FORT WAYNE, Ind., Oct. 16 -- Steel Dynamics, Inc.
(Nasdaq: STLD - News) today announced third quarter earnings of $101 million, or
$1.06 per diluted share, after purchase accounting adjustments related to the
company's recent acquisition of The Techs in July of approximately $0.01 per
diluted share. Diluted earnings per share increased 12 percent sequentially
from $0.95 in the second quarter of 2007, but were 2 percent lower than $1.09
in the third quarter of 2006. SDI's third quarter diluted earnings per share
of $1.06 are within the company's range of $1.02 to $1.07 per diluted share
updated on August 30, 2007.
Third quarter revenues increased to $1.2 billion, 27 percent higher than
both the year-ago quarter and the second quarter of 2007. Third quarter
consolidated shipments of 1.6 million tons increased 26 percent as compared to
the year-ago quarter. The sequential volume increase from the second quarter
of approximately 336,000 tons, or 27%, was due primarily to increased
shipments of 335,000 tons from the company's steel operations, of which
231,000 tons were from The Techs and 110,000 tons were from increased
shipments by the Flat Roll Division.
During the first nine months of 2007, net income grew to $297 million on
revenues of $2.9 billion. Year-to-date diluted earnings per share were $3.02,
11 percent ahead of last year. Consolidated shipments for the first nine
months grew 15 percent to 4.1 million tons, compared to 3.5 million tons in
the first nine months of 2006. The company's steel operations showed increased
year-over-year nine-month shipments of nearly 513,000 tons, or 14 percent.
"Overall, Steel Dynamics is experiencing another strong year," said Keith
Busse, Chairman and CEO. "From an operating standpoint, we saw sequential
improvement from the second quarter, in spite of continued softness in flat-
rolled steels and some spotty slowness in merchant and specialty bar steels.
"The integration of The Techs is proceeding well. The Techs represents an
increase in steel operating revenues and volumes. The product mix sold by The
Techs generally elicits higher average selling values, but the resulting
operating margins are somewhat lower than traditionally experienced at SDI as
The Techs do not currently produce their own substrate as does our Flat Roll
Division. Consequently, as the operations exist, consolidating The Techs
operating results will generally increase cost of goods sold as a percentage
of net sales; however, we hope to internally provide The Techs with more
substrate at some point. At this time we expect The Techs acquisition to be
accretive for the fourth quarter of 2007."
In the third quarter, the company's operating income was $111 per ton
shipped with an operating margin of 15 percent, compared with second quarter
operating income of $136 per ton shipped and an operating margin of 18
percent. The third quarter's average consolidated selling price per ton
decreased to $737 from $739 in the second quarter of 2007 but increased $4
from the year-ago quarter. The average scrap cost per net ton charged
decreased $21 compared to the second quarter, which had seen an increase of
$44 from the first quarter.
"The outlook for the fourth quarter is positive," Busse said. "The costs
of ferrous resources have trended down and we expect them to remain relatively
stable going into winter. We expect selling prices to remain steady or
increase slightly. Market demand for flat-rolled steel should improve in the
fourth quarter due to inventory de-stocking and limited imports. We expect
continued strength in our long products mills, particularly structural steel
that is used in the non-residential construction markets. We currently expect
fourth quarter earnings will be in a range of $1.02 to $1.07 per diluted
share, excluding any impact from the planned acquisition of OmniSource
Corporation. This early guidance closely parallels our third quarter, as
improved market conditions will be offset by scheduled outages for upgrades at
three of our five mills. We will provide updated guidance to reflect the
effect of the acquisition of OmniSource, which we believe could be accretive,
after the transaction closes in early November.
"During the third quarter, we made two important announcements that have
strong implications for our future," Busse continued. "The acquisition of
OmniSource helps anchor our supply of domestic ferrous scrap resources and the
commencement of the Mesabi Nugget project develops future self-sufficiency in
pig-iron supply, both of which are critical steps in providing a strong
platform for future growth initiatives.
"The acquisition of OmniSource creates an environment that allows us to
capture margins at every step of the value chain. We believe that scrap
resources in the future could become scarce at times due to increasing global
demand and a softer U.S. dollar. Given these assumptions, we anticipate scrap
margins could increase in the future and we hope to continue to grow this arm
of our business. OmniSource can, at times, provide SDI with a more dependable,
nearby supply of high-quality steel scrap and affords SDI a measure of
protection from supply chain shortages under certain market conditions.
"Our plan to develop iron resources on the Mesabi Range in Minnesota
promises to provide a consistent future supply of high-quality, lower-cost
iron nuggets (i.e., pig iron) for use in our mini mills. We expect ultimately
to control the entire process from mining, concentrating, and then direct
reduction of the concentrate into pig iron. We believe that the economics of
production will make these resources attractive compared to imported pig iron
today and even more attractive as global demand grows and the cost of iron
units continues to increase. We have demonstrated that the use of these
resources in our electric-arc furnaces result in numerous operating
advantages, including better management of residuals, lower electrode
utilization, improved yields, and increased output by reducing tap-to-tap
times."
During the third quarter, the company continued its share repurchase
program. A total of 4.9 million shares were repurchased during the quarter for
approximately $198 million. At the end of the quarter, the company had 5.0
million shares authorized for repurchase. At September 30, 2007, the company
had approximately 87.2 million shares of common stock outstanding.
Forward-Looking Statements
This press release contains some predictive statements about future
events, including statements related to conditions in the steel marketplace,
Steel Dynamics' revenue growth, costs of raw 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, www.sec.gov, and on the
Steel Dynamics Web site, 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 Wednesday, October 17, 2007 at 11:00 am EDT, Steel Dynamics will host a
conference call in which Steel Dynamics' management will discuss third quarter
2007 results. You are invited to listen to the live audio broadcast of the
conference call over the Internet, accessible from Steel Dynamics' Web site:
www.steeldynamics.com
Dial-in information is available on our Web site. No telephone replay will
be available. An audio replay of the Webcast will be available from the SDI
Web site.
Steel Dynamics, Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three
Three Months Nine Months Months
Ended Ended Ended
September 30, September 30, June 30,
2007 2006 2007 2006 2007
Net Sales $1,156,593 $911,862 $2,933,515 $2,398,987 $911,248
Costs of goods
sold 928,142 667,058 2,272,079 1,798,141 694,666
Selling, general,
and administrative
expenses 54,524 46,224 148,538 117,006 48,922
Operating Income 173,927 198,580 512,898 483,840 167,660
Interest expense 14,602 7,445 29,048 23,606 7,198
Other (income)
expense, net (602) (974) 10,205 (2,930) 11,523
Income before
income taxes 159,927 192,109 473,645 463,164 148,939
Income taxes 59,336 73,386 176,949 171,523 54,997
Net income $100,591 $118,723 $296,696 $291,641 $93,942
Basic earnings
per share $1.12 $1.19 $3.18 $3.09 $1.01
Weighted average
common shares
outstanding 89,741 99,685 93,162 94,394 93,429
Diluted earnings
per share, including
effect of assumed
conversions $1.06 $1.09 $3.02 $2.73 $.95
Weighted average
common shares and
share equivalents
outstanding 94,929 109,785 98,449 106,932 98,781
Dividends declared
per share $.15 $.15 $.45 $.35 $.15
Note: All prior period share data has been adjusted to include the
company's two-for-one stock split effective November 20, 2006.
Steel Dynamics, Inc.
UNAUDITED SUPPLEMENTAL OPERATING INFORMATION
Three Months Ended Nine Months Ended First Second
September 30, September 30, Quarter Quarter
Shipments and
Production Data
(tons) 2007 2006 2007 2006 2007 2007
Shipments
Steel Operations*
Flat Roll
Division 689,762 644,164 1,881,361 1,960,284 612,109 579,490
Structural
and Rail
Division 302,141 261,725 895,618 751,485 283,876 309,601
Engineered Bar
Products
Division 133,795 130,531 408,130 380,013 142,359 131,976
Roanoke Bar
Division 142,243 166,428 453,253 312,688 170,611 140,399
Steel of West
Virginia 69,024 85,906 214,457 166,318 74,487 70,946
The Techs 230,691 - 230,691 - - -
1,567,656 1,288,754 4,083,510 3,570,788 1,283,442 1,232,412
Steel Fabrication
Operations** 70,005 66,205 205,376 167,756 66,507 68,864
Steel Scrap
and Scrap
Substitute*** 167,174 93,197 442,254 234,841 98,234 176,846
Other
Operations**** 34,107 16,138 93,576 70,285 33,113 26,356
Intercompany (270,492) (220,033) (767,538) (522,082) (225,095)(271,951)
Consolidated
shipments 1,568,450 1,244,261 4,057,178 3,521,588 1,256,201 1,232,527
Steel Operations*
production 1,510,644 1,263,098 4,007,269 3,494,201 1,250,387 1,246,238
Average Selling
Price Per Ton
Steel
Operations* $699 $693 $682 $650 $646 $696
Consolidated 737 733 723 681 689 739
* 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 operations.
** Steel Fabrication Operations include the company's five joist and
deck fabrication plants located in Indiana, Florida, Ohio, Virginia,
and South Carolina.
*** Steel Scrap and Scrap Substitute Operations include Iron Dynamics and
the company's scrap processing facilities, of which two were
purchased April 1, 2007.
**** Other Operations include Paragon Steel Enterprises and Dynamic
Composites operations.
Steel Dynamics, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2007 2006
(unaudited)
Assets
Current assets
Cash and equivalents $ 10,811 $ 29,373
Accounts receivable 491,457 408,376
Inventories 744,534 569,317
Deferred income taxes 16,080 13,964
Other current assets 27,264 15,167
Total current assets 1,290,146 1,036,197
Property, plant and equipment, net 1,358,204 1,136,703
Restricted cash 6,643 5,702
Intangible assets 198,678 12,226
Goodwill 200,637 30,966
Other assets 40,993 25,223
Total assets $ 3,095,301 $ 2,247,017
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 325,564 $ 147,942
Income taxes payable 31,739 30,497
Accrued expenses 120,429 94,024
Accrued profit sharing 42,363 46,341
Senior secured revolving credit
facility 97,000 80,000
Senior secured Term Loan A
facility 55,000 -
Other current maturities of
long-term debt 683 686
Total current liabilities 672,778 399,490
Long-term debt
Senior secured Term Loan A
facility 495,000 -
9-1/2% senior unsecured notes, due
2009 - 300,000
6-3/4% senior notes, due 2015 500,000 -
Convertible subordinated 4.0% notes
due 2012 37,250 37,500
Other long-term debt 16,536 16,920
Unamortized bond premium - 3,772
Total long-term debt 1,048,786 358,192
Deferred income taxes 292,802 256,803
Minority interest 976 1,424
Commitments and contingencies
Stockholders' equity
Common stock 541 537
Treasury stock, at cost (661,427) (230,472)
Additional paid-in capital 392,269 367,772
Retained earnings 1,348,576 1,093,271
Total stockholders' equity 1,079,959 1,231,108
Total liabilities and
stockholders' equity $ 3,095,301 $ 2,247,017
Steel Dynamics, Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Operating activities:
Net income $100,591 $118,723 $296,696 $291,641
Adjustments to
reconcile net income
to net cash provided
by operating activities:
Depreciation
and amortization 33,853 30,616 96,096 87,293
Unamortized bond
premium - - (3,350) -
Equity-based compensation 1,817 - 6,218 -
Deferred income taxes (562) (2,997) (1,679) (8,731)
Minority interest 107 68 (448) 696
Changes in certain
assets and liabilities:
Accounts receivable 12,544 (48,907) (21,204) (78,891)
Inventories 35,212 (29,043) (118,514) (42,857)
Accounts payable 29,784 44,230 100,594 36,847
Income taxes payable 5,374 10,160 1,242 17,323
Other working capital 31,479 16,706 (7,284) (6,473)
Net cash provided by
operating activities 250,199 139,556 348,367 296,848
Investing activities:
Purchase of property,
plant and equipment (99,935) (35,645) (255,845) (84,354)
Acquisition of business,
net of cash acquired (373,407) - (411,626) (89,106)
Purchase of short-term
investments - - - (14,075)
Maturities of short-term
investments - - - 14,075
Other investing
activities 169 - 7 242
Net cash used in
investing
activities (473,173) (35,645) (667,464) (173,218)
Financing activities:
Issuance of long-
term debt 798,000 65,000 1,795,000 65,000
Repayment of long-
term debt (366,230) (35,395) (1,028,387) (81,698)
Issuance of common
stock (net of expenses)
and proceeds and tax
benefits from exercise
of stock options 4,113 4,638 20,260 31,995
Issuance (purchase) of
treasury stock (197,867) (161,148) (433,183) (160,360)
Dividends paid (13,840) (10,111) (42,564) (23,242)
Debt issuance costs (2,603) - (10,591) -
Net cash provided
by/(used in) financing
activities 221,573 (137,016) 300,535 (168,305)
Decrease in cash
and equivalents (1,401) (33,105) (18,562) (44,675)
Cash and equivalents at
beginning of period 12,212 53,948 29,373 65,518
Cash and equivalents at
end of period $10,811 $20,843 $10,811 $20,843
Supplemental disclosure
of cash flow information:
Cash paid for interest $4,563 $15,016 $22,921 $31,455
Cash paid for federal
and state income
taxes $51,236 $60,421 $183,521 $155,962
