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Steel Dynamics Reports Record Sales and Earnings for Second Quarter and First Half of 2008

Posted on: Monday, 21 July 2008, 21:00 CDT

FORT WAYNE, Ind., July 21 /PRNewswire-FirstCall/ -- Steel Dynamics, Inc. today announced second quarter 2008 net income of $210 million, or $1.05 per diluted share, up sequentially 48 percent from $143 million, or $0.72 per diluted share from the first quarter of 2008. Net sales for the second quarter increased 26 percent to $2.4 billion compared to the first quarter of 2008. Compared to the second quarter of 2007, net sales increased 164 percent, from $911 million to $2.4 billion, and net income increased 124 percent, from $94 million to $210 million. For the first half of 2008, both net sales of $4.3 billion and net income of $353 million nearly matched full- year 2007 sales and net income of $4.4 billion and $395 million. First half 2008 results benefited from the acquisitions of The Techs (July 2007), OmniSource Corporation (October 2007), and Recycle South (June 2008).

Earnings from steel operations continued to improve as a result of strong shipments and higher selling values. Second quarter net steel shipments of 1.5 million tons were slightly stronger than the first quarter and, excluding The Techs, were 10 percent higher than second quarter 2007. The Flat Roll Division showed the largest increase, up 22 percent from second quarter 2007 and up 3 percent from the first quarter of 2008.

The steel scrap and scrap substitutes segment also provided a strong margin contribution. Demand for recycled ferrous scrap has remained strong, both from Steel Dynamics mills and from other mini mills, integrated steel mills, and foundries. Compared to the first quarter of 2008, second quarter ferrous shipments of 1.5 million net tons were up 8 percent and non-ferrous shipments of 254 million pounds were up 6 percent. OmniSource reported higher than expected earnings for the quarter, and Iron Dynamics continued to operate well, providing 51,000 metric tons of pig iron used as an alternative to higher-cost imported pig iron in the production of flat-roll steel.

"SDI's second quarter results of $1.05 per diluted share exceeded our June 12 earnings guidance of $0.90 to $0.95 due to the stronger than anticipated performance by both our steel and metals recycling operations," said Keith Busse, Chairman and CEO. Steel Dynamics made a $15 million contribution to the Steel Dynamics Foundation, Inc. This contribution reduced second quarter earnings per diluted share by approximately $0.04. The foundation will support local communities served by the company.

"Our outlook continues to be very positive. We currently expect third quarter results to be in a range of $1.05 to $1.15 per diluted share, similar in nature to the second quarter," Busse said. "Third-quarter steel and scrap shipments could decline slightly as the result of seasonally planned mill outages and other consumer / provider industrial outages in July and August. Currently, though, order activity remains strong for steel products and metals recycling volumes are running at a record pace.

"Throughout 2008, we have modeled for a seasonally weaker fourth quarter, as is historically the case for the steel and metals recycling industries; however it is very difficult to have clarity concerning market conditions later in the year. Even so, given our expectations for the third quarter and our current thoughts regarding the fourth quarter, we are now increasing our estimate for full-year 2008 diluted earnings per share to a range of $3.80 to $3.90, representing potential year-over-year annual growth of approximately 90 percent. Looking at industry fundamentals beyond 2008, we believe that the U.S. steel marketplace will remain attractive for domestic producers, as strong global steel demand continues; steelmaking resources and ocean freight costs remain high; and a weaker dollar remains. We believe the U.S. steel industry is well positioned and globally competitive, and that these conditions are likely to persist. With many expansion projects already underway and others under consideration, Steel Dynamics expects to continue to be a strong participant in the growth and success of the American steel industry," Busse said.

Second Quarter 2008 Operating Segment Information

The following highlights our second quarter 2008 results for each of SDI's three primary operating segments.

Steel Operations. Steel Operations represented 56 percent of the company's second quarter net sales. This segment includes five steel mills and related steel processing facilities. Most of the steel products included in this segment are produced in SDI's electric-arc-furnace mini mills and processing facilities. The Techs galvanize steel sheet that is sourced primarily from third parties.

Second quarter 2008 Steel Operations shipments were 1.6 million tons on net sales of $1.6 billion. Based on tons shipped, including steel shipments made by The Techs, flat-rolled products accounted for 60 percent of second quarter steel segment shipments, 18 percent was structural steel shipments, 9 percent was engineered bars, 8 percent was merchant bars, and the remaining 5 percent was shipped by the Steel of West Virginia subsidiary. Operating income for the steel segment was $333 million, or $206 per ton shipped, compared to $148 per ton in the first quarter. These figures exclude profit-sharing costs and amortization related to the segment's intangible assets.

The second quarter's average selling price per ton for Steel Operations was $1,011, an increase of $229 per ton from $782 in the first quarter of 2008 and an increase of $315 from the year-ago quarter. Compared to the first quarter of 2008, the strongest increases in selling values were in flat-rolled steel products. The average scrap cost per net ton charged increased by $144 compared to the first quarter, and was $181 higher than in the second quarter of 2007.

Scrap and Scrap Substitute Operations. This segment includes ferrous and non-ferrous metals processing and trading by OmniSource Corporation and SDI's Iron Dynamics scrap-substitute operation, which produces pig iron for use by the Flat Roll Division. The segment also includes expenses related to the Mesabi Nugget project, which is currently under construction. The segment's net sales for second quarter 2008 were $1.2 billion, representing 40 percent of SDI's second quarter net sales. Operating income for this segment was $86 million, excluding profit-sharing costs and amortization related to the segment's intangible assets. During the second quarter, SDI also recorded its 25 percent proportionate share of earnings from the operations of Recycle South as other income in the amount of $14.0 million.

Effective June 9, 2008, the company purchased the remaining 75 percent equity interest in Recycle South, a large metals recycling business now operating at 22 locations in North Carolina, South Carolina, and Georgia. After the closing, 100 percent of the financial results from Recycle South operations were included in the company's scrap and scrap substitute segment earnings.

During June 2008, SDI also purchased certain assets of Sturgis Iron & Metal, Inc. for $42 million. Sturgis was a Michigan-based metals recycler that had filed for Chapter 11 bankruptcy protection in April 2008. None of the seven scrap yards that were purchased are currently operating. The following locations are expected to reopen in the third quarter under OmniSource management: Sturgis, Kalamazoo and Monroe, Michigan; South Bend and Peru, Indiana; and Fitzgerald, Georgia.

For the second quarter, total ferrous scrap and substitute shipments, including shipments to SDI's Steel Operations, were 1.6 million tons and non-ferrous scrap shipments were 254 million pounds. During the second quarter, the company's scrap operations supplied 654,000 tons of ferrous scrap, or 44 percent of the tonnage purchased, by its steel operations.

Steel Fabrication Operations. Steel Fabrication Operations includes New Millennium Building Systems fabricating plants that produce joists, trusses, and steel decking used in the construction of non-residential buildings. Second quarter net sales were $93 million, or 3 percent of SDI's second quarter net sales. Operating income for this segment was $4 million, or $58 per ton shipped, excluding profit-sharing costs. Second quarter shipments totaled 76,000 tons at an average selling price of $1,227 per ton.

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 growth, 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: changes in economic conditions affecting steel consumption; increased foreign imports; increased price competition; 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.

In addition, 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 and in other reports which we from time to time file with the Securities and Exchange Commission, available publicly on the SEC Web site, http://www.sec.gov/, and on the Steel Dynamics Web site, http://www.steeldynamics.com/

Forward-looking or predictive statements we make are based on our knowledge of our businesses and the environment in which they operate as of the date on which the statements were made. Due to these risks and uncertainties, 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, July 22, 2008, 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:

http://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. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Three Months Six Months Three Months Ended Ended Ended June 30, June 30, March 31, 2008 2007 2008 2007 2008 Net sales $2,403,939 $911,248 $4,306,144 $1,776,922 $1,902,205 Costs of goods sold 1,924,284 694,666 3,479,180 1,343,937 1,554,896 Gross profit 479,655 216,582 826,964 432,985 347,309 Selling, general, and administrative expenses 86,557 31,681 151,897 60,543 65,340 Profit sharing 26,897 13,813 45,404 29,071 18,507 Amortization of intangible assets 8,120 3,428 19,650 4,401 11,530 Operating income 358,081 167,660 610,013 338,970 251,932 Interest expense, net capitalized interest 35,475 7,198 65,282 14,444 29,807 Other expense (income), net (16,901) 11,523 (24,707) 10,807 (7,806) Income before income taxes 339,507 148,939 569,438 313,719 229,931 Income taxes 129,013 54,997 216,387 117,613 87,374 Net income $210,494 $93,942 $353,051 $196,106 $142,557 Basic earnings per share $1.11 $.50 $1.86 $1.03 $.75 Weighted average common shares outstanding 190,351 186,859 189,695 189,745 189,039 Diluted earnings per share, Including the effect of assumed conversions $1.05 $.48 $1.77 $.98 $.72 Weighted average common shares and share equivalents outstanding 200,345 197,561 199,831 200,418 199,317 Dividends declared per share $.10 $.075 $.20 $.15 $.10

Note: All prior period share data has been adjusted to include the company's two-for-one stock split effective March 19, 2008.

Steel Dynamics, Inc. UNAUDITED SUPPLEMENTAL OPERATING INFORMATION Three Months Ended Six Months Ended First June 30, June 30, Quarter 2008 2007 2008 2007 2008 Steel Operations* Shipments (net tons) Flat Roll Division 706,281 579,490 1,391,601 1,191,599 685,320 Structural and Rail Division 286,150 309,601 585,837 593,477 299,687 Engineered Bar Products 145,085 131,976 293,033 274,335 147,948 Division Roanoke Bar Division 136,582 140,399 287,950 311,010 151,368 Steel of West Virginia 80,334 70,946 156,058 145,433 75,724 The Techs 262,908 - 524,919 - 262,011 1,617,340 1,232,412 3,239,398 2,515,854 1,622,058 Intercompany (124,128) (117,026) (254,813) (237,923) (130,685) Net shipments 1,493,212 1,115,386 2,984,585 2,277,931 1,491,373 Average selling price per ton shipped $1,011 $696 $896 $671 $782 Production (net tons, excluding The Techs) 1,368,071 1,246,238 2,740,435 2,496,625 1,372,364 Steel Fabrication Operations** Shipments (net tons) 76,018 68,864 144,624 135,371 68,606 Intercompany (43) (1,009) (316) (2,793) (273) Net Shipments 75,975 67,855 144,308 132,578 68,333 Average selling price per ton shipped $1,227 $1,267 $1,188 $1,259 $1,145 Steel Scrap and Scrap Substitute*** Shipments (net tons) Ferrous 1,506,902 116,000 2,898,284 150,841 1,391,382 Scrap substitute 66,727 60,846 134,721 124,239 67,994 Intercompany (720,844) (153,779) (1,252,730) (256,193) (531,886) Net shipments 852,785 23,067 1,780,275 18,887 927,490 Non-ferrous (pounds) 254,147,156 - 492,935,090 - 238,787,934 Other Operations**** Shipments (net tons) 49,523 26,356 98,364 59,469 48,841 Intercompany (88) (137) (310) (137) (222) Net shipments 49,435 26,219 98,054 59,332 48,619 * Steel Operations include the company's Flat Roll Division, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, Steel of West Virginia, and The Techs flat roll galvanizing operations (acquired July 2007). ** Steel Fabrication Operations include the company's five joist and deck fabrication operations. *** Steel Scrap and Scrap Substitute Operations include Iron Dynamics, the company's previously existing five scrap procurement and processing facilities, and most recently, OmniSource Corporation operations (acquired October 26, 2007) and Recycle South operations (acquired June 10, 2008). **** Other Operations include Paragon Steel Enterprises and Dynamic Composites operations. Steel Dynamics, Inc. CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 2008 2007 (unaudited) Assets Current assets Cash and equivalents $ 115,405 $ 28,486 Accounts receivable 1,234,610 714,123 Inventories 1,201,640 904,398 Deferred income taxes 8,317 10,427 Other current assets 67,566 38,795 Total current assets 2,627,538 1,696,229 Property, plant and equipment, net 1,916,403 1,652,097 Restricted cash 7,656 11,945 Intangible assets 636,649 514,547 Goodwill 789,580 510,983 Other assets 65,763 133,652 Total assets $ 6,043,589 $ 4,519,453 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 772,272 $ 378,849 Income taxes payable 63,728 25,870 Accrued expenses 247,934 150,687 Accrued profit sharing 44,767 53,958 Senior secured revolving credit facility 201,000 239,000 Other current maturities of long-term debt 65,808 56,162 Total current liabilities 1,395,509 904,526 Long-term debt Senior secured term loan A 536,000 481,250 7 3/8% senior notes, due 2012 700,000 700,000 6 3/4% senior notes, due 2015 500,000 500,000 7 3/4% senior notes, due 2016 500,000 - 4.0% convertible subordinated notes, due 2012 16,000 37,250 Other long-term debt 17,785 16,183 Total long-term debt 2,269,785 1,734,683 Deferred income taxes 334,436 301,470 Minority interest 12,304 11,038 Other long-term liabilities 44,003 38,540 Commitments and contingencies Stockholders' equity Common stock 544 542 Treasury stock, at cost (348,303) (457,368) Additional paid-in capital 583,756 553,805 Other accumulated comprehensive income 5,011 21 Retained earnings 1,746,544 1,432,196 Total stockholders' equity 1,987,552 1,529,196 Total liabilities and $ 6,043,589 $ 4,519,453 stockholders' equity Steel Dynamics, Inc. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Operating activities: Net income $210,494 $93,942 $353,051 $196,106 Adjustments to reconcile net income to net cash provided by / (used in) operating activities: Depreciation and amortization 47,582 32,978 100,794 62,244 Unamortized bond premium (3,350) - (3,350) Equity-based compensation 2,754 2,132 6,683 4,401 Deferred income taxes 57,038 (796) 56,065 1,118) Minority interest 792 (173) 1,267 (555) Changes in certain assets and liabilities: Accounts receivable (211,411) (20,146) (397,204) (33,748) Inventories (227,270) (96,824) (217,695) (153,726) Accounts payable 249,665 (6,532) 364,180 70,810 Income taxes payable (34,751) (58,982) 37,857 (4,132) Other working capital (39,602) 7,484 (36,111) (38,764) Net cash provided by / (used in) operating activities 55,291 (50,267) 268,887 98,168 Investing activities: Purchase of property, plant and equipment (101,225) (101,981) (194,989) (155,910) Acquisition of businesses, net of cash acquired (271,247) (38,219) (271,158) (38,219) Purchase of securities - - (20,373) - Other investing activities 2,913 61 4,153 (162) Net cash used in investing activities (369,559) (140,139) (482,367) (194,291) Financing activities: Issuance of current and long-term debt 786,900 852,000 1,004,900 997,000 Repayment of current and long-term debt (401,941) (532,079) (635,155) (662,157) Debt issuance costs (5,568) 7,988) (7,514) (7,988) Issuance of common stock (net of expenses) and proceeds from exercise of stock options, including related tax effect 10,277 8,960 17,454 16,146 Purchase of treasury stock - (132,429) (46,128) (235,314) Dividends paid (18,884) (14,178) (33,158) (28,725) Net cash provided by financing activities 370,784 174,286 300,399 78,962 Increase (decrease) in cash and equivalents 56.516 (16,120) 86,919 (17,161) Cash and equivalents at beginning of period 58,889 28,332 28,486 29,373 Cash and equivalents at end of period $115,405 $12,212 $115,405 $12,212 Supplemental disclosure of cash flow information: Cash paid for interest $57,334 $2,019 $68,719 $18,358 Cash paid for federal and state income taxes $160,522 $131,817 $161,909 $132,285

Steel Dynamics, Inc.

CONTACT: Fred Warner, Investor Relations Manager, Steel Dynamics, Inc.,+1-260-969-3564, fax, +1-260-969-3590, f.warner@steeldynamics.com

Web site: http://www.steeldynamics.com/

Source: PRNewswire-FirstCall

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