1
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 JuneSeptember 30, 1998
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 (I.R.S. employer Identification No.)
incorporation or organization)
4500 COUNTY ROAD 59, BUTLER, IN 46721
INDIANA 35-1929476
(State or other jurisdiction of incorporation or organization) (I.R.S. employer Identification No.)
7030 POINTE INVERNESS WAY, SUITE 310,
FORT WAYNE, INDIANA 46804
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (219) 868-8000459-3553
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 July 31,October 27, 1998, Registrant had outstanding 48,183,27947,864,179 shares of Common
Stock.
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STEEL DYNAMICS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Page
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of JuneSeptember 30, 1998 (unaudited) and
December 31, 1997 ............... 1......................................................1
Consolidated Statements of Operations for the three and six-monthnine-month
periods ended JuneSeptember 30, 1998 and 1997 (unaudited)............................................................. 2...................2
Consolidated Statements of Cash Flows for the three and six-monthnine-month
periods ended JuneSeptember 30, 1998 and 1997 (unaudited)............................................................. 3...................3
Notes to Consolidated Financial Statements....................................................... 4Statements................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................... 6OPERATIONS..............................................6
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................. 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................. 9
SIGNATURE........................................................................................ 108-K.......................................10
SIGNATURE..............................................................11
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STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)THOUSANDS)
JUNESEPTEMBER 30, DECEMBER 31,
1998 1997
----------- --------------------- ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................................................................... $ 10,1693,987 $ 8,618
Accounts receivable, net ................................................. 32,318............................................ 44,529 33,465
Accounts receivable-related parties ...................................... 14,203................................. 22,355 11,210
Inventories .............................................................. 92,775......................................................... 116,286 60,163
Deferred taxes ........................................................... 19,619...................................................... 12,444 19,688
Other current assets ..................................................... 4,695................................................ 4,410 2,158
--------- ---------
Total current assets ............................................ 173,779.......................................... 204,011 135,302
PROPERTY, PLANT, AND EQUIPMENT, NET ........................................... 582,508.................................... 620,757 491,859
OTHER ASSETS .................................................................. 30,939........................................................... 31,300 13,721
--------- ---------
TOTAL ASSETS ...................................................................................................... $ 787,226856,068 $ 640,882
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................................................................. $ 38,86135,687 $ 39,347
Accounts payable-related parties ......................................... 14,334.................................... 20,778 15,352
Accrued interest ......................................................... 2,664.................................................... 3,267 2,319
Other accrued expenses ................................................... 12,395.............................................. 14,892 13,366
Current maturities of long-term debt ..................................... 6,404................................ 6,791 6,144
--------- ---------
Total current liabilities ....................................... 74,658..................................... 81,415 76,528
LONG-TERM DEBT, less current maturities ....................................... 346,575................................ 407,598 213,397
DEFERRED REVENUE .............................................................. 15,953....................................................... 15,066
DEFERRED TAXES ................................................................ 11,855......................................................... 8,205 13,362
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock voting, $.01 par value; 100,000,000 shares authorized;
49,158,279 and 49,131,273 shares issued and outstanding as of
JuneSeptember 30, 1998 and December 31, 1997, respectively .............................................. 492 491
Treasury stock, at cost; 975,0001,252,200 and 75,000 shares as of JuneSeptember 30,
1998 and December 31, 1997, respectively .................................... (15,883)............................ (18,783) (1,236)
Additional paid-in capital ............................................... 334,313............................................. 334,312 334,164
Retained earnings ........................................................ 19,263...................................................... 27,763 4,176
--------- ---------
Total stockholders' equity ...................................... 338,185.................................... 343,784 337,595
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................................... $ 787,226856,068 $ 640,882
========= =========
See notes to consolidated financial statements.
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STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, --------------------------- --------------------------SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
NET SALES:SALES
Unrelated parties ................................................................ $ 84,728105,251 $ 62,12562,086 $ 172,343277,594 $ 114,290176,376
Related parties ....................... 36,314 40,593 67,161 86,487............................................. 35,707 42,616 102,868 129,103
--------- --------- --------- ---------
Total net sales ................... 121,042 102,718 239,504 200,777.......................................... 140,958 104,702 380,462 305,479
Cost of goods sold ......................... 101,841 76,348 205,324 150,180............................................. 114,892 81,004 320,216 231,182
--------- --------- --------- ---------
GROSS PROFIT ............................... 19,201 26,370 34,180 50,597................................................... 26,066 23,698 60,246 74,297
Selling, general and administrative expenses 3,209 6,893 7,106 12,218................... 5,998 7,471 13,104 19,689
--------- --------- --------- ---------
OPERATING INCOME ........................... 15,992 19,477 27,074 38,379............................................... 20,068 16,227 47,142 54,608
Interest expense ........................... (3,617) (1,594) (6,960) (3,995)............................................... (5,965) (1,487) (12,925) (5,480)
Other income ............................... 114 512 4,837 1,264................................................... 69 251 4,906 1,515
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES
................. 12,489 18,395 24,951 35,648AND EXTRAORDINARY LOSS ...................................... 14,172 14,991 39,123 50,643
Income taxes ............................... 4,997 2,826 9,862 5,494tax expense ............................................. 5,674 1,954 15,536 7,452
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS ............................ 8,498 13,037 23,587 43,191
Extraordinary loss, net of $5,083 deferred tax benefit in 1997.. (7,624) (7,624)
--------- --------- --------- ---------
NET INCOME ........................................................................... $ 7,4928,498 $ 15,5695,413 $ 15,08923,587 $ 30,15435,567
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income before extraordinary loss ............................ $ .18 $ .27 $ .48 $ .90
Extraordinary loss .......................................... (.16) (.16)
--------- --------- --------- ---------
Net income per share ......................................................................... $ .15.18 $ .33.11 $ .31.48 $ .63.74
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income before extraordinary loss ............................ $ .18 $ .27 $ .48 $ .89
Extraordinary loss .......................................... (.16) (.16)
--------- --------- --------- ---------
Net income per share ......................................................................... $ .15.18 $ .32.11 $ .31.48 $ .62.73
========= ========= ========= =========
See notes to consolidated financial statements.
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STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, --------------------------- -------------------------SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
OPERATING ACTIVITIES:
Net income .................................................................................................. $ 7,4928,498 $ 15,5695,413 $ 15,08923,587 $ 30,15435,567
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Depreciation and amortization .......................... 7,278 5,916 14,241 11,607............................ 8,411 6,016 22,652 17,623
Foreign currency gain .................................. (169) (261).................................... 1 (260)
Deferred taxes ......................................... (5,544) (1,007) (1,438) 1,468........................................... 3,524 (4,509) 2,086 (3,041)
Extraordinary loss ....................................... 11,019 11,019
Changes in certain assets and liabilities:
Accounts receivable .................................... (763) 4,262 (1,846) (4,529)...................................... (20,363) (5,141) (22,209) (9,670)
Inventories ............................................ (26,979) (10,314) (32,612) 9,082.............................................. (23,511) 3,031 (56,123) 12,113
Other assets ........................................... 131 (130) (2,537) 382............................................. 285 (1,079) (2,252) (697)
Accounts payable ....................................... 130 (5,944) (1,504) (2,804)......................................... 3,271 (2,723) 1,767 (5,527)
Accrued expenses ....................................... 3,298 2,280 (628) 3,406......................................... 3,102 2,587 2,472 5,993
Deferred revenue ................................................................................ (887) 485(402)
--------- --------- --------- ---------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES ..... (15,844) 10,463 (10,750) 48,505........ (17,670) 14,615 (28,422) 63,120
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment ............... (57,668) (35,194) (104,535) (81,524)................. (46,483) (49,935) (151,016) (131,459)
Other ..................................................... (359) 58 (549) 56....................................................... (879) 91 (1,428) 147
--------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES ................ (58,027) (35,136) (105,084) (81,468)
--------- --------- --------- ---------................... (47,362) (49,844) (152,444) (131,312)
FINANCING ACTIVITIES:
Issuance of long-term debt ................................ 94,419 135,671.................................. 63,421 199,092
Repayments of long-term debt .............................. (1,360) (1,295) (2,693) (2,426)................................ (1,380) (1,243) (4,073) (3,669)
Purchase of treasury stock ................................ (13,668) (14,647).................................. (2,900) (17,547)
Issuance of common stock, net of expenses ................. 121 82................... 29,711 150 23329,944
Debt issuance costs ....................................... (578) (1,096) (11)......................................... (291) (443) (1,387) (454)
--------- --------- --------- ---------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES ..... 78,934 (1,213) 117,385 (2,204)............... 58,850 28,025 176,235 25,821
--------- --------- --------- ---------
INCREASE (DECREASE)DECREASE IN CASH AND CASH EQUIVALENTS ............... 5,063 (25,886) 1,551 (35,167).......................... (6,182) (7,204) (4,631) (42,371)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 5,106 48,17910,169 22,293 8,618 57,460
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 10,1693,987 $ 22,29315,089 $ 10,1693,987 $ 22,29315,089
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest ......................................... $ 5,1936,379 $ 3,2623,949 $ 9,52916,456 $ 6,95810,906
========= ========= ========= =========
Cash paid for taxes ............................................ $ 10,6222,159 $ 4,0901,750 $ 11,46013,619 $ 4,0905,840
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
NONCASH INFORMATION:
Investment in Nakornthai Strip Mill received in exchange for the
right to use SDI technology ................................................................ $ $ $ 15,468 $
========= ========= ========= =========
See notes to consolidated financial statements.
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STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenues and expenses during the reporting
period may also be affected by the estimates and assumptions management is
required to make. Actual results may differ from those estimates.
In the opinion of management these estimates reflect all adjustments, consisting
of only normal recurring accruals, including elimination of all significant
intercompany balances and transactions, which are necessary to a fair statement
of the results for the interim periods covered by such statements. Certain
amounts from prior year financial statements have been reclassified to conform
to the current year presentation. These financial statements and notes should be
read in conjunction with the audited financial statements included in the
Company's 1997 Annual Report on Form 10-K.
2. INVENTORIES (in thousands)
JuneSeptember 30, December 31,
1998 1997
----------- -------------------- --------
Raw Materials.....................................materials ...................... $ 46,37452,141 $ 22,851
Supplies.......................................... 32,478Supplies ........................... 35,749 17,861
Work-in-progress.................................. 5,113Work-in-progress ................... 8,759 6,656
Finished Goods.................................... 8,810goods ..................... 19,637 12,795
----------- -----------
$ 92,775-------- --------
$116,286 $ 60,163
=========== =================== ========
3. EARNINGS PER SHARE (in thousands)
The following is a reconciliation of the weighted average common shares for the
basic and diluted earnings per share computations:
Three Months Ended June 30, SixNine Months Ended
JuneSeptember 30, September 30,
--------------------------- --------------------------------------------------------
1998 1997 1998 1998 1997
----------- ----------- ----------- ----------------- ------ ------ ------
Basic weighted average common shares.................... 48,880 47,855 48,941 47,851shares ........... 48,113 48,540 48,662 48,080
Dilutive effect of stock options........................ 468 466 456 463
----------- ----------- ----------- -----------options ............... 365 566 425 512
------ ------ ------ ------
Diluted weighted average common shares ................. 49,348 48,321 49,397 48,314
=========== =========== =========== ===========......... 48,478 49,106 49,087 48,592
====== ====== ====== ======
4. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998 the Company adopted Statement of Financial Accounting
Standard No. 130 ("SFAS No. 130"), "Comprehensive Income", which requires that
separate disclosure of certain items, including foreign currency translation
adjustments and gains and losses on certain securities be shown in the financial
statements. SFAS No. 130 does not require a specific format for the financial
statement in which comprehensive income is reported, but does require that an
amount representing total comprehensive income be reported in that statement. It
has been determined that the Company currently has no amounts which require
classification under comprehensive income.
On January 1, 1998 the Company adopted Statement of Financial Accounting
Standard No. 131 ("SFAS No. 131"), "Disclosures about Segments of an Enterprise
and Related Information" which changes the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. SFAS No. 131 also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. It has not yet been determined that the Company currently has no amounts
which require separateis required to
provide additional disclosure underas a result of the adoption of SFAS No. 131.
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FAS 133 DISCLOSURE
Statement of Financial Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a fair value
hedge, a cash flow hedge, or a hedge of foreign currency exposure. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. Management has not yet quantified the effect, if any, of the new
standard on the financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Aggregate net sales increased to $121.0$141.0 million in the secondthird quarter of 1998
(for both hot band and Cold Mill products) from $102.7$104.7 million in the secondthird quarter of 1997, (for hot band products alone), an aggregate increase of 18%35%.
Net sales of hot bands alone, for the secondthird quarter of 1998, decreased 43%31% to
$58.5$60.9 million, on shipments of 178,200191,138 tons, at an average price of $328$319 per net
ton, compared to net sales of $102.7$87.6 million on shipments of 295,300254,570 tons of hot
bands for the secondthird quarter of 1997, at an average price of $348$344 per ton. Hot
band sales in the secondthird quarter of 1998 decreased by 43%31% from the secondthird quarter
of 1997 due to the Company's deliberate use of a substantial portion of its hot
band production as feed stock during the continued start-up of its Cold Mill and
until the Company's second caster came on line in June 1998.Mill.
Hot band production increased 11%36% from secondthird quarter 1997 to secondthird quarter 1998.
Net sales of Cold Mill products, including pickled and oiled, cold-rolled,
hot-rolled galvanized and cold-rolled galvanized coils, which did not begin
until the third quarter of 1997, were $62.5increased to $80.1 million for the secondthird
quarter of 1998 on shipments of 145,800187,679 tons, for an average price for Cold Mill
products of $429$427 per ton from $17.1 million for the third quarter of 1997 on
shipments of 46,337 tons, for an average price for Cold Mill products of $369
per ton.
Aggregate net sales of hot band and Cold Mill products, for the first halfnine
months of 1998, increased to $239.5$380.5 million from $200.8$305.5 million (without Cold Mill
production) in the first
halfnine month of 1997, an increase of approximately 20%25%. Overall, the Company's
revenues were up by an average of $22$23 per ton.
The Company anticipates, however, that revenues during the thirdfourth quarter of
1998 and fourth
quartersthe first quarter of 19981999 across all product lines, but principally
affecting hot band sales, will reflect the industry wide softening in demand and
selling prices due in large part to the current uncontrolled influx of cheap
foreign steel, of varying qualities, primarily from Russia and Asia. This
situation has been exacerbated by the collapse of the Asian consumer markets for
new steel and the concurrent strength of the U.S. dollar.
On September 30, 1998, the Company and eleven other producers of carbon
hot-rolled sheet products joined the United Steelworkers of America and the
Independent Steelworkers Union in filing antidumping cases against steel imports
from Russia, Japan and Brazil. The International Trade Commission will make a
preliminary injury decision within 45 days and the U.S. Department of Commerce
will issue a preliminary subsidy determination within 85 days and preliminary
dumping determinations within 160 days.
Cost of Goods Sold
For the secondthird quarters of 1998 and 1997, total cost of goods sold was $101.8$114.9
million and $76.3$81.0 million, respectively. Gross marginsprofit for the secondthird quarters of
1998 and 1997 were $19.2$26.1 million and $26.4$23.7 million, respectively. For the first
halfnine months of 1998 and 1997, total cost of goods sold was $205.3$320.2 million and
$150.2$231.2 million, respectively. Gross marginsprofit for the first halfnine months of 1998 and
1997 were $34.2$60.2 million and $50.6$74.3 million, respectively. As a percentage of net
sales, cost of goods sold was 84%82% and 74%77% for the secondthird quarter of 1998 and
1997, respectively. As a percentage of net sales cost of goods sold was 86%84% and
75%76% for the first halfnine months of 1998 and 1997, respectively.
The gross margin percentage decrease from 1997 to 1998 is attributable to
increasing scrap costs (up $10$3 per ton for the first halfnine months of 1998 compared
to 1997) and the start-up of the Cold Mill Project that began in the second half
of 1997 and continued into the first half of 1998. In connection with that start-up, and in order
not to have to cut back on its hot band commitments to existing customers, the
Company purchased hot band coils in the open market, at prices that were higher
than the Company's cost of production for similar products. These coils were
used to supply the Cold Mill operations, in part, during its start-up, and until
the Company's new second caster became operational in June 1998, increasing its
annual output capacity for hot bands from 1.3 to 2.3 million tons.
Since September, market prices for scrap have decreased $30-$40 per ton and
market prices for hot bands have decreased an estimated $20-$30 per ton.
Selling, General and Administrative
Selling, general and administrative expense was $3.2$6.0 million and $6.9$7.5 million
for the secondthird quarter of 1998 and 1997, respectively, compared to $7.1$13.1 million
and $12.2$19.7 million for the first halfnine months of 1998 and 1997, respectively. The
decrease in selling, general and administrative expense is primarily due to the
reduction in start-up costs related to certain of the Company's expansion
projects and the reduction of amortization expense as a result of the amended
credit agreement that was finalized in the second quarter of 1997.projects.
During the first quarter of 1998, the Company entered into a ten-year
Reciprocal License and Technology Sharing Agreement (the "License Agreement")
with Nakornthai Strip Mill Public Co. Limited ("NSM") providing NSM with the
right to use the Company's technology in exchange for shares and warrants of NSM
stock valued at $15.5 million. The Company's ownership in NSM is recorded in
Other Assets at its estimated fair value. Income relating to the License
Agreement was deferred and is being recognized in income ratably over the
ten-year term of the agreement. Concurrently, the Company entered into a
ten-year Management Advisory and Technical Assistance Agreement to provide
training and advice to a management company under contract with NSM to manage
NSM's mill, for which the Company is to receive a fee of $2.0 million annually.
Such amount is payable annually in advance and is being recognized in income
ratably throughout each year of service.
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Interest Expense
Interest expense totaled $3.6$6.0 million and $1.6$1.5 million for the secondthird quarter of
1998 and 1997, respectively and $7.0$12.9 million and $4.0$5.5 million for the first
halfnine months of 1998 and 1997, respectively. The additional interest expense is a
result of additional borrowings to finance the expansion projects along with
decreased capitalized interest.
Other Income
Other income was $4.8$4.9 million and $1.3$1.5 million for the first halfnine months of 1998
and 1997, respectively. The increase in other income is primarily attributable
to nonrecurring income associated with services provided by the Company in
connection with the NSM transaction.
Taxes
The provision for income taxes for the secondthird quarter of 1998 and 1997, was $5.0$5.7
million and $2.8$2.0 million, respectively and for the first halfnine months of 1998 and
1997 was $9.9$15.5 million and $5.5$7.5 million, respectively. The tax provision for
1998 reflects income tax expense for the Company at the statutory income tax
rates. For 1997, the Company's effective tax rate differed from the statutory
rate as a result of the reduction in a deferred tax valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Steel Dynamics' business is capital intensive and requires substantial
expenditures for, among other things, the purchase and maintenance of equipment
used in its steelmaking and finishing operations and compliance with
environmental laws. The Company's liquidity needs arise primarily from capital
investments, working capital requirements and principal and interest payments on
its indebtedness. Since its inception, SDI has met these liquidity requirements
with cash provided by equity, long-term borrowings, state and local government
grants and from operations. The Company anticipates that, under current market
conditions, its available resources will be adequate to complete its Iron
Dynamics Project in Butler, Indiana and its new Structural Mill Project
currently slated to be built in Whitley County, Indiana, commencing in the
fourth quarter of 1998.
Net cash used by operating activities totaled $15.8$17.7 million for the secondthird
quarter of 1998 and $10.8$28.4 million for the first halfnine months of 1998 primarily to
build the Company's scrap inventory.inventory and increases in accounts receivable. Net
cash provided by operating activities totaled $10.5$14.6 million for the secondthird
quarter of 1997 and $48.5$63.1 million for the first halfnine months of 1997. During the
secondthird quarter of 1997, the increase in cash from operating activities was
primarily related to net income and duringrecognition of an extraordinary loss. During
the first halfnine months of 1997 the increase in cash from operating activities was
primarily related to net income, and decreased scrap inventory.inventory and recognition of an
extraordinary loss. Net cash used in investing activities totaled $58.0$47.4 million
and $35.1$49.8 million for the secondthird quarter of 1998 and 1997, respectively, and
$105.1$152.4 million and $81.5$131.3 million for the first halfnine months of 1998 and 1997,
respectively. Investing activities primarily consisted of capital expenditures
for the construction of the Company's existing facilities, the Cold Mill
Project, the Caster Project, and the Iron Dynamics Project. Cash provided by
financing activities totaled $78.9$58.9 million for the secondthird quarter of 1998 and
$117.4$176.2 million for the first halfnine months of 1998. The 1998 increase in cash
provided by financing activities is attributable primarily to borrowings of
senior term debt of $94.4$63.4 million for the secondthird quarter of 1998 and $135.7$199.1
million for the first halfnine of 1998 under the Company's credit facility.
STOCK REPURCHASE
Under a previously announced stock repurchase program, the Company during the
secondthird quarter of 1998 acquired 840,000277,200 shares of its stock in open market
purchases, at an average price per share of $16.47 during the second quarter.$11.93. In total, the Company has
purchased 975,0001,252,200 shares at an average price per share of $16.29$15.32 through the
end of the secondthird quarter.
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
SDI has incurred and, in the future, will continue to incur capital expenditures
and operating expenses for matters relating to environmental control,
remediation, monitoring and compliance. Steel Dynamics believes that compliance
with current environmental laws and regulations is not likely to have a material
adverse effect on the Company's financial condition, results of operations or
liquidity; however, environmental laws and regulations have changed rapidly in
recent years and SDI may become subject to more stringent environmental laws and
regulations in the future.
INFLATION
SDI does not believe that inflation has had a material effect on its results of
operations.
IMPACT OF YEAR 2000
The so-called "Year 2000" or "Y2K" problem has become a general matter of
concern to business, and has been identified by the Securities and Exchange
Commission as a matter requiring discussion by publicly held manufacturing
companies in their periodic reports effective with
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the next quarter ending after August 4, 1998, as a result of the fact that,
historically, most computer programs have been written using 2 digits rather
than four to define the applicable year. If not corrected, this could result in
computers recognizing a date that includes "00" as the year
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10 1900 rather than the
year 2000, which could then cause any computer application that is date
dependent to either fail or to produce erroneous information. This could, in
turn, result in major systems failures or miscalculations with regard to such
matters, for example, as manufacturing, shipping and receiving of product, the
scheduling and availability of raw materials, parts and supplies inventories,
billing and payments records, and the availability of utilities, telephone,
data, and other essential services.
Because the Company's plant and all of its equipment and computer systems are of
recent vintage, from its original hot mill in 1994 to its post-1996 Cold Mill,
its Second Caster Project, and its Iron Dynamics Project, the Company believes
and has preliminarily determined that its own internal systems, including its
manufacturing equipment and other process control systems that may have
"imbedded" computer technology, as well as its own information and data systems,
are or, with relatively minor modifications, will be "Year 2000 compliant" in a
timely manner. The Company is in the process of completing its internal reviews,
which it plans to do with its internal staff, its equipment vendors, and if
necessary, with outside consultants, and intends to implement any remaining
modifications that may be found to be necessary. The Company anticipates that
the cost associated with its own internal Y2K compliance will not be material
and will not pose any significant operational problems.
The Company is in the process of reviewingdeveloping and implementing a plan to obtain
information from its external service providers, significant suppliers and
customers, and financial institutions with the objective of confirming their
plans and status of readiness to become Year 2000 compliant, in order to better
understand and evaluate how their respective Year 2000 issues may affect the
Company's operations, and in order to assess any possible risks of
non-compliance. At this time, the Company is not in a position to assess this
aspect of the year 2000 problem, but plans to take the necessary steps to
provide itself with reasonable assurance that its suppliers, service providers,
and customers are Year 2000 compliant.
While the Company believes that its own internal assessment and its planning
efforts with respect to its external suppliers, service providers and customers
are and will be adequate to address its reasonable year 2000 concerns, there can
be no assurance that these efforts will be successful, that the systems or other
companies upon which the Company and its systems rely will in fact be converted
or compliant in a timely manner, that it will be able to reasonably and
adequately protect itself through third party assurances, or that it will not
otherwise have a material adverse effect on the Company and its operations.
However, based on the Company's assessment efforts to date, which does not yet
include an assessment of incoming and outgoing transportation issues involving
railroads and motor carriers, the Company believes that the reasonably worst
case scenario resulting from one or more supply-side failures, internal imbedded
operational failures, or sell-side failures, will not have a material adverse
impact on its financial condition or results of operations. The Company already
maintains, and will continue to maintain adequate on-site quantities of raw
materials, parts and supplies, sufficient to buffer any anticipated vendor
interruptions. The Company's manufacturing facilities, and the separate
components of its melting, casting, and finishing facilities, are and will be
capable of being operated manually should an unanticipated breakdown occur as a
result of an imbedded failure. And the Company's order entry lead times are of
sufficient magnitude to analyze and repair any anticipated problem that may
arise before they would manifest themselves as a loss of or delay in sales.
FORWARD LOOKING STATEMENTS
Throughout this report form or in other reports filed from time to time with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
well as in press releases or in statements made to the market by officers in
oral discussions, there may be various statements that express Company
expectations regarding future events or future results, in contrast with
statements that reflect historical facts. These expressions, generally preceded
by such typical conditional words as "anticipates," "believes," "estimates," and
"expects," are intended to operate as "forward looking statements," as permitted
by the Private Securities Litigation Reform Act of 1995. The Act creates a "safe
harbor" for predictive statements of this kind, in the event that things do not
turn out as anticipated.
Forward looking statements, by their nature, involve risks and uncertainties.
While management intends to express its best judgment when making statements
about what may occur in the future, and although management believes them to be
reasonable in light of the circumstances then known, a number of important
factors can come into play to cause actual results to differ materially from
those expected or implied by management in such forward looking statements.
These factors include, but are not limited to, the following: (1) changes in
economic conditions in the United States and other major international economies
(especially affecting the significant steel producing and steel consuming
nations in Asia, in Europe, and Russia); (2) elements of U.S. trade policy and
actions regarding steel imports; (3) effects of changes, in the availability and
costs of the principal raw materials, such as scrap steel, and other supplies
used by the Company in its production processes; (4) changes in market demand
(against available supply), for the Company's steel products, including the role
of steel substitutes such as aluminum and plastics in the demand for new steel;
(5) actions by the Company's domestic and foreign competitors, including new or
existing production capability coming on or off line; (6) availability and cost,
as well as unplanned outages, of electricity and other utilities, upon which the
Company is dependent, especially in light of current and ongoing deregulation
reforms; (7) unplanned equipment failures and other plant outages; (8) labor
unrest, work stoppage, and/or strikes, not only if they involve the Company
directly, but if they negatively impact the Company's suppliers and/or its
customers; (9) the impact of monetary or fiscal policy or of interest rates;
(10) the effect of weather or the elements; (11) the impact of changes in
environmental laws; (12) risks and difficulties in implementing new technology
that is not yet operational, such as the Company's Iron Dynamics Project to
manufacture scrap substitutes; and (13) risks and difficulties in implementing
information technology, including year 2000 compliance issues.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 27, 1998. Proxies
were solicited for the Annual Meeting in accordance with the
requirements of the Securities Exchange Act 1934.
At the Annual Meeting, a total of 32,933,829 of the 49,005,649 shares
outstanding as of the record date of April 27, 1998 (67.2%) were
present. As a result, the appointment of Deloitte Touche LLP was
ratified to serve as the Company's independent auditors for 1998, by
the affirmative vote of 32,909,128 of the 32,933,829 shares voted, and
all of the following nominees for director of the Company, as described
in the Proxy Statement, were dually elected, with no more than 50,000
shares withheld from or voted against any single nominee:
John C. Bates
Keith E. Busse
Paul B. Edgerley
Dr. Jurgen Kolb
William Laverack, Jr.
Mark D. Millett
Leonard Rifkin
Tracy L. Shellabarger
William D. Strittmatter
Richard P. Teets, Jr.
Keitaro Yokohata.
Any stockholder who intends to present a proposal at the 1999 Annual
Meeting of Stockholders, and desires that such proposal be considered
for inclusion in the Company's 1998 Proxy Statement and Proxy for the
Annual Meeting, must furnish the proposal in writing to the Secretary
of the Company no later than November 30, 1998. With respect to any
other stockholder proposals that are intended to be presented at the
1999 or at any subsequent Annual Meeting, even if not included in the
Proxy Statement and Proxy for that meeting, discretionary authority
will be deemed conferred upon the Company's designated proxy or proxies
to vote upon any or all of such matters, unless the Company receives
notice of such matter no later than 45 days prior to the date on which
the Company first mailed its proxy materials for the prior year's
Annual Meting of Stockholders (unless a different date is specified in
the Company's Articles of Incorporation or By-Laws) and a specific
statement is made to that effect in the applicable Proxy Statement or
Proxy. Because of the effective date of this new rule, the applicable
date for the giving of any such notice for the 1999 Annual Meeting of
Stockholders is March 22, 1999, and the specific statement regarding
discretionary authority is not required to have been set forth in the
1997 Proxy Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits -
Financial Data Schedule - Exhibit 27
(B) Reports on Form 8-K for the quarter ended JuneSeptember 30, 1998 -
None
Items 1 - 3 and Item 5 of Part II are not applicable for this reporting period
and have been omitted.
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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.
August 13,November 12, 1998
STEEL DYNAMICS, INC.
By:
/s/Tracy L. Shellabarger
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TRACY L. SHELLABARGER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
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