL Taxonomy Presentation Document

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

Filed concurrently herewith

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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 2, 2021

    

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)

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