Steel Dynamics Value Stock - Dividend - Research Selection

Steel Dynamics, Inc. is one of the largest domestic steel producers and metal recyclers in the United States based on current estimated steelmaking and coating capacity of 11 million tons and actual metals recycling volumes. The primary source of revenues are from the manufacture and sale of steel products, processing and sale of recycled ferrous and nonferrous metals, and fabrication and sale of steel joists and deck products.

We believe our core company values and strategic focus foster an entity-wide entrepreneurial culture which positions us well for continuing strong cash flow generation, financial strength and flexibility. Our strategic focus is centered on the following six company pillars:

· Safety – We are focused on providing a safe working environment for all employees. Our goal is to achieve zero incidents – no accidents, no lost workdays, no injuries.



· Enhancing Customer Relationships and Commitment – Our customers are our most important partners. We strive to provide outstanding products and solutions that exceed our customers’ expectations, anticipating future needs, and delivering great value.



· Sustaining Superior Operating Culture – Success is not driven by state-of-the-art technology alone, but, more importantly, it is linked to managing the technology, and creating a culture in which to exploit it. We foster our entrepreneurial spirit by ensuring that we have the right people for the right job – infusing our teams with energetic, positive individuals who apply their minds and ingenuity to create unparalleled success. Our performance driven compensation framework is directly relatable to the safe provision of quality products and the effective and efficient use of resources.



· Strategic Growth, Intentional Margin Expansion and Consistency Through the Cycle – We are focused on growth opportunities, including downstream manufacturing businesses that utilize our steel products and could provide sustainable, high profit margins within our areas of expertise. We also plan to lever our existing facilities through capital-effective organic growth, greenfield expansion, and the continued exploration of new opportunities.



· Driving Innovation – We continually challenge the status quo, with a renewed focus on being the technology and process leader to not only exceed current customer expectations, but to meet their future needs. We innovate to improve safety, quality, and productivity.



· Financial Strength and Flexibility – We have a disciplined focus on remaining a low-cost, highly efficient, customer-centric company generating best-in-class financial and operating performance that drives strong cash flow generation to support our current operations and continued growth.



Competitive Strengths / Business Strategies

We believe our financial strength and flexibility, coupled with our competitive advantages of maintaining a low, highly variable cost structure, producing a diversified value-added product offering, controlling a secure supply of recycled ferrous metals, fostering an entity-wide entrepreneurial culture and having an experienced senior management team and work force, positions us well to continue to strengthen our leadership position and execute our growth strategy.

One of the Lowest Cost Steel Producers in the United States; State-of-the-Art Facilities / Continue to Maintain Low Production Costs

We are focused on continuing to maintain and enhance one of the lowest operating cost structures in the North American steel industry. Our low operating costs are primarily a result of our efficient plant designs and operations, our high productivity rate, low ongoing maintenance cost requirements and strategic locations near our customers and sources of our primary raw material, ferrous scrap.

We will continue to drive innovative ways to use our equipment, enhance our productivity and explore new technologies to further improve our unit costs of production at each of our facilities. As one of the lowest cost producers in each of our three primary operating segments, we are able to better manage through cyclical and non-cyclical downturns, and to consistently maximize our profitability. We continuously seek to maximize the variability of our cost structure and to reduce per unit and fixed costs. Our incentive compensation plans at all employee levels are based on both divisional and consolidated company performance. Performance-based incentive compensation is designed to reward high productivity and efficient and safe use of physical resources and capital employed. Additionally, leveraging our existing facilities through capital effective organic growth and diversified product offerings allows us to maximize utilization of our current cost structure.



Secure Supply of High Quality Just-in-Time Ferrous Raw Materials



We maintain a secure supply of ferrous raw material resources through the benefit of our metals recycling operations and Iron Dynamics (IDI). Ferrous materials represent the single largest raw material component of our steel operations’ manufacturing costs, at approximately 60% of such costs. During 2016, 2015, and 2014, OmniSource, our metals recycling operations, provided our steel operations with 40%, 41%, and 44%, respectively, of its ferrous scrap requirements. This represented 61%, 54%, and 48% of OmniSource’s total ferrous scrap shipments during 2016, 2015, and 2014, respectively. During 2016, 2015, and 2014, our steel operations consumed 9.9 million, 8.8 million, and 7.6 million tons, respectively, of metallic materials, of which iron units, other than scrap, represented approximately 14%, 12%, and 9% in 2016, 2015, and 2014, respectively. IDI supplies 100% of its production to the Butler Flat Roll Division, representing 65%, 66%, and 62% of their iron units in 2016, 2015, and 2014, respectively, through the transfer of liquid pig iron and hot briquetted iron, which are higher quality, energy-saving ferrous raw materials. We believe our metals recycling operations and IDI provide us with a high quality, cost effective, and secure raw material platform for effective working capital management.



Diversified Product Mix / Expanded Product Offerings

We are one of the most diversified steel companies in the United States, with very broad product offerings. We currently offer a broad range of steel products (more specifically enumerated in the Steel Operations Products and Sales by End Market later in this section), including:

Steel Operations:

Sheet Products. Hot roll, cold roll and coated steel, including a wide variety of specialty products, such as light gauge hot roll, galvanized, galvanneal, Galvalume®, Galfan®, and painted products.

Long Products. Structural steel beams, pilings, and standard and premium grade rail; engineered special-bar-quality of numerous sizes and chemistries; various merchant-bar products including rounds, angles, flats, channels and reinforcing bar, and channels and specialty steel sections.

Steel Finishing. Turning, polishing, straightening, chamfering, threading, precision saw-cutting, cold draw and heat treating of bar products; and cutting to length, additional straightening, hole punching, shot blasting, welding and coating of beams, channels and specialty steel sections.

Metals Recycling Operations. An array of both ferrous and nonferrous scrap processing, scrap management, transportation, and brokerage products and services.

Steel Fabrication Operations. Steel joists and steel deck material, including specialty deck.

This diversified portfolio of products enables us to access a broad range of end-user markets, serve a broad customer base, and help mitigate our market exposure to any one product or end-user market. In addition, our value-added product offerings help to balance our exposure to commodity grade products supplied by other domestic steel, and to a larger extent in recent years, foreign manufacturers.

We will continue to seek additional opportunities and to collaborate with our customers to anticipate their future needs by further expanding our range of products, such as the recent $100 million expansion at our Columbus Flat Roll Division, providing 250,000 tons of annual coating capacity, including value-added painted and Galvalume® sheet steel products, and the recent expansion at our Engineered Bar Products Division into high quality smaller-diameter SBQ bars.

Strategic Geographic Locations / Enter New Geographic Markets

The majority of our steelmaking facilities are in locations near sources of scrap materials and near our customer base, allowing us to realize freight savings for inbound scrap as well as for outbound steel products destined for our customers. This also allows us to provide consistent on-time delivery to our customer base with relatively short lead times, further enhancing our customer relationships. Our coated sheet steel products are cost effectively available through our locations in Pittsburgh, Pennsylvania, Jeffersonville, Indiana and Columbus, Mississippi due to river access. Recycled ferrous scrap and iron units represent the most significant component of our cost of steel manufacturing. We believe that our metals recycling facilities are in the regions that account for a majority of the total ferrous scrap produced in the United States. Our steel fabrication operations have a national footprint allowing us to serve the entire joist and deck domestic market and national accounts.

We may seek to enter new markets in strategic geographic locations that offer attractive growth opportunities within our areas of expertise.

Experienced Management Team and Unique Corporate Culture / Foster Entrepreneurial Culture

Our senior management team is highly experienced and has a proven track record in the steel, metals recycling, and steel fabrication industries. Management’s objectives are closely aligned with our stockholders through meaningful stock ownership positions and performance‑based compensation programs that are correlated to the company’s profitability and operational performance in relationship to its steel manufacturing peers. Our entrepreneurial culture resonates throughout each of our operating segments. We emphasize decentralized decision making, with corporate risk oversight, and have established incentive compensation programs specifically designed to reward employee teams for their efforts toward identifying innovative ways to enhance productivity, improve profitability, and control costs.

We intend to continue to foster our entrepreneurial culture and emphasize decentralized operational decision making and responsibility, while continuing to maintain appropriate corporate policy and risk oversight. We reward teamwork, innovation, and operating efficiency, and will also continue to focus on maintaining the effectiveness of our incentive‑based bonus plans that are designed to maximize overall productivity and align the interests of our management and employees with our stockholders.