Steel Dynamics Reports Third Quarter 2012 Earnings

FORT WAYNE, Ind., Oct. 17, 2012 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced third quarter net income of $12.8 million, or $0.06 per diluted share, on net sales of $1.7 billion.  By comparison, prior year third quarter net income was $43.3 million, or $0.19 per diluted share, on net sales of $2.0 billion, and sequential second quarter 2012 net income was $44.5 million, or $0.20 per diluted share, on net sales of $1.9 billion.  In the nine months ended September 30, 2012 net income was $103.0 million, or $0.47 per diluted share, on net sales of $5.6 billion.  By comparison, in the nine months ended September 30, 2011 net income was $247.9 million, or $1.08 per diluted share, on net sales of $6.1 billion.  

A significant portion of the decrease in earnings from the prior quarter was attributable to the following unique items announced on September 11, 2012:

  • The incurrence of non-operating charges related to the company's third quarter refinancing activities of $26.3 million, or $0.07 per diluted share, which were primarily associated with prepayment fees. These transactions, along with the resulting repayment of $170 million of debt with available cash, not only extended the company's overall debt maturity profile, but should also provide an estimated interest savings of approximately $20 million in 2013. 
  • The incurrence of non-cash impairment charges of $7.9 million, or $0.02 per diluted share, related to the intended termination of two small joint venture entities, which were not aligned with the company's long term strategic focus.  

Excluding these charges, the company's adjusted third quarter 2012 results would have been $0.15 per diluted share.

"Relative to overall market demand, our operating performance was commendable for the third quarter," said Chief Executive Officer Mark Millett. "The U.S. market in general remains tepid, as uncertainty surrounding the strength of Europe, growth in China, and the near-term U.S. economic and political environment continues to weigh heavily on customers' purchasing decisions. Aside from our fabrication operations, this reluctance in customer buying resulted in reduced selling volumes across our major operating platforms.    

"Compared to the second quarter, operating income from our steel platform decreased $30 million," stated Millett, "primarily caused by reduced volumes, most notably within the special-bar-quality arena.  Earlier customer estimates of robust growth have not been fully realized during the year, resulting in excess special-bar-quality inventory build throughout the customer supply chain.  Inventory realignment seems to have begun later in the second quarter, and could continue through the remainder of 2012.  However, we believe there is steady underlying demand that will support volumes as the destocking subsides.         

"Within our metals recycling platform, despite a challenging environment that resulted in decreased volumes," continued Millett, "ferrous operating margins improved significantly, as metal spreads expanded 23 percent and initiatives to reduce operating expenses were achieved, resulting in operating income of $16.6 million in the third quarter, compared to $5.1 million in the second quarter of this year.  The ferrous scrap market continues to be oversupplied, as the export market and U.S. steel mill utilization rates have moderated.  However, we believe an inflection point has been reached and ferrous scrap pricing is likely near a bottom." 

Third Quarter Review

The company's steel operations third quarter margins and operating income declined in comparison to second quarter 2012. Operating income from the company's steel operations was $109.2 million for the third quarter 2012, a decrease of $29.8 million as compared to the second quarter 2012. The average selling price per ton shipped decreased $45 per ton to $809, and the average ferrous scrap cost per ton melted decreased $44. As the combined steel metal spread was generally consistent quarter over quarter, reduced profitability was largely a function of decreased volume and product mix changes.  Operating income attributable to the company's long product operations declined 32 percent, while declining 11 percent for the company's sheet operations.  The most notable volume decrease occurred within the company's Engineered Bar Products Division, as shipments sequentially declined 32 percent based on customer inventory realignment. 

Despite lower volumes and selling values in the company's metals recycling business, ferrous metal spreads expanded 23 percent in the third quarter, as compared to second quarter 2012. Operating income for OmniSource increased $11.5 million sequentially to $16.6 million for the third quarter 2012 as compared to $5.1 million in the prior quarter.

In spite of continued non-residential construction market weakness, the company's fabrication operations reported increased positive quarterly operating income, based on pricing improvement, increased volumes, and better associated manpower utilization.

The impact of losses from the company's Minnesota operations for third quarter 2012 consolidated net income was $11 million (net of tax), or approximately $0.05 per diluted share, unchanged from the impact for the second quarter 2012.  As previously indicated, during periods of time between June and August of this year, higher operating rates at the company's iron nugget facility were achieved for extended periods of time, which provided the opportunity to identify a number of key process optimization options necessary to increase both productivity and product quality.  Beginning mid-September, the company proceeded with a six week outage of the nugget facility in order to lay the groundwork necessary for the implementation of the improvements.  The company expects to recommence operations in November, with final equipment installation expected during the first half of 2013, at an estimated investment of $25 million

The company's iron concentrate facility commenced operations late September and supplied its first shipment of low-cost iron concentrate to the nugget facility just prior to the end of the third quarter. This is a pivotal achievement toward lowering the eventual cost structure of the company's iron nuggets.  As previously discussed, higher priced third-party iron concentrate remains in inventory for use through the remainder of the year.       

The company's liquidity position remains strong with $1.4 billion in unrestricted cash and available funding under the revolving credit facility at September 30, 2012.  The decrease in liquidity from June 30, 2012 of $144 million was due to the company's refinancing initiative which reduced overall debt by $170 million.  The company's debt to equity capitalization rate was 47.5 percent as of September 30, 2012, or 2 percent lower than the end of the second quarter 2012.

2011 Comparison

A general overall decline in volume for the nine months ended September 30, 2012 resulted in net sales of $5.6 billion, or 9 percent, less than those achieved for the same period in 2011. Operating income decreased 41 percent, as margins decreased within the company's flat roll steel and special bar quality operations.  The average selling price per ton shipped for the company's steel operations in the nine months ended September 30, 2012 was $847, a decrease of $64 per ton compared to the same period last year.  The average ferrous scrap cost per ton melted was $22 lower than the comparative period for 2011.  Charges related to the refinancing activities transacted in the first and third quarters of 2012, resulted in year-to-date decreased pretax earnings of $40 million, or approximately $0.11 per diluted share.      

Outlook

"Looking ahead," Millett said, "we have seen softening in agriculture, transportation and certain areas within energy, related to natural gas exploration; however, automotive and manufacturing appears strong and residential construction has shown incremental improvement, as housing starts and rents have improved in face of declining inventories.  We believe volumes could continue to be challenged in the fourth quarter, as fluctuations in immediate customer needs and hesitancy for customers to carry inventory persists.  Ferrous scrap pricing fell further in October, which could challenge our metals recycling operations, while benefiting our steel operations early in the fourth quarter.  While U.S. and world economies remain anemic, we remain uniquely equipped to capitalize on the opportunities ahead, supported by our superior low-cost, highly-variable cost structure, our diversified, value-added product mix, our vertical integration and our exceptional team of employees."

Summary Operating Information

The following tables highlight operating results for each of the company's primary operating platforms. References to operating income in the following paragraphs exclude profit-sharing expenses and amortization pertaining to intangible assets.  Dollar amounts are in thousands, excluding per ton data. 

Steel Operations

This segment includes five electric-arc-furnace steel mills and related steel finishing and processing facilities, including The Techs. The company's steel operations produce flat-rolled steel, structural steel, merchant bars, special-bar-quality steel, rebar, rail, and specialty shapes.

 



Third Quarter


Year To Date


Sequential



2012


2011


2012


2011


2Q 2012

Total Sales


$1,120,571


$1,298,339


$3,655,802


$3,926,476


$1,280,767

External Sales


1,051,349


1,228,010


3,445,369


3,690,349


1,207,300

Operating Income


109,215


138,626


387,983


550,907


139,028












Total Shipments (tons)


1,405,021


1,470,339


4,375,723


4,376,732


1,520,579

Average External Sales Price Per Ton


$809


$897


$847


$911


$854

Average Ferrous Scrap Cost Per Ton


$352


$419


$389


$411


$396

 

Metals Recycling and Ferrous Resources

This segment principally includes the company's metals recycling operations (OmniSource Corporation), a liquid pig iron production facility (Iron Dynamics), and the company's Minnesota operations, which currently primarily includes an iron nugget manufacturing facility (Mesabi Nugget, which is 81 percent company-owned).

 

Metals Recycling & Ferrous Resources


Third Quarter


Year To Date


Sequential



2012


2011


2012


2011


2Q 2012

Total Sales


$ 821,357


$1,060,545


$ 2,860,789


$3,249,089


$ 927,092

     External Sales


522,231


708,038


1,812,340


2,175,882


590,509

Operating Income (Loss)


(9,461)


3,693


(12,197)


61,231


(13,135)















Metals Recycling


Third Quarter


Year To Date


Sequential



2012


2011


2012


2011


2Q 2012

Total Sales


$  766,102


$1,006,747


$2,700,006


$3,084,212


$ 876,731

External Sales


519,101


708,038


1,808,165


2,175,882


589,722

Operating Income


16,566


11,439


46,655


78,828


5,085

Unrealized Hedging Gains (Losses)


(9,315)


1,749


(6,232)


6,427


1,080












Ferrous Shipments (gross tons)


1,339,853


1,483,122


4,408,915


4,565,141


1,486,222

     % Shipments to Company Steel Mills


43%


44%


45%


43%


45%

Nonferrous Shipments (pounds 000's)


249,685


269,753


800,253


811,511


258,932

 

Steel Fabrication Operations

Steel fabrication operations include New Millennium Building Systems, which fabricates steel joists, trusses, and decking used in the construction of non-residential buildings.  

 



Third Quarter


Year To Date


Sequential



2012


2011


2012


2011


2Q 2012

Total Sales


$ 102,442


$   83,110


$  273,105


$  197,724


$      95,767

Operating Income (Loss)


3,141


(246)


666


(4,764)


193












Total Shipments (tons)


80,176


64,589


218,291


156,410


77,932

Average External Sales Price Per Ton


$1,278


$1,287


$1,251


$1,265


$1,229

 

About Steel Dynamics, Inc.

Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with annual sales of $8.0 billion in 2011, over 6,500 employees, and manufacturing facilities primarily located throughout the United States (including five steel mills, six steel processing facilities, two iron production facilities, over 70 metals recycling locations and six steel fabrication plants). 

Forward-Looking Statement

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements are intended to be made as "forward-looking," subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of a prolonged or deepening recession on industrial demand; (2) changes in economic conditions, either generally or in any of the steel or scrap-consuming sectors which affect demand for our products, including the strength of the non-residential and residential construction, automotive, appliance, and other steel-consuming industries; (3) fluctuations in the cost of key raw materials (including steel scrap, iron units, and energy costs) and our ability to pass-on any cost increases; (4) the impact of domestic and foreign import price competition; (5) risks and uncertainties involving product and/or technology development; and (6) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to SDI's more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form 10-K, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These are available publicly on the SEC Web site, www.sec.gov, and on the Steel Dynamics Web site, www.steeldynamics.com.

Conference Call and Webcast

On Thursday, October 18, 2012, at 10:00 a.m. Eastern time, Steel Dynamics will host a conference call with investors and analysts to discuss the company's third quarter operating and financial results.  We invite you to listen to the live audiocast of the conference call accessible from our website (http://steeldynamics.com) , or via telephone (the conference call number may also be obtained on our website).  A replay of the discussion will be available on our website until midnight on November 16, 2012.  A podcast of the event will also be available and can be downloaded from our website.

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)








Three Months Ended


Nine Months Ended


Three Months Ended


September 30,


September 30,


June 30,


2012


2011


2012


2011


2012























Net sales 

$

1,693,390

$

2,043,455

$

5,585,233

$

6,139,155

$

1,909,803

Costs of goods sold               


1,536,989


1,844,212


5,045,432


5,367,772


1,727,667

        Gross profit


156,401


199,243


539,801


771,383


182,136












Selling, general and administrative expenses


62,984


72,876


188,603


201,648


61,235

Profit sharing


3,954


7,428


20,237


37,085


8,211

Amortization of intangible assets


8,848


10,154


26,831


30,320


8,991

Impairment charges


7,894


-


7,894


-


-

        Operating income


72,721


108,785


296,236


502,330


103,699












Interest expense, net of capitalized interest


41,490


44,702


123,708


132,860


41,106

Other expense (income), net


24,010


(3,523)


32,366


(13,835)


(1,892)

        Income before income taxes


7,221


67,606


140,162


383,305


64,485












Income taxes


1,116


27,749


52,975


143,392


25,180

        Net income


6,105


39,857


87,187


239,913


39,305












Net loss attributable to noncontrolling interests


6,728


3,447


15,793


8,004


5,167












        Net income attributable to Steel Dynamics, Inc.

 

$

 

12,833

 

$

 

43,304

 

$

 

102,980

 

$

 

247,917

 

$

 

44,472


































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

$

.06

$

.20

$

.47

$

1.14

$

.20












Weighted average common shares     outstanding


219,191


218,674


219,097


218,389


219,104























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

$

.06

$

.19

$

.47

$

1.08

$

.20












Weighted average common shares and equivalents outstanding (Note 1)


220,044


235,759


236,536


236,083


236,208












Dividends declared per share

$

.10

$

.10

$

.30

$

.30

$

.10



(Note 1)  Excludes the impact of the 5.125% convertible senior notes from net income (numerator) and share equivalents outstanding (denominator) for the three months ended September 30, 2012, as the impact to diluted earnings per share is anti-dilutive.

  

Steel Dynamics, Inc.
UNAUDITED SUPPLEMENTAL OPERATING INFORMATION
(dollars in thousands)




















Quarter Ended


Nine Months Ended


Quarter Ended


Quarter Ended





September 30,


September 30,


March 31,


June 30,





2012


2011


2012


2011


2012


2012

Steel Operations*




























Shipments (tons)














Flat Roll Division


638,776


701,212


2,004,225


2,091,505


658,505


706,944


Structural and Rail Division















Structural


220,829


193,197


662,235


531,934


227,059


214,347



Rail


34,704


31,317


106,828


96,609


33,947


38,177


Engineered Bar Products Division


113,327


160,649


437,024


463,944


157,489


166,208


Roanoke Bar Division


152,922


141,060


453,228


415,271


151,296


149,010


Steel of West Virginia


76,481


76,487


228,149


223,425


77,212


74,456


The Techs


167,982


166,417


484,034


554,044


144,615


171,437



Total


1,405,021


1,470,339


4,375,723


4,376,732


1,450,123


1,520,579



   Intra-company


(105,789)


(101,117)


(306,840)


(326,500)


(94,176)


(106,875)



External


1,299,232


1,369,222


4,068,883


4,050,232


1,355,947


1,413,704
















Production, excluding The Techs (tons)


1,257,515


1,305,711


3,937,623


3,911,435


1,351,818


1,328,290
















Net sales














Total


$ 1,120,571


$ 1,298,339


$ 3,655,802


$ 3,926,476


$      1,254,464


$      1,280,767


   Intra-company


(69,222)


(70,329)


(210,433)


(236,127)


(67,744)


(73,467)


External


$ 1,051,349


$ 1,228,010


$ 3,445,369


$ 3,690,349


$      1,186,720


$      1,207,300





























Operating income before amortization of intangibles


$    109,215


$    138,626


$    387,983


$    550,907


$         139,740


$         139,028


Amortization of intangibles


(2,288)


(2,432)


(7,151)


(7,790)


(2,432)


(2,431)

Operating income (Note 1)


$    106,927


$    136,194


$    380,832


$    543,117


$         137,308


$         136,597
















Metals Recycling and Ferrous Resources**




























OmniSource













  Ferrous metals shipments (gross tons)














Total


1,339,853


1,483,122


4,408,915


4,565,141


1,582,840


1,486,222


   Intra-company


(582,942)


(648,949)


(2,013,377)


(1,979,215)


(763,767)


(666,668)


External


756,911


834,173


2,395,538


2,585,926


819,073


819,554
















  Non-ferrous metals shipments (thousands of pounds)














Total


249,685


269,753


800,253


811,511


291,636


258,932


   Intra-company


(8,476)


(1,804)


(15,032)


(6,043)


(1,958)


(4,598)


External


241,209


267,949


785,221


805,468


289,678


254,334
















Mesabi Nugget shipments (metric tons) - Intra-company


52,082


32,666


132,152


106,698


46,230


33,840
















Iron Dynamics (metric tons) - Intra-company


53,548


61,034


169,279


182,031


56,628


59,103
















Net sales














Total


$    821,357


$ 1,060,545


$ 2,860,789


$ 3,249,089


$      1,112,340


$         927,092


   Intra-company


(299,126)


(352,507)


(1,048,449)


(1,073,207)


(412,740)


(336,583)


External


$    522,231


$    708,038


$ 1,812,340


$ 2,175,882


$         699,600


$         590,509
















Operating income (loss) before amortization of intangibles


$      (9,461)


$        3,693


$    (12,197)


$      61,231


$           10,399


$          (13,135)


Amortization of intangibles


(6,236)


(7,081)


(18,708)


(21,244)


(6,236)


(6,236)

Operating income (loss) (Note 1)


$    (15,697)


$      (3,388)


$    (30,905)


$      39,987


$             4,163


$          (19,371)
















Steel Fabrication***




























Shipments (tons)














Total


80,176


64,589


218,291


156,410


60,183


77,932


   Intra-company


(53)


(12)


(55)


(621)


(2)


-


External


80,123


64,577


218,236


155,789


60,181


77,932
















Net sales














Total


$    102,442


$      83,110


$    273,105


$    197,724


$           74,896


$           95,767


   Intra-company


(41)


(16)


(45)


(612)


(4)


-


External


$    102,401


$      83,094


$    273,060


$    197,112


$           74,892


$           95,767
















Operating income (loss) (Note 1)


$        3,141


$         (246)


$           666


$      (4,764)


$            (2,668)


$                193































*

Steel Operations include the company's five steelmaking divisions and The Techs three galvanizing plants.

**

Metals Recycling and Ferrous Resources Operations include OmniSource; Iron Dynamics (all shipments are internal); and Mesabi Nugget (all shipments have been internal).

***

Steel Fabrication Operations include the company's joist and deck fabrication operations.



(Note 1) Segment operating income (loss) excludes profit sharing expense.


















 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)






September 30,
2012


December 31,
2011




(unaudited)




Assets








Current assets








        Cash and equivalents      


$

287,120


$

390,761


        Investments in short-term commercial paper  



-



84,830


        Accounts receivable, net 



712,750



722,791


        Inventories     



1,209,079



1,199,584


        Deferred income taxes    



28,229



25,341


        Income taxes receivable



939



16,722


        Other current assets        



24,107



15,229


                     Total current assets         



2,262,224



2,455,258










Property, plant and equipment, net   



2,213,703



2,193,745










Restricted cash     



27,436



26,528










Intangible assets, net



425,034



450,893










Goodwill



740,192



745,066










Other assets          



106,927



107,736


                    Total assets       


$

5,775,516


$

5,979,226










Liabilities and Equity








Current liabilities








        Accounts payable           


$

377,213


$

420,824


        Income taxes payable



12,014



10,880


        Accrued expenses          



166,845



185,964


        Accrued profit sharing   



19,213



38,671


        Current maturities of long-term debt



30,114



444,078


                     Total current liabilities    



605,399



1,100,417










Long-term debt








        Term note



250,938



-


        7 3/8% senior notes, due 2012         



-



261,250


        5.125% convertible senior notes, due 2014



287,496



287,500


        6 ¾% senior notes, due 2015



500,000



500,000


        7 ¾% senior notes, due 2016



-



500,000


        6 1/8% senior notes, due 2019         



400,000



-


        7 5/8% senior notes, due 2020



350,000



350,000


        6 3/8% senior notes, due 2022         



350,000



-


        Other long-term debt      



35,491



37,272


                     Total long-term debt



2,173,925



1,936,022










Deferred income taxes         



544,800



489,915










Other liabilities



18,564



82,278










Commitments and contingencies

 








Redeemable noncontrolling interests



93,774



70,694


Equity








        Common stock               



636



636


        Treasury stock, at cost    



(720,479)



(722,653)


        Additional paid-in capital               



1,033,857



1,026,157


        Retained earnings           



2,049,011



2,011,801


                     Total Steel Dynamics, Inc. equity



2,363,025



2,315,941


        Noncontrolling interests



(23,971)



(16,041)


                     Total equity      



2,339,054



2,299,900


                     Total liabilities and equity              


$

5,775,516


$

5,979,226












 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)






Three Months Ended


Nine Months Ended


September 30,


September 30,


2012


2011


2012


2011



















Operating activities:









        Net income                     

$

6,105

$

39,857

$

87,187

$

239,913










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









                Depreciation and amortization


58,953


55,962


170,027


166,965

                Equity-based compensation


738


3,833


9,463


11,355

                Deferred income taxes            


34,633


7,118


54,464


29,081

                Impairment charges


7,894


-


7,894


-

                Changes in certain assets and liabilities:









                        Accounts receivable       


2,690


33,533


15,604


(193,679)

                        Inventories     


43,005


36,346


6,702


(44,787)

                        Accounts payable           


6,920


(4,375)


(19,015)


92,550

                        Income taxes receivable/payable


25,993


(5,911)


16,917


22,409

                        Other assets and liabilities


(69,565)


56,100


(109,857)


68,590

                Net cash provided by operating activities


117,366


222,463


239,386


392,397










Investing activities:









        Purchase of property, plant and equipment


(58,342)


(38,126)


(158,686)


(91,795)

        Other investing activities


10,653


947


64,451


1,946

                Net cash used in investing activities


(47,689)


(37,179)


(94,235)


(89,849)










Financing activities:









        Issuance of current and long-term debt


760,000


10,851


1,049,969


15,977

        Repayment of current and long-term debt


(946,858)


(105)


(1,252,202)


(7,921)

        Debt issuance costs


(11,626)


(6,884)


(13,814)


(6,884)

        Proceeds from exercise of stock options, including related tax effect


583


402


2,021


13,267

        Contributions from noncontrolling investors, net


16,321


11,320


30,944


13,207

        Dividends paid


(21,915)


(21,865)


(65,710)


(60,013)

                Net cash used in financing activities


(203,495)


(6,281)


(248,792)


(32,367)










        Increase (decrease) in cash and equivalents


(133,818)


179,003


(103,641)


270,181

        Cash and equivalents at beginning of period


420,938


277,691


390,761


186,513










        Cash and equivalents at end of period

$

287,120

$

456,694

$

287,120

$

456,694














































Supplemental disclosure information:









        Cash paid for interest

$

42,413

$

14,931

$

123,973

$

101,088

        Cash paid for federal and state income taxes, net

$

3,629

$

12,403

$

43,976

$

74,378










 

SOURCE Steel Dynamics, Inc.



RELATED LINKS
http://www.steeldynamics.com

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