How did Steel Dynamics perform in 2002 compared with 2001?

Net sales increased to $864.5 million from $607.0 million, and net income rose to $77.9 million from $3.1 million. The company attributes the improvement to a sharp recovery in domestic flat-rolled steel prices during 2002 and to record shipments, with gross profit rising to $225.6 million from $84.1 million.

What is driving the company's growth plans?

The company is adding products and capacity through its Columbia City structural and rail mini-mill, which began structural production in the third quarter of 2002, a $25 to $30 million Butler coil coating facility expected in mid-2003, a Jeffersonville galvanizing facility purchased for $17.5 million, and a Pittsboro bar mill bought for $45 million with $70 to $75 million of planned upgrades.

What are the main risks highlighted in the filing?

Key risks include excess steel imports and global overcapacity that could depress U.S. prices, reliance on the Section 201 tariffs that may be changed or lifted, the unproven Iron Dynamics scrap substitute process, start-up risk at the Columbia City and Pittsboro mills, dependence on OmniSource for scrap and on Heidtman as a major customer, and heavy debt levels that restrict operating flexibility.

How is the company financed, and does it pay dividends?

In March 2002 the company closed a $350.0 million senior secured credit agreement and issued $200.0 million of 9 1/2% senior notes. It later issued $115.0 million of 4% convertible subordinated notes. The company has never paid cash dividends, and its credit agreement and note indenture restrict dividend payments, so it expects to retain earnings for growth.

What did management say about 2003 pricing and margins?

Management said flat-rolled steel prices softened during the first quarter of 2003 because of a weaker economy and returning domestic production tonnage, while metallic raw material costs rose. Together these tightened first-quarter 2003 margins. The filing also notes that the Section 201 tariff structure faces a mid-term ITC review in the third quarter of 2003.

STLD 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 28, 2003. Cited figures are marked; the original filing is the authoritative source.

Steel Dynamics, Inc. (NASDAQ: STLD) reported record 2002 results in its 10-K filed March 28, 2003.

Net sales rose to $864.5 million^a from $607.0 million in 2001, and net income was $77.9 million, or $1.64 per diluted share, compared with $3.1 million in 2001. Operating income was $163.9 million, up from $25.9 million, and the Flat Roll Division at Butler, Indiana produced a record 2.4 million tons against 2.2 million tons of rated capacity. Shipments rose to 2,390,342 net tons from 1,963,602, and operating profit per net ton shipped was $74, compared with $23 in 2001.

Management cautioned that flat-rolled steel prices softened in the first quarter of 2003 because of weaker demand and returning domestic tonnage, while scrap and metallic raw material costs rose, tightening first-quarter margins. The company has significant new capacity coming on line: the Columbia City structural and rail mill, the Butler coil coating facility, the Jeffersonville galvanizing facility acquired in March 2003 for $17.5 million plus up to $1.5 million^b in earn-out payments, and the Pittsboro bar mill acquired in 2002 for $45 million, with production expected in the first quarter of 2004. Iron Dynamics, the scrap substitute facility, is expected to restart in the second half of 2003 after a $14 million investment.

Leverage remains substantial. Total debt was $555.5 million^c at year-end 2002, including $200.0 million of 9 1/2% senior notes due 2009 and $100.0 million of 4% convertible subordinated notes due 2012, which were later increased to $115.0 million.

Cash flow from operations was $115.0 million, and cash and equivalents fell to $24.2 million^d. The company paid no cash dividends and does not expect to pay any in the foreseeable future.

02—Key points

Key Highlights

Net sales of $864.5 million in 2002, up from $607.0 million in 2001, with shipments of 2,390,342 net tons
Net income of $77.9 million, or $1.64 per diluted share, versus $3.1 million, or $.07, in 2001
Operating profit of $74 per net ton shipped in 2002, compared with $23 in 2001 and $65 in 2000
Record Butler flat-roll production of 2.4 million tons against 2.2 million tons of annual capacity
Total debt of $555.5 million at December 31, 2002, including $200.0 million of 9 1/2% senior notes due 2009 and $100.0 million of 4% convertible notes due 2012
Growth projects: Columbia City structural and rail mill, Butler coating line, Jeffersonville galvanizing facility, and Pittsboro bar mill with production expected in Q1 2004
Management reported softer flat-rolled pricing and rising metallic raw material costs in the first quarter of 2003

03—Questions

Frequently Asked Questions

How did Steel Dynamics perform in 2002 compared with 2001?
Net sales increased to $864.5 million from $607.0 million, and net income rose to $77.9 million from $3.1 million. The company attributes the improvement to a sharp recovery in domestic flat-rolled steel prices during 2002 and to record shipments, with gross profit rising to $225.6 million from $84.1 million.
What is driving the company's growth plans?
The company is adding products and capacity through its Columbia City structural and rail mini-mill, which began structural production in the third quarter of 2002, a $25 to $30 million Butler coil coating facility expected in mid-2003, a Jeffersonville galvanizing facility purchased for $17.5 million, and a Pittsboro bar mill bought for $45 million with $70 to $75 million of planned upgrades.
What are the main risks highlighted in the filing?
Key risks include excess steel imports and global overcapacity that could depress U.S. prices, reliance on the Section 201 tariffs that may be changed or lifted, the unproven Iron Dynamics scrap substitute process, start-up risk at the Columbia City and Pittsboro mills, dependence on OmniSource for scrap and on Heidtman as a major customer, and heavy debt levels that restrict operating flexibility.
How is the company financed, and does it pay dividends?
In March 2002 the company closed a $350.0 million senior secured credit agreement and issued $200.0 million of 9 1/2% senior notes. It later issued $115.0 million of 4% convertible subordinated notes. The company has never paid cash dividends, and its credit agreement and note indenture restrict dividend payments, so it expects to retain earnings for growth.
What did management say about 2003 pricing and margins?
Management said flat-rolled steel prices softened during the first quarter of 2003 because of a weaker economy and returning domestic production tonnage, while metallic raw material costs rose. Together these tightened first-quarter 2003 margins. The filing also notes that the Section 201 tariff structure faces a mid-term ITC review in the third quarter of 2003.

04—Continue

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