Quarterly Report (10-q)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

ended September 30, 2019

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

Commission File Number 0-21719

Steel Dynamics, Inc.

(Exact name of registrant as specified in its charter)

Indiana		35-1929476
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7575 West Jefferson Blvd, Fort Wayne, IN		46804
(Address of principal executive offices)		(Zip Code)

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

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock voting, $0.0025 par value	STLD	NASDAQ Global Select Market

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

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

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

(Check one):	Large accelerated filer ⌧	Accelerated filer ◻	Non-accelerated filer ◻

	Smaller reporting company ☐	Emerging growth company ☐

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

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

As of October 28, 2019, Registrant had 215,452,169 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, 2019 (unaudited) and December 31, 2018	1

	Consolidated Statements of Income for the three and nine-month periods ended September 30, 2019 and 2018 (unaudited)	2

	Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2019 and 2018 (unaudited)	3

	Consolidated Statements of Cash Flows for the three and nine-month periods ended September 30, 2019 and 2018 (unaudited)	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27



	PART II. Other Information

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

Exhibit Index		29

Signature		30

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	September 30,		December 31,
	2019		2018
Assets	(unaudited)
Current assets
Cash and equivalents	$	1,146,007	$	828,220
Short-term investments		69,529		228,783
Accounts receivable, net		983,515		1,040,220
Accounts receivable-related parties		3,431		3,536
Inventories		1,767,020		1,859,168
Other current assets		50,818		72,730
Total current assets		4,020,320		4,032,657

Property, plant and equipment, net		3,031,731		2,945,767

Intangible assets, net		249,598		270,328
Goodwill		540,913		429,645
Other assets		100,685		25,166
Total assets	$	7,943,247	$	7,703,563
Liabilities and Equity
Current liabilities
Accounts payable	$	518,909	$	536,743
Accounts payable-related parties		9,720		14,011
Income taxes payable		2,074		7,468
Accrued payroll and benefits		181,785		264,542
Accrued interest		47,945		25,526
Accrued expenses		162,692		146,613
Current maturities of long-term debt		82,150		24,234
Total current liabilities		1,005,275		1,019,137

Long-term debt		2,355,243		2,352,489
Deferred income taxes		468,248		435,838
Other liabilities		70,126		8,870
Total liabilities		3,898,892		3,816,334

Commitments and contingencies

Redeemable noncontrolling interests		143,614		111,240

Equity
Common stock voting, $.0025 par value; 900,000,000 shares authorized;
265,553,499 and 265,822,402 shares issued; and 215,740,572 and 225,272,174
shares outstanding, as of September 30, 2019 and December 31, 2018, respectively		645		645
Treasury stock, at cost; 49,812,927 and 40,550,228 shares,
as of September 30, 2019 and December 31, 2018, respectively		(1,469,078)		(1,184,243)
Additional paid-in capital		1,175,512		1,160,048
Retained earnings		4,349,523		3,958,320
Accumulated other comprehensive income		39		301
Total Steel Dynamics, Inc. equity		4,056,641		3,935,071
Noncontrolling interests		(155,900)		(159,082)
Total equity		3,900,741		3,775,989
Total liabilities and equity	$	7,943,247	$	7,703,563

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Net sales
Unrelated parties	$	2,523,279	$	3,220,891	$	8,104,129	$	8,902,025
Related parties		3,566		2,656		10,666		15,922
Total net sales		2,526,845		3,223,547		8,114,795		8,917,947

Costs of goods sold		2,167,006		2,537,466		6,900,220		7,116,368
Gross profit		359,839		686,081		1,214,575		1,801,579

Selling, general and administrative expenses		107,242		102,614		324,530		310,076
Profit sharing		17,848		45,304		64,396		114,301
Amortization of intangible assets		6,704		6,591		20,730		20,346
Operating income		228,045		531,572		804,919		1,356,856

Interest expense, net of capitalized interest		31,339		31,560		94,782		94,968
Other income, net		(4,545)		(7,103)		(15,137)		(16,601)
Income before income taxes		201,251		507,115		725,274		1,278,489

Income tax expense		48,643		109,209		171,093		292,536
Net income		152,608		397,906		554,181		985,953

Net (income) loss attributable to noncontrolling interests		(1,560)		469		(4,503)		2,422
Net income attributable to Steel Dynamics, Inc.	$	151,048	$	398,375	$	549,678	$	988,375



Basic earnings per share attributable to Steel Dynamics,
Inc. stockholders	$	0.69	$	1.70	$	2.49	$	4.20

Weighted average common shares outstanding		217,873		234,208		221,145		235,483

Diluted earnings per share attributable to Steel Dynamics, Inc.
stockholders, including the effect of assumed conversions
when dilutive	$	0.69	$	1.69	$	2.47	$	4.17

Weighted average common shares and share equivalents outstanding		219,109		235,649		222,197		236,772

Dividends declared per share	$	0.2400	$	0.1875	$	0.7200	$	0.5625

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Net income	$	152,608	$	397,906	$	554,181	$	985,953
Other comprehensive income (loss) - net unrealized gain (loss) on
cash flow hedging derivatives, net of income tax expense (benefit)		(39)		63		(262)		(42)
Comprehensive income		152,569		397,969		553,919		985,911

Comprehensive (income) loss attributable to noncontrolling interests		(1,560)		469		(4,503)		2,422
Comprehensive income attributable to Steel Dynamics, Inc.	$	151,009	$	398,438	$	549,416	$	988,333

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Operating activities:
Net income	$	152,608	$	397,906	$	554,181	$	985,953

Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		79,470		81,383		240,555		236,638
Equity-based compensation		8,841		7,978		33,229		28,860
Deferred income taxes		11,311		23,899		34,952		45,437
Other adjustments		(1,116)		312		(952)		197
Changes in certain assets and liabilities:
Accounts receivable		85,633		(48,024)		95,195		(330,307)
Inventories		35,479		(69,885)		139,889		(240,908)
Other assets		39		(6,429)		7,632		(7,164)
Accounts payable		1,111		(14,883)		(54,167)		100,368
Income taxes receivable/payable		6,293		(31,127)		19,715		55,414
Accrued expenses		64,533		79,310		(83,001)		49,920
Net cash provided by operating activities		444,202		420,440		987,228		924,408

Investing activities:
Purchases of property, plant and equipment		(154,131)		(70,668)		(293,687)		(176,477)
Purchases of short-term investments		(34,884)		(35,000)		(134,026)		(125,000)
Proceeds from maturities of short-term investments		79,508		10,000		293,279		10,000
Acquisition of business, net of cash and restricted cash acquired		(3,694)		(37,589)		(97,106)		(433,998)
Other investing activities		2,746		576		4,023		1,462
Net cash used in investing activities		(110,455)		(132,681)		(227,517)		(724,013)

Financing activities:
Issuance of current and long-term debt		128,230		110,041		374,686		327,670
Repayment of current and long-term debt		(119,988)		(115,039)		(369,134)		(346,162)
Dividends paid		(52,751)		(44,081)		(148,493)		(125,146)
Purchases of treasury stock		(114,950)		(74,965)		(292,394)		(193,379)
Other financing activities		(1,527)		-		(7,259)		(8,324)
Net cash used in financing activities		(160,986)		(124,044)		(442,594)		(345,341)

Increase (decrease) in cash, cash equivalents, and restricted cash		172,761		163,715		317,117		(144,946)
Cash, cash equivalents, and restricted cash at beginning of period		978,779		726,424		834,423		1,035,085

Cash, cash equivalents, and restricted cash at end of period	$	1,151,540	$	890,139	$	1,151,540	$	890,139


Supplemental disclosure information:
Cash paid for interest	$	9,115	$	8,643	$	71,702	$	70,498
Cash paid for income taxes, net	$	29,794	$	119,802	$	116,149	$	198,752

See notes to consolidated financial statements.

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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 a domestic manufacturer of steel products and metals recycler. The company has three reportable segments: steel operations, metals recycling operations, and steel fabrication operations.

Steel Operations Segment. Steel operations include the company’s Butler Flat Roll Division, Columbus Flat Roll Division, The Techs galvanizing lines, Heartland Flat Roll Division, United Steel Supply (acquired 75% equity interest March 1, 2019), Structural and Rail Division, Engineered Bar Products Division, Vulcan Threaded Products, Inc., Roanoke Bar Division, Steel of West Virginia, and Iron Dynamics, a liquid pig iron (scrap substitute) production facility that supplies solely the Butler Flat Roll Division. These operations include electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, with several downstream coating and bar processing lines. Steel operations accounted for 76% and 77% of the company’s consolidated external net sales during the three months ended September 30, 2019 and 2018, respectively, and 76% and 75% during the nine months ended September 30, 2019 and 2018, respectively.

Metals Recycling Operations Segment. Metals recycling operations consists solely of OmniSource, LLC (OmniSource), and includes both ferrous and nonferrous processing, transportation, marketing, brokerage, and scrap management services. Metals recycling operations accounted for 11% and 12% of the company’s consolidated external net sales during the three months ended September 30, 2019 and 2018, respectively, and 12% and 14% during the nine months ended September 30, 2019 and 2018, 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% and 8% of the company’s consolidated external net sales during the three months ended September 30, 2019 and 2018, respectively, and 9% and 8% of the company’s consolidated external net sales during the nine months ended September 30, 2019 and 2018, respectively.

Other. Other operations consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of smaller joint ventures, and the idle Minnesota ironmaking operations. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior 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/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/controlled consolidated subsidiaries.

Use of Estimates. These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, and accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, and goodwill; 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, 2018.

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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, $6.2 million, $6.2 million, $5.8 million, $6.0 million, and $6.4 million at September 30, 2019, June 30, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and December 31, 2017, respectively, 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, 2019, and December 31, 2018, (in thousands):



	September 30,		December 31,
	2019		2018

Steel Operations Segment	$	359,283	$	245,473
Metals Recycling Operations Segment		179,705		182,247
Steel Fabrication Operations Segment		1,925		1,925
	$	540,913	$	429,645

The company acquired a 75% equity interest in United Steel Supply on March 1, 2019 (refer to Note 2 Acquisition – United Steel Supply, LLC), resulting in a preliminary purchase price allocation in which $113.8 million of goodwill has been recorded in the Steel Operations Segment at September 30, 2019. Metals Recycling Operations segment goodwill decreased $2.5 million from December 31, 2018 to September 30, 2019, in recognition of the 2019 tax benefit related to the normal amortization of the component of tax-deductible goodwill in excess of book goodwill.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, and it’s subsequent corresponding updates: which requires an entity to use a forward-looking expected loss model versus the current incurred loss model for most financial instruments, including accounts receivable. This new guidance is effective for annual and interim periods beginning after December 15, 2019, but can be early adopted. The company anticipates adopting ASU 2016-13 on January 1, 2020. The company is working through its adoption plan to evaluate policies, processes and systems to determine the impact ASU 2016-13 will have in its consolidated financial statements and related disclosure.

Note 2. Acquisition – United Steel Supply, LLC

On March 1, 2019, the company purchased 75% of the equity interest of United Steel Supply, LLC (USS) for cash consideration of $93.4 million, plus a customary working capital transaction purchase price adjustment of $3.7 million in September 2019. Additionally, the company has an option to purchase, and the sellers have the option to require the company to purchase, the remaining 25% equity interest of USS in the future. Headquartered in Austin, Texas, USS is a leading distributor of painted Galvalume^® flat roll steel used for roofing and siding applications, with distribution centers strategically located in Mississippi, Indiana, Arkansas, and Oregon. USS provides the company a new, complementary distribution channel and connects it to a rapidly growing industry segment with customers that do not traditionally purchase steel directly from a steel producer. USS’s operating results from and after March 1, 2019, are reflected in the company’s financial statements in the steel operations reporting segment.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. Acquisition – United Steel Supply, LLC (Continued)

The aggregate purchase price was preliminarily allocated to the opening balance sheet of USS as of March 1, 2019, and updated in September 2019 upon the final working capital adjustment, as presented below. The following allocation of the purchase price (in thousands) is preliminary based on the information available to estimate the fair value of assets acquired and liabilities assumed. The accounting for the acquisition has not yet been completed because the company has not finalized the valuations of identifiable intangible assets, if any, and thus goodwill. The company anticipates finalizing the valuation of identifiable intangible assets by December 31, 2019.


		September 30,
		2019 Allocation		Adjustments		Initial Allocation
Current assets, net of cash acquired	$	86,236	$	(7,784)	$	94,020
Property, plant & equipment		7,388		-		7,388
Intangible assets and goodwill		113,810		11,892		101,918
Total assets acquired		207,434		4,108		203,326
Liabilities assumed		77,954		(3,270)		81,224
Redeemable noncontrolling interest		32,374		3,684		28,690
Net cash consideration	$	97,106	$	3,694	$	93,412

Note 3. Leases

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) and its subsequent corresponding updates; which established 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. The company adopted ASC 842 effective January 1, 2019, using the optional transition method, thereby applying the new guidance at the effective date, without retrospective application to prior periods. The company elected practical expedients permitted under the transition guidance which allowed the company to not reassess under the new standard its prior conclusions regarding lease identification and classification. The company elected to use hindsight when determining the lease term. The company also elected the short-term lease exemption, and did not recognize right-of-use assets and lease liabilities for short-term leases, those with lease commencement date terms of 12 months or less. The company recognized right-of-use assets and lease liabilities of $76.3 million, with no impact on retained earnings, in the consolidated balance sheet on January 1, 2019, and the standard did not have a significant impact on the company’s operating results or cash flows for the three and nine-month periods ended September 30, 2019.

The company has operating leases relating principally to transportation and other equipment, and some real estate. The company determines if an arrangement contains a lease at inception, which generally occurs when the arrangement identifies a specific asset that the company has the right to direct the use of and obtain substantially all of the economic benefit from use of the identified asset. Certain of our lease agreements contain rent escalation clauses (including fixed and index-based escalations), and options to extend or terminate the lease. For purposes of calculating operating lease obligations under the standard, the company’s lease terms include options to extend the lease when it is reasonably certain that the company will exercise such option. The company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is the rate of interest the company could borrow on a collateralized basis over a similar term with similar payments. Operating lease expense is recognized on a straight-line basis over the lease term.

Operating lease right-of-use assets and lease obligations included in the consolidated balance sheet at September 30, 2019, are as follows (in thousands):


Right of use assets under operating leases:
Other assets - noncurrent	$	74,843
Lease obligations under operating leases:
Accrued liabilities	$	17,202
Other liabilities - noncurrent		57,946
	$	75,148

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3. Leases (Continued)

The weighted average remaining lease term for our operating leases is six years and the weighted-average discount rate is 4.0% as of September 30, 2019. Future operating lease liabilities as of September 30, 2019, for the next five years and thereafter are as follows (in thousands):


2019 - for the remaining three months	$	19,954
2020		17,120
2021		13,719
2022		10,636
2023		7,506
Thereafter		17,095
Total undiscounted cash flows		86,030
Less imputed interest		(10,882)
Lease obligations under operating leases	$	75,148

Operating lease expense included in the consolidated statements of income was $5.2 million and $15.0 million for the three and nine months ended September 30, 2019, respectively. Cash paid related to operating lease obligations was $5.2 million and $15.1 million for the three and nine months ended September 30, 2019, respectively. Variable lease costs were not material for the three and nine months ended September 30, 2019. Short-term lease expense included in the consolidated statements of income was $5.0 million and $14.8 million for the three and nine months ended September 30, 2019, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities during the three and nine months ended September 30, 2019 were $1.4 million and $11.3 million, respectively.

Note 4. 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, 2019 and 2018.



	Three Months Ended September 30,
	2019						2018
			Weighted						Weighted
			Average						Average
	Net Income		Shares		Per Share		Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Basic earnings per share	$	151,048		217,873	$	0.69	$	398,375		234,208	$	1.70
Dilutive common share equivalents		-		1,236				-		1,441
Diluted earnings per share	$	151,048		219,109	$	0.69	$	398,375		235,649	$	1.69

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Earnings Per Share (Continued)



	Nine Months Ended September 30,
	2019						2018
			Weighted						Weighted
			Average						Average
	Net Income		Shares		Per Share		Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Basic earnings per share	$	549,678		221,145	$	2.49	$	988,375		235,483	$	4.20
Dilutive common share equivalents		-		1,052				-		1,289
Diluted earnings per share	$	549,678		222,197	$	2.47	$	988,375		236,772	$	4.17

Note 5. 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,
	2019		2018
Raw materials	$	758,677	$	810,766
Supplies		492,604		436,828
Work in progress		156,443		195,224
Finished goods		359,296		416,350
Total inventories	$	1,767,020	$	1,859,168

Note 6. Changes in Equity

The following tables provide a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to stockholders of Steel Dynamics, Inc., and equity and redeemable amounts attributable to noncontrolling interests (in thousands) for each quarterly period in the nine months ended September 30, 2019 and 2018:



	Stockholders of Steel Dynamics, Inc.
									Accumulated
					Additional				Other						Redeemable
	Common		Treasury		Paid-In		Retained		Comprehensive		Noncontrolling		Total		Noncontrolling
	Stock		Stock		Capital		Earnings		Loss		Interests		Equity		Interests
Balances at December 31, 2018	$	645	$	(1,184,243)	$	1,160,048	$	3,958,320	$	301	$	(159,082)	$	3,775,989	$	111,240
Dividends declared		-		-		-		(53,504)		-		-		(53,504)		-
Noncontrolling investors of USS		-		-		-		-		-		-		-		28,690
Share repurchases		-		(84,308)		-		-		-		-		(84,308)		-
Equity-based compensation		-		6,714		91		(110)		-		-		6,695		-
Net income		-		-		-		204,328		-		499		204,827		-
Other comprehensive loss, net of tax		-		-		-		-		(171)		-		(171)		-
Balances at March 31, 2019		645		(1,261,837)		1,160,139		4,109,034		130		(158,583)		3,849,528		139,930
Dividends declared		-		-		-		(52,751)		-		-		(52,751)		-
Share repurchases		-		(93,136)		-		-		-		-		(93,136)		-
Equity-based compensation		-		816		7,366		(166)		-		-		8,016		-
Net income		-		-		-		194,302		-		2,444		196,746		-
Other comprehensive loss, net of tax		-		-		-		-		(52)		-		(52)		-
Balances at June 30, 2019		645		(1,354,157)		1,167,505		4,250,419		78		(156,139)		3,908,351		139,930
Dividends declared		-		-		-		(51,778)		-		-		(51,778)		-
Noncontrolling investors of USS		-		-		-		-		-		(1,321)		(1,321)		3,684
Share repurchases		-		(114,950)		-		-		-		-		(114,950)		-
Equity-based compensation		-		29		8,007		(166)		-		-		7,870		-
Net income		-		-		-		151,048		-		1,560		152,608		-
Other comprehensive loss, net of tax		-		-		-		-		(39)		-		(39)		-
Balances at September 30, 2019	$	645	$	(1,469,078)	$	1,175,512	$	4,349,523	$	39	$	(155,900)	$	3,900,741	$	143,614

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Changes in Equity (Continued)



	Stockholders of Steel Dynamics, Inc.
									Accumulated
					Additional				Other						Redeemable
	Common		Treasury		Paid-In		Retained		Comprehensive		Noncontrolling		Total		Noncontrolling
	Stock		Stock		Capital		Earnings		Loss		Interests		Equity		Interests
Balances at December 31, 2017	$	644	$	(665,297)	$	1,141,534	$	2,874,693	$	-	$	(156,506)	$	3,195,068	$	111,240
Dividends declared		-		-		-		(44,269)		-		-		(44,269)		-
Share repurchases		-		(69,269)		-		-		-		-		(69,269)		-
Equity-based compensation		-		3,866		1,337		(71)		-		-		5,132		-
Comprehensive and net income (loss)		-		-		-		227,551		-		(2,076)		225,475		-
Balances at March 31, 2018		644		(730,700)		1,142,871		3,057,904		-		(158,582)		3,312,137		111,240
Dividends declared		-		-		-		(44,080)		-		-		(44,080)		-
Noncontrolling investors, net		-		-		-		-		-		(3)		(3)		-
Share repurchases		-		(49,145)		-		-		-		-		(49,145)		-
Equity-based compensation		-		757		6,496		(110)		-		-		7,143		-
Net income		-		-		-		362,449		-		123		362,572		-
Other comprehensive loss, net of tax		-		-		-		-		(105)		-		(105)		-
Balances at June 30, 2018		644		(779,088)		1,149,367		3,376,163		(105)		(158,462)		3,588,519		111,240
Dividends declared		-		-		-		(43,767)		-		-		(43,767)		-
Noncontrolling investors, net		-		-		-		-		-		-		-		-
Share repurchases		-		(74,965)		-		-		-		-		(74,965)		-
Equity-based compensation		-		1		7,189		(109)		-		-		7,081		-
Net income		-		-		-		398,375		-		(469)		397,906		-
Other comprehensive loss, net of tax		-		-		-		-		63		-		63		-
Balances at September 30, 2018	$	644	$	(854,052)	$	1,156,556	$	3,730,662	$	(42)	$	(158,931)	$	3,874,837	$	111,240

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, and occasionally to mitigate foreign currency exchange rate risk or 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, 2019:



Commodity Futures	Long/Short	Metric Tons
Aluminum	Long	575
Aluminum	Short	4,100
Copper	Long	10,036
Copper	Short	21,704

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7. Derivative Financial Instruments (Continued)

The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets as of September 30, 2019, and December 31, 2018, and gains and losses related to derivatives included in the company’s statement of income for the three and nine-month periods ended September 30, 2019 and 2018 (in thousands):



		Asset Derivatives				Liability Derivatives
	Balance sheet	Fair Value				Fair Value
	location	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Derivative instruments designated as hedges
Commodity futures	Other current assets	$	1,063	$	2,999	$	805	$	1,837

Derivative instruments not designated as hedges
Commodity futures	Other current assets		313		1,559		3,100		2,053
Total derivative instruments		$	1,376	$	4,558	$	3,905	$	3,890

The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $4.3 million at September 30, 2019, and $4.9 million at December 31, 2018, and are reflected in other current assets in the consolidated balance sheets.

Amount of gain (loss)

recognized in income

Location of gain

recognized in income

Location of gain

on derivatives for the

(loss) recognized

on derivatives for the

(loss) recognized

three months ended

Hedged items in

in income on

three months ended

in income on

September 30,

fair value hedge

related hedged

September 30,

derivatives

2019

2018

relationships

items

2019

2018

Derivatives in fair value

hedging relationships

Commodity futures

Costs of goods sold

302

(8,943)

Firm commitments

Costs of goods sold

(519)

5,111

Inventory

Costs of goods sold

(182)

1,753

Derivatives not designated

(701)

6,864

as hedging instruments

Commodity futures

Costs of goods sold

4,536

13,803

Amount of gain (loss)

recognized in income

Location of gain

recognized in income

Location of gain

on derivatives for the

(loss) recognized

on derivatives for the

(loss) recognized

three months ended

Hedged items in

in income on

three months ended

in income on

September 30,

fair value hedge

related hedged

September 30,

derivatives

2019

2018

relationships

items

2019

2018

Derivatives in fair value

hedging relationships

Commodity futures

Costs of goods sold

(560)

1,113

Firm commitments

Costs of goods sold

(603)

1,718

Inventory

Costs of goods sold

245

(1,659)

Derivatives not designated

(358)

as hedging instruments

Commodity futures

Costs of goods sold

5,946

19,523

Derivatives accounted for as fair value hedges had ineffectiveness resulting in gains of $69,000 and $5,000 during the three-month periods ended September 30, 2019, and 2018, respectively; and gains of $101,000 and losses of $10,500 during the nine-month periods ended September 30, 2019, and 2018, respectively. Losses excluded from hedge effectiveness testing of $399,000 and $2.1 million increased cost of goods sold during the three-month periods ended September 30, 2019, and 2018, respectively. Losses excluded from hedge effectiveness testing of $918,000 increased cost of goods sold during the nine-month period ended September 30, 2019 and gains of $1.2 million decreased the cost of goods sold during the nine-month period ended September 30, 2018.

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7. Derivative Financial Instruments (Continued)

Derivatives accounted for as cash flow hedges resulted in net losses of $8,000 and net gains of $82,000 recognized in other comprehensive income for the three-month periods ended September 30, 2019, and 2018, respectively; and net gains of $139,000 and net losses of $55,000 for the nine-month periods ended September 30, 2019 and 2018, respectively. Net gains of $43,000 and $483,000 were reclassified from accumulated other comprehensive income for the three and nine-month periods ended September 30, 2019. At September 30, 2019, the company expects to reclassify $51,000 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.

Note 8. Fair Value Measurements

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

●

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

●

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

●

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

The following table sets forth financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheet and the respective levels to which the fair value measurements are classified within the fair value hierarchy as of September 30, 2019, and December 31, 2018 (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, 2019
Short-term investments	$	69,529	$	-	$	69,529	$	-
Commodity futures – financial assets		1,376		-		1,376		-
Commodity futures – financial liabilities		3,905		-		3,905		-

December 31, 2018
Short-term investments	$	228,783	$	-	$	228,783	$	-
Commodity futures – financial assets		4,558		-		4,558		-
Commodity futures – financial liabilities		3,890		-		3,890		-

The carrying amounts of financial instruments including cash and equivalents approximate fair value (Level 1). The fair values of short-term investments and 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 $2.5 billion and $2.4 billion at September 30, 2019 and December 31, 2018, respectively (with a corresponding carrying amount in the consolidated balance sheet of $2.5 billion at September 30, 2019 and $2.4 billion at December 31, 2018).

Note 9. Commitments and Contingencies

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

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. 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 secured 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 months ended	Steel		Recycling		Fabrication
September 30, 2019	Operations		Operations		Operations		Other			Eliminations			Consolidated

Net sales - disaggregated revenue
External	$	1,838,682	$	230,086	$	245,914	$	77,330		$	-		$	2,392,012
External Non-U.S.		83,845		50,823		165		-			-			134,833
Other segments		85,678		293,999		637		100			(380,414)			-
		2,008,205		574,908		246,716		77,430			(380,414)			2,526,845
Operating income (loss)		234,683		(101)		35,280		(42,441)	⁽¹⁾		624	⁽²⁾		228,045
Income (loss) before income taxes		217,699		(1,159)		34,080		(49,780)			411			201,251
Depreciation and amortization		63,170		11,769		2,941		1,590			-			79,470
Capital expenditures		40,818		11,498		3,759		98,056			-			154,131

As of September 30, 2019
Assets	$	5,119,419	$	972,493	$	414,835	$	1,513,798	⁽³⁾	$	(77,298)	⁽⁴⁾	$	7,943,247


Footnotes related to the three months ended September 30, 2019, segment results (in millions):

(1)	Corporate SG&A	$	(15.4)	(2)	Gross profit increase from intra-company sales	$	0.4
	Company-wide equity-based compensation		(8.7)
	Profit sharing		(17.0)
	Other, net		(1.3)
		$	(42.4)

(3)	Cash and equivalents	$	1,072.5	(4)	Elimination of intra-company receivables	$	(61.2)
	Short-term investments		69.5		Elimination of intra-company debt		(8.7)
	Accounts receivable		7.8		Other		(7.4)
	Inventories		36.5			$	(77.3)
	Property, plant and equipment, net		271.8
	Intra-company debt		8.7
	Other		47.0
		$	1,513.8

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Segment Information (Continued)



			Metals		Steel
For the three months ended	Steel		Recycling		Fabrication
September 30, 2018	Operations		Operations		Operations		Other			Eliminations			Consolidated

Net sales - disaggregated revenue
External	$	2,400,329	$	323,611	$	250,625	$	110,659		$	-		$	3,085,224
External Non-U.S.		74,715		63,608		-		-			-			138,323
Other segments		111,582		412,795		120		1,294			(525,791)			-
		2,586,626		800,014		250,745		111,953			(525,791)			3,223,547
Operating income (loss)		573,848		14,674		13,104		(67,113)	⁽¹⁾		(2,941)			531,572
Income (loss) before income taxes		557,870		13,488		11,801		(73,109)			(2,935)	⁽²⁾		507,115
Depreciation and amortization		64,088		11,491		2,941		2,863			-			81,383
Capital expenditures		57,074		11,603		1,395		596			-			70,668


Footnotes related to the three months ended September 30, 2018, segment results (in millions):

(1)	Corporate SG&A	$	(13.8)	(2)	Gross profit decrease from intra-company sales	$	(2.9)
	Company-wide equity-based compensation		(7.8)
	Profit sharing		(43.4)
	Other, net		(2.1)
		$	(67.1)



			Metals		Steel
For the nine months ended	Steel		Recycling		Fabrication
September 30, 2019	Operations		Operations		Operations		Other			Eliminations			Consolidated

Net sales - disaggregated revenue
External	$	5,918,189	$	778,637	$	714,782	$	290,219		$	-		$	7,701,827
External Non-U.S.		235,259		176,508		1,201		-			-			412,968
Other segments		243,107		1,013,574		826		469			(1,257,976)			-
		6,396,555		1,968,719		716,809		290,688			(1,257,976)			8,114,795
Operating income (loss)		835,172		24,480		86,567		(148,514)	⁽¹⁾		7,214			804,919
Income (loss) before income taxes		784,873		20,846		82,897		(169,914)			6,572	⁽²⁾		725,274
Depreciation and amortization		188,832		34,733		8,882		8,108			-			240,555
Capital expenditures		128,069		30,313		8,771		126,534			-			293,687


Footnotes related to the nine months ended September 30, 2019, segment results (in millions):

(1)	Corporate SG&A	$	(56.0)	(2)	Gross profit increase from intra-company sales	$	6.6
	Company-wide equity-based compensation		(26.1)
	Profit sharing		(61.3)
	Other, net		(5.1)
		$	(148.5)

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Segment Information (Continued)



			Metals		Steel
For the nine months ended	Steel		Recycling		Fabrication
September 30, 2018	Operations		Operations		Operations		Other			Eliminations			Consolidated

Net sales - disaggregated revenue
External	$	6,360,177	$	1,001,267	$	669,500	$	326,086		$	-		$	8,357,030
External Non-U.S.		362,083		198,778		56		-			-			560,917
Other segments		281,828		1,236,830		788		1,565			(1,521,011)			-
		7,004,088		2,436,875		670,344		327,651			(1,521,011)			8,917,947
Operating income (loss)		1,441,904		62,027		47,039		(186,137)	⁽¹⁾		(7,977)			1,356,856
Income (loss) before income taxes		1,390,074		57,458		42,898		(203,970)			(7,971)	⁽²⁾		1,278,489
Depreciation and amortization		184,998		34,602		8,785		8,253			-			236,638
Capital expenditures		137,484		27,496		5,526		5,971			-			176,477


Footnotes related to the nine months ended September 30, 2018, segment results (in millions):

(1)	Corporate SG&A	$	(44.0)	(2)	Gross profit decrease from intra-company sales	$	(8.0)
	Company-wide equity-based compensation		(24.8)
	Profit sharing		(109.6)
	Other, net		(7.7)
		$	(186.1)

Note 11. Condensed Consolidating Information

Certain 100% owned subsidiaries of SDI fully and unconditionally guaranteed jointly and severally all of the indebtedness relating to the issuance of the company’s senior unsecured notes due 2021, 2023, 2024, 2025 and 2026, at September 30, 2019. Following are the company’s condensed consolidating financial statements, including the guarantors, which present the financial position, results of operations, and cash flows of (i) SDI (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries of SDI, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information on a consolidated basis. In October 2019, the Company’s corporate credit rating was upgraded to an investment grade credit level by all three credit rating agencies, resulting in all the referenced guarantees being automatically released pursuant to the applicable Indentures.

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)



Condensed Consolidating Balance Sheets (in thousands)
					Combined		Consolidating		Total
As of September 30, 2019	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Cash and equivalents	$	1,070,215	$	64,398	$	11,394	$	-	$	1,146,007
Short-term investments		69,529		-		-		-		69,529
Accounts receivable, net		303,259		1,675,521		63,962		(1,055,796)		986,946
Inventories		725,792		960,506		88,871		(8,149)		1,767,020
Other current assets		29,754		17,464		4,548		(948)		50,818
Total current assets		2,198,549		2,717,889		168,775		(1,064,893)		4,020,320
Property, plant and equipment, net		966,715		1,902,414		162,602		-		3,031,731
Intangible assets, net		-		249,598		-		-		249,598
Goodwill		-		427,103		113,810		-		540,913
Other assets, including investments in subs		2,723,786		61,910		6,420		(2,691,431)		100,685
Total assets	$	5,889,050	$	5,358,914	$	451,607	$	(3,756,324)	$	7,943,247

Accounts payable	$	177,308	$	332,299	$	99,162	$	(80,140)	$	528,629
Accrued expenses		228,600		316,684		16,694		(167,482)		394,496
Current maturities of long-term debt		843		517		103,551		(22,761)		82,150
Total current liabilities		406,751		649,500		219,407		(270,383)		1,005,275
Long-term debt		2,330,968		-		147,310		(123,035)		2,355,243
Other liabilities		(905,310)		1,087,758		34,290		321,636		538,374
Total liabilities		1,832,409		1,737,258		401,007		(71,782)		3,898,892

Redeemable noncontrolling interests		-		-		143,614		-		143,614

Common stock		645		1,727,859		15,016		(1,742,875)		645
Treasury stock		(1,469,078)		-		-		-		(1,469,078)
Additional paid-in-capital		1,175,512		683,048		804,625		(1,487,673)		1,175,512
Retained earnings (deficit)		4,349,523		1,210,749		(756,755)		(453,994)		4,349,523
Accumulated other comprehensive loss		39		-		-		-		39
Total Steel Dynamics, Inc. equity		4,056,641		3,621,656		62,886		(3,684,542)		4,056,641
Noncontrolling interests		-		-		(155,900)		-		(155,900)
Total equity		4,056,641		3,621,656		(93,014)		(3,684,542)		3,900,741
Total liabilities and equity	$	5,889,050	$	5,358,914	$	451,607	$	(3,756,324)	$	7,943,247

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)



					Combined		Consolidating		Total
As of December 31, 2018	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Cash and equivalents	$	809,763	$	13,491	$	4,966	$	-	$	828,220
Short-term investments		198,783		30,000		-		-		228,783
Accounts receivable, net		340,439		1,635,168		26,655		(958,506)		1,043,756
Inventories		793,174		1,038,702		39,214		(11,922)		1,859,168
Other current assets		56,578		18,627		3,994		(6,469)		72,730
Total current assets		2,198,737		2,735,988		74,829		(976,897)		4,032,657
Property, plant and equipment, net		871,482		1,918,198		156,087		-		2,945,767
Intangible assets, net		-		270,328		-		-		270,328
Goodwill		-		429,645		-		-		429,645
Other assets, including investments in subs		2,862,556		5,593		5,557		(2,848,540)		25,166
Total assets	$	5,932,775	$	5,359,752	$	236,473	$	(3,825,437)	$	7,703,563

Accounts payable	$	209,156	$	330,156	$	74,353	$	(62,911)	$	550,754
Accrued expenses		296,528		295,668		11,171		(159,218)		444,149
Current maturities of long-term debt		793		1,355		51,079		(28,993)		24,234
Total current liabilities		506,477		627,179		136,603		(251,122)		1,019,137
Long-term debt		2,327,798		381		166,226		(141,916)		2,352,489
Other liabilities		(836,571)		1,447,464		31,791		(197,976)		444,708
Total liabilities		1,997,704		2,075,024		334,620		(591,014)		3,816,334

Redeemable noncontrolling interests		-		-		111,240		-		111,240

Common stock		645		1,727,859		15,016		(1,742,875)		645
Treasury stock		(1,184,243)		-		-		-		(1,184,243)
Additional paid-in-capital		1,160,048		683,048		695,502		(1,378,550)		1,160,048
Retained earnings (deficit)		3,958,320		873,821		(760,823)		(112,998)		3,958,320
Accumulated other comprehensive income		301		-		-		-		301
Total Steel Dynamics, Inc. equity		3,935,071		3,284,728		(50,305)		(3,234,423)		3,935,071
Noncontrolling interests		-		-		(159,082)		-		(159,082)
Total equity		3,935,071		3,284,728		(209,387)		(3,234,423)		3,775,989
Total liabilities and equity	$	5,932,775	$	5,359,752	$	236,473	$	(3,825,437)	$	7,703,563



Condensed Consolidating Statements of Operations (in thousands)

For the three months ended,					Combined		Consolidating		Total
September 30, 2019	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Net sales	$	976,470	$	2,710,767	$	205,617	$	(1,366,009)	$	2,526,845
Costs of goods sold		814,622		2,502,257		188,967		(1,338,840)		2,167,006
Gross profit		161,848		208,510		16,650		(27,169)		359,839
Selling, general and administrative		55,613		74,433		7,827		(6,079)		131,794
Operating income		106,235		134,077		8,823		(21,090)		228,045
Interest expense, net of capitalized interest		18,716		11,536		3,490		(2,403)		31,339
Other income, net		(5,394)		(1,574)		(196)		2,619		(4,545)
Income before income taxes and
equity in net income of subsidiaries		92,913		124,115		5,529		(21,306)		201,251
Income taxes		23,625		29,965		128		(5,075)		48,643
		69,288		94,150		5,401		(16,231)		152,608
Equity in net income of subsidiaries		81,760		-		-		(81,760)		-
Net income attributable to noncontrolling interests		-		-		(1,560)		-		(1,560)
Net income attributable to Steel Dynamics, Inc.	$	151,048	$	94,150	$	3,841	$	(97,991)	$	151,048

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)



For the three months ended,					Combined		Consolidating		Total
September 30, 2018	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Net sales	$	1,304,801	$	3,540,381	$	144,145	$	(1,765,780)	$	3,223,547
Costs of goods sold		956,735		3,163,110		142,005		(1,724,384)		2,537,466
Gross profit		348,066		377,271		2,140		(41,396)		686,081
Selling, general and administrative		78,824		78,694		2,974		(5,983)		154,509
Operating income (loss)		269,242		298,577		(834)		(35,413)		531,572
Interest expense, net of capitalized interest		18,559		12,489		3,134		(2,622)		31,560
Other income, net		(7,121)		(2,292)		(306)		2,616		(7,103)
Income (loss) before income taxes and
equity in net income of subsidiaries		257,804		288,380		(3,662)		(35,407)		507,115
Income taxes		45,599		71,466		420		(8,276)		109,209
		212,205		216,914		(4,082)		(27,131)		397,906
Equity in net income of subsidiaries		186,170		-		-		(186,170)		-
Net loss attributable to noncontrolling interests		-		-		469		-		469
Net income (loss) attributable to Steel Dynamics, Inc.	$	398,375	$	216,914	$	(3,613)	$	(213,301)	$	398,375



For the nine months ended,					Combined		Consolidating		Total
September 30, 2019	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Net sales	$	3,198,215	$	8,837,385	$	611,407	$	(4,532,212)	$	8,114,795
Costs of goods sold		2,628,849		8,141,120		568,914		(4,438,663)		6,900,220
Gross profit		569,366		696,265		42,493		(93,549)		1,214,575
Selling, general and administrative		185,647		221,592		19,891		(17,474)		409,656
Operating income		383,719		474,673		22,602		(76,075)		804,919
Interest expense, net of capitalized interest		56,818		35,107		10,327		(7,470)		94,782
Other income, net		(17,752)		(4,746)		(753)		8,114		(15,137)
Income before income taxes and
equity in net income of subsidiaries		344,653		444,312		13,028		(76,719)		725,274
Income taxes		81,422		107,384		495		(18,208)		171,093
		263,231		336,928		12,533		(58,511)		554,181
Equity in net income of subsidiaries		286,447		-		-		(286,447)		-
Net income attributable to noncontrolling interests		-		-		(4,503)		-		(4,503)
Net income attributable to Steel Dynamics, Inc.	$	549,678	$	336,928	$	8,030	$	(344,958)	$	549,678



For the nine months ended,					Combined		Consolidating		Total
September 30, 2018	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Net sales	$	3,635,571	$	9,804,316	$	417,450	$	(4,939,390)	$	8,917,947
Costs of goods sold		2,746,516		8,783,145		413,607		(4,826,900)		7,116,368
Gross profit		889,055		1,021,171		3,843		(112,490)		1,801,579
Selling, general and administrative		218,839		233,989		8,550		(16,655)		444,723
Operating income (loss)		670,216		787,182		(4,707)		(95,835)		1,356,856
Interest expense, net of capitalized interest		56,568		36,793		9,489		(7,882)		94,968
Other income, net		(18,299)		(5,612)		(565)		7,875		(16,601)
Income (loss) before income taxes and
equity in net income of subsidiaries		631,947		756,001		(13,631)		(95,828)		1,278,489
Income taxes		127,083		187,794		530		(22,871)		292,536
		504,864		568,207		(14,161)		(72,957)		985,953
Equity in net income of subsidiaries		483,511		-		-		(483,511)		-
Net loss attributable to noncontrolling interests		-		-		2,422		-		2,422
Net income (loss) attributable to Steel Dynamics, Inc.	$	988,375	$	568,207	$	(11,739)	$	(556,468)	$	988,375

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)


Condensed Consolidating Statements of Cash Flows (in thousands)

For the nine months ended,					Combined		Consolidating		Total
September 30, 2019	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Net cash provided by operating activities	$	368,148	$	624,223	$	18,893	$	(24,036)	$	987,228
Net cash used in investing activities		(116,470)		(78,193)		(7,740)		(25,114)		(227,517)
Net cash provided by (used in) financing activities		8,774		(495,488)		(5,030)		49,150		(442,594)
Increase in cash, cash equivalents and
restricted cash		260,452		50,542		6,123		-		317,117
Cash, cash equivalents, and restricted cash
at beginning of period		809,763		14,368		10,292		-		834,423
Cash, cash equivalents, and restricted cash
at end of period	$	1,070,215	$	64,910	$	16,415	$	-	$	1,151,540



For the nine months ended,					Combined		Consolidating		Total
September 30, 2018	Parent		Guarantors		Non-Guarantors		Adjustments		Consolidated
Net cash provided by operating activities	$	401,680	$	505,175	$	2,101	$	15,452	$	924,408
Net cash used in investing activities		(617,158)		(106,230)		(4,920)		4,295		(724,013)
Net cash provided by (used in) financing activities		77,165		(405,499)		2,740		(19,747)		(345,341)
Decrease in cash, cash equivalents and		(138,313)		(6,554)		(79)		-		(144,946)
restricted cash
Cash, cash equivalents, and restricted cash		1,002,230		20,748		12,107		-		1,035,085
at beginning of period
Cash, cash equivalents, and restricted cash
at end of period	$	863,917	$	14,194	$	12,028	$	-	$	890,139

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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 the 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) the effects of uncertain economic conditions; (2) cyclical and changing industrial demand; (3) changes in conditions in any of the steel or scrap-consuming sectors of the economy which affect demand for our products, including the strength of the non-residential and residential construction, automotive, manufacturing, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials and supplies (including steel scrap, iron units, zinc, graphite electrodes, and energy costs) and our ability to pass on any cost increases; (5) the impact of domestic and foreign imports, including trade policy, restrictions, or agreements; (6) unanticipated difficulties in integrating or starting up new, existing or planned businesses or assets; (7) risks and uncertainties involving product and/or technology development; and (8) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to our more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth 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, 2018, in our quarterly reports on Form 10-Q, or in other reports which we from time to time file with the Securities and Exchange Commission. These reports are available publicly on the Securities and Exchange Commission website, www.sec.gov, and on our website, www.steeldynamics.com under “Investors – SEC Filings.”

Description of the Business

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

Operating Statement Classifications

Net 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.

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 Expense (Income), 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.

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Acquisition of United Steel Supply, LLC

On March 1, 2019, we purchased 75% of the equity interest of United Steel Supply, LLC (USS) for cash consideration of $93.4 million, plus a customary working capital transaction purchase price adjustment of $3.7 million in September 2019. Additionally, we have an option to purchase, and the sellers have the option to require us to purchase, the remaining 25% equity interest of USS in the future. Headquartered in Austin, Texas, USS is a leading distributor of painted Galvalume^® flat roll steel used for roofing and siding applications, with distribution centers strategically located in Mississippi, Indiana, Arkansas, and Oregon. USS provides us a new, complementary distribution channel and connects us to a rapidly growing industry segment with customers that do not traditionally purchase steel directly from a steel producer. USS’s operating results from and after March 1, 2019, are reflected in our financial statements in the steel operations reporting segment.

Results Overview

Our consolidated results for the third quarter of 2019 continued to be constrained by a challenging steel pricing environment, as well as sharply falling scrap prices. While underlying domestic steel demand remained intact, customers continued to be hesitant to place orders in a falling price environment, resulting in inventory destocking, in conjunction with further weakening scrap prices. Likewise, our metals recycling operations experienced decreased operating income in the third quarter of 2019 compared to 2018, due to the continued downward ferrous scrap pricing environment and resulting slower scrap flows, as well as lower copper and aluminum pricing. The non-residential construction market remained strong, with our fabrication operations metal margins expanding due to increased average selling prices coupled with decreased steel input costs.

Consolidated operating income decreased $303.5 million, or 57%, to $228.0 million for the third quarter 2019, compared to the record levels in the third quarter 2018. Third quarter 2019 net income attributable to Steel Dynamics, Inc. decreased $247.3 million, or 62%, to $151.0 million, compared to the third quarter 2018, consistent with the decreased operating income.

Consolidated operating income decreased $551.9 million, or 41%, to $804.9 million for the first nine months of 2019, compared to the record levels in the first nine months of 2018. First nine months 2019 net income attributable to Steel Dynamics, Inc. decreased $438.7 million, or 44%, to $549.7 million, compared to the first nine months of 2018, consistent with the decreased operating income.

Segment Operating Results 2019 vs. 2018 (dollars in thousands)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		% Change		2018	2019		% Change	2018
Net sales:
Steel Operations Segment	$	2,008,205	(22)%	$	2,586,626	$	6,396,555	(9)%	$	7,004,088
Metals Recycling Operations Segment		574,908	(28)%		800,014		1,968,719	(19)%		2,436,875
Steel Fabrication Operations Segment		246,716	(2)%		250,745		716,809	7%		670,344
Other		77,430	(31)%		111,953		290,688	(11)%		327,651
		2,907,259			3,749,338		9,372,771			10,438,958
Intra-company		(380,414)			(525,791)		(1,257,976)			(1,521,011)
	$	2,526,845	(22)%	$	3,223,547	$	8,114,795	(9)%	$	8,917,947

Operating income (loss):
Steel Operations Segment	$	234,683	(59)%	$	573,848	$	835,172	(42)%	$	1,441,904
Metals Recycling Operations Segment		(101)	(101)%		14,674		24,480	(61)%		62,027
Steel Fabrication Operations Segment		35,280	169%		13,104		86,567	84%		47,039
Other		(42,441)	37%		(67,113)		(148,514)	20%		(186,137)
		227,421			534,513		797,705			1,364,833
Intra-company		624			(2,941)		7,214			(7,977)
	$	228,045	(57)%	$	531,572	$	804,919	(41)%	$	1,356,856

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Steel Operations Segment

Steel operations consist of our electric arc furnace steel mills, producing sheet and long products steel from ferrous scrap and scrap substitutes, utilizing continuous casting and automated rolling mills, with numerous downstream processing and coating lines, as well as IDI, our liquid pig iron production facility that supplies solely the Butler Flat Roll Division. Our steel operations sell a diverse portfolio of sheet and long products directly to end-users, steel fabricators, and service centers. These products are used in a wide variety of industry sectors, including the construction, automotive, manufacturing, transportation, heavy equipment and agriculture, and pipe and tube (including OCTG) markets. Steel operations accounted for 76% and 77% of our consolidated external net sales during the third quarters of 2019 and 2018, respectively, and 76% and 75% during the first nine months of 2019 and 2018, respectively.

Steel Operations Segment Shipments (tons):



	Three Months Ended September 30,			Nine Months Ended September 30,
	2019	% Change	2018	2019	% Change	2018

Total shipments	2,711,909	(2)%	2,756,920	8,165,678	2%	8,025,500
Intra-segment shipments	(225,399)		(154,837)	(752,826)		(422,488)
Steel Operations Segment shipments	2,486,510	(4)%	2,602,083	7,412,852	(3)%	7,603,012

External shipments	2,362,915	(5)%	2,489,133	7,096,975	(3)%	7,296,871

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Segment Results 2019 vs. 2018

Overall domestic steel demand remained steady during the third quarter of 2019, with continued strength in the automotive, construction and other industrial sectors. However, a challenging steel pricing environment has continued throughout 2019, due to customer inventory destocking in conjunction with weakening scrap prices, which has led to decreasing steel selling prices compared to 2018. Steel operations segment shipments decreased 4% in the third quarter 2019, as compared to the same period in 2018. Net sales for the steel operations decreased 22% in the third quarter 2019 when compared to the same period in 2018, due primarily to decreases in overall steel selling prices, particularly in the sheet products, and decreased steel mill shipments. Net sales for the steel operations decreased 9% in the first nine months of 2019 when compared to the same period in 2018, again due to decreases in average steel selling prices and steel segment shipments.

Metallic raw materials used in our electric arc furnaces represent our single most significant steel manufacturing cost, generally comprising approximately 50 to 60 percent of our steel mill operations’ manufacturing costs. Our metallic raw material cost per net ton consumed in our steel operations decreased $77, or 22%, in the third quarter 2019, compared to the same period in 2018, consistent with overall decreased domestic scrap pricing. In the first nine months of 2019, our metallic raw material cost per ton decreased $31, or 9% compared to the same period in 2018.

As a result of average selling prices decreasing 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) decreased 20% in the third quarter 2019 compared to the third quarter 2018. Due to this metal spread contraction, most notably in sheet steel, operating income for the steel operations decreased 59%, to $234.7 million, in the third quarter 2019, compared to the record levels in the same period in 2018. First nine months 2019 operating income decreased 42%, to $835.2 million, compared to the first nine months of 2018 record levels, again due to decreased metal spreads and steel segment shipments.

Metals Recycling Operations Segment

Metals recycling operations consists solely of OmniSource and includes both ferrous and nonferrous scrap metal processing, transportation, marketing, and brokerage services, strategically located primarily in close proximity to our steel mills and other end-user scrap consumers throughout the eastern half of the United States. In addition, OmniSource designs, installs, and manages customized scrap management programs for industrial manufacturing companies at hundreds of locations throughout North America. Our steel mills utilize a large portion (approximately 65%) of the ferrous scrap sold by OmniSource as raw material in our steelmaking operations, and the remainder is sold to other consumers, such as other steel manufacturers and foundries. Our metals recycling operations accounted for 11% and 12% of our consolidated external net sales during the third quarters of 2019 and 2018, respectively, and 12% and 14% during the first nine months of 2019 and 2018, respectively.

Metals Recycling Operations Shipments:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2019	% Change	2018	2019	% Change	2018
Ferrous metal (gross tons)
Total	1,169,963	(10)%	1,304,164	3,531,003	(10)%	3,908,079
Inter-company	(773,828)	(8)%	(844,802)	(2,326,550)	(9)%	(2,545,602)
External shipments	396,135	(14)%	459,362	1,204,453	(12)%	1,362,477

Nonferrous metals (thousands of pounds)
Total	257,087	(7)%	277,332	815,347	(4)%	852,994
Inter-company	(31,419)		(38,287)	(105,198)		(99,448)
External shipments	225,668	(6)%	239,045	710,149	(6)%	753,546

Segment Results 2019 vs. 2018

Our metals recycling operations have been negatively impacted during 2019 by consistently falling ferrous and nonferrous scrap prices compared to 2018, as well as a somewhat softer steel market as customers were reluctant to purchase during a falling pricing environment, opting instead to defer purchases. Net sales decreased 28% during the third quarter of 2019 compared to the same period in 2018, driven by the combination of decreased shipments and average selling prices. Ferrous shipments to our own steel mills decreased by 8% in the third quarter 2019, compared to the same period in 2018, as our steel mill utilization percentage decreased from 98% to 87% year over year. Ferrous scrap average selling prices decreased 26% during the third quarter 2019 compared to the same period in 2018, while nonferrous average selling prices decreased 13%. Ferrous metal spread (which we define as the difference

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between average selling prices and the cost of purchased scrap) decreased 14%, as selling prices decreased more than unprocessed scrap procurement costs, while nonferrous metal spread decreased 8%. Metals recycling operations operating income decreased 101% to a loss of $100,000 in the third quarter 2019 compared to the third quarter 2018 operating income of $14.7 million, due to decreased ferrous and nonferrous shipments and metal spread contraction.

Net sales for our metals recycling operations decreased 19% in the first nine months of 2019 as compared to the same period in 2018, driven by decreased pricing and shipments. Ferrous scrap average selling prices decreased 16% during the first nine months of 2019 compared to the same period in 2018, while nonferrous average selling prices decreased 7%. Nonferrous metal spread decreased 2%, while ferrous metal spread decreased 12% in the first nine months of 2019 compared to the first nine months of 2018. Metals recycling operations operating income in the first nine months of 2019 of $24.5 million decreased 61% from the same period 2018 operating income of $62.0 million, due to decreased ferrous and nonferrous shipments, and metal spread contraction.

Steel Fabrication Operations Segment

Steel fabrication operations include our New Millennium Building Systems joist and deck plants located throughout the United States and in Northern Mexico. Revenues from these plants are generated from the fabrication of steel joists, trusses, girders and steel deck used within the non-residential construction industry. Steel fabrication operations accounted for 10% and 8% of our consolidated external net sales during the third quarters of 2019 and 2018, respectively, and 9% and 8% during the first nine months of 2019 and 2018, respectively.

Segment Results 2019 vs. 2018

Net sales for the steel fabrication operations decreased 2%, during the third quarter 2019 compared to the same period in 2018, as average selling prices were steady, while shipments decreased slightly. Net sales for the segment increased $46.5 million, or 7%, during the first nine months of 2019, compared to the same period in 2018, as shipments decreased 2%, while average selling prices increased $125 per ton, or 9%. Our steel fabrication operations continue to leverage our national operating footprint to sustain market share. Market demand and orders continue to be strong for non-residential construction project development; however, wet weather during the first half of 2019 and other construction delays have somewhat restricted shipments in 2019 compared to 2018.

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The purchase of various steel products is the largest single cost of production for our steel fabrication operations, generally representing approximately two-thirds of the total cost of manufacturing. The average cost of steel consumed decreased 19% in the third quarter 2019, as compared to the same period in 2018. As a result, metal spread (which we define as the difference between average selling prices and the cost of purchased steel) increased 35% in the third quarter 2019 compared to the same period in 2018. Operating income increased 169% to $35.3 million in the third quarter 2019 compared to the same period in 2018, due to the increase in metal spread. For the first nine months of 2019, operating income increased 84% to $86.6 million compared to the first nine months of 2018, due to increased average selling prices and decreased steel cost, as metal spread increased 23% period over period.

Other Operations

Third Quarter Consolidated Results 2019 vs. 2018

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $107.2 million during the third quarter 2019 increased 5% from $102.6 million during the third quarter 2018, representing 4.2% and 3.2% of net sales, respectively. Profit sharing expense during the third quarter of 2019 of $17.8 million was down 61% from the $45.3 million during the same period in 2018, consistent with decreases in pretax income from record levels in 2018.

Interest Expense, net of Capitalized Interest. During the third quarter 2019, interest expense of $31.3 million was comparable to the $31.6 million during the third quarter of 2018, on consistent debt levels.

Income Tax Expense. Third quarter 2019 income tax expense of $48.6 million, at an effective income tax rate of 24.2%, was down 55% from the $109.2 million, at an effective income tax rate of 21.5%, during the third quarter 2018, consistent with decreased pretax income. The third quarter 2018 effective tax rate was lower than the third quarter 2019 effective tax rate due to certain discrete tax benefit items realized in the third quarter 2018.

First Nine Months Consolidated Results 2019 vs. 2018

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $324.5 million during the first nine months of 2019 increased 5% from $310.0 million during the first nine months of 2018, representing 4.0% and 3.5% of net sales, respectively. Profit sharing expense during the first nine months of 2019 of $64.4 million decreased 44% from the $114.3 million during the same period in 2018, consistent with decreases in pretax income from record levels in 2018.

Interest Expense, net of Capitalized Interest. During the first nine months of 2019 and 2018, interest expense of $94.8 million was comparable to the $95.0 million during the same period in 2018, on consistent debt levels.

Income Tax Expense. First nine months 2019 income tax expense of $171.1 million, at an effective income tax rate of 23.6%, was down 42% from the $292.5 million, at an effective income tax rate of 22.9%, during the first nine months of 2018, consistent with decreased pretax income.

Liquidity and Capital Resources

Capital Resources and Long-term Debt. Our business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of equipment used in our steel, metals recycling, and steel fabrication operations, and to remain in compliance with environmental laws. Our short-term and long-term liquidity needs arise primarily from working capital requirements, capital expenditures, principal and interest payments related to our outstanding indebtedness, dividends to our shareholders, 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 Revolver. Our liquidity at September 30, 2019, is as follows (in thousands):



Cash and equivalents	$	1,146,007
Short-term investments		69,529
Revolver availability		1,158,128
Total liquidity	$	2,373,664

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In October 2019, our corporate credit rating was upgraded to an investment grade credit level by all three credit rating agencies.

Our total outstanding debt increased $60.7 million during the first nine months of 2019 primarily due to revolving debt assumed in conjunction with our acquisition of USS. 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 37.6% and 37.9% at September 30, 2019, and December 31, 2018, respectively.

Our senior secured credit facility (Facility), which provides a $1.2 billion Revolver, matures in June 2023. Subject to certain conditions, we have the opportunity to increase the Revolver size by at least $750.0 million. The Facility is guaranteed by certain of our subsidiaries. The Facility is secured by substantially all of our and our wholly-owned subsidiaries’ receivables and inventories, and by pledges of all shares of our wholly-owned subsidiaries’ capital stock or other equity interests, and intercompany debt held by us as collateral. Subsequent to our corporate credit rating upgrade, we began the process to release the collateral securing the Facility, which we expect to be released on or about November 12, 2019. The Revolver is available to fund working capital, capital expenditures, and other general corporate purposes. The Facility contains financial covenants and other covenants pertaining to our ability (which may under certain circumstances be limited) to make capital expenditures; incur indebtedness; permit liens on property; enter into transactions with affiliates; make restricted payments or investments; enter into mergers, acquisitions or consolidations; conduct asset sales; pay dividends or distributions, or enter into other specified transactions and activities. Our ability to borrow funds within the terms of the Revolver is dependent upon our continued compliance with the financial and other covenants. At September 30, 2019, we had $1.2 billion of availability on the Revolver, $41.9 million of outstanding letters of credit and other obligations which reduce availability, and there were no borrowings outstanding.

The financial covenants under our Facility state that we must maintain an interest coverage ratio of not less than 2.50:1.00. Our interest coverage ratio is calculated by dividing our last-twelve-months (LTM) consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain other non-cash transactions as allowed in the Facility) by our LTM gross interest expense, less amortization of financing fees. In addition, a net debt (as defined in the Facility) to LTM consolidated adjusted EBITDA (net debt leverage ratio) of not more than 5.00:1.00 must be maintained. If the net debt leverage ratio exceeds 3.50:1:00 at any time, our ability to make certain payments as defined in the Facility (which includes cash dividends to stockholders and share purchases, among other things), is limited. At September 30, 2019, our interest coverage ratio and net debt leverage ratio were 12.22:1.00 and 1.20:1.00, respectively. We were, therefore, in compliance with these covenants at September 30, 2019, and we anticipate we will continue to be in compliance during the next twelve months.

Working Capital. We generated cash flow from operations of $987.2 million in the first nine months of 2019. Operational working capital (representing amounts invested in trade receivables and inventories, less current liabilities other than income taxes payable and debt) decreased $124.9 million, excluding the effect of acquired USS working capital, to $1.85 billion at September 30, 2019, due primarily to decreased accounts receivable and inventories consistent with decreased sales and inventory costs.

Capital Investments. During the first nine months of 2019, we invested $293.7 million in property, plant and equipment, primarily within our steel operations segment, compared with $176.5 million invested during the same period in 2018. The increase in the first nine months of 2019 versus the same 2018 period relates primarily to the new Sinton, Texas flat roll steel mill project.

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 28% to $0.2400 per share in the first quarter 2019 (from $0.1875 per share in 2018), resulting in declared cash dividends of $158.0 million during the first nine months of 2019, compared to $132.1 million during the same period in 2018. We paid cash dividends of $148.5 million and $125.1 million during the first nine months of 2019 and 2018, respectively. Our board of directors, along with executive management, approves the payment of dividends on a quarterly basis. The determination to pay cash dividends in the future is at the discretion of our board of directors, after taking into account various factors, including our financial condition, results of operations, outstanding indebtedness, current and anticipated cash needs and growth plans. In addition, the terms of our Facility and the indentures relating to our senior notes may restrict the amount of cash dividends we can pay.

Other. In August 2018, our board of directors authorized a share repurchase program of up to $750 million of our common stock. Under the share repurchase program, purchases will take place, as and when, we determine in open market or private transactions made based upon the market price of our common stock, the nature of other investment opportunities or growth projects, our cash flows from operations, and general economic conditions. The share repurchase program does not require us to acquire any specific number of shares, and may be modified, suspended, extended or terminated by us at any time. We acquired 4.1 million shares of our common stock for $115.0 million in the third quarter of 2019 pursuant to this program. We acquired 9.5 million shares of our common stock for $292.4 million in the first nine months of 2019, leaving $106.8 million remaining available to purchase under the program. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for additional information.

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

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, 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 up to 5 years for physical commodity requirements and commodity transportation requirements, and for up to 13 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 during the idle period. We also purchase electricity consumed at our Butler Flat Roll Division pursuant to a contract which extends through December 2020, which establishes an agreed fixed-rate energy charge per Mill/kWh consumed for each year through the expiration of the agreement.

We have certain fixed price contracts with various customers and suppliers for future delivery of nonferrous metals. Our risk strategy has been to enter into base metal financial contracts with the goal to protect the profit margin, within certain parameters, that was contemplated when we entered into the transaction with the customer or vendor. At September 30, 2019, we had a cumulative unrealized loss associated with these financial contracts of $2.5 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, 2019, 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 officer, as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in Internal Controls Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2019, 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 routine litigation matters, including administrative proceedings, regulatory proceedings, governmental investigations, environmental matters, and commercial and construction contract disputes, none of which are expected to have a material impact on our financial condition, results of operations, or liquidity.

We may also be involved from time to time in various governmental investigations, regulatory proceedings or judicial actions seeking 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, for which a total of $508,000 is recorded in our financial statements as of September 30, 2019.

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, 2018.

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

(c)

Issuer Purchases of Equity Securities

We purchased the following equity securities registered by us pursuant to Section 12 of the Exchange Act during the three months ended September 30, 2019.



Period	Total Number of Shares Purchased	Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Program ⁽¹⁾		Maximum Dollar Value of Shares That May Yet be Purchased Under the Program (in thousands)⁽¹⁾
Quarter ended September 30, 2019

July 1 - 31	246,100		$	32.46		246,100		$	213,715
August 1 - 31	3,509,700			27.91		3,509,700			115,749
September 1 - 30	302,186			29.77		302,186			106,754
	4,057,986					4,057,986

(1)	On September 4, 2018, we announced that our board of directors had authorized a share purchase program of up to $750.0 million of our common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Information required to be furnished pursuant to Item 4 concerning mine safety disclosure matters, if applicable, by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104), is included in Exhibit 95 to this quarterly report. There are no mine safety disclosures to report for the three months ended September 30, 2019, therefore, no Exhibit 95 is required.

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


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.

Other

95**	Mine Safety Disclosures.

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*	XBRL Taxonomy Extension Schema Document

101.CAL*	XBRL Taxonomy Extension Calculation Document

101.DEF*	XBRL Taxonomy Definition Document

101.LAB*	XBRL Taxonomy Extension Label Document

101.PRE*	XBRL Taxonomy Presentation Document

104	Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*	Filed concurrently herewith

**	Inapplicable for purposes of this report

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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.

October 31, 2019

		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)