01—Abstract
Summary
Summary of the 10-K filed February 23, 2011. Cited figures are marked; the original filing is the authoritative source.
Steel Dynamics, Inc. (STLD) reported a sharp recovery in 2010 from the 2009 downturn.
Net sales were $6.30 billiona in 2010, up from $3.96 billion in 2009 and $8.08 billion in 2008. Operating income rose to $364.8 million from $119.5 million, and net income attributable to Steel Dynamics was $140.7 million, or $0.64 per diluted share, versus a net loss of $8.2 million in 2009. Steel operations drove much of the improvement, with segment operating income of $439.8 million, while metals recycling and ferrous resources operating income reached $19.7 million.
Management expects slow but steady U.S. economic growth in 2011, expects steel consumption to grow in several end markets, and plans capital investments of less than $200 millionb. The balance sheet and financing position remained substantial. Total debt rose to $2.39 billion at December 31, 2010, following the March 2010 issuance of $350 million of 7 5/8% senior notes due 2020.
Cash and equivalents increased to $186.5 millionc, and liquidity increased $403 million to $1.1 billion. The company stated it was in compliance with its financial covenants, with an interest coverage ratio of 3.79 to 1.00 and a total debt ratio of 3.74 to 1.00 at year-end. Mesabi Nugget, the company's iron-nugget facility, produced 75,000 metric tons in 2010 and generated start-up operating losses that reduced consolidated pretax earnings by $42 million, with production expected to ramp toward a 500,000 metric ton annual capacity.
Key risks disclosed include the cyclical nature of steel and scrap markets, import pressure, Chinese overcapacity, raw material and energy cost volatility, and environmental regulation including potential greenhouse gas rules. The company also disclosed ongoing antitrust class actions filed in 2008 alleging price-fixing, and a criminal indictment of its subsidiary OmniSource Corporation in October 2010, which the company is contesting. The company did not state a dollar estimate of exposure for these matters.
02—Key points
Key Highlights
- Net sales of $6.30 billion in 2010, up from $3.96 billion in 2009; operating income of $364.8 million versus $119.5 million.
- Net income attributable to Steel Dynamics of $140.7 million, or $0.64 per diluted share, compared with a net loss of $8.2 million ($0.04 per share) in 2009.
- Steel operations generated operating income of $439.8 million, while metals recycling and ferrous resources generated $19.7 million.
- Total debt increased to $2.39 billion after the March 2010 issuance of $350 million of 7 5/8% senior notes due 2020; no borrowings outstanding under the $924.0 million senior secured revolver at year-end.
- Liquidity increased $403 million to $1.1 billion; cash and equivalents rose to $186.5 million from $9.0 million.
- Mesabi Nugget produced 75,000 metric tons of iron nuggets in 2010, with start-up losses reducing pretax earnings by $42 million; 2011 capacity target is 500,000 metric tons.
- 2011 capital investment plan of less than $200 million; the dividend was $0.30 per share declared in 2010.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Steel Dynamics kept $0.02.
- Revenue$6.30B100.0%
- Cost of revenue−$5.63B89.3%
- Gross profit$675.7M10.7%
- Operating costs−$310.9M4.9%
- Operating income$364.8M5.8%
- Interest, other & tax−$224.0M3.6%
- Net income$140.7M2.2%
Where FY2010 revenue went
$6.30B- Cost of revenue: $5.63B, 89% of revenue
- Net income: $140.7M, 2.2% of revenue
- Operating costs: $310.9M, 4.9% of revenue
- Interest, other & tax: $224.0M, 3.6% of revenue
Kept 2.2% as net incomeNet income $140.7M · 2.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 23, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $6.30B$3.96B | +59.2% |
| Cost of Revenue | $5.63B$3.56B | +58.0% |
| Gross Profit | $675.67M$399.08M | +69.3% |
| Operating Expenses | $310.91M$279.55M | +11.2% |
| Operating Income | $364.75M$119.53M | +205.2% |
| Interest Expense | $170.23M$141.36M | +20.4% |
| Net Income | $140.71M-$8.18M | +1819.3% |
| EPS (Basic) | $0.65$-0.04 | +1725.0% |
| EPS (Diluted) | $0.64$-0.04 | +1700.0% |
| Shares Outstanding (Basic) | 216.76M200.70M | +8.0% |
| Shares Outstanding (Diluted) | 234.72M200.70M | +16.9% |
05—Questions
Frequently Asked Questions
How did Steel Dynamics perform in 2010 compared with 2009?
Net sales rose to $6.30 billion from $3.96 billion, and operating income increased to $364.8 million from $119.5 million. The company reported net income attributable to Steel Dynamics of $140.7 million, or $0.64 per diluted share, compared with a net loss of $8.2 million in 2009. The filing attributes the improvement to higher volumes and pricing as demand recovered in automotive, transportation, industrial and agricultural and construction equipment markets.
What is the company's outlook for 2011?
Management is optimistic about slow but steady U.S. economic growth in 2011, which could increase volumes for both steel and metals recycling operations. It expects steel consumption to grow in the automotive, transportation, energy, industrial, agricultural and construction equipment sectors, and believes residential and non-residential construction activity has likely reached its bottom. The company plans to spend less than $200 million on capital investments in 2011.
How is the company's debt and liquidity position?
Total debt was $2.39 billion at December 31, 2010, up $164.1 million, mainly due to the $350 million 7 5/8% senior notes issued in March 2010. The company had no outstanding borrowings under its $924.0 million senior secured revolving credit facility and $909.0 million of availability. At year-end its interest coverage ratio was 3.79 to 1.00 and its total debt ratio was 3.74 to 1.00, and the company stated it was in compliance with its covenants.
What are the main risks facing investors?
The filing highlights cyclical demand in steel and scrap markets, import competition and Chinese overcapacity, volatility in scrap, pig iron, electricity and natural gas costs, and the risk of passing cost increases to customers. It also cites environmental and climate change regulation, risks associated with the Mesabi Nugget start-up, and litigation. The company describes the antitrust class actions and the OmniSource indictment as contested, but states it cannot predict their outcomes or estimate potential losses.
What is Mesabi Nugget and why does it matter?
Mesabi Nugget is an iron-nugget ironmaking facility in Hoyt Lakes, Minnesota that uses the ITmk3 process licensed from Kobe Steel. The company holds an 81% equity interest, with Kobe Steel holding 19%. It produced 75,000 metric tons in 2010 for use in the company's steel mills, and management expects improved sustainable production in 2011 toward a 500,000 metric ton annual capacity. The filing notes start-up risks and that the company could lose all or part of its investment if the project does not perform as expected.
06—Continue