Steel Dynamics Reports Third Quarter 2010 Results
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,
-------------
2010 2009
---- ----
Net sales $1,584,164 $1,172,196
Costs of goods sold 1,444,632 955,503
--------- -------
Gross profit 139,532 216,693
Selling, general and
administrative expenses 54,679 56,133
Profit sharing 4,562 451
Amortization of
intangibles 11,291 11,661
------ ------
Operating income 69,000 148,448
Interest expense, net of
capitalized interest 44,286 34,520
Other income, net (6,215) (2,167)
------ ------
Income (loss) before
income taxes 30,929 116,095
Income taxes (benefit) 15,574 47,365
------ ------
Net income (loss) 15,355 68,730
Net loss (income)
attributable to
noncontrolling
interests 3,386 (288)
Net income (loss)
attributable to $18,741 $69,018
======= =======
Steel Dynamics, Inc.
Basic earnings (loss)
per share attributable
to $.09 $.32
Steel Dynamics, Inc.
stockholders ==== ====
Weighted average common
shares outstanding 216,881 215,218
======= =======
Diluted earnings (loss)
per share attributable
to Steel Dynamics, Inc.
stockholders,
including the effect of
assumed conversions
when dilutive $.09 $.30
==== ====
Weighted average common
shares and 234,543 234,080
equivalents outstanding ======= =======
Dividends declared per
share $.075 $.075
===== =====
Nine Months Three
Ended Months
----------- Ended
September June
30, 30,
----------
2010 2009 2010
---- ---- ----
Net sales $4,772,753 $2,779,004 $1,632,799
Costs of goods sold 4,230,755 2,534,101 1,440,815
--------- --------- ---------
Gross profit 541,998 244,903 191,984
Selling, general
and administrative
expenses 167,796 162,012 55,957
Profit sharing 21,833 409 7,827
Amortization of
intangibles 34,437 41,353 11,565
------ ------ ------
Operating income 317,932 41,129 116,635
Interest expense,
net of capitalized
interest 125,249 107,814 43,448
Other income, net (12,817) (2,129) (3,521)
------- ------ ------
Income (loss)
before income
taxes 205,500 (64,556) 76,708
Income taxes
(benefit) 79,959 (26,991) 29,911
------ ------- ------
Net income (loss) 125,541 (37,565) 46,797
Net loss (income)
attributable to
noncontrolling
interests 7,376 (2,730) 2,410
Net income (loss)
attributable to $132,917 $(34,835) $49,207
======== ======== =======
Steel Dynamics,
Inc.
Basic earnings
(loss) per share
attributable to $.61 $(.18) $.23
Steel Dynamics,
Inc. stockholders ==== ===== ====
Weighted average
common shares
outstanding 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 $.60 $(.18) $.22
==== ===== ====
Weighted average
common shares and 234,601 195,689 234,600
equivalents
outstanding ======= ======= =======
Dividends declared
per share $.225 $.25 $.075
===== ==== =====
Steel Dynamics, Inc.
UNAUDITED SUPPLEMENTAL OPERATING INFORMATION
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
---- ---- ---- ----
Steel Operations*
Shipments (net tons)
Flat Roll Division 621,543 656,512 1,993,662 1,415,195
Structural and Rail
Division 156,940 134,390 471,541 360,421
Engineered Bar Products
Division 153,279 80,428 407,140 215,092
Roanoke Bar Division 145,168 97,895 363,747 263,617
Steel of West Virginia 66,610 57,539 172,735 155,622
The Techs 166,858 220,383 569,363 466,032
------- ------- ------- -------
Combined 1,310,398 1,247,147 3,978,188 2,875,979
Intra-segment (17,673) (24,223) (50,019) (47,582)
------- ------- ------- -------
1,292,725 1,222,924 3,928,169 2,828,397
Intra-company (65,186) (60,173) (201,659) (136,416)
External 1,227,539 1,162,751 3,726,510 2,691,981
========= ========= ========= =========
Production, excluding
The Techs (net tons) 1,167,584 1,112,145 3,506,125 2,565,932
Net sales
Combined $1,010,916 $782,169 $3,061,942 $1,843,818
Intra-segment (10,530) (10,984) (29,131) (22,814)
------- ------- ------- -------
1,000,386 771,185 3,032,811 1,821,004
Intra-company (40,715) (28,095) (123,936) (65,979)
------- ------- -------- -------
External $959,671 $743,090 $2,908,875 $1,755,025
======== ======== ========== ==========
Operating income before
amortization of
intangibles $87,880 $129,072 $359,626 $100,710
Amortization of
intangibles (2,679) (2,932) (8,541) (9,311)
Operating income $85,201 $126,140 $351,085 $91,399
======= ======== ======== =======
Metals Recycling and
Ferrous Resources**
OmniSource
Ferrous metals
shipments (gross tons)
Combined 1,361,696 1,155,196 3,942,135 2,557,043
Intra-company (556,222) (514,143) (1,638,878) (985,372)
-------- -------- ---------- --------
External 805,474 641,053 2,303,257 1,571,671
======= ======= ========= =========
Non-ferrous metals
shipments (thousands
of pounds)
Combined 256,514 217,068 731,407 577,246
Intra-company (1,784) - (5,924) -
------ --- ------ ---
External 254,730 217,068 725,483 577,246
Mesabi Nugget shipments
(metric tons) 24,553 - 49,210 -
Iron Dynamics shipments
(metric tons)
Liquid pig iron 45,046 49,901 130,667 127,573
Hot briquetted iron 11,774 4,080 38,503 23,865
Other 248 33 1,514 670
--- --- ----- ---
Intra-company 57,068 54,014 170,684 152,108
====== ====== ======= =======
Net sales
Combined $804,680 $555,233 $2,409,350 $1,160,579
Intra-company (245,809) (171,351) (728,491) (298,593)
-------- -------- -------- --------
External $558,871 $383,882 $1,680,859 $861,986
======== ======== ========== ========
Operating income before
amortization of
intangibles $9,379 $46,157 $57,056 $37,763
Amortization of
intangibles (8,302) (8,752) (24,906) (31,062)
Operating income $1,077 $37,405 $32,150 $6,701
====== ======= ======= ======
Steel Fabrication***
Shipments (net tons)
Combined 47,308 34,546 114,880 115,193
Intra-company (599) (457) (621) (682)
---- ---- ---- ----
External 46,709 34,089 114,259 114,511
====== ====== ======= =======
Net sales
Combined $53,920 $32,930 $120,185 $130,763
Intra-company (198) (620) (236) (1,198)
---- ---- ---- ------
External $53,722 $32,310 $119,949 $129,565
======= ======= ======== ========
Operating income (loss)
before amortization of
intangibles $(494) $(3,197) $(11,745) $75
Amortization of
intangibles - (31) (42) (227)
--- --- --- ----
Operating income (loss) $(494) $(3,228) $(11,787) $(152)
===== ======= ======== =====
First Second
Quarter Quarter
2010 2010
---- ----
Steel Operations*
Shipments (net tons)
Flat Roll Division 749,258 622,861
Structural and Rail Division 155,349 159,252
Engineered Bar Products Division 125,059 128,802
Roanoke Bar Division 109,186 109,393
Steel of West Virginia 53,405 52,720
The Techs 210,545 191,960
------- -------
Combined 1,402,802 1,264,988
Intra-segment (11,087) (21,259)
------- -------
1,391,715 1,243,729
Intra-company (70,866) (65,607)
External 1,320,849 1,178,122
========= =========
Production, excluding The Techs
(net tons) 1,191,138 1,147,403
Net sales
Combined $1,018,548 $1,032,478
Intra-segment (6,052) (12,549)
------ -------
1,012,496 1,019,929
Intra-company (39,929) (43,292)
------- -------
External $972,567 $976,637
======== ========
Operating income before
amortization of intangibles $137,669 $134,077
Amortization of intangibles (2,931) (2,931)
Operating income $134,738 $131,146
======== ========
Metals Recycling and Ferrous
Resources**
OmniSource
Ferrous metals shipments (gross
tons)
Combined 1,230,075 1,350,364
Intra-company (519,306) (563,350)
-------- --------
External 710,769 787,014
======= =======
Non-ferrous metals shipments
(thousands of pounds)
Combined 238,245 236,648
Intra-company (2,194) (1,946)
------ ------
External 236,051 234,702
Mesabi Nugget shipments (metric
tons) 7,179 17,478
Iron Dynamics shipments (metric
tons)
Liquid pig iron 46,428 39,193
Hot briquetted iron 11,372 15,357
Other 698 568
--- ---
Intra-company 58,498 55,118
====== ======
Net sales
Combined $756,303 $848,367
Intra-company (224,240) (258,442)
-------- --------
External $532,063 $589,925
======== ========
Operating income before
amortization of intangibles $32,436 $15,241
Amortization of intangibles (8,302) (8,302)
Operating income $24,134 $6,939
======= ======
Steel Fabrication***
Shipments (net tons)
Combined 25,678 41,894
Intra-company (19) (3)
--- ---
External 25,659 41,891
====== ======
Net sales
Combined $23,998 $42,267
Intra-company (37) (1)
--- ---
External $23,961 $42,266
======= =======
Operating income (loss) before
amortization of intangibles $(6,549) $(4,702)
Amortization of intangibles (31) (11)
--- ---
Operating income (loss) $(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 December
30, 31,
---------- ---------
2010 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 Nine
Months Months
Ended Ended
September September
30, 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.