20160930 Q3 10Q



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, 2016

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

 

46268

(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, or a smaller reporting company (see definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). 



(Check one):  Large accelerated filer Accelerated filer Non-accelerated filer        Smaller reporting company 





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, 2016, Registrant had 243,815,236 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, 2016 (unaudited) and December 31, 2015

1



 

 



Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2016 and 2015 (unaudited)

2



 

 



Consolidated Statements of Cash Flows for the three- and nine-month periods ended  September 30, 2016 and 2015 (unaudited)

3



 

 



Notes to Consolidated Financial Statements (unaudited)

4



 

 

Item 2.

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

19



 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25



 

 

Item 4.

Controls and Procedures

26



 

 



 

 



 

 



PART II.  Other Information

 



 

 

Item 1.

Legal Proceedings

27



 

 

Item 1A.

Risk Factors

27



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27



 

 

Item 3.

Defaults Upon Senior Securities

27



 

 

Item 4.

Mine Safety Disclosures

27



 

 

Item 5.

Other Information

27



 

 

Item 6.

Exhibits

28



 

 



Signatures

29



 

 





 


 



STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)







 

 

 

 

 

 



 

 

 

 

 

 



September 30,

 

 

December 31,

Assets

2016

 

 

2015



(unaudited)

 

 

 

 

Current assets

 

 

 

 

 

 

  Cash and equivalents

$

1,051,489 

 

 

$

727,032 

  Accounts receivable, net

 

752,232 

 

 

 

579,333 

  Accounts receivable-related parties

 

27,227 

 

 

 

34,272 

  Inventories

 

1,275,575 

 

 

 

1,149,390 

  Other current assets

 

30,121 

 

 

 

47,914 

     Total current assets

 

3,136,644 

 

 

 

2,537,941 



 

 

 

 

 

 

Property, plant and equipment, net

 

2,928,226 

 

 

 

2,951,210 



 

 

 

 

 

 

Restricted cash

 

19,571 

 

 

 

19,565 

Intangible assets, net

 

291,814 

 

 

 

278,960 

Goodwill

 

399,867 

 

 

 

397,470 

Other assets

 

11,440 

 

 

 

16,936 

     Total assets

$

6,787,562 

 

 

$

6,202,082 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

  Accounts payable

$

427,790 

 

 

$

276,725 

  Accounts payable-related parties

 

10,046 

 

 

 

6,630 

  Income taxes payable

 

35,733 

 

 

 

2,023 

  Accrued payroll and benefits                

 

143,986 

 

 

 

94,906 

  Accrued interest

 

47,882 

 

 

 

38,502 

  Accrued expenses

 

112,521 

 

 

 

99,824 

  Current maturities of long-term debt

 

16,155 

 

 

 

16,680 

     Total current liabilities

 

794,113 

 

 

 

535,290 



 

 

 

 

 

 

Long-term debt

 

2,570,837 

 

 

 

2,577,976 

Deferred income taxes

 

450,159 

 

 

 

400,770 

Other liabilities

 

20,751 

 

 

 

16,595 



 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 



 

 

 

 

 

 

Redeemable noncontrolling interests

 

126,340 

 

 

 

126,340 



 

 

 

 

 

 

Equity

 

 

 

 

 

 

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

 

 

 

 

 

 

       263,396,348, and 262,937,139 shares issued; and 243,770,777, and 243,089,514    

 

 

 

 

 

 

       shares outstanding, as of September 30, 2016 and December 31, 2015, respectively

 

640 

 

 

 

638 

  Treasury stock, at cost; 19,625,571, and 19,847,625 shares,

 

 

 

 

 

 

       as of September 30, 2016 and December 31, 2015 respectively

 

(392,051)

 

 

 

(396,455)

  Additional paid-in capital

 

1,132,365 

 

 

 

1,110,253 

  Retained earnings

 

2,224,963 

 

 

 

1,965,291 

     Total Steel Dynamics, Inc. equity

 

2,965,917 

 

 

 

2,679,727 

  Noncontrolling interests

 

(140,555)

 

 

 

(134,616)

     Total equity

 

2,825,362 

 

 

 

2,545,111 

     Total liabilities and equity

$

6,787,562 

 

 

$

6,202,082 























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,



2016

 

2015

 

2016

 

2015



 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

  Unrelated parties

$

2,060,596 

 

$

1,901,415 

 

$

5,737,584 

 

$

5,851,371 

  Related parties

 

40,714 

 

 

49,508 

 

 

128,929 

 

 

151,994 

     Total net sales

 

2,101,310 

 

 

1,950,923 

 

 

5,866,513 

 

 

6,003,365 



 

 

 

 

 

 

 

 

 

 

 

Costs of goods sold

 

1,692,807 

 

 

1,722,197 

 

 

4,841,591 

 

 

5,415,854 

     Gross profit

 

408,503 

 

 

228,726 

 

 

1,024,922 

 

 

587,511 



 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

95,185 

 

 

82,648 

 

 

279,899 

 

 

242,207 

Profit sharing

 

22,255 

 

 

9,008 

 

 

51,722 

 

 

18,637 

Amortization of intangible assets

 

7,208 

 

 

6,041 

 

 

21,359 

 

 

18,308 

     Operating income

 

283,855 

 

 

131,029 

 

 

671,942 

 

 

308,359 



 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of capitalized interest

 

36,199 

 

 

37,084 

 

 

109,888 

 

 

117,334 

Other expense, net

 

4,351 

 

 

239 

 

 

741 

 

 

15,219 

     Income before income taxes

 

243,305 

 

 

93,706 

 

 

561,313 

 

 

175,806 



 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

88,892 

 

 

34,839 

 

 

205,139 

 

 

64,660 

     Net income

 

154,413 

 

 

58,867 

 

 

356,174 

 

 

111,146 



 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

2,984 

 

 

1,750 

 

 

5,929 

 

 

11,782 

     Net income attributable to Steel Dynamics, Inc.

$

157,397 

 

$

60,617 

 

$

362,103 

 

$

122,928 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to Steel Dynamics,

 

 

 

 

 

 

 

 

 

 

 

  Inc. stockholders

$

0.65 

 

$

0.25 

 

$

1.49 

 

$

0.51 



 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

243,761 

 

 

242,074 

 

 

243,539 

 

 

241,836 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to Steel Dynamics, Inc.

 

 

 

 

 

 

 

 

 

 

 

  stockholders, including the effect of assumed conversions

 

 

 

 

 

 

 

 

 

 

 

  when dilutive

$

0.64 

 

$

0.25 

 

$

1.48 

 

$

0.51 



 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and share equivalents outstanding

 

245,682 

 

 

243,822 

 

 

245,227 

 

 

243,393 



 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.1400 

 

$

0.1375 

 

$

0.4200 

 

$

0.4125 

































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,



2016

 

2015

 

2016

 

2015



 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

   Net income

$

154,413 

 

$

58,867 

 

$

356,174 

 

$

111,146 



 

 

 

 

 

 

 

 

 

 

 

   Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

 

 

 

       operating activities:

 

 

 

 

 

 

 

 

 

 

 

       Depreciation and amortization

 

74,190 

 

 

74,211 

 

 

222,970 

 

 

221,306 

       Equity-based compensation

 

5,924 

 

 

5,332 

 

 

21,565 

 

 

20,232 

       Deferred income taxes

 

18,478 

 

 

13,130 

 

 

53,879 

 

 

46,214 

       Loss on disposal of assets

 

161 

 

 

655 

 

 

1,178 

 

 

6,638 

       Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

           Accounts receivable

 

29,384 

 

 

36,361 

 

 

(149,810)

 

 

122,296 

           Inventories

 

(76,013)

 

 

(8,763)

 

 

(102,339)

 

 

317,410 

           Other assets

 

694 

 

 

(3,100)

 

 

12,053 

 

 

8,794 

           Accounts payable

 

(49,171)

 

 

(62,757)

 

 

117,220 

 

 

(127,075)

           Income taxes receivable/payable

 

(7,421)

 

 

19,888 

 

 

40,960 

 

 

29,309 

           Accrued expenses

 

45,701 

 

 

30,554 

 

 

69,361 

 

 

(47,973)

       Net cash provided by operating activities

 

196,340 

 

 

164,378 

 

 

643,211 

 

 

708,297 



 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

   Purchases of property, plant and equipment

 

(59,774)

 

 

(30,286)

 

 

(123,168)

 

 

(86,458)

   Acquisition of business, net of cash acquired

 

(109,065)

 

 

(45,000)

 

 

(109,065)

 

 

(45,000)

   Other investing activities

 

1,507 

 

 

3,715 

 

 

5,767 

 

 

6,184 

       Net cash used in investing activities

 

(167,332)

 

 

(71,571)

 

 

(226,466)

 

 

(125,274)



 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

   Issuance of current and long-term debt

 

12,911 

 

 

67,999 

 

 

97,018 

 

 

179,033 

   Repayment of current and long-term debt

 

(9,999)

 

 

(73,420)

 

 

(95,253)

 

 

(561,428)

   Dividends paid

 

(34,124)

 

 

(33,282)

 

 

(101,639)

 

 

(94,281)

   Stock option exercise proceeds, including related tax effect

 

1,027 

 

 

302 

 

 

7,602 

 

 

7,261 

   Other financing activities

 

 -

 

 

(17)

 

 

(16)

 

 

(1,181)

       Net cash used in financing activities

 

(30,185)

 

 

(38,418)

 

 

(92,288)

 

 

(470,596)



 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and equivalents

 

(1,177)

 

 

54,389 

 

 

324,457 

 

 

112,427 

Cash and equivalents at beginning of period

 

1,052,666 

 

 

419,401 

 

 

727,032 

 

 

361,363 



 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents at end of period

$

1,051,489 

 

$

473,790 

 

$

1,051,489 

 

$

473,790 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure information:

 

 

 

 

 

 

 

 

 

 

 

   Cash paid for interest

$

26,225 

 

$

26,701 

 

$

97,605 

 

$

115,345 

   Cash paid (received) for federal and state income taxes, net

$

75,860 

 

$

1,172 

 

$

104,124 

 

$

(10,321)































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 one of the largest domestic steel producers and metals recyclers. The company has three reportable segments, consistent with how it manages the business: 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 (since its acquisition on August 1, 2016), Roanoke Bar Division, Steel of West Virginia, and Iron Dynamics (IDI), 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 ten downstream coating lines, and one downstream SBQ processing facility. Steel operations accounted for 74% and 69% of the company’s consolidated external net sales during the three months ended September 30, 2016 and 2015, and 72% and 69% of the company’s consolidated external net sales during the nine months ended September 30, 2016 and 2015, respectively.

Metals Recycling Operations Segment. Metals recycling operations include the company’s metals recycling processing locations, and ferrous scrap procurement operations, of OmniSource Corporation. Metals recycling operations accounted for 15% and 18% of the company’s consolidated external net sales during the three months ended September 30, 2016 and 2015, and 15% and 19% of the company’s consolidated external net sales during the nine months ended September 30, 2016 and 2015, respectively.

Steel Fabrication Operations Segment.  Steel fabrication operations include the company’s eight 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 approximately 8% and 9% of the company’s consolidated external net sales during the three months ended September 30, 2016 and 2015, and 9% and 8% of the company’s consolidated external net sales during the nine months ended September 30, 2016 and 2015, respectively.

Other. The  “Other” category consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our Minnesota ironmaking operations that were indefinitely idled in May 2015, and several 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 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, 2015.



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, 2016, and December 31, 2015, (in thousands):





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

September 30,

 

December 31,



 

 

2016

 

2015

Metals Recycling Segment:

 

OmniSource

$

104,247 

 

$

109,039 



 

Butler Flat Roll Division,  Structural and Rail Division,

 

 

 

 

 



 

and Engineered Bar Division

 

95,000 

 

 

95,000 

Steel Segment:

 

The Techs

 

142,783 

 

 

142,783 



 

Roanoke Bar Division

 

29,041 

 

 

29,041 



 

Columbus Flat Roll Division

 

19,682 

 

 

19,682 



 

Vulcan Threaded Products

 

7,189 

 

 

 -

Fabrication Segment:

 

New Millennium Building Systems

 

1,925 

 

 

1,925 



 

 

$

399,867 

 

$

397,470 



OmniSource goodwill decreased $4.8 million from December 31, 2015 to September 30, 2016, in recognition of the 2016 tax benefit related to the normal amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.



Recently Issued Accounting Standards



In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition – Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition.  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. Because the guidance in ASC 606 is principles-based, it can be applied to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Additionally, ASC 606 requires additional disclosures to help users of financial statements better understand the nature, amount, timing, and potential uncertainty of revenue that is recognized. This 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. The company is currently evaluating the impact of the provisions of ASC 606, including the timing and method of adoption.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, 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.  This new guidance is effective for annual and interim periods beginning after December 15, 2016, but can be early adopted. The company is currently evaluating the impact of this ASU’s adoption.

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.  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. 

In March 2016, the FASB issued ASU 2016-09, Improvement to Employee Share-based Payment Accounting, which simplifies several aspects of accounting for share-based payment transactions, including recognizing excess tax benefits and deficiencies as income tax expense or benefit in the income statement and as operating activities within the statement of cash flows, and an option to recognize gross stock compensation expense with actual forfeitures recognized as incurred. This new guidance is effective for annual and interim periods beginning after December 15, 2016, but can be early adopted.  The company is currently evaluating the impact of the provisions of ASU 2016-09, including the timing of adoption. 



Note 2.  Acquisitions



Vulcan Threaded Products, Inc.  



On August 1, 2016, the company completed its acquisition of 100% of Vulcan Threaded Products, Inc. (Vulcan) for $113.0 million, inclusive of $29.2 million in working capital, which is subject to typical post-closing adjustments. The purchase price was paid in cash from available funds. Post-closing operating results of Vulcan are reflected in the steel operations reporting segment. Unaudited proforma operating results as if the acquisition had occurred on January 1, 2015, have not been presented as the effect to 2015 and 2016 consolidated operating results is not significant. Vulcan is the nation’s largest manufacturer and supplier of threaded rod products, and also cold drawn and heat treated steel bar. The acquisition of Vulcan is consistent with one of our target growth objectives – higher-margin downstream business opportunities that utilize our steel products in their manufacturing processes. Vulcan utilizes special-bar-quality products produced at our Engineered Bar Products Division.







5

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 2.  Acquisitions (Continued)



The aggregate purchase price was allocated on a preliminarily basis to the opening balance sheet of Vulcan as of the August 1, 2016, acquisition date. The following initial allocation of the purchase price (in thousands) is preliminary. The accounting for the acquisition has not yet been finalized based on the company’s valuation of the acquired assets, assumed liabilities and identifiable intangible assets, including goodwill, if any. The preliminary fair values were determined using various valuation techniques that in each case used Level 3 inputs as provided for under ASC 820.





 

 

Current assets, net of cash acquired

$

36,958 

Property, plant & equipment

 

40,213 

Intangible assets

 

32,930 

Goodwill

 

7,189 

Total assets acquired

 

117,290 



 

 

Liabilities assumed

 

4,456 



 

 

   Net assets acquired

$

112,834 



The preliminary assessment allocates $32.9 million of the purchase price to the following intangible assets, including customer relationships, trade name, and noncompete agreements. The company plans to utilize an accelerated amortization methodology to follow the pattern in which the economic benefits of the customer relationship intangible asset is anticipated to be consumed. The company plans to amortize the intangible assets related to the trade name and noncompete agreements using a straight line methodology. However, the expected lives and specific amortization methods are subject to finalization of the company’s valuation process. 



Consolidated Systems, Inc.  



On September 14, 2015, the company purchased from CSi certain of its steel deck facilities (including associated assets) and net working capital of approximately $30.0 million, for a purchase price of $45.0 million in cash. Operating results of these facilities have been reflected in the company’s financial statements under the steel fabrication operations since the September 14, 2015, purchase date. The purchased assets include two deck facilities located in Memphis, Tennessee, and Phoenix, Arizona. Producing both standard and premium specialty deck profiles, the new locations will allow for enhanced geographic reach into the southwestern and western markets, and further diversify New Millennium Building Systems’ product offerings.



Note 3.  Earnings Per Share



Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive stock options, restricted stock units and deferred stock units; 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- month periods ended September 30, 2016 and 2015.



The following table presents 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, 2016 and 2015 (in thousands, except per share data):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,



2016

 

2015



Net Income

 

 

Shares

 

Per Share

 

Net Income

 

 

Shares

 

Per Share



(Numerator)

 

 

(Denominator)

 

Amount

 

(Numerator)

 

 

(Denominator)

 

Amount

Basic earnings per share

$

157,397 

 

 

243,761 

 

$

0.65 

 

$

60,617 

 

 

242,074 

 

$

0.25 

Dilutive common share equivalents

 

 -

 

 

1,921 

 

 

 

 

 

 -

 

 

1,748 

 

 

 

Diluted earnings per share

$

157,397 

 

 

245,682 

 

$

0.64 

 

$

60,617 

 

 

243,822 

 

$

0.25 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Nine Months Ended September 30,



2016

 

2015



Net Income

 

Shares

 

Per Share

 

Net Income

 

Shares

 

Per Share



(Numerator)

 

(Denominator)

 

Amount

 

(Numerator)

 

(Denominator)

 

Amount

Basic earnings per share

$

362,103 

 

 

243,539 

 

$

1.49 

 

$

122,928 

 

 

241,836 

 

$

0.51 

Dilutive common share equivalents

 

 -

 

 

1,688 

 

 

 

 

 

 -

 

 

1,557 

 

 

 

Diluted earnings per share

$

362,103 

 

 

245,227 

 

$

1.48 

 

$

122,928 

 

 

243,393 

 

$

0.51 







6

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 4.  Inventories



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











 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

September 30,

 

December 31,

 

 



 

 

2016

 

2015

 

 



 

Raw materials

$

490,164 

 

$

419,608 

 

 



 

Supplies

 

392,433 

 

 

396,349 

 

 



 

Work in progress

 

124,428 

 

 

90,486 

 

 



 

Finished goods

 

268,550 

 

 

242,947 

 

 



 

Total inventories

$

1,275,575 

 

$

1,149,390 

 

 





Note 5.  Debt



On March 16, 2015, the company called and repaid all $350.0 million of its outstanding 7 5/8% Senior Notes due 2020 (the “Notes”) at a redemption price of 103.813% of the principal amount of the Notes, plus accrued and unpaid interest to, but not including, the date of redemption. Associated premiums and the write off of deferred financing costs of approximately $16.7 million were recorded in other expense in conjunction with the redemption.



Note 6.  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

 

Paid-In

 

Retained

 

Treasury

 

Noncontrolling

 

Total

 

Noncontrolling



Stock

 

Capital

 

Earnings

 

Stock

 

Interests

 

Equity

 

Interests

Balances at December 31, 2015

$

638 

 

$

1,110,253 

 

$

1,965,291 

 

$

(396,455)

 

$

(134,616)

 

$

2,545,111 

 

$

126,340 

Exercise of stock options proceeds, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  including related tax effect

 

 

 

7,874 

 

 

 -

 

 

 -

 

 

 -

 

 

7,876 

 

 

 -

Dividends declared

 

 -

 

 

 -

 

 

(102,342)

 

 

 -

 

 

 -

 

 

(102,342)

 

 

 -

Distributions to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  investors, net

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(10)

 

 

(10)

 

 

 -

Equity-based compensation

 

 -

 

 

14,238 

 

 

(89)

 

 

4,404 

 

 

 -

 

 

18,553 

 

 

 -

Comprehensive and net income (loss)

 

 -

 

 

 -

 

 

362,103 

 

 

 -

 

 

(5,929)

 

 

356,174 

 

 

 -

Balances at September 30, 2016

$

640 

 

$

1,132,365 

 

$

2,224,963 

 

$

(392,051)

 

$

(140,555)

 

$

2,825,362 

 

$

126,340 









Note 7.  Derivative Financial Instruments



The company is exposed to certain risks relating to its ongoing business operations. The company utilizes derivative instruments to mitigate commodity margin risk, 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. 



7

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 7.  Derivative Financial Instruments (Continued)

Commodity Futures Contracts.  If the company is “long” on futures contracts, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity. If the company is “short” on a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s futures contract commitments as of September 30, 2016 (MT represents metric tons):







 

 

 

 

 

 

 



 

 

 

 

 

 

 



Commodity Futures

 

Long/Short

 

Total

 

 



Aluminum

 

Long

 

1,750 

MT

 



Aluminum

 

Short

 

1,575 

MT

 



Copper

 

Long

 

4,413 

MT

 



Copper

 

Short

 

13,950 

MT

 



 

 

 

 

 

 

 



The following summarizes the location and amounts of the fair values reported on the company’s balance sheets as of September 30, 2016, and December 31, 2015, and gains and losses related to derivatives included in the company’s statement of income for the three and nine months ended September 30, 2016 and 2015 (in thousands):









 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



Asset Derivatives

 

Liability Derivatives



Balance sheet

 

Fair Value

 

Fair Value



 location

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

December 31, 2015

Derivative instruments designated

 

 

 

 

 

 

 

 

 

 

 

 

 

as fair value hedges -

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

Other current assets

 

$

451 

 

$

857 

 

$

1,156 

 

$

2,860 



 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments not designated

 

 

 

 

 

 

 

 

 

 

 

 

 

as hedges -

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

Other current assets

 

 

171 

 

 

908 

 

 

1,037 

 

 

1,065 

Total derivative instruments

 

 

$

622 

 

$

1,765 

 

$

2,193 

 

$

3,925 





The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $1.7 million at September 30, 2016, and $3.4 million at December 31, 2015, 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

 

2016

 

2015

 

relationships

 

items

 

2016

 

2015

Derivatives in fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

hedging relationships -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

 

Costs of goods sold

 

$

826 

 

$

(2,825)

 

Firm commitments

 

Costs of goods sold

 

$

(793)

 

$

662 



 

 

 

 

 

 

 

 

 

Inventory

 

Costs of goods sold

 

 

(177)

 

 

800 

Derivatives not designated

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(970)

 

$

1,462 

as hedging instruments -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity futures

 

Costs of goods sold

 

$

(638)

 

$

6,707 

 

 

 

 

 

 

 

 

 

 

8

 


 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 7.  Derivative Financial Instruments (Continued)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 </