01—Abstract
Summary
Summary of the 10-K filed February 22, 2010. Cited figures are marked; the original filing is the authoritative source.
Steel Dynamics, Inc. (STLD) reported a challenging 2009 in its Form 10-K filed February 22, 2010.
Net sales fell to $3.96 billiona from $8.08 billion in 2008, and the company posted a net loss attributable to Steel Dynamics, Inc. of $8.2 million, or $0.04 per diluted share, compared with net income of $463.4 million, or $2.38 per diluted share, in 2008. Operating income dropped to $119.5 million from $846.4 million. The company cited a sharp decline in non-residential construction, residential construction and automobile manufacturing activity, which drove lower volumes and prices.
Steel shipments fell 28% and the company recorded an $83.3 millionb non-cash inventory valuation adjustment in the first quarter of 2009. The filing emphasizes balance sheet repair. Total debt decreased $427.6 million to $2.2 billion, largely because a June 2009 common stock offering and $287.5 million of 5.125% convertible senior notes raised net proceeds of about $678.8 million, which were used to prepay the $552.0 million Term A loan.
The total long-term debt to capitalization ratio fell to 53% from 62%, and the first lien leverage ratio was .49x at year-end. Capital investments were $330.1 millionc in 2009, including $223.8 million for the Mesabi Nugget iron-nugget facility, which began producing nuggets in January 2010. Management plans capital investments of less than $150 million in 2010 and expects some improvement in sheet and special bar-quality order logs, but does not anticipate material improvement in fabrication or structural steel.
Key risks disclosed include the cyclical steel and scrap markets, steel import pressure, Chinese overcapacity, covenant restrictions under the senior secured credit agreement, and start-up risk at Mesabi Nugget. The company also faces litigation, including a Prime Eagle lawsuit seeking more than $1.1 billiond (dismissed by the district court and on appeal), a class action antitrust suit against nine steel producers, and a securities suit that was dismissed in December 2009 with no appeal filed.
02—Key points
Key Highlights
- Net sales fell to $3.96 billion in 2009 from $8.08 billion in 2008, and operating income fell to $119.5 million from $846.4 million.
- Net loss attributable to Steel Dynamics was $8.2 million, or $0.04 per diluted share, versus net income of $463.4 million, or $2.38 per diluted share, in 2008.
- Total debt decreased $427.6 million to $2.2 billion, and the total long-term debt to capitalization ratio improved to 53% from 62%.
- June 2009 common stock and 5.125% convertible senior notes offerings raised net proceeds of about $678.8 million, used to prepay the $552.0 million Term A loan.
- Mesabi Nugget iron-nugget facility began producing nuggets on January 12, 2010; the company's total project cost for Mesabi Mining is estimated at about $167 million.
- Planned 2010 capital investments are less than $150 million, with over 50% in steel operations.
- Quarterly dividend was reduced to $.075 per share from $.10 in the second quarter of 2009 to preserve liquidity.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2009, Steel Dynamics lost $0.00.
- Revenue$3.96B100.0%
- Cost of revenue−$3.56B89.9%
- Gross profit$399.1M10.1%
- Operating costs−$279.5M7.1%
- Operating income$119.5M3.0%
- Interest, other & tax−$127.7M3.2%
- Net income−$8.2M0.2%
Where FY2009 revenue went
$3.96B- Cost of revenue: $3.56B, 90% of revenue
- Operating income: $119.5M, 3.0% of revenue
- Operating costs: $279.5M, 7.1% of revenue
Kept 3.0% as operating incomeOperating income $119.5M · 3.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 22, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $3.96B$8.08B | −51.0% |
| Cost of Revenue | $3.56B$6.85B | −48.0% |
| Gross Profit | $399.08M$1.23B | −67.6% |
| Operating Expenses | $279.55M— | — |
| Operating Income | $119.53M$846.37M | −85.9% |
| Interest Expense | $141.36M$144.57M | −2.2% |
| Net Income | -$8.18M$463.39M | −101.8% |
| EPS (Basic) | $-0.04$2.45 | −101.6% |
| EPS (Diluted) | $-0.04$2.38 | −101.7% |
| Shares Outstanding (Basic) | 200.70M189.14M | +6.1% |
| Shares Outstanding (Diluted) | 200.70M194.59M | +3.1% |
05—Questions
Frequently Asked Questions
Why did Steel Dynamics swing to a loss in 2009?
The filing attributes the swing to a severe decline in demand from non-residential construction, residential construction and automobile manufacturing. This reduced volumes and prices, and gross margin fell to 10% from 15%. The company also recorded an $83.3 million non-cash inventory valuation adjustment in the first quarter of 2009, mainly related to falling sheet product prices.
How did the company strengthen its balance sheet in 2009?
In June 2009, the company completed a public offering of 31,050,000 common shares at $13.50 per share and issued $287.5 million of 5.125% convertible senior notes due 2014. Net proceeds of about $678.8 million were used to prepay the $552.0 million Term A loan. The company also amended its senior secured credit agreement to gain covenant flexibility through 2010.
What is the outlook for 2010?
Management remains cautious about demand but says order logs for sheet steel, special bar-quality and ferrous and nonferrous materials are improving. It anticipates higher utilization rates in steel and metals recycling, but does not expect material improvement in fabrication or structural steel. Capital investments are planned at less than $150 million.
What are the main litigation risks?
The company faces a Prime Eagle Group lawsuit seeking damages above $1.1 billion, which was dismissed in February 2009 and is on appeal. It is also one of nine defendants in a class action antitrust complaint filed in September 2008, alleging price-fixing under Section 1 of the Sherman Act. A securities class action was dismissed in December 2009 and plaintiffs did not appeal.
What is the Mesabi Nugget project and why does it matter?
Mesabi Nugget is an iron-nugget manufacturing facility in Hoyt Lakes, Minnesota, using Kobe Steel's ITmk3 process. Steel Dynamics holds an 81% equity interest. The plant is designed to produce 500,000 tonnes annually and is intended to supply iron units to the company's steel mills as a substitute for pig iron. Management expects it will not have a positive impact on segment operating results in 2010 due to start-up costs.
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