<PAGE> 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 March 31, 1997
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 (I.R.S. employer Identification No.)
of incorporation or organization)
4500 COUNTY ROAD 59, BUTLER, IN 46721
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (219) 868-8000
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 8, 1997, Registrant had outstanding 47,852,707 shares of Common Stock.
<PAGE> 2
STEEL DYNAMICS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS: Page
----
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and unaudited March 31, 1997 ............... 1
Consolidated Statements of Operations for the three month periods ended
March 30, 1996 and March 31, 1997 (unaudited).................................................. 2
Consolidated Statements of Cash Flows for the three month periods ended
March 30, 1996 and March 31, 1997 (unaudited).................................................. 3
Notes to Consolidated Financial Statements....................................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................... 5
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 7
SIGNATURE....................................................................................... 7
</TABLE>
<PAGE> 3
STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................................................................... $ 57,460 $ 48,179
Accounts receivable, net ....................................................................... 14,600 22,870
Accounts receivable-related parties ............................................................ 17,860 18,381
Inventories .................................................................................... 65,911 46,515
Other current assets ........................................................................... 1,599 1,087
--------- ---------
Total current assets .................................................................. 157,430 137,032
PROPERTY, PLANT, AND EQUIPMENT, NET ................................................................. 339,263 380,446
DEBT ISSUANCE COSTS, NET ............................................................................ 12,405 12,006
RESTRICTED CASH ..................................................................................... 2,827 3,063
OTHER ASSETS ........................................................................................ 10,366 10,233
--------- ---------
TOTAL ASSETS .......................................................................... $ 522,291 $ 542,780
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................................... $ 28,968 $ 35,062
Accounts payable-related parties ............................................................... 12,218 9,264
Other accrued expenses ......................................................................... 9,196 10,230
Current maturities of long-term debt ........................................................... 11,175 29,026
--------- ---------
Total current liabilities ............................................................. 61,557 83,582
LONG-TERM DEBT, less current maturities ............................................................. 196,168 177,422
DEFERRED TAXES ...................................................................................... 2,475
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock voting, $.01 par value; 100,000,000 shares authorized; 47,803,341 and
47,847,901 shares issued and outstanding as of December 31, 1996 and March 31, 1997,
respectively ........................................................................ 478 478
Additional paid-in capital ..................................................................... 303,846 303,996
Accumulated deficit ............................................................................ (39,758) (25,173)
--------- ---------
Total stockholders' equity ............................................................ 264,566 279,301
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................ $ 522,291 $ 542,780
========= =========
</TABLE>
1
<PAGE> 4
STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 30, MARCH 31,
1996 1997
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES:
Unrelated parties ....................... $ 18,872 $ 52,165
Related parties ......................... 13,415 45,894
-------- --------
Total net sales ..................... 32,287 98,059
Cost of goods sold ........................... 35,184 73,910
-------- --------
GROSS PROFIT (LOSS) .......................... (2,897) 24,149
Selling, general and administrative expenses.. 2,817 5,339
-------- --------
OPERATING INCOME (LOSS) ...................... (5,714) 18,810
Foreign currency gain ........................ 154 92
Interest expense ............................. (5,837) (2,401)
Interest income .............................. 93 752
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES ............ (11,304) 17,253
Income taxes ................................. 2,668
-------- --------
NET INCOME (LOSS) ............................ $(11,304) $ 14,585
======== ========
NET INCOME (LOSS) PER SHARE .................. $ (.35) $ .30
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING .......... 32,665 47,838
======== ========
</TABLE>
2
<PAGE> 5
STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
MARCH 30, 1996 MARCH 31, 1997
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................................. $(11,304) $ 14,585
Adjustments to reconcile net income (loss) to net cash provided
(used) in operating activities:
Depreciation and amortization ............................. 3,588 5,691
Foreign currency gain ..................................... (154) (92)
Deferred taxes ............................................ 2,475
Changes in certain assets and liabilities:
Accounts receivable .................................. (19,981) (8,791)
Inventories .......................................... (7,755) 19,396
Other assets ......................................... 21 512
Accounts payable ..................................... 1,529 3,140
Accrued expenses ..................................... 6,513 1,126
-------- --------
Net cash provided (used) in operating activities . (27,543) 38,042
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment ................... (5,471) (46,330)
Proceeds from government grants ............................... 1,413
Other ......................................................... (955) (1)
-------- --------
Net cash used in investing activities ............ (5,013) (46,331)
-------- --------
FINANCING ACTIVITIES:
Issuance of long-term debt .................................... 34,961
Repayments of long-term debt .................................. (154) (1,131)
Issuance of common stock, net of expenses ..................... 5,052 150
Debt issuance costs ........................................... (3,500) (11)
-------- --------
Net cash provided by financing activities ........ 36,359 (992)
-------- --------
Increase (decrease) in cash and cash equivalents ................... 3,803 (9,281)
Cash and cash equivalents at beginning of period ................... 6,884 57,460
-------- --------
Cash and cash equivalents at end of period ......................... $ 10,687 $ 48,179
======== ========
</TABLE>
3
<PAGE> 6
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 1996 Annual Report on Form 10-K.
2. INVENTORIES (in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ ---------
<S> <C> <C>
Raw Materials ................................ $48,065 $28,871
Supplies ..................................... 11,854 13,084
Finished Goods ............................... 5,992 4,560
------- -------
$65,911 $46,515
======= =======
</TABLE>
3. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
<TABLE>
<CAPTION>
Shares Amount
---------- --------
(in thousands)
<S> <C> <C>
Balance at January 1, 1997 ................... 47,803,341 $304,324
Exercise of stock options .................... 44,560 150
---------- --------
Balance at March 31, 1997 .................... 47,847,901 $304,474
========== ========
</TABLE>
Effective January 10, 1997, the SDI Board of Directors, acting as the Committee
under the 1994 Incentive Stock Option Plan, reduced the vesting period for
exercise of stock options to six months after the grant date with respect to
one-third of the shares covered by options, and this was made effective for all
outstanding as well as newly granted options. The remaining two-thirds of the
optioned shares retain their original five year vesting period.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 establishes new standards for computing and presenting earnings per
share ("EPS"). Specifically, SFAS No. 128 replaces the presentation of primary
EPS with a presentation of basic EPS, requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. Management has determined that the adoption of SFAS No. 128 will not
have a material effect on the accompanying consolidated financial statements.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales totaled approximately $98.1 million for the first quarter 1997. SDI
commercial production of primary grade steel on January 2, 1996 and has
continued to increase its net sales as its production tons increased. By the end
of the first quarter of operations ended March 31, 1996, the Company was
operating at an annualized rate of 440,000 tons, or 31% of full capacity. By the
end of March 1997, the Company was operating at an annualized rate of 1,100,000,
or 79% of full capacity. In addition, the average sales price per prime ton
increased from $302 for January 1996 to $360 for March 1997 and the percentage
of prime tons produced increased from 74% for the quarter ended March 30, 1996
to 95% for the quarter ended March 31, 1997.
Cost of Goods Sold
Cost of goods sold totaled approximately $73.9 million, or 75% of net sales, for
the first quarter of 1997. As the Company continues to increase the number of
prime tons sold, the Company expects that cost of goods sold will continue to
increase but, as a percentage of net sales, the cost of goods sold will
decrease.
Selling, General and Administrative
Selling, general and administrative was approximately $2.8 million and $5.3
million for the first quarter of 1996 and 1997, respectively.
Interest Expense
Interest expense totaled approximately $5.8 million and $2.4 million for the
first quarter of 1996 and 1997, respectively.
Foreign Currency Gain
The foreign currency gains represent transaction gains incurred by the Company
for purchases of equipment used within the Company's mini-mill. A portion of the
purchase price, as stated within the contract to purchase the equipment, was
denominated in German marks. The Company committed to purchase the equipment in
December 1993 with settlement of the liability primarily occurring during the
construction period of the mini-mill. No commitments for equipment purchases
denominated in a foreign currency exist as of April 30, 1997. Foreign currency
gain totaled $154,000 and $92,000 for the three months ended March 30, 1996 and
March 31, 1997, respectively.
Interest Income
Interest income totaled approximately $93,000 and $752,000 and the first quarter
of 1996 and 1997, respectively.
Taxes
At December 31, 1996, the Company had available net operating losses ("NOLs")
for federal income tax purposes of approximately $49.4 million of which $.2
million expire in 2009, $2.3 million expire in 2010 and $46.9 million expire in
2011. Because of the Company's limited operating history, a valuation allowance
has been established for a portion of the deferred tax asset. As the Company
continues to be a profitable operation the valuation allowance will continue to
be adjusted.
For the three months ended March 31, 1997, income taxes are computed using the
company's expected annual effective tax rate, which gives effect to the
utilization of available net operating loss carryforwards.
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 capital cost reimbursements.
Net cash used in operating activities totaled approximately $27.5 million for
the first quarter of 1996 The use of cash in operating activities for the first
quarter of 1996 primarily related to the build up of raw material inventory as a
result of favorable pricing and the substantial increase in
5
<PAGE> 8
accounts receivable from the beginning of the year as a result of production and
sales increases. During the first quarter of 1997, the Company provided net cash
of approximately $38.0 million from operating activities resulting from net
income and decreased raw material inventory due to less favorable pricing
levels. Net cash used in investing activities totaled approximately $5 million
from the first quarter of 1996 and approximately $46.3 million for the first
quarter of 1997. Investing activities primarily consisted of capital
expenditures of approximately $5.4 million and $46.3 million the first quarter
of 1996 and 1997, respectively, for the construction of the Company's existing
facilities and the beginning of the Cold Mill Project. Cash provided by
financing activities totaled approximately $36.3 million for the first quarter
of 1996 and cash used in financing activities totaled approximately $992,000 for
the first quarter of 1997. The 1996 increase in cash provided by financing
activities primarily relates to the approximately $35 million of proceeds from
senior term debt.
The Company's Credit Agreement provides for up to an aggregate of $300.0 million
of senior term loans and a $45.0 million revolving credit facility (the
"Revolving Credit Facility") for working capital purposes, subject to borrowing
base restrictions. Indebtedness outstanding under the Credit Agreement is
secured by a first priority lien on substantially all of the assets of the
Company. Of the $300.0 million in senior term loan commitments, the Company
borrowed $150.0 million for the construction of the mini-mill and $150.0 million
was designated and remains available for the construction of the Cold Mill
Project. As of March 31 1997, a total of $150.0 million of senior term loans
were outstanding and there were no outstanding borrowings under the Revolving
Credit Facility.
The Company is in the process of renegotiating the terms of the senior term
loans. It is anticipated that the amendment to the Credit Agreement will be
completed in the second quarter of 1997. The Company anticipates the amendment
will include revised pricing and covenants, which the Company believes will be
more favorable than the current agreement.
As of March 31, 1997, the Company's long-term debt (including the current
portion) was approximately $206 million. Approximately 72% of this indebtedness
bears interest at floating rates.
The Company currently estimates that the funds required for the construction and
start-up of the Cold Mill, IDI and Caster Project will total approximately
$350.0 million. Approximately $118 million of that amount has been expensed
through March 31, 1997. The Company intends to finance the remaining needs of
the Cold Mill and Caster Projects with cash on hand and borrowings available
under the Credit Agreement.
The Company will use $20.0 million of the it received from the private placement
of its common stock in 1996 to finance a portion of the IDI Project and intends
to finance the remaining $45.0 million with additional debt. Although IDI is
negotiating to obtain the financing needed, it has not yet secured a commitment.
The Company anticipates that the financing for the IDI project will be secured
by the end of the second quarter in 1997. However, no assurance can be given
that the IDI financing commitment currently being negotiated will be obtained on
terms acceptable to the Company ,or at all.
The Company raised approximately $140.2 million (net of expenses) with its
initial public offering in November 1996. Approximately $56.0 million was used
to prepay the subordinated notes, including accrued interest and prepayment
fees. As of December 31, 1996, the Company had approximately $58.0 million
invested in short-term cash investments. This cash will be used to fund the
construction of the Caster Project as the costs of construction are incurred.
Approximately $26.2 million of the IPO proceeds were used for capital and
working capital needs through the end of the year. The Company intends to
finance the Cold Mill Project with cash on hand and borrowings available under
the Credit Agreement.
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.
6
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits -
Exhibit 11.1 Statement of Computation of Earnings per Share (page 8)
(B) Reports on Form 8-K for the quarter ended March 31, 1997 -
None
Item 1 - 5 are not applicable for this reporting period and have been omitted.
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 14, 1997
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)
7
<PAGE> 1
Statement re: Computation of Per Share Earnings EXHIBIT 11.1
STEEL DYNAMICS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
for Three Months Ended
---------------------------
March 30, March 31,
1996 1997
--------- ---------
<S> <C> <C>
Weighted average shares outstanding ............... 28,773 47,838
Adjustment for Staff Accounting Bulletin
No. 83 .......................................... 3,892
Dilutive effect for options and warrants .......... N/A(a) N/A(a)
--------- ---------
Adjusted weighted average shares outstanding ...... 32,665 47,838
========= =========
Net income (loss) ................................. $(11,304) $14,585
========= =========
Net loss per share ................................ $ (0.35)(b) $ 0.30(b)
========= =========
</TABLE>
(a) Net income (loss) per share for the quarters ended March 30, 1996 and March
31, 1997 were calculated by dividing net income (loss) by the weighted
average number of shares of common stock outstanding including the
anti-dilutive effect of shares issued from September 23, 1995 through
September 23, 1996 using the treasury stock method. Net income per share for
the quarter ended March 31, 1997 excludes the anti-dilutive effect of common
stock equivalents.
(b) Fully diluted earnings per share is the same as primary earnings per share.
1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 48,178,515
<SECURITIES> 0
<RECEIVABLES> 41,879,738
<ALLOWANCES> 628,256
<INVENTORY> 46,514,870
<CURRENT-ASSETS> 1,087,391
<PP&E> 402,416,147
<DEPRECIATION> 21,970,625
<TOTAL-ASSETS> 542,780,222
<CURRENT-LIABILITIES> 83,581,252
<BONDS> 0
0
0
<COMMON> 478,479
<OTHER-SE> 298,828,049
<TOTAL-LIABILITY-AND-EQUITY> 542,780,222
<SALES> 98,059,315
<TOTAL-REVENUES> 98,973,970
<CGS> 73,910,018
<TOTAL-COSTS> 79,319,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,401,115
<INCOME-PRETAX> 17,252,947
<INCOME-TAX> 2,667,989
<INCOME-CONTINUING> 14,584,958
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,584,958
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
