Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page

Management’s Report on Internal Control Over Financial Reporting		47

Reports of Independent Registered Public Accounting Firm		48

Consolidated Balance Sheets as of December 31, 2020 and 2019		51

Consolidated Statements of Income for each of the three years in the period ended December 31, 2020		52

Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2020		53

Consolidated Statements of Equity for each of the three years in the period ended December 31, 2020		54

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2020		55

Notes to Consolidated Financial Statements		56

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Steel Dynamics, Inc. is responsible for the preparation and integrity of the company’s consolidated financial statements and for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a – 15(f) of the Exchange Act, for the company (including its consolidated subsidiaries). We maintain accounting and internal control systems which are intended to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed in accordance with management’s authorization, and accounting records are reliable for preparing financial statements in accordance with accounting principles generally accepted in the United States. We are dedicated to ensuring that we maintain the high standards of financial accounting and reporting that we have established. Our culture demands integrity and an unyielding commitment to strong internal control practices and policies.

Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles; and provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not always prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

We acquired Zimmer, S.A. de C.V. “Zimmer” on August 3, 2020. In conducting our evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, we have elected to exclude Zimmer from our evaluation in the year of acquisition as permitted by the Securities and Exchange Commission. Zimmer constituted approximately 1% of the company’s total and net assets as of December 31, 2020, and 1% of the company’s net sales for the year then ended.

Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. The framework on which such evaluation was based upon is contained in the report entitled “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the “COSO criteria”). Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020, the end of the period covered by this report.


/s/ Mark D. Millett		/s/ Theresa E. Wagler
Chief Executive Officer		Executive Vice President and Chief Financial Officer
(Principal Executive Officer)		(Principal Financial Officer)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Steel Dynamics, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Steel Dynamics, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Steel Dynamics, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Zimmer, S.A. de C.V., which is included in the 2020 consolidated financial statements of the Company and constituted 1% of total and net assets, respectively, as of December 31, 2020 and 1% of net sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Zimmer, S.A. de C.V.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Steel Dynamics, Inc. as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Indianapolis, Indiana

March 1, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Steel Dynamics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Steel Dynamics, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis of Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation of Goodwill

Description of the Matter

At December 31, 2020, the Company’s goodwill was approximately $457 million. As discussed in Note 1 of the consolidated financial statements, the Company performs an impairment test for goodwill at least annually or when indicators of impairment exist.

Auditing management’s goodwill impairment test was complex and judgmental due to the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimate was sensitive to significant assumptions, such as estimates of future cash flows and changes in the risk-adjusted discount rate, which are affected by expectations about future market or economic conditions and the impact of planned business and operation strategies.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the assumptions and methodologies used in the calculation of the fair value of the reporting units, as well as the Company’s review of the completeness and accuracy of the data used in the Company’s analysis.

To test the estimated fair value of each of the Company’s reporting units, we performed audit procedures that included, among others, testing the underlying assumptions used in the Company’s analysis, testing the completeness and accuracy of the underlying estimates of future cash flows used by management and testing the calculation of the fair value of each reporting unit. We compared the assumptions used by management to historical results. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses over certain assumptions used by management to evaluate the changes in the fair value of each of the reporting units that would result from changes in those assumptions. In addition, we involved our specialist to assist with our evaluation of the methodologies applied and assumptions used by management.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1999.

Indianapolis, Indiana

March 1, 2021

STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	December 31,
Assets	2020		2019

Current assets
Cash and equivalents	$	1,368,618	$	1,381,460
Short-term investments		-		262,174
Accounts receivable, net of allowances for credit losses of $8,209 and $6,387 as of
December 31, 2020, and December 31, 2019, respectively		967,981		841,378
Accounts receivable-related parties		3,937		2,958
Inventories		1,843,548		1,689,043
Other current assets		74,363		76,012
Total current assets		4,258,447		4,253,025

Property, plant and equipment, net		4,105,569		3,135,886
Intangible assets, net		324,577		327,901
Goodwill		457,226		452,915
Other assets		119,743		106,038
Total assets	$	9,265,562	$	8,275,765
Liabilities and Equity
Current liabilities
Accounts payable	$	760,536	$	509,687
Accounts payable-related parties		8,919		3,657
Income taxes payable		2,386		2,014
Accrued payroll and benefits		201,778		208,287
Accrued interest		19,656		18,292
Accrued expenses		178,618		175,405
Current maturities of long-term debt		86,894		89,356
Total current liabilities		1,258,787		1,006,698

Long-term debt		3,015,782		2,644,988
Deferred income taxes		536,288		484,169
Other liabilities		106,479		75,055
Total liabilities		4,917,336		4,210,910

Commitments and contingencies

Redeemable noncontrolling interests		158,614		143,614

Equity
Common stock voting, $.0025 par value; 900,000,000 shares authorized;
266,618,566 and 266,072,787 shares issued; and 210,914,264 and 214,502,639
shares outstanding, as of December 31, 2020, and December 31, 2019, respectively		648		646
Treasury stock, at cost; 55,704,302 and 51,570,148 shares,
as of December 31, 2020, and December 31, 2019 respectively		(1,623,747)		(1,525,113)
Additional paid-in capital		1,207,392		1,181,012
Retained earnings		4,758,969		4,419,296
Accumulated other comprehensive income (loss)		1,902		(7)
Total Steel Dynamics, Inc. equity		4,345,164		4,075,834
Noncontrolling interests		(155,552)		(154,593)
Total equity		4,189,612		3,921,241
Total liabilities and equity	$	9,265,562	$	8,275,765

See notes to consolidated financial statements.

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)



	Years Ended December 31,
	2020		2019		2018

Net sales
Unrelated parties	$	9,587,691	$	10,451,132	$	11,801,609
Related parties		13,791		13,859		20,230
Total net sales		9,601,482		10,464,991		11,821,839

Costs of goods sold		8,166,754		8,934,007		9,499,025
Gross profit		1,434,728		1,530,984		2,322,814

Selling, general and administrative expenses		477,450		436,498		416,640
Profit sharing		61,728		78,029		155,985
Amortization of intangible assets		28,999		29,577		27,780
Asset impairment charges		19,409		-		-
Operating income		847,142		986,880		1,722,409

Interest expense, net of capitalized interest		94,877		127,104		126,620
Other (income) expense, net		46,787		(15,561)		(23,985)
Income before income taxes		705,478		875,337		1,619,774

Income tax expense		134,650		197,437		363,969
Net income		570,828		677,900		1,255,805

Net (income) loss attributable to noncontrolling interests		(20,006)		(6,797)		2,574
Net income attributable to Steel Dynamics, Inc.	$	550,822	$	671,103	$	1,258,379



Basic earnings per share attributable to Steel Dynamics,
Inc. stockholders	$	2.61	$	3.06	$	5.38

Weighted average common shares outstanding		211,140		219,639		233,923

Diluted earnings per share attributable to Steel Dynamics, Inc.
stockholders, including the effect of assumed conversions
when dilutive	$	2.59	$	3.04	$	5.35

Weighted average common shares and share equivalents outstanding		212,345		220,748		235,193

Dividends declared per share	$	1.00	$	0.96	$	0.75

See notes to consolidated financial statements.

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)



	Years Ended December 31,
	2020		2019		2018

Net income	$	570,828	$	677,900	$	1,255,805
Other comprehensive income (loss) - net unrealized gain (loss) on cash flow
hedging derivatives, net of income tax expense of $594, income tax benefit of $96,
and income tax expense of $94 for 2020, 2019 and 2018, respectively		1,909		(308)		301
Comprehensive income		572,737		677,592		1,256,106

Comprehensive (income) loss attributable to noncontrolling interests		(20,006)		(6,797)		2,574
Comprehensive income attributable to Steel Dynamics, Inc.	$	552,731	$	670,795	$	1,258,680

See notes to consolidated financial statements.

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)



													Accumulated
									Additional				Other						Redeemable
	Shares				Common		Treasury		Paid-In		Retained		Comprehensive		Noncontrolling		Total		Noncontrolling
	Common		Treasury		Stock		Stock		Capital		Earnings		Income (Loss)		Interests		Equity		Interests
Balances at January 1, 2018		237,397		27,606		644		(665,297)		1,141,534		2,874,693		-		(156,506)		3,195,068		111,240
Dividends declared		-		-		-		-		-		(174,355)		-		-		(174,355)		-
Noncontrolling investors, net		-		-		-		-		-		-		-		(2)		(2)		-
Share repurchases		(13,129)		13,129		-		(523,569)		-		-		-		-		(523,569)		-
Equity-based compensation		1,004		(185)		1		4,623		18,514		(397)		-		-		22,741		-
Net income (loss)		-		-		-		-		-		1,258,379		-		(2,574)		1,255,805		-
Other comprehensive income, net of tax		-		-		-		-		-		-		301		-		301		-
Balances at December 31, 2018		225,272		40,550		645		(1,184,243)		1,160,048		3,958,320		301		(159,082)		3,775,989		111,240
Dividends declared		-		-		-		-		-		(209,513)		-		-		(209,513)		-
Noncontrolling investors, net		-		-		-		-		-		-		-		(2,308)		(2,308)		32,374
Share repurchases		(11,282)		11,282		-		(348,608)		-		-		-		-		(348,608)		-
Equity-based compensation		513		(262)		1		7,738		20,964		(614)		-		-		28,089		-
Net income		-		-		-		-		-		671,103		-		6,797		677,900		-
Other comprehensive (loss), net of tax		-		-		-		-		-		-		(308)		-		(308)		-
Balances at December 31, 2019		214,503		51,570		646		(1,525,113)		1,181,012		4,419,296		(7)		(154,593)		3,921,241		143,614
Dividends declared		-		-		-		-		-		(210,496)		-		-		(210,496)		-
Noncontrolling investors, net		-		-		-		-		-		-		-		(20,965)		(20,965)		15,000
Share repurchases		(4,402)		4,402		-		(106,529)		-		-		-		-		(106,529)		-
Equity-based compensation		813		(268)		2		7,895		26,380		(653)		-		-		33,624		-
Net income		-		-		-		-		-		550,822		-		20,006		570,828		-
Other comprehensive income, net of tax		-		-		-		-		-		-		1,909		-		1,909		-
Balances at December 31, 2020		210,914		55,704	$	648	$	(1,623,747)	$	1,207,392	$	4,758,969	$	1,902	$	(155,552)	$	4,189,612	$	158,614

See notes to consolidated financial statements.

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Years Ended December 31,
	2020		2019		2018

Operating activities:
Net income	$	570,828	$	677,900	$	1,255,805

Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		325,789		321,082		317,198
Asset impairment charges		19,409		-		-
Equity-based compensation		55,598		47,631		43,317
Deferred income taxes		47,808		51,721		61,827
Other adjustments		30,974		1,413		(1,245)
Changes in certain assets and liabilities:
Accounts receivable		(111,920)		237,805		(145,873)
Inventories		(150,596)		217,866		(246,213)
Other assets		(1,547)		13,735		(3,475)
Accounts payable		182,509		(86,445)		37,904
Income taxes receivable/payable		32,551		(12,095)		26,471
Accrued expenses		(14,371)		(74,323)		69,753
Net cash provided by operating activities		987,032		1,396,290		1,415,469

Investing activities:
Purchases of property, plant and equipment		(1,198,055)		(451,945)		(239,390)
Purchases of short-term investments		(149,359)		(396,159)		(268,783)
Proceeds from maturities of short term investments		411,533		362,768		40,000
Acquisition of business, net of cash and restricted cash acquired		(60,012)		(97,106)		(433,998)
Other investing activities		2,634		5,756		6,907
Net cash used in investing activities		(993,259)		(576,686)		(895,264)

Financing activities:
Issuance of current and long-term debt		2,523,356		1,573,962		445,607
Repayment of current and long-term debt		(2,177,527)		(1,264,152)		(455,491)
Dividends paid		(209,248)		(200,271)		(168,913)
Purchases of treasury stock		(106,529)		(348,608)		(523,569)
Other financing activities		(37,100)		(27,561)		(18,501)
Net cash used in financing activities		(7,048)		(266,630)		(720,867)

Increase (decrease) in cash and equivalents, and restricted cash		(13,275)		552,974		(200,662)
Cash and equivalents, and restricted cash at beginning of period		1,387,397		834,423		1,035,085

Cash and equivalents, and restricted cash at end of period	$	1,374,122	$	1,387,397	$	834,423

Supplemental disclosure information:
Cash paid for interest	$	111,591	$	134,550	$	124,034
Cash paid for income taxes, net	$	50,417	$	155,525	$	288,429

See notes to consolidated financial statements.

Note 1. Description of the Business and Summary of Significant Accounting Policies

Description of the Business

Steel Dynamics, Inc. (SDI), together with its subsidiaries (the company), is one of the largest and most diversified domestic steel producers and metals recycler. The company has three reporting segments: steel operations, metals recycling operations, and steel fabrication operations. Approximately 7% of the company’s workforce in six locations is represented by collective bargaining agreements, and agreements affecting 1% of the company’s employees at two locations expire during 2021.

Steel Operations Segment

Steel operations include the company’s six operating electric arc furnace (EAF) steel mills, including Butler Flat Roll Division, Columbus Flat Roll Division, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, and Steel of West Virginia, our under construction Southwest-Sinton Flat Roll Division, and Iron Dynamics; and steel coating and processing operations at The Techs galvanizing lines, Heartland Flat Roll Division, United Steel Supply (USS) – acquired 75% equity interest March 1, 2019, and Vulcan Threaded Products Inc. (Vulcan). Steel operations accounted for 74%, 76%, and 75% of the company’s consolidated net sales during 2020, 2019, and 2018, 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 11% of the company’s consolidated net sales during 2020 and 2019, and 13% in 2018.

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 9% of the company’s consolidated net sales during 2020 and 2019, and 8% in 2018.

Other

Other operations consist of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of joint ventures, and our idle Minnesota ironmaking operations. Redeemable noncontrolling interests related to Mesabi Nugget (owned 84% by SDI) are $111.2 million at December 31, 2020, and 2019. 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.

Summary of 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.

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.

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

Revenue from Contracts with Customers

In the steel and metals recycling operations segments, revenue is recognized at the point in time the performance obligation is satisfied, and control of the product is transferred to the customer upon shipment or delivery, at the amount of consideration the company expects to receive, including any variable consideration. The variable consideration included in the company’s steel operations segment contracts, which is not constrained, include estimated product returns and customer claims based on historical experience, and may include volume rebates which are recorded on an expected value basis. Revenue recognized is limited to the amount the company expects to receive. The company does not exercise significant judgements in determining the timing of satisfaction of performance obligations or the transaction price. Shipment of products to customers is considered a fulfillment activity with amounts billed to customers included in sales and costs associated with such included in cost of goods sold.

The company’s steel fabrication operations segment recognizes revenue over time at the amount of consideration the company expects to receive. Revenue is measured on an output method representing completed fabricated tons to date as a percentage of total tons required for each contract. Revenue from fabrication of tons remaining on partially fabricated customer contracts as of a reporting date, and revenue from yet to be fabricated customer contracts, has not been disclosed under the practical expedient in Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606), paragraph ASC 606-10-50-14 related to customer contracts with expected duration of one year or less. The company does not exercise significant judgements in determining the timing of satisfaction of performance obligations or the transaction price. Shipment of products to customers, which occurs after control over the product has transferred to the customer and revenue is recognized, is considered a fulfillment activity with amounts billed to customers included in sales and costs associated with such included in cost of goods sold.

Payments from customers for all operating segments are generally due within 30 days of invoicing, which generally occurs upon shipment of the products. Shipment for the steel fabrication operations segment generally occurs within 30 days of satisfaction of the performance obligation and revenue recognition. The company does not have financing components. Payments from customers have historically generally been within these terms, however, payments for non-U.S. sales may extend longer.

Refer to Note 13. Segment Information, for disaggregated revenue by segment to external, external non-United States, and other segment customers.

Credit Losses

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (ASU 2016-13), and its subsequent corresponding updates, which required an entity to use a forward-looking expected loss model versus the current incurred loss model for most financial instruments, including accounts receivable. The company adopted ASU 2016-13 effective January 1, 2020, using the modified retrospective transition method which resulted in no impact to the company’s financial position, results of operations or cash flows.

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 December 31, 2020, the company reported $971.9 million of accounts receivable, net of allowances for credit losses of $8.2 million.

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, $5.9 million, $6.2 million, and $6.4 million at December 31, 2020, 2019, 2018, and 2017, respectively, which are recorded in Other Assets (noncurrent) in the company’s consolidated balance sheets.

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

Short-term Investments

The short-term investments are classified as trading securities, and interest income is recorded as earned. The company held no short-term investments as of December 31, 2020, and $262.2 million as of December 31, 2019. Short-term investments held as of December 31, 2019, consisted of certificates of deposit of $41.1 million and commercial paper of $221.1 million, with contractual maturities of less than one year, when purchased.

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 at December 31 (in thousands):


	2020		2019
Raw materials	$	790,324	$	686,831
Supplies		500,497		498,298
Work in progress		162,843		154,669
Finished goods		389,884		349,245
Total inventories	$	1,843,548	$	1,689,043

Property, Plant and Equipment

Property, plant and equipment are stated at cost, except for assets acquired in acquisitions which are valued at fair value, which includes capitalized interest on construction in progress amounts, and is reduced by proceeds received from certain state and local government grants and other capital cost reimbursements. The company assigns each fixed asset a useful life ranging from 3 to 20 years for plant, machinery and equipment, and 10 to 40 years for buildings and improvements. Repairs and maintenance are expensed as incurred. Depreciation is provided utilizing the straight-line depreciation methodology, or the units-of-production depreciation methodology for certain production-related steel operations segment assets, based on units produced, subject to minimum and maximum levels. Depreciation expense was $290.5 million, $285.6 million, and $283.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The company’s property, plant and equipment consisted of the following at December 31 (in thousands):


	2020		2019
Land and improvements	$	340,495	$	333,879
Buildings and improvements		860,641		805,381
Plant, machinery and equipment		4,827,791		4,594,778
Construction in progress		1,302,689		390,676
		7,331,616		6,124,714
Less accumulated depreciation		3,226,047		2,988,828
Property, plant and equipment, net	$	4,105,569	$	3,135,886

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

Intangible Assets

The company’s intangible assets consisted of the following at December 31 (in thousands):


						Weighted
						Average
					Useful	Amortization
	2020		2019		Life	Period
Customer, vendor and scrap generator relationships	$	526,886	$	501,212	5 to 25 years	21 years
Trade names		147,950		147,950	15 to 25 years	19 years
Other		1,350		1,350	5 years	5 years
		676,186		650,512		21 years
Less accumulated amortization		351,609		322,611
	$	324,577	$	327,901

The company utilizes an accelerated amortization methodology for customer, vendor and scrap generator relationships in order to follow the pattern in which the economic benefits of the amounts are anticipated to be consumed. Trade names are amortized using a straight-line methodology. Amortization of intangible assets was $29.0 million, $29.6 million, and $27.8 million for the years ended December 31, 2020, 2019, and 2018, respectively. Estimated amortization expense related to amortizable intangibles for the years ending December 31 is as follows (in thousands):



2021	$	29,232
2022		27,840
2023		27,439
2024		26,701
2025		24,783
Thereafter		188,582
Total	$	324,577

Impairment of Long-Lived Tangible and Definite-Lived Intangible Assets

The company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be fully recoverable. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. The impairment loss is measured by comparing the fair value of the assets to its carrying amount. The company considers various factors and determines whether an impairment test is necessary, including by way of examples, a significant and prolonged deterioration in operating results and/or projected cash flows, significant changes in the extent or manner in which an asset is used, technological advances with respect to assets which would potentially render them obsolete, the company’s strategy and capital planning, and the economic climate in markets to be served.

A long-lived asset is classified as held for sale upon meeting specified criteria related to ability and intent to sell. An asset classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell. As of December 31, 2020, and 2019, the company reported $7.2 and $8.0 million, respectively, of assets held for sale within other current assets in the consolidated balance sheet. An impairment loss is recognized for any initial or subsequent write-down of the asset held for sale to its fair value less cost to sell. For assets determined to be classified as held for sale in the years ended December 31, 2020 and 2019, the asset carrying amounts approximated their fair value less cost to sell.

Events occurred during the fourth quarter of 2020, that represented impairment indicators related to the company’s noncore oil and gas joint ventures. Therefore, the company undertook a fourth quarter 2020 assessment of the recoverability of the carrying amounts of these joint ventures’ property, plant and equipment. Based on the joint ventures’ outlook at the time of this 2020 assessment, the company concluded that the carrying amounts of its property, plant and equipment were fully impaired. This assessment resulted in a total non-cash asset impairment charge of $19.4 million, which include amounts attributable to noncontrolling interests of $2.4, that in total served to reduce net income attributable to Steel Dynamics, Inc. by $12.0 million for the year ended December 31, 2020.

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

Goodwill

The company’s goodwill consisted of the following at December 31 (in thousands):


	2020		2019

Steel Operations Segment	$	272,133	$	272,133
Metals Recycling Operations Segment		183,168		178,857
Steel Fabrication Operations Segment		1,925		1,925
	$	457,226	$	452,915

The increase in Metals Recycling Operations Segment goodwill at December 31, 2020 is related to the company’s acquisition of Zimmer, S.A. de C.V. (Zimmer) on August 3, 2020 (refer to Note 2. Acquisition), from which the company recorded $7.7 million of goodwill. Metals Recycling Operations Segment goodwill decreased $3.4 million in 2020 in recognition of the 2020 tax benefit related to the normal amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill. Cumulative OmniSource goodwill impairment charges were $346.8 million at December 31, 2020 and 2019.

Impairment of Goodwill

At least once annually (as of October 1), or when indicators of impairment exist, the company performs an impairment test for goodwill. Goodwill is allocated to various reporting units, which are generally one level below the company’s operating segments. The fair value of the reporting unit is determined by using an estimate of future cash flows utilizing a risk-adjusted discount rate to calculate the net present value of future cash flows (income approach), and by using a market approach based upon an analysis of valuation metrics of comparable peer companies, using Level 3 fair value inputs as provided for under ASC 820, Fair Value Measurement. If the fair value exceeds the carrying value of the reporting unit, there is no impairment. If the carrying amount exceeds the fair value, the company recognizes an impairment loss in the amount by which the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. No impairment was identified during the company’s 2020, 2019 or 2018 annual goodwill impairment analysis.

Equity-Based Compensation

The company has several stock-based employee compensation plans which are more fully described in Note 6. Equity-Based Incentive Plans. Compensation expense for restricted stock units, deferred stock units, restricted stock, stock appreciation awards, and performance awards is recorded over the vesting periods using the fair value as determined by the closing fair market value of the company’s common stock on the grant date, and with respect to performance awards, an estimate of probability of award achievement during the performance period. The company recognizes forfeitures as they occur. Compensation expense for these stock-based employee compensation plans was $50.7 million, $43.3 million, and $38.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Income Taxes

The company accounts for income taxes and the related accounts under the liability method. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to be in effect during the year in which the basis differences reverse.

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

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 stock equivalents as of and for the years ended December 31, 2020, 2019, and 2018.

The following table presents a reconciliation of the numerators and the denominators of the company’s basic and diluted earnings per share computations for the years ended December 31 (in thousands, except per share data):


	2020						2019
	Net Income		Shares		Per Share		Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Basic earnings per share	$	550,822		211,140	$	2.61	$	671,103		219,639	$	3.06
Dilutive common share equivalents		-		1,205				-		1,109
Diluted earnings per share	$	550,822		212,345	$	2.59	$	671,103		220,748	$	3.04


	2018
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
Basic earnings per share	$	1,258,379		233,923	$	5.38
Dilutive common share equivalents		-		1,270
Diluted earnings per share	$	1,258,379		235,193	$	5.35

Concentration of Credit Risk

Financial instruments that potentially subject the company to significant concentrations of credit risk principally consist of temporary cash investments, short-term investments, and accounts receivable. When advantageous, the company places its temporary cash and short-term investments with high credit quality financial institutions and companies and limits the amount of credit exposure from any one entity. The company is exposed to credit risk in the event of nonpayment by customers. The company mitigates its exposure to credit risk, which it generally extends initially 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.

Derivative Financial Instruments

The company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. Changes in the fair value of derivatives that are designated as hedges, depending on the nature of the hedge, are recognized as either an offset against the change in fair value of the hedged balance sheet item in the case of fair value hedges or as other comprehensive income in the case of cash flow hedges, until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings for fair value hedges. The company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under master netting agreements.

In the normal course of business, the company has derivative financial instruments in the form of forward contracts in various metallic commodities, may have involvement with derivative financial instruments related to managing fluctuations in foreign exchange rates, and in the past has had derivative financial instruments related to managing fluctuations in interest rates. At the time of acquiring these financial instruments, the company designates and assigns these instruments as hedges of specific assets, liabilities or anticipated transactions. When hedged assets or liabilities are sold or extinguished, or the anticipated transaction being hedged is no longer expected to occur, the company recognizes the gain or loss on the designated hedged financial instrument.

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

The company routinely enters into forward exchange traded futures and option contracts to manage price risk associated with nonferrous metal inventory, as well as purchases and sales of nonferrous and ferrous metals (primarily aluminum and copper), to reduce exposure to commodity related price fluctuations. The company does not enter into these derivative financial instruments for speculative purposes.

Note 2. Acquisitions

Zimmer

On August 3, 2020, the company acquired 100% of Zimmer for cash consideration of $59.0 million, plus a customary working capital transaction purchase price adjustment of $1.0 million in the fourth quarter 2020. A portion of the consideration was used to pay off all existing borrowings of Zimmer in accordance with the purchase agreement. The transaction was funded with available cash. The acquisition of Zimmer is part of the company’s raw material procurement strategy to support its new Southwest-Sinton Flat Roll Division, which is planned to begin operations mid-year 2021. Headquartered in Monterrey, Mexico, Zimmer operates several ferrous and nonferrous scrap facilities strategically positioned near high-volume industrial scrap sources, and several third-party scrap processing locations, located throughout Central and Northern Mexico. Zimmer’s operating results from and after August 3, 2020, are reflected in the company’s financial statements in the metals recycling operations segment. The aggregate purchase price was allocated to the opening balance sheet of Zimmer as of the August 3, 2020, acquisition date based on the company’s valuation of the fair value of the acquired assets and assumed liabilities; $31.9 million of current and noncurrent assets, net of cash acquired, $18.3 million of property, plant and equipment, $25.7 million of intangible assets, $7.7 million of goodwill; and liabilities assumed of $23.6 million.

The fair values of inventory were determined on the market approach, property, plant and equipment on the cost approach and identifiable intangible assets on the income approach (vendor relationships using an incremental income with or without valuation method, and customer relationships using the multi-period excess earnings method). The company utilized a third party valuation firm to assist in the determination of fair value of vendor relationships and customer relationships. The company has determined that nonrecurring fair value measurements related to certain assets acquired rely primarily on company-specific inputs and the company’s assumptions about the use of the assets, as observable inputs, which are not available, and as such, reside within Level 3 as provided for under ASC 820. Goodwill recognized from the acquisition primarily relates to the expected contributions of Zimmer to the overall company strategy in addition to the acquired workforce, which is not separable from goodwill. The goodwill is not deductible for tax purposes. The identifiable intangible assets related to the acquisition consisted of vendor relationships and customer relationships, each with estimated useful lives of 15 years.

United Steel Supply

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, which was paid in September 2019. Additionally, the company has an option to purchase, after the third anniversary of the transaction, and the sellers have the option to require the company to purchase after the third anniversary of the transaction, the remaining 25% equity interest of USS, which is therefore reflected in redeemable noncontrolling interest in the consolidated balance sheet. 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 steel operations segment 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 post-acquisition operating results are reflected in the company’s financial statements in the steel operations segment.

Heartland

On June 29, 2018, the company completed its acquisition of 100% of Heartland Steel Processing, LLC (formerly known as Companhia Siderurgica Nacional, LLC) (Heartland), for an initial cash purchase price of $396.4 million, plus a customary working capital transaction purchase price adjustment of $37.6 million, which was paid in September 2018. Located in Terre Haute, Indiana, Heartland produces various types of higher-margin, flat roll steel by further processing hot roll coils into pickle and oil, cold roll, and galvanized products. The acquisition expanded the company’s annual flat roll steel shipping capacity of lighter-gauge and greater width flat roll steel offerings that broadens and diversifies the company’s value-added product portfolio and provides operational and logistics benefits to other nearby operations. Heartland’s post-acquisition operating results are reflected in the company’s financial statements in the steel operations segment.

Note 3. Long-Term Debt

The company’s borrowings consisted of the following at December 31 (in thousands):


	2020		2019
2.800% senior notes due 2024	$	400,000	$	400,000
2.400% senior notes due 2025		400,000		-
5.000% senior notes due 2026		400,000		400,000
1.650% senior notes due 2027		350,000		-
3.450% senior notes due 2030		600,000		600,000
3.250% senior notes due 2031		500,000		-
3.250% senior notes due 2050		400,000		-
5 1/4% senior notes due 2023		-		400,000
5.500% senior notes due 2024		-		500,000
4.125% senior notes due 2025		-		350,000
Other obligations		108,658		114,472
Total debt		3,158,658		2,764,472
Less debt issuance costs and original issue discounts		55,982		30,128
Total amounts outstanding		3,102,676		2,734,344
Less current maturities		86,894		89,356
Long-term debt	$	3,015,782	$	2,644,988

Financing Activity

In October 2020, the company issued $350.0 million of 1.650% notes due 2027 and $400.0 million of 3.250% notes due 2050. The net proceeds from these notes were used to fund the October 2020 call and redemption of the $350.0 million outstanding principal amount of the company’s 4.125% senior notes due 2025 at a redemption price of 102.063%, plus accrued and unpaid interest to, but not including, the date of redemption, and for general corporate purposes. The company recorded expenses related to premiums and write off of unamortized debt issuance costs of approximately $10.3 million, which are reflected in other expenses in the consolidated statement of income for the year ended December 31, 2020.

In June 2020, the company issued $400.0 million of 2.400% notes due 2025 and $500.0 million of 3.250% notes due 2031. The net proceeds from these notes were used to fund the June 2020 call and redemption of the $400.0 million outstanding principal amount of the company’s 5 1/4% senior notes due 2023 at a redemption price of 100.875%, and the $500.0 million outstanding principal amount of the company’s 5.500% senior notes due 2024 at a redemption price of 102.750%, plus accrued and unpaid interest to, but not including, the date of redemption. The company recorded expenses related to premiums, write off of unamortized debt issuance costs, and other expenses of approximately $22.8 million, which are reflected in other expenses in the consolidated statement of income for the year ended December 31, 2020.

In December 2019, the company issued $400.0 million of 2.800% senior notes due 2024 and $600.0 million of 3.450% senior notes due 2030, the proceeds of which were used to fund the December 2019 call and redemption of the $700.0 million outstanding principal amount of the company’s 5.125% senior notes due 2021 at a redemption price of 100.000%, plus accrued and unpaid interest to, but not including, the date of repayment, and for general corporate purposes. The company recorded expenses related to write off of unamortized debt issuance costs and other expenses of $3.7 million, which are reflected in other expenses in the consolidated statement of income for the year ended December 31, 2019.

Senior Credit Facility, due 2024

The company has an unsecured credit agreement which has a senior unsecured revolving credit facility (Facility) which provides a $1.2 billion unsecured Revolver, which matures December 3, 2024. Subject to certain conditions, the company has the opportunity to increase the Facility size by $500.0 million. The unsecured Revolver is available to fund working capital, capital expenditures, and other general corporate purposes. The Facility contains financial covenants and other covenants pertaining to the company’s ability to

incur indebtedness and permit liens on property. The company’s ability to borrow funds within the terms of the unsecured Revolver is dependent upon its continued compliance with the financial and other covenants. At December 31, 2020, the company had $1.2 billion of availability on the Revolver, $11.9 million of outstanding letters of credit and other obligations which reduce availability, and there were no borrowings outstanding.

Note 3. Long-Term Debt (Continued)

The Facility pricing grid is adjusted quarterly and is based on either the company’s leverage of net debt (as defined in the Facility) to last-twelve-months (LTM) consolidated Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain other non-cash items as allowed in the Facility), or the company’s credit ratings. The minimum pricing is LIBOR plus 1.125% or Prime plus 0.125%, and the maximum pricing is LIBOR plus 1.75% or Prime plus 0.75%. In addition, the company is subject to an unused commitment fee of between 0.15% and 0.275% (based on either our leverage of net debt to LTM consolidated adjusted EBITDA, or our credit ratings) which is applied to the unused portion of the Revolver.

The financial covenants under the Facility state that the company must maintain an interest coverage ratio of not less than 2.50:1.00. The company’s interest coverage ratio is calculated by dividing its LTM consolidated Adjusted EBITDA by its LTM gross interest expense, less amortization of financing fees. In addition, a debt to capitalization ratio of not more than 0.60:1.00 must be maintained. At December 31, 2020, the company’s interest coverage ratio and debt to capitalization ratio were 10.71:1.00 and 0.42:1.00, respectively. The company was, therefore, in compliance with these covenants at December 31, 2020, and anticipates remaining in compliance during the next twelve months.

Senior Unsecured Notes

The company has seven different tranches of senior unsecured notes (Notes) outstanding. These Notes are in equal right of payment with all existing and future senior unsecured indebtedness and are senior in right of payment to all subordinated indebtedness. These Notes contain provisions that allow the company to redeem the Notes on or after the dates and at redemption prices (expressed as a percentage of principal amount) listed below.

Our $400.0 million of 2.800% senior notes due 2024 mature on December 15, 2024, with interest payable semi-annually. Early redemption is permitted as follows: any time prior to November 15, 2024, at a make-whole price of the remaining payments to be made discounted at the applicable U.S. Treasury rate plus 0.20%; and as of November 15, 2024, at 100.000%.

Our $400.0 million of 2.400% senior notes due 2025 mature on June 15, 2025, with interest payable semi-annually. Early redemption is permitted as follows: any time prior to May 15, 2025, at a make-whole price of the remaining payments to be made discounted at the applicable U.S. Treasury rate plus 0.35%; and as of May 15, 2025, at 100.000%.

Our $400.0 million of 5.000% senior notes due 2026 mature on December 15, 2026, with interest payable semi-annually. Early redemption is permitted as follows: any time prior to December 15, 2021, up to 35% of principal amount at a redemption price of 105.000% using the proceeds from the sales of the company’s common stock, or at a make-whole price of the remaining payments to be made discounted at the applicable U.S. Treasury rate plus 0.50%; as of December 15, 2021, at 102.500%; as of December 15, 2022, at 101.667%; as of December 15, 2023, at 100.833%; and as of December 15, 2024, at 100.000%.

Our $350.0 million of 1.650% senior notes due 2027 mature on October 15, 2027, with interest payable semi-annually. Early redemption is permitted as follows: any time prior to August 15, 2027, at a make-whole price of the remaining payments to be made discounted at the applicable U.S. Treasury rate plus 0.20%; and as of August 15, 2027, at 100.000%.

Our $600.0 million of 3.450% senior notes due 2030 mature on April 15, 2030, with interest payable semi-annually. Early redemption is permitted as follows: any time prior to January 15, 2030, at a make-whole price of the remaining payments to be made discounted at the applicable U.S. Treasury rate plus 0.25%; and as of January 15, 2030, at 100.000%.

Our $500.0 million of 3.250% senior notes due 2031 mature on January 15, 2031, with interest payable semi-annually. Early redemption is permitted as follows: any time prior to October 15, 2030, at a make-whole price of the remaining payments to be made discounted at the applicable U.S. Treasury rate plus 0.40%; and as of October 15, 2030, at 100.000%.

Our $400.0 million of 3.250% senior notes due 2050 mature on October 15, 2050, with interest payable semi-annually. Early redemption is permitted as follows: any time prior to April 15, 2050, at a make-whole price of the remaining payments to be made discounted at the applicable U.S. Treasury rate plus 0.30%; and as of April 15, 2050, at 100.000%.

Note 3. Long-Term Debt (Continued)

Other Obligations

Secured Loans. Two of the company’s controlled subsidiaries have entered into financing agreements for certain equipment which bear interest at an average rate of 5.3%, with monthly principal and interest payments required through 2028. The outstanding principal balance of these agreements was $9.6 million and $10.7 million at December 31, 2020, and 2019, respectively.

One of the company’s controlled subsidiaries has a secured credit agreement which provides a revolving variable rate credit facility of up to $100.0 million, subject to a borrowing base determined from eligible accounts receivable and inventory, and is further secured with $30.0 million of letter of credit support from Steel Dynamics, Inc., which matures in August 2024. Interest, which was 1.65% at December 31, 2020, is payable monthly. Amounts due under the credit facility were $82.3 million and $64.6 million at December 31, 2020, and 2019, respectively.

Another of the company’s controlled subsidiaries has a secured credit agreement which provides a revolving variable rate credit facility of up to $50.0 million, subject to a borrowing base determined from eligible accounts receivable and inventory, which matures in March 2021. Interest, which was 3.0% at December 31, 2020, is payable monthly. Amounts due under the credit facility were zero and $19.0 million at December 31, 2020, and 2019, respectively.

Mesabi Nugget has loans from various Minnesota state agencies related to the construction and ultimate operation of Mesabi Nugget. These loans require monthly principal and interest payments at a 5.0% interest rate through maturity in 2027. Amounts due under these loans were $15.2 million and $17.1 million at December 31, 2020, and 2019, respectively.

Unsecured Loans. The company has an unsecured electricity transmission facility loan which bears interest at 8.1%, with monthly principal and interest payments required through maturity in 2022. The outstanding principal balance was $1.2 million and $2.0 million as of December 31, 2020, and 2019, respectively. The company has an unused $3.0 million letter of credit in conjunction with this loan.

Outstanding Debt Maturities

Maturities of outstanding debt as of December 31, 2020, are as follows (in thousands):


2021	$	86,894
2022		4,355
2023		3,799
2024		403,438
2025		403,488
Thereafter		2,256,684
	$	3,158,658

The company capitalizes interest on all qualifying construction in progress assets. For the years ended December 31, 2020, 2019, and 2018, total interest costs incurred were $118.8 million, $132.6 million, and $129.5 million, respectively, of which $23.9 million, $5.5 million and $2.9 million, respectively, were capitalized.

Note 4. Income Taxes

The company files a consolidated federal income tax return. The current and deferred federal and state income tax expense for the years ended December 31 is as follows (in thousands):



	2020		2019		2018
Current income tax expense	$	88,914	$	149,106	$	304,726
Deferred income tax expense		45,736		48,331		59,243
Total income tax expense	$	134,650	$	197,437	$	363,969

Note 4. Income Taxes (Continued)

A reconciliation of the statutory rates to the actual effective tax rates for the years ended December 31 are as follows:


	2020			2019			2018
Statutory federal tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		2.6			2.1			2.6
Release of valuation allowance		(2.9)			-			-
Audit settlements		-			-			(0.3)
Federal research & development credits		(2.1)			(0.6)			(0.3)
Other permanent differences		0.5			0.1			(0.5)
Effective tax rate		19.1	%		22.6	%		22.5	%

Significant components of the company’s deferred tax assets and liabilities at December 31 are as follows (in thousands):


	2020		2019
Deferred tax assets
Accrued expenses and allowances	$	22,912	$	19,731
Inventories		5,670		5,599
Net operating loss carryforwards		25,089		27,541
Other		7,077		8,020
		60,748		60,891
Less: valuation allowance		(805)		(21,958)
Total net deferred tax assets		59,943		38,933

Deferred tax liabilities
Property, plant and equipment		(538,746)		(487,634)
Intangible assets		(51,835)		(33,322)
Other		(5,651)		(2,146)
Total deferred tax liabilities		(596,232)		(523,102)
Net deferred tax liability	$	(536,289)	$	(484,169)

Certain wholly-owned and controlled subsidiaries of the company file separate federal and state income tax returns. One of the controlled subsidiaries generated federal net operating loss carryforwards in years 2017 and prior, which total $87.7 million at December 31, 2020, and which expire in 2032 to 2037, and state net operating loss carryforwards which principally expire in the years 2030 to 2040. During the fourth quarter of 2020, the company evaluated the realizability of the net deferred tax assets for this controlled subsidiary. In completing this evaluation, the company considered all available positive and negative evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for its deferred tax assets is necessary. Such evidence includes current operating results, historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. Based on the positive evidence, the company concluded that it was more likely than not that the net deferred tax assets would be realized. As a result, $21.2 million of the valuation allowance was reversed. As of December 31, 2020, the company continues to maintain a valuation allowance of $805,000 with respect to certain state tax credits of the controlled subsidiary.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



	2020		2019		2018
Balance at January 1	$	10,162	$	10,131	$	16,749
Increases related to current year tax positions		4,350		750		500
Increases related to prior year tax positions		-		2,198		503
Decreases related to prior year tax positions		(1,682)		(1,363)		(798)
Settlements with taxing authorities		-		(1,554)		(6,823)
Balance at December 31	$	12,830	$	10,162	$	10,131

Note 4. Income Taxes (Continued)

Included in the balance of unrecognized tax benefits at December 31, 2020 and 2019, are potential benefits of $9.0 million and $6.0 million, respectively, that, if recognized, would affect the effective tax rate. The company recognizes interest and penalties related to its tax contingencies on a net-of-tax basis in income tax expense. During the years ended December 31, 2020, 2019, and 2018, the company recognized benefits from the decrease of interest expense and penalties of $450,000, $400,000, and $1.3 million, respectively, net of tax. In addition to the unrecognized tax benefits in the table above, the company had $828,000 and $1.4 million accrued for the payment of interest and penalties at December 31, 2020 and 2019, respectively.

It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months in an amount ranging from zero to $3.3 million, as a result of the expiration of the statute of limitations and other federal and state income tax audits. The company files income tax returns in the U.S. federal jurisdiction as well as income tax returns in various state jurisdictions. The tax years 2017 through 2019 remain open to examination by the Internal Revenue Service and various state and local jurisdictions.

Note 5. Shareholders’ Equity

Cash Dividends

The company declared cash dividends of $210.5 million, or $1.00 per common share, during 2020; $209.5 million, or $0.96 per common share, during 2019; and $174.4 million, or $0.75 per common share, during 2018. The company paid cash dividends of $209.2 million, $200.3 million and $168.9 million during 2020, 2019, and 2018, respectively.

Treasury Stock

In February 2020 the board of directors authorized a share repurchase program of up to $500 million of the company’s common stock, subsequent to the completion of a 2018 board authorized share repurchase program of up to $750 million of the company’s common stock during the first quarter of 2020. Under the share repurchase programs, purchases take place as and when the company determines in open market or private transactions made based upon the market price of the company’s common stock, the nature of other investment opportunities or growth projects, the company’s cash flows from operations, and general economic conditions. The 2020 share repurchase program does not require the company to acquire any specific number of shares, and may be modified, suspended, extended or terminated by the company at any time, and does not have an expiration date. The company repurchased 4.4 million shares for $106.5 million during 2020, 11.3 million shares for $348.6 million during 2019, and 13.1 million shares for $523.6 million during 2018 under the share repurchase programs. At December 31, 2020, the company had remaining authorization to repurchase $444.0 million of additional shares under the 2020 share repurchase program.

Note 6. Equity-Based Incentive Plans

Amended and Restated 2015 Equity Incentive Plan (2015 Plan)

The 2015 Plan is designed to attract, motivate and retain qualified persons that are able to make important contributions to the company’s success. To accomplish these objectives, the 2015 Plan provides for awards of equity-based incentives through granting of restricted stock units (RSUs), deferred stock units (DSUs), restricted stock awards, stock options (of which there are none), unrestricted stock awards (of which there are none), stock appreciation rights (SARs), and performance awards, such as long-term incentive compensation program (LTIP). The company’s stockholders approved the 2015 Plan in May 2015, and 12.5 million shares of common stock were reserved for issuance upon exercise of equity grants through December 31, 2025. In May 2019, the 2015 Plan was amended and restated with an additional 8.0 million shares of common stock reserved for issuance upon exercise of equity grants. The 2015 Plan uses a fungible share concept under which any awards that are not a full-value award, such as stock options and stock-settled SARs, will be counted against the share limit as one share for each share of common stock, and awards that are full-value awards, such as RSUs, DSUs, restricted and unrestricted stock awards, and performance awards, will be counted against the share limit as 2.09 shares for each share of common stock. The SARs the company has granted to date can only be settled in cash, and thus do not count against the share reserve. At December 31, 2020, there were 6.2 million shares still available for issuance.

Note 6. Equity-Based Incentive Plans (Continued)

Substantially all of the company’s full time, non-union, U.S. team members receive RSUs, which are granted annually in November at no cost to employees, vest 100% over the shorter of two years from grant date or upon the recipient reaching retirement eligible age (59½ years), and the stock is issued to employees upon vesting. The company satisfies RSUs with newly issued shares, and satisfies restricted stock awards, DSUs, and performance awards with treasury shares. In addition to the RSUs and LTIP awards granted during the three year period ended December 31, 2020, presented below, the company awarded 52,000, 54,000 and 28,000 DSUs in 2020, 2019 and 2018, respectively; and 325,500, 300,000 and 285,000 SARs in 2020, 2019 and 2018, respectively. The 1,197,000 SAR awards outstanding at December 31, 2020, for which no shares of common stock can be issued because the awards must be cash-settled upon exercise, have a weighted-average exercise price of $36.09.

Restricted Stock Units

A summary of the company’s RSU activity and outstanding RSUs as of December 31, 2020, are presented below (dollars in thousands except grant date fair value):


		Weighted		Aggregate
	Number	Average Grant		Intrinsic		Unrecognized
	of RSUs	Date Fair Value		Value		Compensation
Outstanding RSUs as of January 1, 2018	1,413,642	$	34.22	$	60,970	$	32,017
Granted	815,761		36.70
Vested	(817,226)		33.20
Forfeited	(64,111)		34.51
As of December 31, 2018	1,348,066		36.32	$	40,496	$	31,996
Granted	1,038,812		29.87
Vested	(769,291)		35.32
Forfeited	(59,593)		36.03
As of December 31, 2019	1,557,994		32.53	$	53,034	$	33,581
Granted	1,017,518		33.54
Vested	(811,317)		36.09
Forfeited	(65,616)		32.20
As of December 31, 2020 (nonvested)	1,698,579	$	31.44	$	62,627	$	35,821

The weighted average remaining life before vesting of the outstanding RSUs as of December 31, 2020, is 1.41 years. The fair value of RSUs vesting during 2020, 2019, and 2018 was $29.9 million, $26.2 million, and $24.5 million, respectively, and was net-share settled such that the company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities. The total shares withheld in 2020, 2019, and 2018 were approximately 266,000, 250,000, and 268,000 shares, respectively, and were based on the value of the RSUs on their vesting dates as determined by the company’s closing stock price.

Long-Term Incentive Compensation Program (LTIP)

The company maintains an LTIP performance-based program directed toward key senior executives of the company, as determined at the discretion of the Compensation Committee of the Board of Directors. Awards are in shares of the company’s common stock using the stock price on the first day of the performance period to convert each key senior executive’s predetermined multiple of annual base salary. The performance period is generally three years; however, certain transition awards were issued in 2020, 2019, and 2017 with shorter performance periods. Performance is measured in terms of equal portions of four growth and profitability measures, as compared to the same measures, similarly treated, of a pre-established group of steel sector competitors. Awards earned can range from zero to 100% of the shares awarded. The 2020, 2019, and 2018 award shares vest immediately once earned on the basis of performance. For prior awards, once earned on the basis of performance, one-third of the shares vest immediately, and the remaining shares vest in equal annual installments over an additional two-year service-based vesting period requirement.

Note 6. Equity-Based Incentive Plans (Continued)

The Compensation Committee granted the following three-year performance period awards, and two-year and one-year performance period transition awards, which have been earned and have or will be issued over the vesting period as follows:


	Maximum
	Shares That	Award
	Could Be Issued	Earned	Award Issued/Issuable

2015 LTIP Award:
Three-year performance period award	236,434	236,434	78,813	March 2018
			78,812	March 2019
			78,809	March 2020
2016 LTIP Award:
Three-year performance period award	324,469	324,469	108,158	March 2019
			108,156	March 2020
			108,155	March 2021
2017 LTIP Award:
Three-year performance period award	182,274	164,047	54,683	March 2020
			54,682	March 2021
			54,682	March 2022

Two-year performance period transition award	16,779	15,101	5,034	March 2019
			5,034	March 2020
			5,033	March 2021

One-year performance period transition award	28,379	25,541	8,514	March 2018
			8,514	March 2019
			8,513	March 2020
2018 LTIP Award:
Three-year performance period award	198,397	188,481	188,481	March 2021

2019 LTIP Award:
Three-year performance period award	422,008	*	*
Two-year performance period transition award	15,600	14,040	14,040	March 2021
One-year performance period transition award	7,800	5,850	5,850	March 2020

2020 LTIP Award:
Three-year performance period award	405,922	*	*
Two-year performance period transition award	9,764	*	*
One-year performance period transition award	9,764	7,812	7,812	March 2021

*	Not yet earned as performance period not complete.

2018 Executive Incentive Compensation Plan (2018 Executive Plan)

The company’s stockholders approved the 2018 Executive Plan in May 2018, and 2.0 million shares of company stock were reserved for issuance through February 28, 2028. Pursuant to the company’s 2018 Executive Plan, certain senior management members of the company are eligible to receive cash bonuses based on predetermined formulas. In the event the bonus exceeds the predetermined maximum cash payout, the excess bonus up to a fixed percentage of base salary is distributed in shares of the company’s stock, of which one-third of the shares vest immediately and the remaining shares vest in equal annual installments over an additional two-year service-based vesting period requirement. At December 31, 2020, 2019, and 2018, 1.5 million, 1.7 million, and 1.8 million shares, respectively, under the 2018 Executive Plan remained available for issuance. Pursuant to the 2018 Executive Plan, 148,000, 149,000, and 157,000 shares were awarded with a market value of $5.1 million, $4.5 million, and $5.8 million for the 2020, 2019, and 2018 award years, respectively.

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

If the company is “long” on commodity futures contracts, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity. If the company is “short” on a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s futures contract commitments as of December 31, 2020:


Commodity Futures	Long/Short	Metric Tons
Aluminum	Long	1,125
Aluminum	Short	2,875
Copper	Long	6,033
Copper	Short	25,367

The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets and gains or losses related to derivatives included in the company’s consolidated statements of operations as of and for the years ended December 31 (in thousands):


		Asset Derivatives				Liability Derivatives
		Fair Value				Fair Value
	Balance sheet location	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Derivative instruments designated as hedges

Commodity futures	Other current assets	$	5,092	$	966	$	4,635	$	1,011

Derivative instruments not designated as hedges

Commodity futures	Other current assets		1,705		310		2,807		721
Total derivative instruments		$	6,797	$	1,276	$	7,442	$	1,732

Note 7. 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 agreements totaled $13.2 million and $3.7 million at December 31, 2020, and 2019, respectively, and are reflected in other current assets in the consolidated balance sheets.



			Amount of
	Location of gain		gain (loss)		Location of gain		Amount of gain
	(loss) recognized		recognized in	Hedged items in	(loss) recognized		(loss) recognized in
	in income on		income on	fair value hedge	in income on		income on related
	derivatives		derivatives	relationships	related hedged items		hedged items
For the Year Ended
December 31, 2020

Derivatives in fair value
hedging relationships
Commodity futures	Costs of goods sold	$	(2,004)	Firm commitments	Costs of goods sold	$	(79)
				Inventory	Costs of goods sold		(482)
Derivatives not designated						$	(561)
as hedging instruments
Commodity futures	Costs of goods sold	$	(17,368)



For the Year Ended
December 31, 2019

Derivatives in fair value
hedging relationships
Commodity futures	Costs of goods sold	$	(801)	Firm commitments	Costs of goods sold	$	(1,613)
				Inventory	Costs of goods sold		832
Derivatives not designated						$	(781)
as hedging instruments
Commodity futures	Costs of goods sold	$	704


For the Year Ended
December 31, 2018

Derivatives in fair value
hedging relationships
Commodity futures	Costs of goods sold	$	4,920	Firm commitments	Costs of goods sold	$	582
				Inventory	Costs of goods sold		(2,779)
Derivatives not designated						$	(2,197)
as hedging instruments
Commodity futures	Costs of goods sold	$	19,830

Derivatives accounted for as fair value hedges had ineffectiveness resulting in gains of $68,000, losses of $28,000, and gains of $85,000 for the years ended December 31, 2020, 2019, and 2018, respectively. Losses excluded from hedge effectiveness testing of $2.6 million and $1.6 million increased cost of goods sold for the year ended December 31, 2020, and 2019, respectively. Gains excluded from hedge effectiveness testing of $2.7 million decreased cost of goods sold for the year ended December 31, 2018.

Note 7. Derivative Financial Instruments (Continued)

Derivatives accounted for as cash flow hedges resulted in net gains of $2.8 million, $137,000 and $544,000 recognized in other comprehensive income for the years ended December 31, 2020, 2019, and 2018, respectively. Net gains of $265,000, $541,000, and $149,000 were reclassified from accumulated other comprehensive income into income for the years ended December 31, 2020, 2019, and 2018, respectively. At December 31, 2020, the company expects to reclassify $2.5 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 8. Fair Value Measurements

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

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

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

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

The following table sets forth financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheet and the respective levels to which the fair value measurements are classified within the fair value hierarchy as of December 31 (in thousands):



			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
December 31, 2020
Commodity futures – financial assets	$	6,797	$	-	$	6,797	$	-
Commodity futures – financial liabilities		7,442		-		7,442		-

December 31, 2019
Short-term investments	$	262,174	$	-	$	262,174	$	-
Commodity futures – financial assets		1,276		-		1,276		-
Commodity futures – financial liabilities		1,732		-		1,732		-

The carrying amounts of financial instruments including cash and equivalents approximate fair value (Level 1). The fair values of the 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 $3.4 billion and $2.8 billion at December 31, 2020, and 2019 (with a corresponding carrying amount in the consolidated balance sheet of $3.1 billion and $2.7 billion at December 31, 2020, and 2019).

Note 9. Commitments and Contingencies

The company has entered into certain commitments with suppliers which are of a customary nature. Commitments have been entered into relating to future expected requirements for such commodities as electricity, water, natural gas and its transportation services, fuel, air products, zinc, and electrodes. Certain commitments contain provisions which require that the company “take or pay” for specified quantities at fixed prices without regard to actual usage for periods of generally up to 5 years for physical commodity requirements and commodity transportation requirements, with some extending beyond, and for up to 12 years for air products. The company 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. The company believes 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 idle Minnesota ironmaking operations.

The company’s commitments for these agreements with “take or pay” or other similar commitment provisions for the years ending December 31 are as follows (in thousands):


2021	$	265,736
2022		124,961
2023		43,074
2024		35,248
2025		16,491
Thereafter		139,299
	$	624,809

At December 31, 2020, the company has outstanding commitments of $561.1 million related to ongoing construction of property, plant, and equipment related primarily to steel operations, most significantly our Southwest-Sinton Flat Roll Division, which is expected to start operations mid-year 2021. The company’s commitments for operating leases are discussed in Note 12. Leases.

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 10. Transactions with Affiliated Companies

The company purchases and sells recycled and scrap metal, and steel with other smaller affiliated companies. These transactions for the years ended December 31, are as follows (in thousands):


	2020		2019		2018
Sales	$	13,791	$	13,859	$	20,230
Accounts receivable		3,937		2,958		3,536
Purchases		132,560		203,279		244,551
Accounts payable		8,919		3,657		14,011

Note 11. Retirement Plans

The company sponsors several 401(k) retirement savings and profit sharing plans (Plans) for eligible employees, which are considered “qualified plans” for federal income tax purposes. The company’s total expense for the Plans was $74.5 million, $98.8 million, and $156.7 million for the years ended December 31, 2020, 2019, and 2018, respectively. The company’s profit sharing component is 8% of consolidated pretax income excluding noncontrolling interests and other items. The resulting company profit sharing component was $58.3 million, $73.6 million, and $138.7 million for the years ended December 31, 2020, 2019, and 2018, respectively; of which $46.7 million, $58.9 million, and $108.1 million, respectively, was directed by the company’s board of directors to be contributed to the Plans, with the remaining amounts each year paid directly in cash to the Plans’ participants.

Note 12. Leases

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, 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 sheets at December 31, are as follows (in thousands):


		2020		2019
Right-of-use assets under operating leases:
Other assets - noncurrent	$	90,280	$	75,176
Lease obligations under operating leases:
Accrued liabilities	$	17,702	$	17,532
Other liabilities - noncurrent		72,614		57,897
	$	90,316	$	75,429

The weighted average remaining lease term for our operating leases is nine and six years, and the weighted-average discount rate is 3.84% and 3.96% as of December 31, 2020 and 2019, respectively. Future operating lease liabilities as of December 31, 2020, for the next five years and thereafter are as follows (in thousands):


2021	$	20,734
2022		17,165
2023		14,057
2024		11,418
2025		8,888
Thereafter		34,159
Total undiscounted cash flows		106,421
Less imputed interest		(16,105)
Lease obligations under operating leases	$	90,316

Note 12. Leases (Continued)

Operating lease expense included in the consolidated statements of income was $21.3 and $20.1 million for the years ended December 31, 2020 and 2019, respectively. Cash paid related to operating lease obligations was $18.6 and $17.5 million for the years ended December 31, 2020 and 2019, respectively. Variable lease costs were not material for the years ended December 31, 2020 and 2019. Short-term lease expense included in the consolidated statements of income was $19.1 and $20.0 million for the years ended December 31, 2020 and 2019, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities for the years ended December 31, 2020 and 2019 was $33.3 million, including $19.7 million related to Zimmer, and $16.1 million, respectively. The company paid $21.1 million for operating leases for the year ended December 31, 2018.

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 year ended December 31, 2019.

Note 13. 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. Description of the Business and Summary of Significant Accounting Policies (Note 1) to the consolidated financial statements. Operating segment performance and resource allocations are primarily based on operating results before income taxes. The accounting policies of the reportable segments are consistent with those described in Note 1 to the consolidated financial statements. Intra-segment sales and any related profits are eliminated in consolidation. Amounts included in the category “Other” are from subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of smaller joint ventures, and the idle Minnesota ironmaking operations. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior unsecured credit facility, senior notes, certain other investments and certain profit sharing expenses.

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



			Metals		Steel
For the year ended	Steel		Recycling		Fabrication
December 31, 2020	Operations		Operations		Operations		Other			Eliminations			Consolidated

Net sales - disaggregated revenue
External	$	6,873,209	$	820,262	$	895,227	$	500,496		$	-		$	9,089,194
External Non-United States		263,895		247,662		474		257			-			512,288
Other segments		318,533		1,335,216		10,663		434			(1,664,846)			-
		7,455,637		2,403,140		906,364		501,187			(1,664,846)			9,601,482
Operating income (loss)		889,480		32,991		120,575		(188,525)	(1)		(7,379)			847,142
Income (loss) before income taxes		833,035		27,753		116,625		(263,470)			(8,465)	(2)		705,478
Depreciation and amortization		251,590		50,099		10,819		13,281			-			325,789
Capital expenditures		1,132,298		32,875		15,234		17,648			-			1,198,055

As of December 31, 2020

Assets	$	6,288,362	$	1,116,051	$	376,658	$	1,571,188	(3)	$	(86,697)	(4)	$	9,265,562

Note 13. Segment Information (Continued)


Footnotes related to the year ended December 31, 2020, segment results (in millions):

(1)	Corporate SG&A	$	(57.9)	(2)	Gross profit decrease from intra-company sales	$	(8.5)
	Company-wide equity-based compensation		(48.5)
	Profit sharing		(58.3)
	Asset impairment charges		(19.4)
	Other, net		(4.4)
		$	(188.5)

(3)	Cash and equivalents	$	1,276.1	(4)	Elimination of intercompany receivables	$	(61.2)
	Accounts receivable		17.0		Elimination of intra-company debt		(9.1)
	Inventories		84.7		Other		(16.4)
	Property, plant and equipment, net		136.0			$	(86.7)
	Intra-company debt		9.1
	Other		48.3
		$	1,571.2



			Metals		Steel
For the year ended	Steel		Recycling		Fabrication
December 31, 2019	Operations		Operations		Operations		Other			Eliminations			Consolidated

Net sales - disaggregated revenue
External	$	7,606,471	$	972,200	$	960,657	$	388,546		$	-		$	9,927,874
External Non-United States		298,081		225,807		1,497		11,732			-			537,117
Other segments		329,627		1,296,007		1,105		469			(1,627,208)			-
		8,234,179		2,494,014		963,259		400,747			(1,627,208)			10,464,991
Operating income (loss)		1,030,554		16,308		119,099		(186,159)	(1)		7,078			986,880
Income (loss) before income taxes		963,514		11,432		114,359		(220,188)			6,220	(2)		875,337
Depreciation and amortization		251,568		46,538		11,768		11,208			-			321,082
Capital expenditures		385,058		46,959		12,446		7,482			-			451,945

As of December 31, 2019

Assets	$	5,171,026	$	940,250	$	386,485	$	1,848,711	(3)	$	(70,707)	(4)	$	8,275,765


Footnotes related to the year ended December 31, 2019, segment results (in millions):

(1)	Corporate SG&A	$	(66.1)	(2)	Gross profit increase from intra-company sales	$	6.2
	Company-wide equity-based compensation		(40.6)
	Profit sharing		(73.6)
	Other, net		(5.9)
		$	(186.2)

(3)	Cash and equivalents	$	1,298.8	(4)	Elimination of intercompany receivables	$	(54.7)
	Short-term investments		262.2		Elimination of intra-company debt		(8.1)
	Accounts receivable		17.1		Other		(7.9)
	Inventories		37.0			$	(70.7)
	Property, plant and equipment, net		149.8
	Intra-company debt		8.1
	Other		75.7
		$	1,848.7

Note 13. Segment Information (Continued)


			Metals		Steel
For the year ended	Steel		Recycling		Fabrication
December 31, 2018	Operations		Operations		Operations		Other			Eliminations			Consolidated

Net sales - disaggregated revenue
External	$	8,476,104	$	1,295,514	$	921,023	$	427,372		$	-		$	11,120,013
External Non-United States		444,615		257,086		125		-			-			701,826
Other segments		342,433		1,649,614		803		1,688			(1,994,538)			-
		9,263,152		3,202,214		921,951		429,060			(1,994,538)			11,821,839
Operating income (loss)		1,839,852		75,891		61,901		(253,195)	(1)		(2,040)			1,722,409
Income (loss) before income taxes		1,770,888		69,861		56,236		(275,137)			(2,074)	(2)		1,619,774
Depreciation and amortization		248,765		46,015		11,553		10,865			-			317,198
Capital expenditures		189,208		35,518		8,303		6,361			-			239,390


Footnotes related to the year ended December 31, 2018, segment results (in millions):

(1)	Corporate SG&A	$	(58.0)	(2)	Gross profit decrease from intra-company sales	$	(2.1)
	Company-wide equity-based compensation		(36.4)
	Profit sharing		(149.8)
	Other, net		(9.0)
		$	(253.2)

Note 14. Quarterly Financial Information (unaudited, in thousands, except per share data)


		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
2020:
Net sales	$	2,575,100	$	2,094,305	$	2,330,832	$	2,601,245
Gross profit		415,229		284,431		292,815		442,253
Operating income		273,686		158,850		155,856		258,750
Net income		190,836		78,765		104,277		196,950
Net income attributable to Steel Dynamics, Inc.		187,340		75,496		100,143		187,843
Earnings per share:
Basic		0.88		0.36		0.48		0.89
Diluted		0.88		0.36		0.47		0.89

2019:
Net sales	$	2,817,435	$	2,770,515	$	2,526,845	$	2,350,196
Gross profit		433,570		421,166		359,839		316,409
Operating income		291,842		285,032		228,045		181,961
Net income		204,827		196,746		152,608		123,719
Net income attributable to Steel Dynamics, Inc.		204,328		194,302		151,048		121,425
Earnings per share:
Basic		0.91		0.88		0.69		0.56
Diluted		0.91		0.87		0.69		0.56

Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total for the year.

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