-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FLua2CofH220vs4SVrM7PpJ38kbVS8z0WHAOQTtyd31rvXieQxgSBUb7XqhHzKWI hJKbQEnlYi20bXRmQWIS1Q== 0000950123-02-005216.txt : 20020515 0000950123-02-005216.hdr.sgml : 20020515 ACCESSION NUMBER: 0000950123-02-005216 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEEL DYNAMICS INC CENTRAL INDEX KEY: 0001022671 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 351929476 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21719 FILM NUMBER: 02648713 BUSINESS ADDRESS: STREET 1: 7030 POINTE INVERNESS WAY STREET 2: SUITE 310 CITY: FORT WAYNE STATE: IN ZIP: 46804 BUSINESS PHONE: 2194593553 MAIL ADDRESS: STREET 1: 7030 POINTE INVERNERSS WAY STREET 2: SUITE 310 CITY: FORT WAYNE STATE: IN ZIP: 46804 10-Q 1 y60812e10-q.txt STEEL DYNAMICS INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 2002 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-21719 STEEL DYNAMICS, INC. (Exact name of registrant as specified in its charter) Indiana 35-1929476 (State or other jurisdiction of incorporation or organization) (I.R.S. employer Identification No.) 6714 Pointe Inverness Way, Suite 200, Fort Wayne, IN 46804 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (260) 459-3553 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [X] No [ ] As of May 9, 2002, Registrant had outstanding shares of 47,382,905 Common Stock. STEEL DYNAMICS, INC. Table of Contents PART I. Financial Information Statements: Item 1. Consolidated Financial Statements
Page ---- Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001 .............. 1 Consolidated Statements of Income for the three months ended March 31, 2002 and 2001 (unaudited)............................................................ 2 Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001 (unaudited)............................................................ 3 Notes to Consolidated Financial Statements....................................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 11 PART II. Other Information Item 1. Legal Proceedings ............................................................................... 12 Item 6. Exhibits and Reports on Form 8-K................................................................. 12 Signature........................................................................................ 13
2 STEEL DYNAMICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
March 31, December 31, 2002 2001 ---------- ----------- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents............................................................... $ 32,319 $ 78,241 Accounts receivable, net................................................................ 68,508 65,589 Accounts receivable-related parties..................................................... 17,820 16,290 Inventories............................................................................. 112,356 118,368 Deferred taxes.......................................................................... 21,966 24,600 Other current assets.................................................................... 3,996 9,116 ----------- ----------- Total current assets........................................................... 256,965 312,204 PROPERTY, PLANT, AND EQUIPMENT, NET.......................................................... 872,538 852,061 RESTRICTED CASH.............................................................................. 3,311 3,030 OTHER ASSETS ............................................................................... 22,760 12,803 ---------- ---------- TOTAL ASSETS................................................................... $1,155,574 $1,180,098 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................................................ $ 33,153 $ 30,228 Accounts payable-related parties........................................................ 17,383 11,101 Accrued interest........................................................................ 2,204 4,052 Other accrued expenses.................................................................. 27,799 26,697 Current maturities of long-term debt.................................................... 8,870 46,033 ---------- ---------- Total current liabilities...................................................... 89,409 118,111 LONG-TERM DEBT, less current maturities...................................................... 536,801 553,891 DEFERRED TAXES............................................................................... 58,427 62,765 MINORITY INTEREST............................................................................ 5,025 4,769 OTHER LONG-TERM CONTINGENT LIABILITIES....................................................... 21,987 21,987 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock voting, $.01 par value; 100,000,000 shares authorized; 49,706,131 and 49,586,473 shares issued; and 47,320,217 and 45,743,473 shares outstanding, as of March 31, 2002 and December 31, 2001, respectively...... 497 495 Treasury stock, at cost; 2,385,914 and 3,843,000 shares, at March 31, 2002 and December 31, 2001, respectively................................................. (28,889) (46,526) Additional paid-in capital.............................................................. 343,197 337,733 Retained earnings....................................................................... 133,869 132,229 Other accumulated comprehensive loss.................................................... (4,749) (5,356) ---------- ---------- Total stockholders' equity..................................................... 443,925 418,575 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $1,155,574 $1,180,098 ========== ==========
See notes to consolidated financial statements. 1 STEEL DYNAMICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
Three Months Ended March 31, 2002 2001 ----------- ----------- Net Sales: Unrelated parties............................................................ $ 139,149 $ 129,266 Related parties.............................................................. 27,754 24,820 ----------- ----------- Total net sales.......................................................... 166,903 154,086 Cost of goods sold................................................................ 139,529 128,523 ----------- ----------- Gross profit...................................................................... 27,374 25,563 Selling, general and administrative expenses...................................... 13,088 13,802 ----------- ----------- Operating Income............................................................. 14,286 11,761 Interest expense.................................................................. 4,265 4,839 Other (income) expense............................................................ 4,153 (204) ----------- ----------- Income before income taxes and extraordinary item............................ 5,868 7,126 Income taxes...................................................................... 2,200 2,743 ----------- ----------- Income before extraordinary item............................................. 3,668 4,383 Extraordinary loss on debt extinguishment, net of tax benefit of $1,216........... 2,028 - ----------- ----------- Net income........................................................................ $ 1,640 $ 4,383 =========== =========== Basic earnings per share: Income before extraordinary items................................................. $ 0.08 $ 0.10 Extraordinary item........................................................... (0.04) - ---------- ----------- Net income........................................................................ $ 0.04 $ 0.10 ========== =========== Weighted average number of shares outstanding..................................... 46,045 45,511 =========== =========== Diluted earnings per share: Income before extraordinary items................................................. $ 0.08 $ 0.10 Extraordinary item........................................................... (0.04) - ---------- ----------- Net income........................................................................ $ 0.04 $ 0.10 ========== =========== Weighted average number of shares outstanding..................................... 46,348 45,710 =========== ===========
See notes to consolidated financial statements. 2 STEEL DYNAMICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended March 31, ---------------------------- 2002 2001 ------------ ------------ Operating activities: Net income...................................................................... $ 1,640 $ 4,383 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss on debt extinguishment.................................... 3,244 - Depreciation and amortization................................................ 13,833 11,551 Deferred income taxes........................................................ (1,704) 894 Minority interest............................................................ 256 413 Changes in certain assets and liabilities: Accounts receivable....................................................... (4,449) (2,526) Inventories............................................................... 6,012 (7,742) Other assets.............................................................. 4,588 4,869 Accounts payable.......................................................... 9,207 10,130 Accrued expenses.......................................................... (139) (4,008) ------------ ------------ Net cash provided by operating activities................................. 32,489 17,964 ------------ ------------ Net cash used in investing activity: Purchases of property, plant, and equipment... (33,759) (10,353) Financing activities: Issuance of long-term debt...................................................... 476,149 6,299 Repayments of long-term debt.................................................... (508,403) (18,916) Issuance of common stock, net of expenses and proceeds and tax benefits from exercise of stock options.............................. 1,103 342 Debt issuance costs............................................................. (13,501) - ------------ ------------ Net cash used in financing activities..................................... (44,652) (12,275) ------------ ------------ Decrease in cash and cash equivalents............................................... (45,922) (4,664) Cash and cash equivalents at beginning of period.................................... 78,241 10,184 ------------ ------------ Cash and cash equivalents at end of period.......................................... $ 32,319 $ 5,520 ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest.............................................................. $ 6,187 $ 9,614 ============ ============ Cash paid for federal and state income taxes........................................ $ 110 $ 540 ============ ============ Issuance of common stock from treasury to extinguish portion of long-term debt...... $ 22,000 $ - ============ ============
See notes to consolidated financial statements. 3 STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Principles of Consolidation. The consolidated financial statements include the accounts of Steel Dynamics, Inc. (SDI), together with its subsidiaries (the company) after elimination of the significant intercompany accounts and transactions. Minority interest represents the minority shareholders' proportionate share in the equity or income of the company's consolidated subsidiaries. Use of Estimates. These financial statements are prepared in conformity with generally accepted accounting principles and, accordingly, include amounts that are based on management's estimates and assumptions that affect the amounts reported in the financial statements and in the notes thereto. Actual results may differ from those estimates. In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These financial statements and notes should be read in conjunction with the audited financial statements included in the company's 2001 Annual Report on Form 10-K. 2. Inventories Inventories are stated at lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. Inventories consisted of the following (in thousands):
March 31, December 31, 2002 2001 ---------- ---------- Raw Materials................................................................................ $ 39,116 $ 44,807 Supplies..................................................................................... 42,384 42,258 Work-in-progress............................................................................. 11,272 8,512 Finished Goods............................................................................... 19,584 22,791 ---------- ---------- $ 112,356 $ 118,368 ========== ==========
3. Earnings Per Share Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. The difference between basic and diluted earnings per share for the company is solely attributable to the dilutive effect of stock options. The reconciliations of the weighted average common shares for basic and diluted earnings per share for the three months ended March 31 are as follows (in thousands):
2002 2001 ---------- ---------- Basic weighted average common shares outstanding............................................. 46,045 45,511 Dilutive effect of stock options............................................................. 303 199 ---------- ---------- Diluted weighted average common shares and share equivalents outstanding..................... 46,348 45,710 ========== ==========
4. Comprehensive Income The following table presents the company's components of comprehensive income, net of related tax, for the three months ended March 31 (in thousands):
2002 2001 ---------- ---------- Net income available to common shareholders.................................................. $ 1,640 $ 4,383 Cumulative effect of an accounting change............................................... - (2,468) Unrealized gain (loss) on derivative instrument......................................... 607 (1,503) ---------- ---------- Comprehensive income......................................................................... $ 2,247 $ 412 ========== ==========
The company recorded a gain from hedging activities of approximately $45,000 for the three months ended March 31, 2002, and a loss of approximately $88,000 for the three months ended March 31, 2001. 4 STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Long Term Debt On March 26, 2002, the company refinanced its existing $450.0 million senior secured credit facility and its $45.0 million senior unsecured credit facility with the following: o $75.0 million in the form of a five-year revolving credit facility, maturing March 26, 2007, which is subject to a borrowing base and bears interest at floating rates; o $70.0 million in the form of a five-year term A loan, payable in quarterly installments beginning June 26, 2003, with the final installment due March 26, 2007, and bearing interest at floating rates; o $205.0 million in the form of a six-year term B loan, payable in quarterly installments beginning June 26, 2003, with the final installment due March 26, 2008, and bearing interest at floating rates; and o $200.0 million in the form of 9.50% seven-year senior unsecured notes due March 15, 2009 (non-callable for four years), with interest payable semiannually. The new $350.0 million senior secured credit facility is secured by liens and mortgages on substantially all of the personal and real property assets of the company and its wholly owned subsidiaries and by pledges of all shares of capital stock and intercompany debt held by the company and its wholly owned subsidiaries. The new senior secured credit facility contains financial covenants and other covenants that limit or restrict the company with respect to its ability to make capital expenditures, incur indebtedness, and make restricted payments or investments, among other things. The $200.0 million 9.50% senior unsecured notes have a maturity of seven years. The company may redeem the notes at any time on or after March 15, 2006, at a redemption price of 104.750%, on or after March 15, 2007, at a redemption price of 102.275%, and on or thereafter March 15, 2008, at a redemption price of 100.000%. In addition, at any time prior to March 15, 2005, the company may redeem up to 35% of the principal amount of the notes with the net cash proceeds of its common stock at a redemption price of 109.500% plus accrued interest up to the redemption date, provided that certain other restrictions as described in the indenture are met. The notes bear interest at 9.50%, payable semiannually on each March 15 and September 15, commencing September 15, 2002. 6. Segment Information The company has two reportable segments: steel operations and steel scrap substitute operations. The steel operations segment includes the company's flat rolled division and structural and rail division. The flat rolled division sells a broad range of hot-rolled, cold-rolled and coated steel products, including a large variety of specialty products such as thinner gauge hot-rolled products and galvanized products. The flat rolled division sells directly to end-users and service centers located primarily in the Midwestern United States and these products are used in numerous industry sectors, including the automotive, construction and commercial industries. The company began significant construction of its structural and rail division in May 2001 and anticipates the commencement of structural steel production during the second quarter of 2002 and rail production during the first quarter of 2003. This facility is designed to produce and sell structural steel beams, pilings, and other steel components directly to end-users and service centers for the construction, transportation and industrial machinery markets. This facility is also designed to produce and sell a variety of standard and premium grade rails for the railroad industry. Steel scrap substitute operations include the revenues and expenses associated with the company's wholly owned subsidiary, Iron Dynamics. Since operational start-up processes at Iron Dynamics were halted in 2001, IDI's costs are composed of those expenses required to maintain the facility and further evaluate the project and its related benefits. Revenues included in the category "All Other" are from two subsidiary operations that are below the quantitative thresholds required for reportable segments. These revenues are from the fabrication of trusses, girders, steel joist and steel decking for the non-residential construction industry; from the further processing, or slitting, and sale of certain steel products; and from the resale of certain secondary and excess steel products. In addition, "All Other" also includes certain unallocated corporate accounts, such as the company's senior secured credit facilities, senior unsecured notes, and certain other investments. 5 STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The company's operations are primarily organized and managed by operating segment. Operating segment performance and resource allocations are primarily based on operating results before income taxes. The accounting policies of the reportable segments are consistent with those described in Note 1 to the financial statements. Intersegment sales and any related profits are eliminated in consolidation. The external net sales of the company's steel operations include sales to non-U.S. companies of $2.5 million and $1.6 million, for the three months ended March 31, 2002 and 2001, respectively. Segment results for the three months ended March 31 are as follows (in thousands):
2002 2001 ------------ ------------ STEEL OPERATIONS Net sales External $ 146,293 $ 141,733 Other segments 11,182 5,076 Operating income 19,359 18,579 Assets 915,623 866,693 - --------------------------------------------------------------------------------------------- STEEL SCRAP SUBSTITUTE OPERATIONS Net sales External $ - $ - Other segments - 603 Operating loss (2,788) (3,827) Assets 154,245 151,200 - --------------------------------------------------------------------------------------------- ALL OTHER Net sales External $ 20,610 $ 12,353 Other segments 208 - Operating loss (1,851) (2,737) Assets 172,666 127,867 - --------------------------------------------------------------------------------------------- ELIMINATIONS Net sales External $ - $ - Other segments (11,390) (5,679) Operating loss (434) (254) Assets (86,960) (80,728) - --------------------------------------------------------------------------------------------- CONSOLIDATED Net sales $ 166,903 $ 154,086 Operating income 14,286 11,761 Assets 1,155,574 1,065,032 - ---------------------------------------------------------------------------------------------
7. Commitments and Contingencies During 1999, Steel Dynamics, together with a number of investment banks, was sued for recissionary and compensatory damages of $240 million, as well as punitive damages and attorney fees, in various state and federal courts in 9 separate but related lawsuits. The lawsuits were brought by institutional purchasers in a 1998 note offering by certain investment banks on behalf of Nakornthai Strip Mill Public Co. Limited, the owner and operator of a steel mini-mill in Thailand for whom Steel Dynamics agreed to render certain post-offering technical and operational advisory services. During the second and third quarters of 2001, the company settled seven of the nine pending lawsuits, and in the first quarter of 2002, the company settled an eighth suit, in each case without any admission of liability and, to the extent of any monetary payments, except for approximately $2.3 million (which was appropriately recorded in the 2001 financial statements), for amounts provided by our insurance carriers and within applicable insurance coverage. The remaining lawsuit was settled May 6, 2002, without any admission of liability. 8. Condensed Consolidating Information SDI Investment company (SDI Investment) is a wholly-owned subsidiary of SDI and was incorporated in 2000. SDI Investment has fully and unconditionally guaranteed all of the indebtedness relating to the issuance of $200.0 million of Senior Notes issued in March 2002 and due 2009. Set forth below are condensed consolidating financial statements of the company, including SDI Investment, as the guarantor. The following condensed consolidating financial statements present the financial position, results of operations and cash flows of (i) SDI (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting, (ii) SDI Investment, as the guarantor, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information for the company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of the company and the company's Report on Form 10-K for the year ended December 31, 2001. 6 STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheets (in thousands):
AS OF MARCH 31, 2002 COMBINED CONSOLIDATING TOTAL PARENT GUARANTOR NON-GUARANTORS ADJUSTMENTS CONSOLIDATED ------------- ------------- --------------- ------------- --------------- Cash.................................. $ 29,793 $ 116 $ 2,410 $ - $ 32,319 Accounts receivable................... 82,377 - 10,789 (6,838) 86,328 Inventories........................... 96,099 - 16,448 (191) 112,356 Other current assets.................. 26,029 - 267 (334) 25,962 ----------- ----------- ----------- ------------ ----------- Total current assets............... 234,298 116 29,914 (7,363) 256,965 Property, plant and equipment, net.... 727,485 - 145,381 (328) 872,538 Other assets.......................... 158,026 13,930 602 (146,487) 26,071 ----------- ----------- ----------- ----------- ----------- Total assets....................... $ 1,119,809 $ 14,046 $ 175,897 $ (154,178) $ 1,155,574 =========== =========== =========== =========== =========== Accounts payable...................... $ 48,855 $ 1 $ 8,518 $ (6,838) $ 50,536 Accrued expenses...................... 27,810 - 2,193 - 30,003 Current maturities of long-term debt.. 2,360 - 6,527 (17) 8,870 ----------- ----------- ----------- ------------ ----------- Total current liabilities.......... 79,025 1 17,238 (6,855) 89,409 Other liabilities..................... 78,884 - 1,564 (34) 80,414 Long-term debt........................ 517,052 - 20,289 (540) 536,801 Minority interest..................... 627 - - 4,398 5,025 Common stock.......................... 497 1 171,401 (171,402) 497 Treasury stock........................ (28,889) - - - (28,889) Additional paid in capital............ 343,197 16 - (16) 343,197 Retained earnings..................... 134,165 14,028 (34,595) 20,271 133,869 Other accumulated comprehensive loss.. (4,749) - - - (4,749) ------------ ----------- ----------- ----------- ----------- Total stockholders' equity......... 444,221 14,045 136,806 (151,147) 443,925 ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity........................... $ 1,119,809 $ 14,046 $ 175,897 $ (154,178) $ 1,155,574 =========== =========== =========== =========== =========== AS OF DECEMBER 31, 2001 Cash.................................. $ 77,407 $ 83 $ 751 $ - $ 78,241 Accounts receivable................... 78,461 - 10,375 (6,957) 81,879 Inventories........................... 100,709 - 17,680 (21) 118,368 Other current assets.................. 32,973 (16) 1,095 (336) 33,716 ----------- ----------- ----------- ----------- ----------- Total current assets............... 289,550 67 29,901 (7,314) 312,204 Property, plant and equipment, net.... 703,896 - 148,270 (105) 852,061 Other assets.......................... 90,044 7,822 1,405 (83,438) 15,833 ----------- ----------- ----------- ----------- ----------- Total assets....................... $ 1,083,490 $ 7,889 $ 179,576 $ (90,857) $ 1,180,098 =========== =========== =========== =========== =========== Accounts payable...................... $ 40,081 $ 1 $ 8,204 $ (6,957) $ 41,329 Accrued expenses...................... 28,165 - 2,585 (1) 30,749 Current maturities of long-term debt.. 2,337 - 43,696 - 46,033 ----------- ----------- ----------- ----------- ----------- Total current liabilities.......... 70,583 1 54,485 (6,958) 118,111 Other liabilities..................... 61,308 - 2,728 20,716 84,752 Long-term debt........................ 532,350 - 21,876 (335) 553,891 Minority interest..................... 639 - - 4,130 4,769 Common stock.......................... 495 1 133,351 (133,352) 495 Treasury stock........................ (46,526) - - - (46,526) Additional paid in capital............ 337,733 16 - (16) 337,733 Retained earnings..................... 132,264 7,871 (32,864) 24,958 132,229 Other accumulated comprehensive loss.. (5,356) - - - (5,356) ----------- ----------- ----------- ----------- ----------- Total stockholders' equity......... 418,610 7,888 100,487 (108,410) 418,575 ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity........................... $ 1,083,490 $ 7,889 $ 179,576 $ (90,857) $ 1,180,098 =========== =========== =========== =========== ===========
7 STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Income (in thousands):
FOR THE THREE MONTHS ENDED, MARCH 31, 2002 COMBINED CONSOLIDATING TOTAL PARENT GUARANTOR NON-GUARANTORS ADJUSTMENTS CONSOLIDATED ------------- ------------- --------------- ------------- --------------- Net sales............................. $ 157,475 $ - $ 20,818 $ (11,390) $ 166,903 Cost of good sold..................... 131,014 - 19,735 (11,220) 139,529 ----------- ----------- ----------- ----------- ----------- Gross profit....................... 26,461 - 1,083 (170) 27,374 Selling, general and administration... 10,551 3 2,269 265 13,088 ----------- ----------- ----------- ----------- ----------- Operating income (loss)............... 15,910 (3) (1,186) (435) 14,286 Interest expense...................... 3,381 - 888 (4) 4,265 Other (income) expense................ 13,609 (9,489) (3) 36 4,153 ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes, equity in net loss of subsidiaries and extraordinary item................ (1,080) 9,486 (2,071) (467) 5,868 Income taxes.......................... (325) 3,330 (805) - 2,200 ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary item and net loss of subsidiaries.......... (755) 6,156 (1,266) (467) 3,668 Extraordinary loss on debt Extinguishment, net of tax benefit of $1,216.......................... 1,564 - 464 - 2,028 Equity in net income of subsidiaries.. 4,426 - - (4,426) - ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 2,107 $ 6,156 $ (1,730) $ (4,893) $ 1,640 =========== =========== =========== =========== =========== FOR THE THREE MONTHS ENDED, MARCH 31, 2001 Net sales............................. $ 146,809 $ - $ 12,955 $ (5,678) $ 154,086 Cost of good sold..................... 123,791 - 10,448 (5,716) 128,523 ----------- ----------- ----------- ----------- ----------- Gross profit....................... 23,018 - 2,507 38 25,563 Selling, general and administration... 8,538 13 5,251 - 13,802 ----------- ----------- ----------- ----------- ----------- Operating income (loss)............... 14,480 (13) (2,744) 38 11,761 Interest expense...................... 4,628 - 476 (265) 4,839 Other (income) expense................ 8,591 (9,059) - 264 (204) ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes and equity in net loss of subsidiaries. 1,261 9,046 (3,220) 39 7,126 Income taxes.......................... 796 3,175 (1,228) - 2,743 ----------- ----------- ----------- ----------- ----------- 465 5,871 (1,992) 39 4,383 Equity in net income of subsidiaries.. 3,880 - - (3,880) - ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 4,345 $ 5,871 $ (1,992) $ (3,841) $ 4,385 =========== =========== =========== =========== =========== Condensed Consolidating Statements of Cash Flows (in thousands): FOR THE THREE MONTHS ENDED MARCH 31, 2002 COMBINED TOTAL PARENT GUARANTOR NON-GUARANTORS CONSOLIDATED ------------ ----------- --------------- -------------- Net cash provided by operations...................... $ 31,273 $ 33 $ 1,183 $ 32,489 Net cash provided by (used in) investing activities.. (35,037) - 1,278 (33,759) Net Cash used in financing activities................ (43,850) - (802) (44,652) ----------- ----------- ------------ ----------- Increase (decrease) in cash and cash equivalents..... (47,614) 33 1,659 (45,922) Cash and cash equivalents at beginning of year....... 77,407 83 751 78,241 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of year............. $ 29,793 $ 116 $ 2,410 $ 32,319 =========== =========== =========== =========== FOR THE THREE MONTHS ENDED MARCH 31, 2001 Net cash provided by (used in) operations............ $ (7,338) $ 33,418 $ (8,116) $ 17,964 Net cash used in investing activities................ (6,551) - (3,802) (10,353) Net Cash provided by (used in) financing activities.. 10,217 (33,440) 10,948 (12,275) ----------- ----------- ----------- ------------ Decrease in cash and cash equivalents................ (3,672) (22) (970) (4,664) Cash and cash equivalents at beginning of year....... 8,924 40 1,220 10,184 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of year............. $ 5,252 $ 18 $ 250 $ 5,520 =========== =========== =========== ===========
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward looking statements as a result of these risks and uncertainties, including those set forth in our Form 10-K under "Forward Looking Statements" and under "Risk Factors." You should read the following discussion in conjunction with "Selected Financial Data" and our consolidated financial statements and notes appearing elsewhere in this filing. OVERVIEW We own and operate two state-of-the-art, low-cost mini-mills: a flat-rolled mini-mill located in Butler, Indiana, with an annual production capacity of 2.2 million tons, and a newly built structural steel and rail mini-mill located in Columbia City, Indiana, with an annual production capacity of between 1.0 and 1.3 million tons, depending on product mix. Our Butler mini-mill produces a broad range of high quality hot-rolled, cold-rolled and coated steel products, including a large variety of high value-added and high margin specialty products such as thinner gauge rolled products and galvanized products. We sell these products directly to end-users, intermediate steel processors and steel service centers primarily in the Midwestern United States. Our products are used in numerous industry sectors, including the automotive, construction and commercial industries. Our Columbia City, Indiana structural and rail mill is designed to produce structural steel and rails at a higher quality and lower cost than comparable mini-mills. Our capital cost for this mill is approximately $315.0 million (net of capitalized interest), of which $260.3 million was spent as of March 31, 2002. We successfully completed our first melting and casting trials during April 2002, and we expect to commence production of structural steel during the remainder of the second quarter of 2002 and rails during the first quarter of 2003. Our structural steel operation is designed to produce structural steel beams, pilings and other steel components for the construction, transportation and industrial machinery markets. Our rail manufacturing operation is designed to produce a variety of standard and premium grade rails, including head-hardened rails, for the railroad industry as well as for rail contractors, transit districts and short-line railroads. NET SALES Our total net sales are a factor of net tons shipped, product mix and related pricing. Our net sales are determined by subtracting product returns, sales discounts, return allowances and claims from total sales. We charge premium prices for certain grades of steel, dimensions of product, or certain smaller volumes, based on our cost of production. We also charge marginally higher prices for our value-added products from our cold mill. These products include hot-rolled and cold-rolled galvanized products and cold-rolled products. COST OF GOODS SOLD Our cost of goods sold represents all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are steel scrap and scrap substitutes, alloys, natural gas, argon, direct and indirect labor benefits, electricity, oxygen, electrodes and depreciation. Steel scrap and scrap substitutes represent the most significant component of our cost of goods sold. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expenses are comprised of all costs associated with our sales, finance and accounting, materials and transportation, and administrative departments. These costs include labor and benefits, professional services, financing cost amortization, property taxes, profit sharing expense and start-up costs associated with new projects. INTEREST EXPENSE Interest expense consists of interest associated with our senior credit facilities and other debt agreements as described in the notes to our financial statements contained elsewhere in this filing, net of capitalized interest costs that are related to construction expenditures during the construction period of capital projects. OTHER (INCOME) EXPENSE Other income consists of interest income earned on our cash balances and any other non-operating income activity, including insurance proceeds from litigation efforts. Other expense consists of any non-operating costs, including permanent impairments of reported investments and settlement costs from litigation efforts. 9 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Net Sales. Our net sales were $166.9 million, with total shipments of 561,900 net tons for the three months ended March 31, 2002, as compared to net sales of $154.1 million, with total shipments of 482,400 net tons for the three months ended March 31, 2001, an increase in net sales of $12.8 million, or 8%, and an increase in total shipments of 79,500 net tons, or 16%. During the first quarter of 2002, the average consolidated selling price per ton decreased approximately $22, or 7%, in comparison to the same period in 2001. The increase in our first quarter 2002 net sales in comparison to the first and fourth quarters of 2001 was driven by volume. A substantial portion of our first quarter 2002 sales were committed during the fourth quarter 2001 at depressed pricing levels, resulting in our first quarter average consolidated selling pricing per ton remaining flat as compared to the fourth quarter; however, we are already experiencing substantially higher selling prices in our order backlog for the second quarter 2002 and anticipate further increases during the third quarter 2002. Heidtman Steel Products, Inc (or affiliates) accounted for approximately 17% and 16% of our net sales for the three months ended March 31, 2002 and 2001, respectively. Cost of Goods Sold. Cost of goods sold was $139.5 million for the three months ended March 31, 2002, as compared to $128.5 million for the three months ended March 31, 2001, an increase of $11.0 million, or 9%, which was primarily volume related. As a percentage of net sales, cost of goods sold represented approximately 84% and 83% for the three months ended March 31, 2002 and 2001, respectively. Steel scrap represented approximately 43% and 44% of the total cost of goods sold for the three months ended March 31, 2002 and 2001, respectively. We experienced a steady decline in scrap pricing from the second quarter of 2000 through the first quarter of 2002. The average costs associated with steel scrap averaged $9, or 8%, per ton produced less during the first quarter of 2002 than during the same period of 2001. We experienced a narrowing of our gross margin throughout 2001 as our average sales price per ton decreased more rapidly than our average scrap cost per ton, which is the most significant single component of our cost of goods sold; however, during the first quarter of 2002 we experienced a further decrease in scrap pricing without a corresponding decrease in our product pricing, resulting in a strengthening in our gross margin. We anticipate a further strengthening through the third quarter of 2002. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $13.1 million for the three months ended March 31, 2002, as compared to $13.8 million for the three months ended March 31, 2001, a decrease of $714,000, or 5%. As a percentage of net sales, selling, general and administrative expenses represented approximately 8% and 9% for the three months ended March 31, 2002 and 2001, respectively. Start-up costs were $4.6 million, all of which were related to construction of our structural and rail mill, for the three months ended March 31, 2002, as compared to start-up costs of $5.1 million, of which Iron Dynamics represents $3.8 million, for the three months ended March 31, 2001, a decrease of $552,000, or 11%. Interest Expense. Interest expense was $4.3 million for the three months ended March 31, 2002, as compared to $4.8 million for the three months ended March 31, 2001, a decrease of $574,000, or 12%. Gross interest expense decreased 15% to $8.0 million and capitalized interest decreased 19% to $3.7 million, for the three months ended March 31, 2002, as compared to the same period in 2001. Throughout 2001 and into 2002, base interest rates, more specifically LIBOR and prime rates steadily decreased, resulting in a 15% decrease in our gross interest expense for the first quarter of 2002, as compared to the same period in 2001, despite only a $1.0 million decrease in our total net debt (total debt, including other long-term contingent liabilities, less cash and cash equivalents). Other (Income) Expense. Other expense was $4.2 million for the three months ended March 31, 2002, as compared to other income of $204,000 for the three months ended March 31, 2001, an increase in expenses of $4.4 million. During the first quarter of 2002, we recorded settlement costs in association with the Nakornthai Strip Mill Public Company Ltd. (NSM) related lawsuits. On May 6, 2002, we settled the remaining NSM-related lawsuit, which was outstanding on March 31, 2002. Accordingly, we reflected a settlement cost of $4.5 million, net of any insurance proceeds, in our financial results for the first quarter of 2002. Income Taxes. Our income tax provision was $2.2 million, net a $1.2 million tax benefit related to our extraordinary loss on debt extinguishment for the three months ended March 31, 2002, as compared to $2.7 million for the same period in 2001. Our effective tax rate was 37.5% during 2002, as compared to 38.5% during 2001. During the fourth quarter of 2001, we recorded a $1.9 million deferred tax asset valuation allowance related to foreign tax credits that may not be fully realized. This allowance is still outstanding at March 31, 2002. LIQUIDITY AND CAPITAL RESOURCES Our business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of equipment used in our steelmaking and finishing operations and to remain compliant with environmental laws. Our short-term and long-term liquidity needs arise primarily from capital expenditures, working capital requirements and principal and interest payments related to our outstanding indebtedness. We have met these liquidity requirements with cash provided by operations, equity, long-term borrowings, state and local grants and capital cost reimbursements. 10 CASH FLOWS For the three months ended March 31, 2002, cash provided by operating activities was $32.5 million, as compared to $18.0 million for the three months ended March 31, 2001, an increase of $14.5 million, or 81%. A significant portion of this increase was the result of a decrease in our inventory levels from December 31, 2001 to March 31, 2002, as compared to the inventory increase from December 31, 2000 to March 31, 2001. Cash used in investing activities, which represented capital investments, was $33.8 million and $10.4 million for the three months ended March 31, 2002 and 2001, respectively. Substantially all of our capital investment costs incurred during the first quarter of 2002 were utilized in construction efforts related to our structural steel and rail mill. Cash used in financing activities was $44.7 million for the three months ended March 31, 2002, as compared to $12.3 million for the three months ended March 31, 2001, an increase of $32.4 million. This increase in funds used in financing activities was the result of our change in capital structure after the first quarter 2002 refinancing activities. LIQUIDITY We believe the principal indicators of our liquidity are our cash position, remaining availability under our bank credit facilities and excess working capital. During the three months ended March 31, 2002, our cash position decreased $45.9 million to $32.3 million and our working capital position decreased $26.5 million, or 14%, to $167.6 million, as compared to December 31, 2001. As of March 31, 2002, $75.0 million under our senior secured revolving credit facility remained undrawn and available. Our ability to meet our debt service obligations and reduce our total debt will depend upon our future performance, which in turn, will depend upon general economic, financial and business conditions, along with competition, legislation and regulation, factors that are largely beyond our control. In addition, we cannot assure you that our operating results, cash flow and capital resources will be sufficient for repayment of our indebtedness in the future. We believe that based upon current levels of operations and anticipated growth, cash flow from operations, together with other available sources of funds, including additional borrowings under our new senior secured credit agreement, will be adequate for the next two years for making required payments of principal and interest on our indebtedness and for funding anticipated capital expenditures and working capital requirements. On January 28, 2002, we entered into an agreement with the Iron Dynamics lenders to extinguish the debt under the Iron Dynamics credit agreement at the end of March 2002. We complied with each of the settlement requirements, thus constituting full and final settlement of all of Iron Dynamics' obligations and our guarantees under the IDI credit agreement, causing the IDI credit agreement to terminate. In meeting the requirements of the settlement agreement, we paid $15.0 million in cash and issued an aggregate of $22.0 million, or 1.5 million shares of our common stock during March 2002. In addition, if IDI resumes operations by January 27, 2007, and generates positive cash flow (as defined in the settlement agreement), we are required to make contingent future payments in an aggregate not to exceed $22.0 million. INFLATION We believe that inflation has not had a material effect on our results of operations. ENVIRONMENTAL AND OTHER CONTINGENCIES We have incurred, and in the future will continue to incur, capital expenditures and operating expenses for matters relating to environmental control, remediation, monitoring and compliance. We believe, apart from our dependence on environmental construction and operating permits for our existing and proposed manufacturing facilities, such as our planned structural steel and rail mill project in Columbia City, Indiana, that compliance with current environmental laws and regulations is not likely to have a material adverse effect on our financial condition, results of operations or liquidity; however, environmental laws and regulations have changed rapidly in recent years and we may become subject to more stringent environmental laws and regulations in the future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK In the normal course of business our market risk is limited to changes in interest rates. We utilize long-term debt as a primary source of capital. A portion of our debt has an interest component that resets on a periodic basis to reflect current market conditions. We manage exposure to fluctuations in interest rates through the use of an interest rate swap. We agree to exchange, at specific intervals, the difference between fixed rate and floating rate interest amounts calculated on an agreed upon notional amount. This interest differential paid or received is recognized in the consolidated statements of income as a component of interest expense. At March 31, 2002, no material changes had occurred related to our interest rate risk from the information disclosed in the Annual Report of Steel Dynamics, Inc. and on Form 10-K for the year ended December 31, 2001. 11 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During the first quarter of 2002, we settled the two remaining lawsuits related to our 1998 undertaking to provide technical and advisory services to Nakornthai Strip Mill Public Company Limited, or NSM, a Thailand steel mini-mill. The other seven of the nine original lawsuits related to that matter were previously settled during 2001. Our total settlement costs for the final two settlements in the first quarter of 2002 were $6.8 million, net of insurance, of which $2.3 million was recorded in 2001. All lawsuits were settled without any admission of liability. In an unrelated matter, H&M Industrial Services, Inc., formerly known as National Industrial Services, Inc., filed an action on January 24, 2001, against our subsidiary Iron Dynamics, Inc. in the Circuit Court of DeKalb County, Indiana, Cause No. 17C01-0101-CP-016. They are asking for damages of approximately $1.7 million arising out of work allegedly performed by H&M, for which they claim they have not been paid, in connection with the construction of Iron Dynamics' ironmaking facility. We have denied all liability to H&M for any amount and believe that we have adequate defenses to such claims, both factually and legally, under the governing construction contracts and documents. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits - None (B) Reports on Form 8-K for the quarter ended March 31, 2002 (item reported date): Iron Dynamics' Settlement Agreement.........................................................January 28, 2002 Fourth Quarter & Annual 2001 Financial Results..............................................February 5, 2002 Commencement of Refinancing.................................................................February 4, 2002 Subsequent Event Litigation Settlement......................................................March 7, 2002 - --------------------------------------------------------------------------------------------------------------------------
*Filed herewith Items 2 through 5 of Part II are not applicable for this reporting period and have been omitted. 12 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, Steel Dynamics, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. May 15, 2002 STEEL DYNAMICS, INC. By: /s/ TRACY L. SHELLABARGER ----------------------------- Tracy L. Shellabarger Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) 13 -----END PRIVACY-ENHANCED MESSAGE-----