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Steel Dynamics Reports 4th Quarter and 2003 Results
02/06/2004 -
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Steel Dynamics Reports
4th Quarter and 2003 Results
Feb. 6, 2004 — Steel Dynamics, Inc. announced net income of $47 million on record annual net sales of $987 million and record shipments of 2.8 million tons for 2003.
Steel Dynamics began commissioning its third minimill—Bar Products Division, Pittsboro, Ind.—ahead of schedule. On December 29, 2003, the mill successfully produced special bar quality (SBQ) and merchant bar quality (MBQ) rounds in 3- to 9-inch diameters for shipment. SDI is targeting the addition of SBQ and MBQ rounds in diameters less than 3 inches and reinforcing bars ranging from #3 to #18 to the mill’s product offerings by the late second quarter of this year. Production of angles, flats and channels should begin in the third quarter. The mill should eventually have an annual capacity of between 500,000 and 600,000 tons. SDI’s Structural and Rail Division, Columbia City, Ind., achieved GAAP profitability in November, only sixteen months after start-up, while producing at a rate of only 67% of its estimated production capacity. Lower production rates were due principally to the slowly recovering non-residential construction market. The mill is currently commissioning 6-inch and 36-inch beams, which will conclude the commissioning of the full range of its wide-flange product offerings. With several successful rail-rolling trials completed in the fourth quarter, the company anticipates that it will begin to ship rail products in the first half of 2004. SDI’s Flat Roll Division, Butler, Ind., began operation of its new, technologically advanced coil-coating line in November. It is the only paint line in North America that is an integral part of a steelmaking facility, offering significant advantages in terms of manufacturing cost, product quality, logistics, and customer service. Coated coils have already been produced and delivered to numerous customers, and have been well received. The division’s Jeffersonville, Ind., galvanizing plant, which began operation in July, is now in full operation. Iron Dynamics, Inc. (IDI), Butler, Ind., restarted operations at the end of November with encouraging results. Through an internally developed process, IDI is currently producing a virgin form of iron intended to serve as a lower-cost substitute for 10 to 15% of the metallic raw material mix used in the Flat Roll Division’s electric arc furnaces. Since restart, the Flat Roll Division has consistently and successfully used iron briquettes (HBI) from Iron Dynamics as a part of its metallic input. In December, its first full month of operation after restarting, IDI produced 15,000 tons of HBI, which is approximately 40 to 50% of its expected capacity. The final stage of Iron Dynamics’ production process, liquefaction of solid iron briquettes to produce liquid pig iron, is expected to restart in February. IDI is currently achieving its cost targets, and SDI is hopeful that IDI can deliver meaningful cost savings in the current turbulent scrap markets. |
Fourth Quarter Results— Net sales of $279 million increased 10% as compared to the third quarter, with net income of $17 million ($.34 per diluted share). Fourth quarter consolidated operating profit (excluding start-up costs and minority interest adjustments) was $34 per ton, and for the year was $37 per ton.
Full Year Results—Net income of $47 million ($.98 per diluted share) represents the company’s third strongest yearly earnings performance. Net sales ($987 million) and shipments (2.8 million tons) were both records for the company.
The Flat Roll Division achieved record annual production volume, while the Structural and Rail Division increased its annual shipments to 462,000 tons during 2003.
Comments—"Steel Dynamics has experienced another year of opportunity and growth. We are very pleased with the operating performances at our Flat Roll and Structural Divisions as well as the start-up progress of our Bar Products Division," said Keith Busse, President and CEO of Steel Dynamics. "At the same time, we experienced, as did others in our industry, an unprecedented increase in steel scrap costs, up approximately $22 per ton in 2003 compared to 2002, and up $18 per ton in the fourth quarter compared to the third quarter. The higher scrap costs, combined with decreased selling values of $12 per ton, resulted in decreased margins of approximately 10% for the year, although selling values increased $21 per ton from the third to fourth quarter. Market weakness early in the year coupled with unprecedented resource-cost escalation in the latter half of the year made 2003 a volatile year.
"During 2004, we expect to see continued improvement in the U.S. economy with stronger demand for steel in the non-residential construction and capital goods markets. Throughout the year, we are optimistic that we will begin to see favorable quarter-to-quarter margin and earnings growth. We are currently experiencing strong bookings with rapidly rising steel prices in the first quarter of 2004 which should more than offset or mitigate the financial impact of the further escalation in scrap prices. With the expectation that all three of our Indiana mini-mills and Iron Dynamics will be in operation this year, Steel Dynamics is in a position to ship an increasing volume and breadth of value-added steel products in 2004, enhancing prospects for a much stronger year," Busse said.
Several financing activities occurred during the fourth quarter of 2003. In November the company issued an additional $100 million of its existing Senior Unsecured Notes due 2009. The net proceeds from this offering were used to prepay $50 million of indebtedness under SDI’s senior secured credit facility and to finance certain capital expenditures. Steel Dynamics and the former lender group to Iron Dynamics (IDI) agreed to settle a contingent obligation related to the lenders’ potential participation in future profits from the operation of the IDI facility. This settlement generated a non-cash pre-tax gain of $14 million, which is reflected in our financial statements as an early extinguishment of debt.
