News releaseSteel Dynamics Reports Third Quarter 2012 Earnings
FORT WAYNE, INDIANA, October 17, 2012 / PRNewswire / Steel Dynamics, Inc. (NASDAQ/GS: STLD)
today announced third quarter net income of $12.8 million, or $0.06 per diluted share, on net sales of
$1.7 billion. By comparison, prior year third quarter net income was $43.3 million, or $0.19 per diluted
share, on net sales of $2.0 billion, and sequential second quarter 2012 net income was $44.5 million, or
$0.20 per diluted share, on net sales of $1.9 billion. In the nine months ended September 30, 2012 net
income was $103.0 million, or $0.47 per diluted share, on net sales of $ 5.6 billion. By comparison, in
the nine months ended September 30, 2011 net income was $247.9 million, or $1.08 per diluted share,
on net sales of $ 6.1 billion.
A significant portion of the decrease in earnings from the prior quarter was attributable to the following
unique items announced on September 11, 2012:
The incurrence of non-operating charges related to the company’s third quarter refinancing
activities of $26.3 million, or $0.07 per diluted share, which were primarily associated with
prepayment fees. These transactions, along with the resulting repayment of $170 million of
debt with available cash, not only extended the company’s overall debt maturity profile, but
should also provide an estimated interest savings of approximately $20 million in 2013.
The incurrence of non-cash impairment charges of $7.9 million, or $0.02 per diluted share,
related to the intended termination of two small joint venture entities, which were not aligned
with the company’s long term strategic focus.
Excluding these charges, the company’s adjusted third quarter 2012 results would have been $0.15 per
“Relative to overall market demand, our operating performance was commendable for the third
quarter,” said Chief Executive Officer Mark Millett. “The U.S. market in general remains tepid, as
uncertainty surrounding the strength of Europe, growth in China, and the near-term U.S. economic and
political environment continues to weigh heavily on customers’ purchasing decisions. Aside from our
fabrication operations, this reluctance in customer buying resulted in reduced selling volumes across our
major operating platforms.
“Compared to the second quarter, operating income from our steel platform decreased $30 million,”
stated Millett, “primarily caused by reduced volumes, most notably within the special-bar-quality arena.
Earlier customer estimates of robust growth have not been fully realized during the year, resulting in
excess special-bar-quality inventory build throughout the customer supply chain. Inventory realignment
seems to have begun later in the second quarter, and could continue through the remainder of 2012.
However, we believe there is steady underlying demand that will support volumes as the destocking
“Within our metals recycling platform, despite a challenging environment that resulted in decreased
volumes,” continued Millett, “ferrous operating margins improved significantly, as metal spreads
expanded 23 percent and initiatives to reduce operating expenses were achieved, resulting in operating
income of $16.6 million in the third quarter, compared to $5.1 million in the second quarter of this year.
The ferrous scrap market continues to be oversupplied, as the export market and U.S. steel mill
utilization rates have moderated. However, we believe an inflection point has been reached and ferrous
scrap pricing is likely near a bottom.”
Third Quarter Review
The company’s steel operations third quarter margins and operating income declined in comparison to
second quarter 2012. Operating income from the company’s steel operations was $109.2 million for the
third quarter 2012, a decrease of $29.8 million as compared to the second quarter 2012. The average
selling price per ton shipped decreased $45 per ton to $809, and the average ferrous scrap cost per ton
melted decreased $44. As the combined steel metal spread was generally consistent quarter over
quarter, reduced profitability was largely a function of decreased volume and product mix changes.
Operating income attributable to the company’s long product operations declined 32 percent, while
declining 11 percent for the company’s sheet operations. The most notable volume decrease occurred
within the company’s Engineered Bar Products Division, as shipments sequentially declined 32 percent
based on customer inventory realignment.
Despite lower volumes and selling values in the company’s metals recycling business, ferrous metal
spreads expanded 23 percent in the third quarter, as compared to second quarter 2012. Operating
income for OmniSource increased $11.5 million sequentially to $16.6 million for the third quarter 2012
as compared to $5.1 million in the prior quarter.
In spite of continued non-residential construction market weakness, the company’s fabrication
operations reported increased positive quarterly operating income, based on pricing improvement,
increased volumes, and better associated manpower utilization.
The impact of losses from the company’s Minnesota operations for third quarter 2012 consolidated net
income was $11 million (net of tax), or approximately $0.05 per diluted share, unchanged from the
impact for the second quarter 2012. As previously indicated, during periods of time between June and
August of this year, higher operating rates at the company’s iron nugget facility were achieved for
extended periods of time, which provided the opportunity to identify a number of key process
optimization options necessary to increase both productivity and product quality. Beginning mid-
September, the company proceeded with a six week outage of the nugget facility in order to lay the
groundwork necessary for the implementation of the improvements. The company expects to
recommence operations in November, with final equipment installation expected during the first half of
2013, at an estimated investment of $25 million.
The company’s iron concentrate facility commenced operations late September and supplied its first
shipment of low-cost iron concentrate to the nugget facility just prior to the end of the third quarter.
This is a pivotal achievement toward lowering the eventual cost structure of the company’s iron
nuggets. As previously discussed, higher priced third-party iron concentrate remains in inventory for
use through the remainder of the year.
The company’s liquidity position remains strong with $1.4 billion in unrestricted cash and available
funding under the revolving credit facility at September 30, 2012. The decrease in liquidity from June
30, 2012 of $144 million was due to the company’s refinancing initiative which reduced overall debt by
$170 million. The company’s debt to equity capitalization rate was 47.5 percent as of September 30,
2012, or 2 percent lower than the end of the second quarter 2012.
A general overall decline in volume for the nine months ended September 30, 2012 resulted in net sales
of $5.6 billion, or 9 percent, less than those achieved for the same period in 2011. Operating income
decreased 41 percent, as margins decreased within the company’s flat roll steel and special bar quality
operations. The average selling price per ton shipped for the company’s steel operations in the nine
months ended September 30, 2012 was $847, a decrease of $64 per ton compared to the same period
last year. The average ferrous scrap cost per ton melted was $22 lower than the comparative period for
2011. Charges related to the refinancing activities transacted in the first and third quarters of 2012,
resulted in year-to-date decreased pretax earnings of $40 million, or approximately $0.11 per diluted
“Looking ahead,” Millett said, “we have seen softening in agriculture, transportation and certain areas
within energy, related to natural gas exploration; however, automotive and manufacturing appears
strong and residential construction has shown incremental improvement, as housing starts and rents
have improved in face of declining inventories. We believe volumes could continue to be challenged in
the fourth quarter, as fluctuations in immediate customer needs and hesitancy for customers to carry
inventory persists. Ferrous scrap pricing fell further in October, which could challenge our metals
recycling operations, while benefiting our steel operations early in the fourth quarter. While U.S. and
world economies remain anemic, we remain uniquely equipped to capitalize on the opportunities
ahead, supported by our superior low-cost, highly-variable cost structure, our diversified, value-added
product mix, our vertical integration and our exceptional team of employees.”
Summary Operating Information
The following tables highlight operating results for each of the company’s primary operating platforms. References to operating income in the following paragraphs exclude profit-sharing expenses and amortization pertaining to intangible assets. Dollar amounts are in thousands, excluding per ton data.
This segment includes five electric-arc-furnace steel mills and related steel finishing and processing facilities, including The Techs. The company’s steel operations produce flat-rolled steel, structural steel, merchant bars, special-bar-quality steel, rebar, rail, and specialty shapes.
Metals Recycling and Ferrous Resources
This segment principally includes the company’s metals recycling operations (OmniSource Corporation), a liquid pig iron production facility (Iron Dynamics), and the company’s Minnesota operations, which currently primarily includes an iron nugget manufacturing facility (Mesabi Nugget, which is 81 percent company-owned).
Steel Fabrication Operations
Steel fabrication operations include New Millennium Building Systems, which fabricates steel joists, trusses, and decking used in the construction of non-residential buildings.
About Steel Dynamics, Inc.
Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based
on estimated annual steelmaking and metals recycling capability, with annual sales of $8.0 billion in 2011, over
6,500 employees, and manufacturing facilities primarily located throughout the United States (including five steel
mills, six steel processing facilities, two iron production facilities, over 70 metals recycling locations and six steel
This press release contains some predictive statements about future events, including statements related to
conditions in the steel and metallic scrap markets, Steel Dynamics’ revenues, costs of purchased materials, future
profitability and earnings, and the operation of new or existing facilities. These statements are intended to be
made as “forward-looking,” subject to many risks and uncertainties, within the safe harbor protections of the
Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon
information and assumptions, which we consider reasonable as of this date, concerning our businesses and the
environments in which they operate. Such predictive statements are not guarantees of future performance, and
we undertake no duty to update or revise any such statements. Some factors that could cause such forwardlooking
statements to turn out differently than anticipated include: (1) the effects of a prolonged or deepening
recession on industrial demand; (2) changes in economic conditions, either generally or in any of the steel or scrapconsuming
sectors which affect demand for our products, including the strength of the non-residential and
residential construction, automotive, appliance, and other steel-consuming industries; (3) fluctuations in the cost
of key raw materials (including steel scrap, iron units, and energy costs) and our ability to pass-on any cost
increases; (4) the impact of domestic and foreign import price competition; (5) risks and uncertainties involving
product and/or technology development; and (6) occurrences of unexpected plant outages or equipment failures.
More specifically, we refer you to SDI’s more detailed explanation of these and other factors and risks that may
cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form
10-K, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities
and Exchange Commission. These are available publicly on the SEC Web site, www.sec.gov, and on the Steel Dynamics Web site, www.steeldynamics.com.
Conference Call and Webcast
On Thursday, October 18, 2012, at 10:00 a.m. Eastern time, Steel Dynamics will host a conference call with investors and analysts to discuss the company’s third quarter operating and financial results. We invite you to listen to the live audiocast of the conference call accessible from our website (http://steeldynamics.com) , or via telephone (the conference call number may also be obtained on our website). A replay of the discussion will be available on our website until midnight on November 16, 2012. A podcast of the event will also be available and can be downloaded from our website.
Contact: Marlene Owen, Director Investor Relations —+1.260.969.3500