How did Steel Dynamics' profitability change in 2006?

Net income rose to $396.7 million, or $3.77 per diluted share, from $221.8 million, or $2.17 per diluted share, in 2005. Gross profit increased to $830.0 million from $485.1 million, and the gross margin percentage was 26% versus 22%.

What drove the increase in sales and shipments?

Net sales increased $1.1 billion, or 48%, to $3.2 billion, while consolidated shipments rose 1.1 million tons, or 30%, to 4.7 million tons. Growth came from higher shipments at each steelmaking operation and from the Roanoke Electric operations acquired in April 2006.

How is the company's balance sheet and debt position?

Total debt, including unamortized bond premium, was $438.9 million at December 31, 2006, and the long-term debt to capitalization ratio was 26%, down from 33%. The $350 million senior secured revolver had $80.0 million outstanding and was classified as a current maturity, and the company stated it was in compliance with its covenants.

What are the main risks and capital plans for 2007?

Key risks include steel imports, Chinese overcapacity, raw material and energy price increases, automotive industry cyclicality, and restrictive debt covenants. The company anticipates spending approximately $400 million on capital projects in 2007, including about $200 million for a second structural rolling mill.

STLD 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 26, 2007. Cited figures are marked; the original filing is the authoritative source.

Steel Dynamics, Inc. reported fiscal 2006 net sales of $3.24 billion^a, up from $2.18 billion in 2005, and net income of $396.7 million, or $3.77 per diluted share, compared with $221.8 million, or $2.17 per diluted share, in 2005.

Consolidated shipments rose to 4.7 million tons from 3.6 million tons, driven by increased shipments at each steelmaking operation and the inclusion of Roanoke Electric operations from the April 11, 2006 merger. Gross margin was 26% in 2006 versus 22% in 2005, as the average consolidated selling price per ton shipped increased $83^b while metallic raw material cost per net ton rose only $6. The company also cited a 2006 inventory build and softer flat-rolled pricing in the third quarter, with management expecting a decrease in first-quarter 2007 average pricing.

The Roanoke Electric acquisition added a third reporting segment, steel fabrication, and diversified the product mix into bar products and joists. Fabrication operations accounted for 8% of 2006 net sales, and Steel Operations for 89%. Total debt was $438.9 million^c at December 31, 2006, with a long-term debt to capitalization ratio of 26% versus 33% a year earlier.

Cash and equivalents declined to $29.4 million^d, and the company repurchased 9.4 million shares for $247.4 million during 2006. Management plans approximately $400 million of 2007 capital spending, including about $200 million for a second structural rolling mill, and expects to continue quarterly dividends at similar levels.

The filing states that the company is currently not party to any pending or threatened proceeding that management believes would have a material adverse effect. Key risks highlighted include steel import pressure, Chinese overcapacity, raw material and energy cost increases, cyclicality tied to the automotive industry, and restrictive debt covenants.

02—Key points

Key Highlights

Net sales rose to $3.24 billion in 2006 from $2.18 billion in 2005, with net income of $396.7 million versus $221.8 million.
Diluted EPS was $3.77 in 2006, up from $2.17 in 2005; the filing reports two-for-one stock split effective November 2006.
Gross margin widened to 26% in 2006 from 22% in 2005, as average selling price per ton rose $83 while metallic raw material cost per ton rose only $6.
Consolidated shipments increased to 4.7 million tons from 3.6 million tons, including Roanoke Electric volumes from April 2006.
The Roanoke Electric merger (April 11, 2006) cost $110.8 million in cash plus 9.1 million shares valued at $127.7 million, and created a third segment, steel fabrication.
Long-term debt to capitalization fell to 26% from 33%, and 2006 share repurchases totaled $247.4 million for 9.4 million shares.
Planned 2007 capital spending is approximately $400 million, including about $200 million for a second structural rolling mill expected to ship in early 2008.

03—Questions

Frequently Asked Questions

How did Steel Dynamics' profitability change in 2006?
Net income rose to $396.7 million, or $3.77 per diluted share, from $221.8 million, or $2.17 per diluted share, in 2005. Gross profit increased to $830.0 million from $485.1 million, and the gross margin percentage was 26% versus 22%.
What drove the increase in sales and shipments?
Net sales increased $1.1 billion, or 48%, to $3.2 billion, while consolidated shipments rose 1.1 million tons, or 30%, to 4.7 million tons. Growth came from higher shipments at each steelmaking operation and from the Roanoke Electric operations acquired in April 2006.
How is the company's balance sheet and debt position?
Total debt, including unamortized bond premium, was $438.9 million at December 31, 2006, and the long-term debt to capitalization ratio was 26%, down from 33%. The $350 million senior secured revolver had $80.0 million outstanding and was classified as a current maturity, and the company stated it was in compliance with its covenants.
What are the main risks and capital plans for 2007?
Key risks include steel imports, Chinese overcapacity, raw material and energy price increases, automotive industry cyclicality, and restrictive debt covenants. The company anticipates spending approximately $400 million on capital projects in 2007, including about $200 million for a second structural rolling mill.

04—Continue

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