01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Steel Dynamics, Inc. (NASDAQ: STLD) reported net sales of $4.38 billiona for 2007, up from $3.24 billion in 2006, with net income of $394.6 million, or $4.02 per diluted share, compared with $396.7 million, or $3.77 per diluted share, in 2006.
Shipments rose to 6.2 million tons, driven by increased volumes at existing steelmaking operations and the acquisitions of The Techs (July 2007) and OmniSource Corporation (October 2007). Gross margin fell to 21%b from 26%, which the company attributed primarily to weaker flat roll steel markets and the lower-margin scrap and galvanizing businesses it acquired. The balance sheet expanded considerably.
Total assets were $4.52 billionc at December 31, 2007, versus $2.25 billion a year earlier, and total debt rose to $2.03 billion, giving a total debt to capitalization ratio of 57% compared with 26% in 2006. The increase reflects the $700 million 7 3/8% senior notes due 2012 and the $500 million 6 3/4% senior notes due 2015, together with a $550 million Term A Loan and borrowings under a $750 million senior secured revolver. Operating cash flow was $428.2 million, and capital expenditures were $395.2 million.
The company repurchased 12.6 million shares for $533.7 milliond in 2007 and declared dividends of $.60 per share. The filing also discloses a lawsuit served on February 1, 2008 by Prime Eagle Group Limited, which alleges damages in excess of $1.1 billion related to a 1998 Thai steel mill start-up.
The company believes the claims are without merit and has not accrued a liability. Management expects gross interest expense to rise in 2008 because of the acquisition financing, and it anticipates an increase in average steel pricing compared with the fourth quarter of 2007.
02—Key points
Key Highlights
- Net sales rose to $4.38 billion in 2007 from $3.24 billion in 2006, and consolidated shipments reached 6.2 million tons.
- Net income was $394.6 million, or $4.02 per diluted share, versus $396.7 million, or $3.77 per diluted share, in 2006.
- Gross margin declined to 21% from 26%, mainly due to weaker flat roll markets and the lower-margin OmniSource and The Techs businesses.
- Total assets increased to $4.52 billion from $2.25 billion, and total debt reached $2.03 billion, with a debt to capitalization ratio of 57% versus 26% in 2006.
- The company acquired OmniSource Corporation for approximately $1.1 billion (October 26, 2007) and The Techs for approximately $373.4 million (July 2, 2007).
- Capital expenditures were $395.2 million in 2007, including construction of a second rolling mill at the Structural and Rail Division and the Mesabi Nugget iron-making project.
- A complaint filed February 1, 2008 by Prime Eagle Group Limited seeks damages in excess of $1.1 billion; the company believes it is without merit and has not accrued a liability.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Steel Dynamics kept $0.09.
- Revenue$4.38B100.0%
- Cost of revenue−$3.47B79.1%
- Gross profit$915.7M20.9%
- Operating costs−$224.9M5.1%
- Operating income$690.7M15.8%
- Interest, other & tax−$296.2M6.8%
- Net income$394.6M9.0%
Where FY2007 revenue went
$4.38B- Cost of revenue: $3.47B, 79% of revenue
- Net income: $394.6M, 9.0% of revenue
- Operating costs: $224.9M, 5.1% of revenue
- Interest, other & tax: $296.2M, 6.8% of revenue
Kept 9.0% as net incomeNet income $394.6M · 9.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 27, 2008Financial Statements
| Revenue | $4.38B |
| Cost of Revenue | $3.47B |
| Gross Profit | $915.69M |
| Operating Income | $690.75M |
| Interest Expense | $55.42M |
| Net Income | $394.57M |
| EPS (Basic) | $2.12 |
| EPS (Diluted) | $2.01 |
| Shares Outstanding (Basic) | 186.32M |
| Shares Outstanding (Diluted) | 196.81M |
05—Questions
Frequently Asked Questions
How did Steel Dynamics perform financially in 2007?
Net sales increased to $4.38 billion from $3.24 billion, and net income was $394.6 million, or $4.02 per diluted share, compared with $396.7 million, or $3.77 per diluted share, in 2006. Net income was nearly flat despite the higher sales because gross margin fell to 21% from 26%.
What drove the increase in debt and total assets?
Total debt rose to $2.03 billion from $438.9 million, mainly to finance the OmniSource acquisition (about $1.1 billion including stock) and The Techs acquisition ($373.4 million). The company issued $700 million of 7 3/8% senior notes due 2012 and $500 million of 6 3/4% senior notes due 2015, and it added a $550 million Term A Loan. Total assets grew to $4.52 billion from $2.25 billion.
What is the lawsuit disclosed in the filing?
On February 1, 2008, Prime Eagle Group Limited served a complaint in the U.S. District Court for the Northern District of Indiana. The plaintiff alleges that the company's consulting work for a Thai steel mini-mill start-up in 1998 caused the mill to fail, and it claims damages in excess of $1.1 billion. The company says the claims are without merit, will vigorously defend the suit, and has not accrued a liability.
What does management expect for 2008?
Management expects gross interest expense to increase because of acquisition-related borrowings. It anticipates stable to increasing margins, supported by recovering flat-rolled order pricing and an expected increase in average steel pricing compared with the fourth quarter of 2007. It plans capital spending of about $460 million, and it plans to increase steelmaking capacity to 6.7 million tons by the end of 2008.
Is the company continuing to return capital to shareholders?
Yes. Steel Dynamics repurchased 12.6 million shares for $533.7 million in 2007 and declared cash dividends of $.60 per share, totaling $55.6 million. Management expects to continue quarterly cash dividends throughout 2008, subject to board discretion and restrictions in its credit agreement and senior notes indenture.
06—Continue