Steel Dynamics Reports Third Quarter 2010 Results

Oct 18, 2010, 18:15 ET from Steel Dynamics, Inc.

FORT WAYNE, Ind., Oct. 18 /PRNewswire-FirstCall/ -- Steel Dynamics, Inc. (Nasdaq: STLD) today announced net income of $19 million for the third quarter of 2010, or $0.09 per diluted share, compared to $69 million, or $0.30 per diluted share, for the third quarter of 2009, and net income of $49 million, or $0.22 per diluted share, in the second quarter of 2010.

Third quarter net sales of $1.6 billion were 35 percent higher than net sales of $1.2 billion for the third quarter of 2009 and were 3 percent lower than the second quarter of 2010.  Third quarter steel shipments of 1.3 million tons were 5 percent higher than the third quarter of 2009, and 4 percent higher than the second quarter of 2010.  In metals recycling, OmniSource's ferrous metals shipments in the third quarter were 1.4 million gross tons, nearly the same as the second quarter, and non-ferrous shipments were 257 million pounds, up 8 percent from the second quarter.

Year-to-date 2010 net sales through September 30 were $4.8 billion, up 72 percent from the same period of 2009, and greater than full-year 2009 net sales of $4.0 billion.  Year-to-date net income of $133 million compares to a loss of $35 million in the first nine months of 2009.  Operating income for the first nine months of 2010 was $318 million versus $41 million in the first nine months of 2009.  

"In mid-September we noted our expectation that our third quarter's earnings could be weaker due to reduced margins in the steel segment," said Keith Busse, Chairman and CEO.  "While third quarter steel volume remained relatively flat, the decline in steel selling prices, mainly steel sheet, outpaced the decline in scrap prices.  Our third-quarter average selling price per ton for steel products was $782, down $47 from $829 in the second quarter, while our average scrap cost per ton charged decreased $23.  As a result of the reduced margins, operating income for the steel segment fell to $88 million in the third quarter, down from $134 million in the second quarter.

"In September, our metals recycling business posted a very strong financial performance, driven by higher than expected shipping volumes and expanded non-ferrous margin, which offset the down market experienced earlier in the quarter.  However, despite slightly higher quarterly shipping volumes, lower ferrous metal margins resulted in operating income of $22 million in the third quarter as compared to $25 million in the second quarter.   In steel fabrication, New Millennium's operating losses narrowed in the third quarter to less than $500,000 from the prior quarter's $5 million loss, as a result of increased volume and ongoing efforts to control operating costs," Busse said.

The Mesabi Nugget start-up progressed well in the third quarter with production increasing to 24,600 metric tons.   However, overall productivity continues to be hampered by equipment availability and refractory issues.  Solutions are in hand and will be implemented during the fourth quarter.  Mesabi nuggets are now supplied on an ongoing basis to SDI's Flat Roll and Engineered Bar Products divisions.  The impact from Mesabi's start-up operations for Steel Dynamics remained relatively flat in the third quarter at a $12 million operating loss.

During the third quarter, increased steel shipments of long-products combined with weaker flat-rolled volume resulted in a change in product mix, causing flat-roll shipments to decline from 64 percent of total steel shipments in the second quarter to 60 percent in the third.  The Engineered Bar Products Division achieved record production levels due to stronger OEM customer demand, and shipped 153,000 tons in the third quarter, up 19 percent from the second quarter.  The company's SBQ backlog continues to grow, now extending into 2011.  In contrast, structural steel demand remains lackluster.  Shipments by the Structural and Rail Division decreased slightly, despite increasing shipments of its rail products.  With the approvals of SDI's rail products by all the nation's leading railroads, rail and welded-rail shipments are expected to continue to grow significantly.  

Also of note, the company's estimated annual tax rate increased, causing the third quarter effective rate to increase in order to reflect the increase for the first six months of the year, decreasing the third quarter diluted earnings per share by approximately $.02.    

"In terms of steel market conditions, we have seen a slight improvement in our long product order activity; while in contrast, we have seen a significant decline in our sheet steel backlogs," Busse continued, "Looking to the fourth quarter, we believe that margin improvement is possible in both our steelmaking and metals recycling operations, which could result in a slightly stronger fourth quarter.   However, given the uncertainty surrounding demand for flat-rolled steels, we will provide specific fourth-quarter guidance in December.   Additionally, we are still assessing the potential impact to near-term earnings related to our recent acquisition of certain steel fabrication assets, but currently anticipate the related costs to be minimal."

Third Quarter 2010 Operating Segment Information

The following highlights third quarter 2010 results for each of SDI's three primary operating segments.  These operating results exclude profit-sharing costs and amortization related to each of the respective segment's intangible assets.

Steel Operations.  Net sales for Steel Operations for the third quarter (including intra-segment and intra-company sales) were $1.3 billion.  The segment represented 61 percent of the company's external net sales for the quarter.  This segment includes five steel mills and related steel processing facilities, including The Techs.  SDI's five steel mills produce a wide variety of flat-rolled and long steel products.  The Techs produce galvanized steel sheet using steel that is sourced primarily from third parties.

Third quarter 2010 Steel Operations shipments were 1.3 million tons (including intra-segment and intra-company shipments), of which 788,000 tons were flat-rolled steel shipments.  Based on tons shipped, including the steel shipments made by The Techs, flat-rolled products accounted for 60 percent of third quarter steel operations shipments, 12 percent were structural steel and rail shipments, 12 percent was engineered bars, 11 percent was merchant bars, and 5 percent related to Steel of West Virginia.  Third quarter operating income for the steel segment was $88 million, or $68 per ton shipped, compared to an operating income of $108 per ton in the second quarter of 2010.  

The third quarter's average external selling price per ton for Steel Operations was $782, a decrease of $47 per ton from $829 in the second quarter of 2010 and an increase of $143 per ton from the year-ago quarter.  The average cost of ferrous scrap per net ton charged decreased $23 compared to the second quarter.

Metals Recycling and Ferrous Resources.  This segment includes OmniSource Corporation (collecting, processing, and trading of ferrous and non-ferrous metals), Iron Dynamics (a scrap-substitute operation that produces pig iron for use by the Flat Roll Division), Mesabi Nugget (which produces iron nuggets for mini-mill steelmaking and is co-owned by Kobe Steel, Ltd. and SDI, with SDI owning 81 percent), and expenses related to Mesabi Mining (a wholly owned iron mining unit that is awaiting approval of mining permits before it can commence operation).

The segment's net sales for the third quarter of 2010 were $805 million (including intra-company sales).  The segment represented 35 percent of SDI's third quarter external sales.  Operating income for this segment was $9 million, down from $15 million in the second quarter.  OmniSource's stand-alone third quarter operating income on the same basis was $22 million compared to $25 million in the second quarter.

OmniSource's total ferrous scrap shipments for the third quarter, including shipments to SDI's Steel Operations, were 1.4 million gross tons, 1 percent higher than the second quarter of 2010, and 18 percent higher than the year-ago quarter.  Non-ferrous scrap shipments for the third quarter of 2010 were 257 million pounds (including intra-company shipments), up 8 percent from the second quarter of 2010 and 18 percent higher than the year-ago quarter.

During the third quarter, the company's scrap operations supplied 556,000 gross tons of ferrous scrap to SDI's Steel Operations, which was 41 percent of the total tonnage of ferrous scrap OmniSource shipped and was 50 percent of the tonnage of ferrous scrap purchased by our mills during the quarter.

Steel Fabrication Operations.  Steel Fabrication Operations consist of the New Millennium Building Systems fabricating plants that produce joists, trusses, and steel decking that is used in the construction of non-residential buildings.  Third quarter net sales were $54 million (including intra-company sales).  The segment represented 3 percent of SDI's third quarter external sales.  New Millennium reported an operating loss of $494,000 for the quarter, compared to a $5 million loss in the second quarter.  Third quarter shipments totaled 47,000 tons (including intra-company shipments), 13 percent higher than the second quarter of 2010 and 37 percent higher than the year-ago quarter.

Forward-Looking Statements

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenue, 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.  Such predictive statements are not guarantees of future performance, and actual results could differ materially from our current expectations.

Factors that could cause such predictive statements to turn out other than as anticipated or predicted include, among others:  the effects of prolonged or deepening recession on industrial demand; general or specific sector (i.e., automotive, consumer appliance or construction) economic conditions affecting steel consumption; the impact of price competition, whether domestic or the result of foreign imports; difficulties in integrating acquired businesses; risks and uncertainties involving new products or new technologies; changes in the availability or cost of steel scrap or substitute materials; increases in energy costs; occurrence of unanticipated equipment failures and plant outages; labor unrest; and the effect of the elements on production or consumption.

More specifically, we refer you to SDI's 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, available publicly on the SEC Web site, www.sec.gov, and on the Steel Dynamics Web site, www.steeldynamics.com.

Forward-looking or predictive statements we make are based upon information and assumptions concerning our businesses and the environments in which they operate, which we consider reasonable as of the date on which these statements are made.  Due to the foregoing risks and uncertainties however, as well as matters beyond our control which can affect forward-looking statements, you are cautioned not to place undue reliance on these predictive statements, which speak only as of the date of this press release.  We undertake no duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Conference Call and Webcast

On Tuesday, October 19, 2010, at 10:00 a.m. Eastern time, Steel Dynamics will host a conference call in which management will discuss second quarter results.  You are invited to listen to the live audio broadcast of the conference call over the Internet, accessible from the Steel Dynamics Web site:   www.steeldynamics.com

Dial-in information is available on our Web site.  An audio replay of the Webcast and a downloadable podcast will be available from the SDI Web site.  No telephone replay will be available.

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months

Ended

June 30,

2010

2009

2010

2009

2010

Net sales

$

1,584,164

$

1,172,196

$

4,772,753

$

2,779,004

$

1,632,799

Costs of goods sold       

1,444,632

955,503

4,230,755

2,534,101

1,440,815

  Gross profit

139,532

216,693

541,998

244,903

191,984

Selling, general and administrative expenses

54,679

56,133

167,796

162,012

55,957

Profit sharing

4,562

451

21,833

409

7,827

Amortization of intangibles

11,291

11,661

34,437

41,353

11,565

  Operating income   

69,000

148,448

317,932

41,129

116,635

Interest expense, net of capitalized interest

44,286

34,520

125,249

107,814

43,448

Other income, net

(6,215)

(2,167)

(12,817)

(2,129)

(3,521)

  Income (loss) before income taxes

30,929

116,095

205,500

(64,556)

76,708

Income taxes (benefit)     

15,574

47,365

79,959

(26,991)

29,911

  Net income (loss)

15,355

68,730

125,541

(37,565)

46,797

Net loss (income) attributable to noncontrolling interests

3,386

(288)

7,376

(2,730)

2,410

  Net income (loss) attributable to  

$

18,741

$

69,018

$

132,917

$

(34,835)

$

49,207

          Steel Dynamics, Inc.

Basic earnings (loss) per share attributable to

 Steel Dynamics, Inc. stockholders

$

.09

$

.32

$

.61

$

(.18)

$

.23

Weighted average common shares outstanding

216,881

215,218

216,600

195,689

216,635

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

$

.09

$

.30

$

.60

$

(.18)

$

.22

Weighted average common shares and

       equivalents outstanding 

234,543

234,080

234,601

195,689

234,600

Dividends declared per share

$

.075

$

.075

$

.225

$

.25

$

.075

Steel Dynamics, Inc.

UNAUDITED SUPPLEMENTAL OPERATING INFORMATION

(dollars in thousands)

Three Months Ended

Nine Months Ended

First

Second

September 30,

September 30,

Quarter

Quarter

2010

2009

2010

2009

2010

2010

Steel Operations*

Shipments (net tons)

Flat Roll Division

621,543

656,512

1,993,662

1,415,195

749,258

622,861

Structural and Rail Division

156,940

134,390

471,541

360,421

155,349

159,252

Engineered Bar Products Division

153,279

80,428

407,140

215,092

125,059

128,802

Roanoke Bar Division

145,168

97,895

363,747

263,617

109,186

109,393

Steel of West Virginia

66,610

57,539

172,735

155,622

53,405

52,720

The Techs

166,858

220,383

569,363

466,032

210,545

191,960

Combined

1,310,398

1,247,147

3,978,188

2,875,979

1,402,802

1,264,988

Intra-segment

(17,673)

(24,223)

(50,019)

(47,582)

(11,087)

(21,259)

1,292,725

1,222,924

3,928,169

2,828,397

1,391,715

1,243,729

Intra-company

(65,186)

(60,173)

(201,659)

(136,416)

(70,866)

(65,607)

External

1,227,539

1,162,751

3,726,510

2,691,981

1,320,849

1,178,122

Production, excluding The Techs (net tons)

1,167,584

1,112,145

3,506,125

2,565,932

1,191,138

1,147,403

Net sales

Combined

$   1,010,916

$      782,169

$   3,061,942

$   1,843,818

$   1,018,548

$   1,032,478

Intra-segment

(10,530)

(10,984)

(29,131)

(22,814)

(6,052)

(12,549)

1,000,386

771,185

3,032,811

1,821,004

1,012,496

1,019,929

Intra-company

(40,715)

(28,095)

(123,936)

(65,979)

(39,929)

(43,292)

External

$      959,671

$      743,090

$   2,908,875

$   1,755,025

$      972,567

$      976,637

Operating income before amortization of intangibles

$        87,880

$      129,072

$      359,626

$      100,710

$      137,669

$      134,077

Amortization of intangibles

(2,679)

(2,932)

(8,541)

(9,311)

(2,931)

(2,931)

Operating income

$        85,201

$      126,140

$      351,085

$        91,399

$      134,738

$      131,146

Metals Recycling and Ferrous Resources**

OmniSource

 Ferrous metals shipments (gross tons)

Combined

1,361,696

1,155,196

3,942,135

2,557,043

1,230,075

1,350,364

Intra-company

(556,222)

(514,143)

(1,638,878)

(985,372)

(519,306)

(563,350)

External

805,474

641,053

2,303,257

1,571,671

710,769

787,014

 Non-ferrous metals shipments (thousands of pounds)

Combined

256,514

217,068

731,407

577,246

238,245

236,648

Intra-company

(1,784)

-

(5,924)

-

(2,194)

(1,946)

External

254,730

217,068

725,483

577,246

236,051

234,702

Mesabi Nugget shipments (metric tons)

24,553

-

49,210

-

7,179

17,478

Iron Dynamics shipments (metric tons)

Liquid pig iron

45,046

49,901

130,667

127,573

46,428

39,193

Hot briquetted iron

11,774

4,080

38,503

23,865

11,372

15,357

Other

248

33

1,514

670

698

568

Intra-company

57,068

54,014

170,684

152,108

58,498

55,118

Net sales

Combined

$      804,680

$      555,233

$   2,409,350

$   1,160,579

$      756,303

$      848,367

Intra-company

(245,809)

(171,351)

(728,491)

(298,593)

(224,240)

(258,442)

External

$      558,871

$      383,882

$   1,680,859

$      861,986

$      532,063

$      589,925

Operating income before amortization of intangibles

$          9,379

$        46,157

$        57,056

$        37,763

$        32,436

$        15,241

Amortization of intangibles

(8,302)

(8,752)

(24,906)

(31,062)

(8,302)

(8,302)

Operating income

$          1,077

$        37,405

$        32,150

$          6,701

$        24,134

$          6,939

Steel Fabrication***

Shipments (net tons)

Combined

47,308

34,546

114,880

115,193

25,678

41,894

Intra-company

(599)

(457)

(621)

(682)

(19)

(3)

External

46,709

34,089

114,259

114,511

25,659

41,891

Net sales

Combined

$        53,920

$        32,930

$      120,185

$      130,763

$        23,998

$        42,267

Intra-company

(198)

(620)

(236)

(1,198)

(37)

(1)

External

$        53,722

$        32,310

$      119,949

$      129,565

$        23,961

$        42,266

Operating income (loss) before amortization of intangibles

$           (494)

$        (3,197)

$      (11,745)

$               75

$        (6,549)

$        (4,702)

Amortization of intangibles

-

(31)

(42)

(227)

(31)

(11)

Operating income (loss)

$           (494)

$        (3,228)

$      (11,787)

$           (152)

$        (6,580)

$        (4,713)

*

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, which began in 2010, have been internal).

***

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

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30,

2010

December 31,

2009

(unaudited)

Assets

Current assets

  Cash and equivalents  

$

270,118

$

9,008

  Accounts receivable, net       

654,945

426,592

  Inventories   

1,008,309

852,831

  Deferred income taxes 

24,786

21,492

       Income taxes receivable

30,413

137,024

  Other current assets   

21,451

9,856

        Total current assets   

2,010,022

1,456,803

Property, plant and equipment, net       

2,214,105

2,254,050

Restricted cash 

20,570

12,595

Intangible assets, net

500,021

533,510

Goodwill

753,355

758,259

Other assets   

112,386

114,655

        Total assets  

$

5,610,459

$

5,129,872

Liabilities and Stockholders' Equity

Current liabilities

  Accounts payable     

$

366,331

$

262,285

  Income taxes payable

5,431

5,664

  Accrued expenses    

193,919

156,570

  Accrued profit sharing 

21,333

2,860

  Senior secured revolving credit facility, due 2012

-

167,000

  Current maturities of long-term debt

8,438

1,182

        Total current liabilities 

595,452

595,561

Long-term debt

  7-3/8% senior notes, due 2012   

700,000

700,000

  5.125% convertible senior notes, due 2014

287,500

287,500

  6-3/4% senior notes, due 2015

500,000

500,000

  7-3/4% senior notes, due 2016

500,000

500,000

  7-5/8% senior notes, due 2020

350,000

-

  Other long-term debt   

71,938

67,072

        Total long-term debt

2,409,438

2,054,572

Deferred income taxes   

439,748

416,468

Other liabilities

62,145

60,006

Commitments and contingencies

Stockholders' equity

  Common stock

632

629

  Treasury stock, at cost 

(727,624)

(730,857)

  Additional paid-in capital

988,972

972,985

  Retained earnings     

1,829,659

1,745,511

        Total Steel Dynamics, Inc. stockholders' equity

2,091,639

1,988,268

  Noncontrolling interests

12,037

14,997

        Total stockholders' equity     

2,103,676

2,003,265

        Total liabilities and stockholders' equity 

$

5,610,459

$

5,129,872

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2010

2009

2010

2009

Operating activities:

  Net income (loss)

$

15,355

$

68,730

$

125,541

$

(37,565)

  Adjustments to reconcile net income (loss) to net cash provided by operating activities:

     Depreciation and amortization

57,278

51,915

168,948

166,643

     Equity-based compensation

3,626

2,887

9,724

14,779

     Deferred income taxes

2,735

8,341

21,620

21,833

     Changes in certain assets and liabilities:

        Accounts receivable

(26,820)

(117,442)

(228,537)

18,354

        Inventories

9,715

(96,062)

(155,356)

192,331

        Accounts payable

(12,446)

130,610

83,064

82,763

        Income taxes receivable/payable

8,829

2,432

106,378

1,027

        Other working capital

31,148

85,271

50,131

(37,122)

     Net cash provided by operating activities       

89,420

136,682

181,513

423,043

Investing activities:

  Purchases of property, plant and equipment

(24,224)

(95,662)

(95,868)

(243,166)

  Investment in direct financing lease

-

(27,967)

-

(27,967)

  Other investing activities

936

(2,857)

2,417

(13,370)

     Net cash used in investing activities

(23,288)

(126,486)

(93,451)

(284,503)

Financing activities:

  Issuance of current and long-term debt

25,428

240,586

571,980

949,330

  Repayment of current and long-term debt

(146)

(251,219)

(355,952)

(1,451,666)

  Debt issuance costs

-

(221)

(6,707)

(13,972)

  Issuance of common stock (net of expenses) and proceeds from

     exercise of stock options, including related tax effect

1,566

6,645

8,004

417,134

  Contribution from noncontrolling investors

1,805

-

4,416

5,000

  Dividends paid

(16,260)

(16,110)

(48,693)

(52,505)

     Net cash provided by (used in) financing activities

12,393

(20,319)

173,048

(146,679)

  Increase (decrease) in cash and equivalents

78,525

(10,123)

261,110

(8,139)

  Cash and equivalents at beginning of period

191,593

18,217

9,008

16,233

  Cash and equivalents at end of period

$

270,118

$

8,094

$

270,118

$

8,094

Supplemental disclosure information:

  Cash paid for interest

$

15,016

$

3,849

$

90,778

$

83,282

  Cash paid (received) for federal and state income taxes, net

$

(12)

$

228

$

(55,019)

$

(53,546)

SOURCE Steel Dynamics, Inc.



RELATED LINKS

http://www.steeldynamics.com