XMEX:STLD Steel Dynamics Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended March 31, 2012

 

OR

 

o

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

 

Commission File Number 0-21719

 

Steel Dynamics, Inc.

(Exact name of registrant as specified in its charter)

 

Indiana

 

35-1929476

(State or other jurisdiction of incorporation or organization)

 

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

 

7575 West Jefferson Blvd, Fort Wayne, IN

 

46804

(Address of principal executive offices)

 

(Zip Code)

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x No o

 

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 x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

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

 

As of April 30, 2012, Registrant had 219,084,717 outstanding shares of common stock.

 

 

 



Table of Contents

 

STEEL DYNAMICS, INC.

Table of Contents

 

 

 

Page

 

 

 

 

PART I. Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011

1

 

 

 

 

Consolidated Statements of Income for the three-month periods ended March 31, 2012 and 2011 (unaudited)

2

 

 

 

 

Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2012 and 2011 (unaudited)

3

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

4

 

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

 

 

 

Item 4.

Controls and Procedures

23

 

 

 

 

 

 

 

 

 

 

PART II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

24

 

 

 

Item 1A.

Risk Factors

24

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

 

 

Item 3.

Defaults Upon Senior Securities

24

 

 

 

Item 4.

Mine Safety Disclosures

24

 

 

 

Item 5.

Other Information

24

 

 

 

Item 6.

Exhibits

24

 

 

 

 

Signatures

26

 



Table of Contents

 

STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and equivalents

 

$

357,809

 

$

390,761

 

Investments in short-term commercial paper

 

64,982

 

84,830

 

Accounts receivable, net

 

737,531

 

679,898

 

Accounts receivable-related parties

 

51,643

 

42,893

 

Inventories

 

1,270,941

 

1,199,584

 

Deferred income taxes

 

26,089

 

25,341

 

Income taxes receivable

 

2,833

 

16,722

 

Other current assets

 

15,029

 

15,229

 

Total current assets

 

2,526,857

 

2,455,258

 

 

 

 

 

 

 

Property, plant and equipment, net

 

2,199,509

 

2,193,745

 

 

 

 

 

 

 

Restricted cash

 

26,994

 

26,528

 

Intangible assets, net

 

442,277

 

450,893

 

Goodwill

 

743,441

 

745,066

 

Other assets

 

104,549

 

107,736

 

Total assets

 

$

6,043,627

 

$

5,979,226

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

462,492

 

$

414,240

 

Accounts payable-related parties

 

9,765

 

6,584

 

Income taxes payable

 

14,383

 

10,880

 

Accrued expenses

 

186,247

 

185,964

 

Accrued profit sharing

 

9,348

 

38,671

 

Current maturities of long-term debt

 

439,633

 

444,078

 

Total current liabilities

 

1,121,868

 

1,100,417

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

Term loan

 

257,812

 

 

7 3/8% senior notes, due 2012

 

 

261,250

 

5.125% convertible senior notes, due 2014

 

287,500

 

287,500

 

6 ¾% senior notes, due 2015

 

500,000

 

500,000

 

7 ¾% senior notes, due 2016

 

500,000

 

500,000

 

7 5/8% senior notes, due 2020

 

350,000

 

350,000

 

Other long-term debt

 

36,707

 

37,272

 

Total long-term debt

 

1,932,019

 

1,936,022

 

 

 

 

 

 

 

Deferred income taxes

 

500,642

 

489,915

 

Other liabilities

 

82,613

 

82,278

 

Commitments and contingencies

 

 

 

 

 

Redeemable noncontrolling interest

 

73,924

 

70,694

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Common stock voting, $.0025 par value; 900,000,000 shares authorized; 255,171,906 and 255,052,811 shares issued; and 219,074,339 and 218,873,720 shares outstanding, as of March 31, 2012 and December 31, 2011, respectively

 

636

 

636

 

Treasury stock, at cost; 36,097,567 and 36,179,091 shares, as of March 31, 2012 and December 31, 2011, respectively

 

(721,024

)

(722,653

)

Additional paid-in capital

 

1,031,043

 

1,026,157

 

Retained earnings

 

2,035,569

 

2,011,801

 

Total Steel Dynamics, Inc. equity

 

2,346,224

 

2,315,941

 

Noncontrolling interests

 

(13,663

)

(16,041

)

Total equity

 

2,332,561

 

2,299,900

 

Total liabilities and equity

 

$

6,043,627

 

$

5,979,226

 

 

See notes to consolidated financial statements.

 

1



Table of Contents

 

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Net sales

 

 

 

 

 

Unrelated parties

 

$

1,905,075

 

$

1,941,664

 

Related parties

 

76,965

 

74,305

 

Total net sales

 

1,982,040

 

2,015,969

 

 

 

 

 

 

 

Costs of goods sold

 

1,780,776

 

1,720,215

 

Gross profit

 

201,264

 

295,754

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

64,384

 

65,141

 

Profit sharing

 

8,072

 

15,203

 

Amortization of intangibles

 

8,992

 

10,084

 

Total selling, general and administrative expenses

 

81,448

 

90,428

 

 

 

 

 

 

 

Operating income

 

119,816

 

205,326

 

 

 

 

 

 

 

Interest expense, net of capitalized interest

 

41,112

 

43,346

 

Other expense (income), net

 

10,248

 

(4,567

)

Income before income taxes

 

68,456

 

166,547

 

 

 

 

 

 

 

Income taxes

 

26,679

 

62,317

 

 

 

 

 

 

 

Net income

 

41,777

 

104,230

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

3,898

 

1,673

 

 

 

 

 

 

 

Net income attributable to Steel Dynamics, Inc.

 

$

45,675

 

$

105,903

 

 

 

 

 

 

 

Basic earnings per share attributable to Steel Dynamics, Inc. stockholders

 

$

.21

 

$

.49

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

218,996

 

217,992

 

 

 

 

 

 

 

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

 

$

.20

 

$

.46

 

 

 

 

 

 

 

Weighted average common shares and share equivalents outstanding

 

236,526

 

236,224

 

 

 

 

 

 

 

Dividends declared per share

 

$

.100

 

$

.100

 

 

See notes to consolidated financial statements.

 

2



Table of Contents

 

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Operating activities:

 

 

 

 

 

Net income

 

$

41,777

 

$

104,230

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

55,572

 

54,746

 

Equity-based compensation

 

6,123

 

3,710

 

Deferred income taxes

 

9,197

 

12,935

 

Gain on disposal of property, plant and equipment

 

(739

)

(43

)

Changes in certain assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(60,820

)

(261,748

)

Inventories

 

(55,090

)

(72,107

)

Other assets

 

2,963

 

3,382

 

Accounts payable

 

34,902

 

94,175

 

Income taxes receivable/payable

 

17,392

 

45,439

 

Accrued expenses

 

(29,856

)

19,218

 

Net cash provided by operating activities

 

21,421

 

3,937

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property, plant and equipment

 

(45,555

)

(18,693

)

Other investing activities

 

(1,864

)

(1,143

)

Net cash used in investing activities

 

(47,419

)

(19,836

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Issuance of current and long-term debt

 

289,969

 

5,126

 

Repayment of current and long-term debt

 

(283,448

)

(7,325

)

Debt issuance costs

 

(2,191

)

 

Proceeds from exercise of stock options, including related tax effect

 

1,097

 

8,296

 

Contributions from noncontrolling investors, net

 

9,506

 

417

 

Dividends paid

 

(21,887

)

(16,318

)

Net cash used in financing activities

 

(6,954

)

(9,804

)

 

 

 

 

 

 

Decrease in cash and equivalents

 

(32,952

)

(25,703

)

Cash and equivalents at beginning of period

 

390,761

 

186,513

 

 

 

 

 

 

 

Cash and equivalents at end of period

 

$

357,809

 

$

160,810

 

 

 

 

 

 

 

Supplemental disclosure information:

 

 

 

 

 

Cash paid for interest

 

$

18,753

 

$

15,110

 

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

 

$

(955

)

$

1,520

 

 

See notes to consolidated financial statements.

 

3



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 1.  Description of the Business and Significant Accounting Policies

 

Description of the Business

 

Steel Dynamics, Inc. (SDI), together with its subsidiaries (the company), is a domestic manufacturer of steel products and metals recycler. The company has three reporting segments: steel operations, metals recycling and ferrous resources operations, and steel fabrication operations.

 

Steel Operations.  Steel operations include the company’s Flat Roll Division, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, Steel of West Virginia (SWVA) and The Techs operations. These operations consist of mini-mills, producing steel from steel scrap, using electric arc furnaces, continuous casting, automated rolling mills, and downstream finishing facilities. The company’s steel operations sell directly to end users and service centers. These products are used in numerous industry sectors, including the automotive, construction, commercial, transportation and industrial machinery markets. Steel operations accounted for approximately 60% and 59% of the company’s external net sales during the three-month periods ended March 31, 2012 and 2011, respectively.

 

Metals Recycling and Ferrous Resources Operations. Metals recycling and ferrous resources operations include OmniSource Corporation (OmniSource), the company’s metals recycling, steel scrap procurement, and processing locations, and our two ironmaking initiatives: Iron Dynamics (IDI), a liquid pig iron production facility; and our Minnesota iron operations, an iron nugget production facility and planned operations to supply the nugget facility with its primary raw material, iron concentrate. Metals recycling and ferrous resources operations accounted for approximately 35% and 37% of the company’s external net sales during each of the three-month periods ended March 31, 2012 and 2011, respectively.

 

Steel Fabrication Operations.  Steel fabrication operations include the company’s New Millennium Building Systems plants located throughout the United States and Northern Mexico. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel decking used within the non-residential construction industry. Steel fabrication operations accounted for approximately 4% and 3% of the company’s external net sales during the three-month periods ended March 31, 2012 and 2011, respectively.

 

Significant Accounting Policies

 

Principles of Consolidation. The consolidated financial statements include the accounts of SDI, together with its wholly and majority-owned or controlled subsidiaries, after elimination of significant intercompany accounts and transactions.  Noncontrolling interests represent the noncontrolling owner’s proportionate share in the equity, income, or losses of the company’s majority-owned or controlled consolidated subsidiaries.

 

Use of Estimates.  These financial statements are prepared in conformity with accounting principles generally accepted in the United States and, accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the financial statements and in the notes thereto.  Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, intangible assets and goodwill; valuation allowances for trade receivables, inventories and deferred income tax assets; income taxes; unrecognized income 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, 2011.

 

Goodwill.  The company’s goodwill is allocated to the following reporting units at March, 2012, and December 31, 2011, (in thousands):

 

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

OmniSource — Metals Recycling/Ferrous Resources Segment

 

$

569,692

 

$

571,317

 

The Techs — Steel Segment

 

142,783

 

142,783

 

Roanoke Bar Division — Steel Segment

 

29,041

 

29,041

 

New Millennium Building Systems — Fabrication Segment

 

1,925

 

1,925

 

 

 

$

743,441

 

$

745,066

 

 

OmniSource goodwill decreased $1.6 million from December 31, 2011 to March 31, 2012, in recognition of the 2012 tax benefit related to the amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.

 

4



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 2.  Earnings Per Share

 

Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive stock options and restricted shares, and dilutive shares related to the company’s 5.125% convertible senior notes, and are excluded from the computation in periods in which they have an anti-dilutive effect. Options to purchase 3.9 million and 1.2 million shares were anti-dilutive at March 31, 2012 and 2011, respectively.

 

The following table presents a reconciliation of the numerators and the denominators of the company’s basic and diluted earnings per share computations for net income attributable to Steel Dynamics, Inc. (in thousands, except per share data):

 

 

 

Three Months Ended March,

 

 

 

2012

 

2011

 

 

 

Net Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

Net Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

Basic earnings per share

 

$

45,675

 

218,996

 

$

.21

 

$

105,903

 

217,992

 

$

.49

 

Dilutive stock option effect

 

 

1,148

 

 

 

 

1,850

 

 

 

5.125% convertible senior notes, net of tax

 

2,358

 

16,382

 

 

 

2,358

 

16,382

 

 

 

Diluted earnings per share

 

$

48,033

 

236,526

 

$

.20

 

$

108,261

 

236,224

 

$

.46

 

 

Note 3.  Inventories

 

Inventories are stated at lower of cost or market.  Cost is determined principally on a first-in, first-out basis.  Inventories consisted of the following (in thousands):

 

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Raw materials

 

$

644,142

 

$

609,150

 

Supplies

 

258,061

 

251,716

 

Work-in-progress

 

106,110

 

106,609

 

Finished goods

 

262,628

 

232,109

 

Total inventories

 

$

1,270,941

 

$

1,199,584

 

 

Note 4.  Debt

 

On January 11, 2012, the company expanded its senior secured credit facility by adding a $275.0 million term loan that matures on September 30, 2016 (Term Loan).  Quarterly principal payments under the Term Loan are required to be made in amounts ranging from 1.25% to 3.75% of the original principal amount, with the unpaid principal balance of approximately $158.0 million due on the maturity date.  The company used the net proceeds of the Term Loan, together with cash on hand, to fund the January 2012 purchase of $279.7 million of the company’s 7 3/8% Senior Notes, due 2012 pursuant to a tender offer. As a result of the tender the company recorded expenses of $13.9 million related to the tender premium, unamortized debt issuance costs write-off, and tender expenses, which are reflected in other expenses in the consolidated statement of income for the three months ended March 31, 2012.

 

5



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 5.  Changes in Equity

 

The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to stockholders of Steel Dynamics, Inc. and equity attributable to the noncontrolling interests (in thousands):

 

 

 

 

 

Stockholders of Steel Dynamics, Inc.

 

 

 

 

 

Total

 

Common

 

Additional
Paid-In

 

Retained

 

Treasury

 

Noncontrolling

 

 

 

Equity

 

Stock

 

Capital

 

Earnings

 

Stock

 

Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2012

 

$

2,299,900

 

$

636

 

$

1,026,157

 

$

2,011,801

 

$

(722,653

)

$

(16,041

)

Proceeds from the exercise of stock options, including related tax effect

 

1,097

 

 

1,097

 

 

 

 

Dividends declared

 

(21,907

)

 

 

(21,907

)

 

 

Equity-based compensation and issuance of restricted stock

 

5,418

 

 

3,789

 

 

1,629

 

 

Contributions from noncontrolling investors

 

6,314

 

 

 

 

 

6,314

 

Distributions to noncontrolling investor

 

(38

)

 

 

 

 

(38

)

Net income (loss)

 

41,777

 

 

 

45,675

 

 

(3,898

)

Balances at March 31, 2012

 

$

2,332,561

 

$

636

 

$

1,031,043

 

$

2,035,569

 

$

(721,024

)

$

(13,663

)

 

Note 6.  Derivative Financial Instruments

 

The company is exposed to certain risks relating to its ongoing business operations. At times the company utilizes derivative instruments to mitigate commodity margin risk, interest rate risk, and foreign currency exchange rate risk. Forward and option contracts on various commodities are entered into to manage the price risk associated with forecasted purchases and sales of nonferrous metals (specifically aluminum, copper, nickel and silver) from the company’s metals recycling operations. Interest rate swaps may be entered into to manage interest rate risk associated with the company’s fixed and floating-rate borrowings. Forward exchange contracts on various foreign currencies may be entered into to manage foreign currency exchange rate risk as necessary. No interest rate swaps or significant forward exchange contracts on foreign currency existed for the periods presented.

 

Cash Flow Hedging Strategy.  For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “interest expense” when the hedged transactions are interest cash flows associated with floating-rate borrowings). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffectiveness portion), or hedge components excluded from the assessment of effectiveness, are recognized in the statement of income during the current period.

 

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 futures contracts, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity.  The following summarizes the company’s commodity option and futures contract commitments as of March 31, 2012 (MT represents metric tons and Lbs represents pounds):

 

Commodity Options — nickel

 

 

 

60

 

MT

 

Commodity Futures

 

Long/Short

 

Total

 

 

Aluminum

 

Long

 

8,400

 

MT

Aluminum

 

Short

 

5,225

 

MT

Copper

 

Long

 

4,559

 

MT

Copper

 

Short

 

11,215

 

MT

Nickel

 

Long

 

132

 

MT

Nickel

 

Short

 

192

 

MT

Silver

 

Short

 

686

 

Lbs

 

6



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 6.  Derivative Financial Instruments (continued)

 

The following summarizes the location and amounts of the fair values and gains or losses related to derivatives included in the company’s financial statements as of March 31, 2012, and December 31, 2011, and for the three-month periods ended March 31, 2012 and 2011 (in thousands):

 

 

 

 

 

Fair Value

 

Balance Sheets

 

 

 

March 31, 2012

 

December 31, 2011

 

Commodity futures and options — net asset

 

Other current assets

 

$

784

 

$

 

Commodity futures — net liability

 

Accrued expenses

 

 

1,219

 

 

 

 

 

 

Gain (Loss) for Three Months Ended

 

Statements of Income

 

 

 

March 31, 2012

 

March 31, 2011

 

Commodity futures

 

Costs of goods sold

 

$

(3,618

)

$

2,923

 

 

Note 7.  Fair Value Measurements

 

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

 

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

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

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

 

The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective levels to which the fair value measurements are classified within the fair value hierarchy as of March 31, 2012, and December 31, 2011 (in thousands):

 

 

 

Total

 

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in short-term commercial paper

 

$

64,982

 

$

 

$

64,982

 

$

 

Commodity options — financial assets

 

37

 

 

37

 

 

Commodity futures — financial assets

 

3,046

 

 

3,046

 

 

Commodity futures — financial liabilities

 

2,299

 

 

2,299

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

Investment in short-term commercial paper

 

84,830

 

 

84,830

 

 

Commodity futures — financial assets

 

3,159

 

 

3,159

 

 

Commodity futures — financial liabilities

 

4,378

 

 

4,378

 

 

 

The carrying amounts of financial instruments including cash and equivalents, accounts receivable and accounts payable approximate fair value, because of the relatively short maturity of these instruments. The fair values of short-term commercial paper and commodity futures and options contracts are estimated by the use of quoted market prices, estimates obtained from brokers, and other appropriate valuation techniques based on references available. The fair value of long-term debt, including current maturities, as determined by quoted market prices, was approximately $2.5 billion (with a corresponding carrying amount in the consolidated balance sheet of $2.4 billion) at both March 31, 2012 and December 31, 2011.

 

7



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 8.  Commitments and Contingencies

 

The company is involved, along with eight other steel manufacturing companies, in a class action antitrust complaint filed in federal court in Chicago, Illinois that alleges a conspiracy to fix, raise, maintain and stabilize the price at which steel products were sold in the United States starting in 2005, by artificially restricting the supply of such steel products. All but one of the Complaints purport to be brought on behalf of a class consisting of all direct purchasers of steel products between January 1, 2005, and the present. The other Complaint purports to be brought on behalf of a class consisting of all indirect purchasers of steel products within the same time period. In addition, on December 28, 2010, we and the other co-defendants were served with a substantially similar complaint in the Circuit Court of Cocke County, Tennessee, purporting to be on behalf of indirect purchasers of steel products in Tennessee. The case has been removed to federal court and transferred to the federal court in Chicago. All Complaints seek treble damages and costs, including reasonable attorney fees, pre- and post-judgment interest and injunctive relief. On January 2, 2009, Steel Dynamics and the other defendants filed a Joint Motion to Dismiss all of the direct purchaser lawsuits. On June 12, 2009, however, the Court denied the Motion. The parties are currently conducting discovery related primarily to class certification matters. Due to the uncertain nature of litigation, the company cannot presently determine the ultimate outcome of this litigation. However, the company believes that, based on the information available to us at this time, there is not presently a “reasonable possibility” (as that term is defined in ASC 450-20-20) that the outcome of these legal proceedings would have a material impact on the company’s financial condition, results of operations, or liquidity.

 

Although not presently necessary or appropriate to make a dollar estimate of exposure to loss, if any, in connection with the above matter, the company may in the future determine that a loss accrual is necessary. Although the company may make loss accruals, if and as warranted, any amounts that the company may accrue from time to time could vary significantly from the amounts the company actually pays, due to the inherent uncertainties and shortcomings of the estimation process, the uncertainties involved in litigation and other factors. Additionally, under such circumstances an adverse result could have a material effect on the company’s financial condition, results of operations and liquidity.

 

8



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 9.  Segment Information

 

The company has three reportable segments: steel operations, metals recycling and ferrous resources operations, and steel fabrication operations.  These operations are described in Note 1 to the financial statements.  Revenues included in the category “Other” are from subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of further processing, slitting, and sale of certain steel products and the resale of certain secondary and excess steel products.  In addition, “Other” also includes certain unallocated corporate accounts, such as the company’s senior secured credit facilities, senior notes and convertible senior notes, certain other investments, and certain profit sharing expenses.

 

The company’s operations are primarily organized and managed by operating segment.  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 financial statements. Intra-segment and intra-company sales and any related profits are eliminated in consolidation. Refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2011, for more information related to the company’s segment reporting.  The company’s segment results for the three-month periods ended March 31, 2012 and 2011 are as follows (in thousands):

 

For the three months ended

 

 

 

Metals Recycling/

 

Steel Fabrication

 

 

 

 

 

 

 

March 31, 2012

 

Steel Operations

 

Ferrous Resources

 

Operations

 

Other

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

1,135,912

 

$

634,134

 

$

74,892

 

$

20,732

 

$

 

$

1,865,670

 

External Non-U.S.

 

50,808

 

65,466

 

 

96

 

 

116,370

 

Other segments

 

47,759

 

411,520

 

4

 

3,262

 

(462,545

)

 

 

 

1,234,479

 

1,111,120

 

74,896

 

24,090

 

(462,545

)

1,982,040

 

Operating income (loss)

 

137,308

 

4,163

 

(2,668

)

(16,862

)(1)

(2,125

)(2)

119,816

 

Income (loss) before income taxes

 

119,078

 

(4,273

)

(4,184

)

(40,040

)

(2,125

)

68,456

 

Depreciation and amortization

 

26,084

 

26,074

 

1,848

 

1,617

 

(51

)

55,572

 

Capital expenditures

 

5,948

 

37,906

 

1,168

 

533

 

 

45,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

2,677,623

 

2,610,476

 

231,284

 

712,673

(3)

(188,429

)(4)

6,043,627

 

Liabilities

 

494,177

 

574,598

 

14,542

 

2,732,432

(5)

(178,607

)(6)

3,637,142

 

 


Footnotes related to the three months ended March 31, 2012 segment results (in millions):

 

(1)

Corporate SG&A

 

$

(7.6

)

 

Company-wide stock option expense

 

(3.7

)

 

Profit sharing

 

(6.5

)

 

Other, net

 

0.9

 

 

 

 

$

(16.9

)

 

(2)

Gross profit reduction from intra-company sales

 

$

(2.1

)

 

(3)

Cash and equivalents

 

$

278.2

 

 

Investments in short-term commercial paper

 

65.0

 

 

Income taxes receivable

 

2.8

 

 

Deferred income taxes

 

26.1

 

 

Property, plant and equipment, net

 

84.6

 

 

Debt issuance costs, net

 

24.0

 

 

Intra-company debt

 

149.6

 

 

Other

 

82.4

 

 

 

 

$

712.7

 

 

(4)

Elimination of intra-company receivables

 

$

(27.9

)

 

Elimination of intra-company debt

 

(149.6

)

 

Other

 

(10.9

)

 

 

 

$

(188.4

)

 

(5)

Accounts payable

 

$

29.2

 

 

Income taxes payable

 

14.6

 

 

Accrued interest

 

54.5

 

 

Accrued profit sharing

 

6.6

 

 

Debt

 

2,333.6

 

 

Deferred income taxes

 

213.1

 

 

Other

 

80.8

 

 

 

 

$

2,732.4

 

 

(6)

Elimination of intra-company payables

 

$

(27.9

)

 

Elimination of intra-company debt

 

(149.6

)

 

Other

 

(1.1

)

 

 

 

$

(178.6

)

 

9



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 9.  Segment Information (continued)

 

For the three months ended

 

 

 

Metals Recycling/

 

Steel Fabrication

 

 

 

 

 

 

 

March 31, 2011

 

Steel Operations

 

Ferrous Resources

 

Operations

 

Other

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

External

 

$

1,146,489

 

$

672,341

 

$

52,079

 

$

25,524

 

$

 

$

1,896,433

 

External Non-U.S.

 

48,575

 

70,824

 

 

137

 

 

119,536

 

Other segments

 

51,946

 

365,250

 

573

 

2,471

 

(420,240

)

 

 

 

1,247,010

 

1,108,415

 

52,652

 

28,132

 

(420,240

)

2,015,969

 

Operating income (loss)

 

192,955

 

39,490

 

(2,883

)

(24,256

)(1)

20

(2)

205,326

 

Income (loss) before income taxes

 

172,709

 

29,084

 

(4,445

)

(30,742

)

(59

)

166,547

 

Depreciation and amortization

 

27,193

 

24,914

 

1,502

 

1,188

 

(51

)

54,746

 

Capital expenditures

 

7,279

 

10,251

 

532

 

631

 

 

18,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets (7)

 

2,731,625

 

2,582,048

 

209,232

 

504,989

(3)

(200,289

)(4)

5,827,605

 

Liabilities (7)

 

456,170

 

544,225

 

16,780

 

2,772,754

(5)

(190,018

)(6)

3,599,911

 

 


Footnotes related to March 31, 2011 segment results (in millions):

 

(1)

Corporate SG&A

 

$

(9.3

)

 

Company-wide stock option expense

 

(3.7

)

 

Profit sharing

 

(13.3

)

 

Other, net

 

2.0

 

 

 

 

$

(24.3

)

 

(2)

Gross profit reduction from intra-company sales

 

$

(0.02

)

 

(3)

Cash and equivalents

 

$

149.9

 

 

Income taxes receivable

 

6.3

 

 

Deferred income taxes

 

21.0

 

 

Property, plant and equipment, net

 

69.0

 

 

Debt issuance costs, net

 

22.9

 

 

Intra-company debt

 

147.4

 

 

Other

 

88.5

 

 

 

 

$

505.0

 

 

(4)

Elimination of intra-company receivables

 

$

(42.0

)

 

Elimination of intra-company debt

 

(147.4

)

 

Other

 

(10.9

)

 

 

 

$

(200.3

)

 

(5)

Accounts payable

 

$

41.7

 

 

Income taxes payable

 

19.6

 

 

Accrued interest

 

61.8

 

 

Accrued profit sharing

 

13.6

 

 

Debt

 

2,341.0

 

 

Deferred income taxes

 

228.2

 

 

Other

 

66.9

 

 

 

 

$

2,772.8

 

 

(6)

Elimination of intra-company payables

 

$

(42.0

)

 

Elimination of intra-company debt

 

(147.4

)

 

Other

 

(0.6

)

 

 

 

$

(190.0

)

 

(7)  Certain segment deferred tax asset and liability accounts have been reclassified at March 31, 2011, to conform to the March 31, 2012 presentation.  These reclassifications had no impact to the previously reported segment income statement information or consolidated income statements as previously reported, nor did they impact previously reported consolidated total assets or liabilities.

 

10



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information

 

Certain 100%-owned subsidiaries of SDI have fully and unconditionally guaranteed all of the indebtedness relating to the issuance of the company’s senior notes due 2012, 2014, 2015, 2016, and 2020. Following are the company’s condensed consolidating financial statements, including the guarantors, which present the financial position, results of operations and cash flows of (i) SDI (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries of SDI, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information for the company on a consolidated basis. The following statements should be read in conjunction with the accompanying consolidated financial statements and the company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

Condensed Consolidating Balance Sheets (in thousands)

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

 

As of March 31, 2012

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

 

Cash and equivalents

 

$

273,952

 

$

67,989

 

$

15,868

 

$

 

$

357,809

 

Investments in short-term commercial paper

 

64,982

 

 

 

 

64,982

 

Accounts receivable, net

 

314,044

 

801,967

 

11,469

 

(338,306

)

789,174

 

Inventories

 

695,432

 

508,592

 

71,260

 

(4,343

)

1,270,941

 

Other current assets

 

53,772

 

6,271

 

1,944

 

(18,036

)

43,951

 

Total current assets

 

1,402,182

 

1,384,819

 

100,541

 

(360,685

)

2,526,857

 

Property, plant and equiment, net

 

1,043,186

 

663,035

 

496,065

 

(2,777

)

2,199,509

 

Intangible assets, net

 

 

442,277

 

 

 

442,277

 

Goodwill

 

 

743,441

 

 

 

743,441

 

Other assets, including investments in subs

 

2,788,045

 

32,191

 

9,555

 

(2,698,248

)

131,543

 

Total assets

 

$

5,233,413

 

$

3,265,763

 

$

606,161

 

$

(3,061,710

)

$

6,043,627

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

158,774

 

$

314,741

 

$

22,117

 

$

(23,375

)

$

472,257

 

Accrued expenses

 

139,704

 

93,131

 

9,156

 

(32,013

)

209,978

 

Current maturities of long-term debt

 

434,489

 

300

 

42,072

 

(37,228

)

439,633

 

Total current liabilities

 

732,967

 

408,172

 

73,345

 

(92,616

)

1,121,868

 

Long-term debt

 

1,901,644

 

 

178,345

 

(147,970

)

1,932,019

 

Other liabilities

 

252,578

 

2,124,643

 

38,110

 

(1,832,076

)

583,255

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

 

73,924

 

 

73,924

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

636

 

33,896

 

18,121

 

(52,017

)

636

 

Treasury stock

 

(721,024

)

 

 

 

(721,024

)

Additional paid-in-capital

 

1,031,043

 

117,737

 

368,598

 

(486,335

)

1,031,043

 

Retained earnings (deficit)

 

2,035,569

 

581,315

 

(130,619

)

(450,696

)

2,035,569

 

Total Steel Dynamics, Inc. equity

 

2,346,224

 

732,948

 

256,100

 

(989,048

)

2,346,224

 

Noncontrolling interests

 

 

 

(13,663

)

 

(13,663

)

Total equity

 

2,346,224

 

732,948

 

242,437

 

(989,048

)

2,332,561

 

Total liabilities and equity

 

$

5,233,413

 

$

3,265,763

 

$

606,161

 

$

(3,061,710

)

$

6,043,627

 

 

11



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information (continued)

 

 

 

 

 

 

 

Combined

 

Consolidating

 

Total

 

As of December 31, 2011

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

 

Cash and equivalents

 

$

301,073

 

$

58,699

 

$

30,989

 

$

 

$

390,761

 

Investments in short-term commercial paper

 

84,830

 

 

 

 

84,830

 

Accounts receivable, net

 

319,995

 

726,192

 

8,971

 

(332,367

)

722,791

 

Inventories

 

584,079

 

533,022

 

85,046

 

(2,563

)

1,199,584

 

Other current assets

 

83,116

 

4,119

 

2,304

 

(32,247

)

57,292

 

Total current assets

 

1,373,093

 

1,322,032

 

127,310

 

(367,177

)

2,455,258

 

Property, plant and equiment, net

 

1,059,011

 

660,048

 

477,514

 

(2,828

)

2,193,745

 

Intangible assets, net

 

 

450,893

 

 

 

450,893

 

Goodwill

 

 

745,066

 

 

 

745,066

 

Other assets, including investments in subs

 

2,791,718

 

33,507

 

9,853

 

(2,700,814

)

134,264

 

Total assets

 

$

5,223,822

 

$

3,211,546

 

$

614,677

 

$

(3,070,819

)

$

5,979,226

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

155,220

 

$

273,049

 

$

23,195

 

$

(30,640

)

$

420,824

 

Accrued expenses

 

157,868

 

98,498

 

10,012

 

(30,863

)

235,515

 

Current maturities of long-term debt

 

439,199

 

300

 

53,551

 

(48,972

)

444,078

 

Total current liabilities

 

752,287

 

371,847

 

86,758

 

(110,475

)

1,100,417

 

Long-term debt

 

1,905,199

 

 

169,797

 

(138,974

)

1,936,022

 

Other liabilities

 

250,395

 

2,132,778

 

51,625

 

(1,862,605

)

572,193

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

 

70,694

 

 

70,694

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

636

 

33,896

 

18,121

 

(52,017

)

636

 

Treasury stock

 

(722,653

)

 

 

 

(722,653

)

Additional paid-in-capital

 

1,026,157

 

117,737

 

347,151

 

(464,888

)

1,026,157

 

Retained earnings (deficit)

 

2,011,801

 

555,288

 

(113,428

)

(441,860

)

2,011,801

 

Total Steel Dynamics, Inc. equity

 

2,315,941

 

706,921

 

251,844

 

(958,765

)

2,315,941

 

Noncontrolling interests

 

 

 

(16,041

)

 

(16,041

)

Total equity

 

2,315,941

 

706,921

 

235,803

 

(958,765

)

2,299,900

 

Total liabilities and equity

 

$

5,223,822

 

$

3,211,546

 

$

614,677

 

$

(3,070,819

)

$

5,979,226

 

 

12



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information (continued)

 

Condensed Consolidating Statements of Operations (in thousands)

 

For the three months ended,

 

 

 

 

 

Combined

 

Consolidating

 

Total

 

March 31, 2012

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

 

Net sales

 

$

913,193

 

$

2,308,156

 

$

46,835

 

$

(1,286,144

)

$

1,982,040

 

Costs of goods sold

 

785,567

 

2,198,898

 

63,894

 

(1,267,583

)

1,780,776

 

Gross profit (loss)

 

127,626

 

109,258

 

(17,059

)

(18,561

)

201,264

 

Selling, general and administrative

 

27,566

 

54,555

 

2,459

 

(3,132

)

81,448

 

Operating income (loss)

 

100,060

 

54,703

 

(19,518

)

(15,429

)

119,816

 

Interest expense, net of capitalized interest

 

27,217

 

13,606

 

1,710

 

(1,421

)

41,112

 

Other (income) expense, net

 

10,769

 

(1,064

)

(877

)

1,420

 

10,248

 

Income (loss) before income taxes and equity in net income of subsidiaries

 

62,074

 

42,161

 

(20,351

)

(15,428

)

68,456

 

Income taxes (benefit)

 

15,870

 

16,134

 

353

 

(5,678

)

26,679

 

 

 

46,204

 

26,027

 

(20,704

)

(9,750

)

41,777

 

Equity in net loss of subsidiaries

 

(4,427

)

 

 

4,427

 

 

Net loss attributable to noncontrolling interests

 

 

 

3,898

 

 

3,898

 

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

 

$

41,777

 

$

26,027

 

$

(16,806

)

$

(5,323

)

$

45,675

 

 

For the three months ended,

 

 

 

 

 

Combined

 

Consolidating

 

Total

 

March 31, 2011

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

 

Net sales

 

$

912,817

 

$

2,301,547

 

$

47,522

 

$

(1,245,917

)

$

2,015,969

 

Costs of goods sold

 

729,541

 

2,165,378

 

57,595

 

(1,232,299

)

1,720,215

 

Gross profit

 

183,276

 

136,169

 

(10,073

)

(13,618

)

295,754

 

Selling, general and administrative

 

36,664

 

55,893

 

2,122

 

(4,251

)

90,428

 

Operating income

 

146,612

 

80,276

 

(12,195

)

(9,367

)

205,326

 

Interest expense, net of capitalized interest

 

25,696

 

17,262

 

2,314

 

(1,926

)

43,346

 

Other (income) expense, net

 

(3,179

)

(2,675

)

(718

)

2,005

 

(4,567

)

Income before income taxes and equity in net income of subsidiaries

 

124,095

 

65,689

 

(13,791

)

(9,446

)

166,547

 

Income taxes

 

40,929

 

24,904

 

43

 

(3,559

)

62,317

 

 

 

83,166

 

40,785

 

(13,834

)

(5,887

)

104,230

 

Equity in net loss of subsidiaries

 

22,737

 

 

 

(22,737

)

 

Net loss attributable to noncontrolling interests

 

 

 

1,673

 

 

1,673

 

Net income attributable to Steel Dynamics, Inc.

 

$

105,903

 

$

40,785

 

$

(12,161

)

$

(28,624

)

$

105,903

 

 

13



Table of Contents

 

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10.  Condensed Consolidating Information (continued) 

 

Condensed Consolidating Statements of Cash Flows (in thousands)

 

For the three months ended,

 

 

 

 

 

Combined

 

Consolidating

 

Total

 

March 31, 2012

 

Parent

 

Guarantors

 

Non-Guarantors

 

Adjustments

 

Consolidated

 

Net cash provided by (used in) operating activities

 

$

(31,015

)

$

58,900

 

$

(7,596

)

$

1,132

 

$

21,421

 

Net cash used in investing activities

 

(3,436

)

(40,889

)

(21,708

)

18,614