Steel Dynamics Reports Third Quarter 2010 Results

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Oct 18, 2010, 06:15 ET

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)