0001558370-23-008282.txt : 20230505 0001558370-23-008282.hdr.sgml : 20230505 20230505144430 ACCESSION NUMBER: 0001558370-23-008282 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 56 CONFORMED PERIOD OF REPORT: 20230331 FILED AS OF DATE: 20230505 DATE AS OF CHANGE: 20230505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEEL DYNAMICS INC CENTRAL INDEX KEY: 0001022671 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 351929476 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21719 FILM NUMBER: 23893135 BUSINESS ADDRESS: STREET 1: 7575 W JEFFERSON BLVD CITY: FORT WAYNE STATE: IN ZIP: 46804 BUSINESS PHONE: 260 459 3553 MAIL ADDRESS: STREET 1: 7575 W JEFFERSON BLVD CITY: FORT WAYNE STATE: IN ZIP: 46804 10-Q 1 stld-20230331x10q.htm 10-Q
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st

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

      ended March 31, 2023

OR

       Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______

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

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

    

Large accelerated filer

    

Accelerated filer

    

Non-accelerated filer

Smaller reporting company  

Emerging growth company

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

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

As of April 28, 2023, Registrant had 169,033,703 outstanding shares of common stock.

STEEL DYNAMICS, INC.

Table of Contents

PART I. Financial Information

Item 1.

Financial Statements:

Page

Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022

1

Consolidated Statements of Income for the three-month periods ended March 31, 2023 and 2022 (unaudited)

2

Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2023 and 2022 (unaudited)

3

Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2023 and 2022 (unaudited)

4

Notes to Consolidated Financial Statements (unaudited)

5

Item 2.

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

13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

21

Item 4.

Controls and Procedures

21

PART II. Other Information

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 3.

Defaults Upon Senior Securities

22

Item 4.

Mine Safety Disclosures

22

Item 5.

Other Information

22

Item 6.

Exhibits

23

Exhibit Index

23

Signature

24

STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

March 31,

December 31,

2023

2022

Assets

(unaudited)

Current assets

Cash and equivalents

$

1,604,943

$

1,628,417

Short-term investments

714,769

628,215

Accounts receivable, net

2,072,619

1,976,282

Accounts receivable-related parties

54,355

79,769

Inventories

2,988,852

3,129,964

Other current assets

127,022

195,371

Total current assets

7,562,560

7,638,018

Property, plant and equipment, net

5,491,201

5,373,665

Intangible assets, net

260,629

267,507

Goodwill

502,067

502,067

Other assets

403,303

378,727

Total assets

$

14,219,760

$

14,159,984

Liabilities and Equity

Current liabilities

Accounts payable

$

1,126,795

$

1,007,304

Accounts payable-related parties

12,171

9,934

Income taxes payable

129,082

6,520

Accrued payroll and benefits

209,522

610,558

Accrued expenses

296,524

340,646

Current maturities of long-term debt

46,452

57,334

Total current liabilities

1,820,546

2,032,296

Long-term debt

3,014,358

3,013,241

Deferred income taxes

898,112

889,103

Other liabilities

180,321

129,539

Total liabilities

5,913,337

6,064,179

Commitments and contingencies

Redeemable noncontrolling interests

186,205

181,503

Equity

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

267,772,737 and 267,762,488 shares issued; and 170,170,375 and 172,936,163

shares outstanding, as of March 31, 2023 and December 31, 2022, respectively

650

650

Treasury stock, at cost; 97,602,362 and 94,826,325 shares,

as of March 31, 2023 and December 31, 2022, respectively

(4,800,513)

(4,459,513)

Additional paid-in capital

1,194,079

1,212,566

Retained earnings

11,940,621

11,375,765

Accumulated other comprehensive income (loss)

1,800

889

Total Steel Dynamics, Inc. equity

8,336,637

8,130,357

Noncontrolling interests

(216,419)

(216,055)

Total equity

8,120,218

7,914,302

Total liabilities and equity

$

14,219,760

$

14,159,984

See notes to consolidated financial statements.

1

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

Three-Month Periods Ended

March 31,

2023

2022

Net sales

Unrelated parties

$

4,745,353

$

5,410,801

Related parties

147,853

159,101

Total net sales

4,893,206

5,569,902

Costs of goods sold

3,837,084

3,787,389

Gross profit

1,056,122

1,782,513

Selling, general and administrative expenses

144,309

152,015

Profit sharing

69,575

128,469

Amortization of intangible assets

6,878

7,162

Operating income

835,360

1,494,867

Interest expense, net of capitalized interest

22,507

16,669

Other (income) expense, net

(34,936)

20,468

Income before income taxes

847,789

1,457,730

Income tax expense

203,456

350,376

Net income

644,333

1,107,354

Net income attributable to noncontrolling interests

(7,023)

(3,423)

Net income attributable to Steel Dynamics, Inc.

$

637,310

$

1,103,931

Basic earnings per share attributable to Steel

Dynamics, Inc. stockholders

$

3.71

$

5.74

Weighted average common shares outstanding

171,597

192,158

Diluted earnings per share attributable to Steel

Dynamics, Inc. stockholders, including the effect

of assumed conversions when dilutive

$

3.70

$

5.71

Weighted average common shares and share equivalents outstanding

172,479

193,241

Dividends declared per share

$

0.425

$

0.34

See notes to consolidated financial statements.

2

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three-Month Periods Ended

March 31,

2023

2022

Net income

$

644,333

$

1,107,354

Other comprehensive income - net unrealized gain on cash

flow hedging derivatives, net of income tax expense of $291 and $3,557

for the three-month periods ended March 31, 2023 and 2022,

respectively

911

11,387

Comprehensive income

645,244

1,118,741

Comprehensive income attributable to noncontrolling interests

(7,023)

(3,423)

Comprehensive income attributable to Steel Dynamics, Inc.

$

638,221

$

1,115,318

See notes to consolidated financial statements.

3

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three-Month Periods Ended

March 31,

2023

2022

Operating activities:

Net income

$

644,333

$

1,107,354

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

107,694

87,546

Equity-based compensation

16,078

16,519

Deferred income taxes

9,008

2,632

Other adjustments

(10,006)

11,157

Changes in certain assets and liabilities:

Accounts receivable

(70,922)

(447,234)

Inventories

141,112

14,315

Other assets

7,842

19,402

Accounts payable

117,312

(75,971)

Income taxes receivable/payable

189,247

341,905

Accrued expenses

(417,915)

(258,657)

Net cash provided by operating activities

733,783

818,968

Investing activities:

Purchases of property, plant and equipment

(226,319)

(159,330)

Purchases of short-term investments

(356,777)

-

Proceeds from maturities of short-term investments

271,107

-

Investments in unconsolidated affiliates

-

(222,480)

Other investing activities

2,343

410

Net cash used in investing activities

(309,646)

(381,400)

Financing activities:

Issuance of current and long-term debt

393,910

319,779

Repayment of current and long-term debt

(405,279)

(349,272)

Dividends paid

(58,798)

(50,699)

Purchases of treasury stock

(353,997)

(389,190)

Other financing activities

(23,449)

(22,527)

Net cash used in financing activities

(447,613)

(491,909)

Decrease in cash, cash equivalents, and restricted cash

(23,476)

(54,341)

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

1,633,919

1,249,369

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

$

1,610,443

$

1,195,028

Supplemental disclosure information:

Cash paid for interest

$

9,596

$

9,168

Cash paid for income taxes, net

$

4,703

$

9,948

See notes to consolidated financial statements.

4

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Description of the Business and Significant Accounting Policies

Description of the Business

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

Steel Operations Segment. Steel operations include the company’s electric arc furnace (EAF) steel mills, including Butler Flat Roll Division, Columbus Flat Roll Division, Southwest-Sinton Flat Roll Division (Sinton), Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, Steel of West Virginia, steel coating and processing operations at The Techs, Heartland Flat Roll Division, United Steel Supply (USS) – 87.5% equity interest as of April 1, 2022, Vulcan Threaded Products, Inc., and SDI Biocarbon Solutions, LLC, a joint venture to construct and operate a biocarbon production facility. Steel operations accounted for 63% and 68% of the company’s consolidated net sales during the three-month periods ended March 31, 2023 and 2022, respectively.

Metals Recycling Operations Segment. Metals recycling operations include the company’s OmniSource ferrous and nonferrous processing, transportation, marketing, brokerage, and scrap management services primarily throughout the United States and in Central and Northern Mexico. Metals recycling operations accounted for 12% and 10% of the company’s consolidated net sales during the three-month periods ended March 31, 2023 and 2022, 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 18% and 17% of the company’s consolidated net sales during the three-month periods ended March 31, 2023 and 2022, respectively.

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

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of SDI, together with its wholly- and majority-owned or controlled subsidiaries, after elimination of intercompany accounts and transactions. Noncontrolling and redeemable noncontrolling interests represent the noncontrolling owners’ proportionate share in the equity, income, or losses of the company’s majority-owned or controlled consolidated subsidiaries. Redeemable noncontrolling interests related to USS (owned 87.5% by SDI at March 31, 2023 and December 31, 2022) are $75.0 million at March 31, 2023 and $70.3 million at December 31, 2022. Redeemable noncontrolling interests related to Mesabi Nugget (owned 85% by SDI) are $111.2 million at March 31, 2023, and December 31, 2022.

At March 31, 2023, SDI owned 87.5% of the equity interest in USS. Originally, after the fourth anniversary of the initial transaction (March 1, 2023), SDI has an option to purchase, and the noncontrolling members had the option to require the company to purchase, the remaining 12.5% equity interest of USS. On April 1, 2023, a noncontrolling member of USS exercised its option to require SDI to purchase its 2.5% equity interest, increasing SDI’s ownership to 90%. The remaining noncontrolling members’ option to require SDI to purchase the remaining 10% equity interest of USS has been extended to on or after February 28, 2025.

5

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Use of Estimates

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, and accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, and goodwill; valuation allowances for trade receivables, inventories and deferred income tax assets; unrecognized tax benefits; potential environmental liabilities; and litigation claims and settlements. Actual results may differ from these estimates and assumptions.

In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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 for all periods presented, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.

Goodwill

The company’s goodwill consisted of the following at March 31, 2023, and December 31, 2022 (in thousands):

March 31,

December 31,

2023

2022

Steel Operations Segment

$

272,133

$

272,133

Metals Recycling Operations Segment

228,009

228,009

Steel Fabrication Operations Segment

1,925

1,925

$

502,067

$

502,067

Credit Losses

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

At March 31, 2023, the company reported $2,127 million of accounts receivable, net of allowances for credit losses of $6.4 million. Changes in the allowance were not material for the three-month periods ended March 31, 2023 and 2022.

6

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. Earnings Per Share

Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive 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 and for the three-month periods ended March 31, 2023 and 2022.

Three-Month Periods Ended March 31,

2023

2022

Weighted

Weighted

Average

Average

Net Income

Shares

Per Share

Net Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Basic earnings per share

$

637,310

171,597

$

3.71

$

1,103,931

192,158

$

5.74

Dilutive common share equivalents

-

882

-

1,083

Diluted earnings per share

$

637,310

172,479

$

3.70

$

1,103,931

193,241

$

5.71

Note 3. Inventories

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

March 31,

December 31,

2023

2022

Raw materials

$

1,404,257

$

1,608,344

Supplies

661,039

629,074

Work in progress

291,538

256,071

Finished goods

632,018

636,475

Total inventories

$

2,988,852

$

3,129,964

Note 4. Changes in Equity

The following tables provide a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to stockholders of Steel Dynamics, Inc., and equity and redeemable amounts attributable to noncontrolling interests (in thousands) for each of the three-month periods ended March 31, 2023 and 2022:

Stockholders of Steel Dynamics, Inc.

Accumulated

Additional

Other

Redeemable

Common

Treasury

Paid-In

Retained

Comprehensive

Noncontrolling

Total

Noncontrolling

Stock

Stock

Capital

Earnings

Income

Interests

Equity

Interests

Balances at December 31, 2022

$

650

$

(4,459,513)

$

1,212,566

$

11,375,765

$

889

$

(216,055)

$

7,914,302

$

181,503

Dividends declared

-

-

-

(72,316)

-

-

(72,316)

-

Noncontrolling investors, net

-

-

-

-

-

(7,387)

(7,387)

4,702

Share repurchases

-

(353,997)

-

-

-

-

(353,997)

-

Equity-based compensation

-

12,997

(18,487)

(138)

-

-

(5,628)

-

Net income

-

-

-

637,310

-

7,023

644,333

-

Other comprehensive income, net of tax

-

-

-

-

911

-

911

-

Balances at March 31, 2023

$

650

$

(4,800,513)

$

1,194,079

$

11,940,621

$

1,800

$

(216,419)

$

8,120,218

$

186,205

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. 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

Income (Loss)

Interests

Equity

Interests

Balances at December 31, 2021

$

649

$

(2,674,267)

$

1,218,933

$

7,761,417

$

(2,091)

$

(195,884)

$

6,108,757

$

211,414

Dividends declared

-

-

-

(64,344)

-

-

(64,344)

-

Noncontrolling investors, net

-

-

-

-

-

(21,633)

(21,633)

16,500

Share repurchases

-

(389,190)

-

-

-

-

(389,190)

-

Equity-based compensation

-

12,960

(14,910)

(121)

-

-

(2,071)

-

Net income

-

-

-

1,103,931

-

3,423

1,107,354

-

Other comprehensive income, net of tax

-

-

-

-

11,387

-

11,387

-

Balances at March 31, 2022

$

649

$

(3,050,497)

$

1,204,023

$

8,800,883

$

9,296

$

(214,094)

$

6,750,260

$

227,914

Note 5. Derivative Financial Instruments

The company is exposed to certain risks relating to its ongoing business operations. The company utilizes derivative instruments to mitigate commodity margin risk, and occasionally to mitigate foreign currency exchange rate risk, and have in the past to mitigate interest rate fluctuation risk. The company routinely enters into forward exchange traded futures and option contracts to manage the price risk associated with nonferrous metals inventory as well as purchases and sales of nonferrous metals (primarily aluminum and copper) and ferrous metals. 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 March 31, 2023:

Commodity Futures

Long/Short

Metric Tons

Aluminum

Long

8,625

Aluminum

Short

15,750

Copper

Long

14,297

Copper

Short

33,348

The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets as of March 31, 2023, and December 31, 2022, and gains and losses related to derivatives included in the company’s statement of income for the three-month periods ended March 31, 2023 and 2022 (in thousands):

Asset Derivatives

Liability Derivatives

Balance sheet

Fair Value

Fair Value

 location

March 31, 2023

December 31, 2022

March 31, 2023

December 31, 2022

Derivative instruments designated as hedges

Commodity futures

Other current assets

$

3,055

$

2,169

$

1,958

$

2,119

Derivative instruments not designated as hedges

Commodity futures

Other current assets

3,104

2,102

3,234

5,269

Total derivative instruments

$

6,159

$

4,271

$

5,192

$

7,388

8

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5. Derivative Financial Instruments (Continued)

The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $18.7 million at March 31, 2023, and $23.5 million at December 31, 2022, and are reflected in other current assets in the consolidated balance sheets.

Amount of gain (loss)

Amount of gain (loss)

recognized in income

Location of gain

recognized in income

Location of gain

on derivatives for the

(loss) recognized

on derivatives for the

(loss) recognized

three-month periods

Hedged items in

in income on

three-month periods

in income on

ended March 31,

fair value hedge

related hedged

ended March 31,

derivatives

2023

2022

relationships

items

2023

2022

Derivatives in fair value hedging relationships

Commodity futures

Costs of goods sold

$

(155)

$

1,326

Firm commitments

Costs of goods sold

$

377

$

(1,192)

Inventory

Costs of goods sold

239

(384)

$

616

$

(1,576)

Derivatives not designated as hedging instruments

Commodity futures

Costs of goods sold

$

(11,390)

$

(11,221)

Derivatives accounted for as fair value hedges had ineffectiveness resulting in losses of $301,000 and gains of $285,000 during the three-month periods ended March 31, 2023 and 2022, respectively. Gains excluded from hedge effectiveness testing of $763,000 decreased cost of goods sold during the three-month period ended March 31, 2023, and losses excluded from hedge effectiveness testing of $536,000 increased cost of goods sold during the three-month period ended March 31, 2022.

Derivatives accounted for as cash flow hedges resulted in net gains of $2.0 million and $18.1 million recognized in other comprehensive income for the three-month periods ended March 31, 2023 and 2022, respectively. Net gains of $786,000 and $3.2 million were reclassified from accumulated other comprehensive income for the three-month periods ended March 31, 2023 and 2022, respectively. At March 31, 2023, the company expects to reclassify all $2.4 million of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months due to the settlement of futures contracts. The maximum term over which the company is hedging its exposure to the variability of future cash flows for forecasted transactions is less than 12 months.

Note 6. Fair Value Measurements

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

Level 1—Unadjusted quoted prices for identical assets and liabilities in active markets;
Level 2—Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable for the asset or liability, either directly or indirectly; and
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

9

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Fair Value Measurements (Continued)

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 March 31, 2023 and December 31, 2022 (in thousands):

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

March 31, 2023

Short-term investments

$

714,769

$

-

$

714,769

$

-

Commodity futures – financial assets

6,159

-

6,159

-

Commodity futures – financial liabilities

5,192

-

5,192

-

December 31, 2022

Short-term investments

$

628,215

$

-

$

628,215

$

-

Commodity futures – financial assets

4,271

-

4,271

-

Commodity futures – financial liabilities

7,388

-

7,388

-

The carrying amounts of financial instruments including cash and equivalents, and restricted cash approximate fair value (Level 1). The fair values of short-term investments and 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 $2.8 billion and $2.7 billion at March 31, 2023 and December 31, 2022, respectively (with a corresponding carrying amount in the consolidated balance sheet of $3.1 billion at March 31, 2023 and December 31, 2022.

Note 7. Commitments and Contingencies

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

Note 8. Segment Information

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

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

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Segment Information (Continued)

Metals

Steel

For the three-month period ended

Steel

Recycling

Fabrication

March 31, 2023

Operations

Operations

Operations

Other

Eliminations

Consolidated

Net sales - disaggregated revenue