UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended September 30, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-21719
STEEL DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1929476
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) Identification No.)
6714 Pointe Inverness Way, Suite 200, Fort Wayne, IN 46804
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (260) 459-3553
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes [X] No [ ]
As of November 5, 2002, Registrant had outstanding shares of 47,556,779 Common
Stock.
STEEL DYNAMICS, INC.
Table of Contents
PART I. Financial Information
Item 1. Consolidated Financial Statements:
Page
-----
Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001.......... 1
Consolidated Statements of Income for the three and nine-month periods ended
September 30, 2002 and 2001 (unaudited)....................................................... 2
Consolidated Statements of Cash Flows for the three and nine-month periods ended
September 30, 2002 and 2001 (unaudited)....................................................... 3
Notes to Consolidated Financial Statements...................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 12
Item 4. Controls and Procedures.......................................................................... 12
PART II. Other Information
Item 1. Legal Proceedings................................................................................ 13
Item 6. Exhibits and Reports on Form 8-K................................................................. 13
Signature........................................................................................ 14
Certifications of Principal Executive Officer and Principal Financial Officer.................... 14
STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2002 2001
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 24,173 $ 78,241
Accounts receivable, net ................................................ 70,531 65,589
Accounts receivable-related parties ..................................... 22,122 16,290
Inventories ............................................................. 135,487 118,368
Deferred taxes .......................................................... 6,068 24,600
Other current assets .................................................... 3,283 9,116
----------- -----------
Total current assets ........................................... 261,664 312,204
Property, plant, and equipment, net .......................................... 935,708 852,061
Restricted cash .............................................................. 2,606 3,030
Other assets ................................................................. 32,037 12,803
----------- -----------
Total assets ................................................... $ 1,232,015 $ 1,180,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 35,765 $ 30,228
Accounts payable-related parties ........................................ 22,202 11,101
Accrued interest ........................................................ 6,208 4,052
Other accrued expenses .................................................. 40,860 26,697
Current maturities of long-term debt .................................... 27,576 46,033
----------- -----------
Total current liabilities ...................................... 132,611 118,111
Long-term debt, less current maturities ...................................... 522,162 553,891
Deferred taxes ............................................................... 58,350 62,765
Minority interest ............................................................ 4,806 4,769
Other long-term contingent liabilities ....................................... 21,987 21,987
Commitments and contingencies
Stockholders' equity:
Common stock voting, $.01 par value; 100,000,000 shares authorized;
49,941,251 and 49,586,473 shares issued; and 47,555,337 and
45,743,473 shares outstanding, as of September 30, 2002 and
December 31, 2001, respectively ..................................... 499 495
Treasury stock, at cost; 2,385,914 and 3,843,000 shares, at
September 30, 2002 and December 31, 2001, respectively .............. (28,889) (46,526)
Additional paid-in capital .............................................. 346,849 337,733
Retained earnings ....................................................... 180,728 132,229
Other accumulated comprehensive loss .................................... (7,088) (5,356)
----------- -----------
Total stockholders' equity ..................................... 492,099 418,575
----------- -----------
Total liabilities and stockholders' equity ..................... $ 1,232,015 $ 1,180,098
=========== ===========
See notes to consolidated financial statements.
1
STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net Sales:
Unrelated parties ....................................... $ 203,137 $ 129,227 $ 521,848 $ 384,781
Related parties ......................................... 37,560 27,580 99,491 83,751
--------- --------- --------- ---------
Total net sales ..................................... 240,697 156,807 621,339 468,532
Cost of goods sold ........................................... 167,942 134,888 468,167 395,551
--------- --------- --------- ---------
Gross profit ................................................. 72,755 21,919 153,172 72,981
Selling, general and administrative expenses ................. 15,679 12,821 48,546 44,799
--------- --------- --------- ---------
Operating income ........................................ 57,076 9,098 104,626 28,182
Interest expense ............................................. 10,580 5,201 19,875 14,209
Other (income) expense ....................................... (113) 446 3,909 220
--------- --------- --------- ---------
Income before income taxes and extraordinary item ....... 46,609 3,451 80,842 13,753
Income taxes ................................................. 17,478 1,329 30,315 5,295
--------- --------- --------- ---------
Income before extraordinary item ........................ 29,131 2,122 50,527 8,458
Extraordinary loss on debt extinguishment,
net of tax benefit of $1,216 ............................ -- -- 2,028 --
--------- --------- --------- ---------
Net income ................................................... $ 29,131 $ 2,122 $ 48,499 $ 8,458
========= ========= ========= =========
Basic earnings per share:
Income before extraordinary item ........................ $ 0.61 $ 0.05 $ 1.07 $ 0.19
Extraordinary loss on debt extinguishment ............... -- -- (0.04) --
--------- --------- --------- ---------
Net income .............................................. $ 0.61 $ 0.05 $ 1.03 0.19
========= ========= ========= =========
Weighted average number of shares outstanding ................ 47,545 45,723 47,005 45,626
========= ========= ========= =========
Diluted earnings per share:
Income before extraordinary item ........................ $ 0.61 $ 0.05 $ 1.07 $ 0.19
Extraordinary loss on debt extinguishment ............... -- -- (0.05) --
--------- --------- --------- ---------
Net income .............................................. $ 0.61 $ 0.05 $ 1.02 $ 0.19
========= ========= ========= =========
Weighted average number of shares and share
equivalents outstanding ................................. 47,854 45,929 47,354 45,842
========= ========= ========= =========
See notes to consolidated financial statements.
2
STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended Nine Months ended
September 30, September 30,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Operating activities:
Net income .................................................... $ 29,131 $ 2,122 $ 48,499 $ 8,458
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on debt extinguishment ................. -- -- 3,244 --
Depreciation and amortization ............................. 15,716 11,766 43,796 35,605
Deferred income taxes ..................................... 7,427 (1,784) 14,118 (2,097)
Minority interest ......................................... (193) 311 37 861
Changes in certain assets and liabilities:
Accounts receivable .................................. (3,031) 6,706 (10,774) 5,495
Inventories .......................................... (20,731) (522) (17,118) (7,502)
Other assets ......................................... 1,510 11,197 (3,783) 1,543
Accounts payable ..................................... 12,396 64 16,638 15,466
Accrued expenses ..................................... 1,289 (72) 14,486 (4,588)
--------- --------- --------- ---------
Net cash provided by operating activities ................. 43,514 29,788 109,143 53,241
--------- --------- --------- ---------
Net cash used in investing activity:
Purchases of property, plant, and equipment ................... (65,890) (27,307) (125,087) (52,099)
Financing activities:
Issuance of long-term debt .................................... 8,298 11,483 494,213 99,802
Repayments of long-term debt .................................. (10,235) (17,629) (522,399) (98,066)
Issuance of common stock, net of expenses and proceeds
and tax benefits from exercise of stock options ............. 549 298 4,757 1,741
Debt issuance costs ........................................... (810) -- (14,695) --
--------- --------- --------- ---------
Net cash provided by (used in) financing activities ....... (2,198) (5,848) (38,124) 3,477
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ................... (24,574) (3,367) (54,068) 4,619
Cash and cash equivalents at beginning of period ................... 48,747 18,170 78,241 10,184
--------- --------- --------- ---------
Cash and cash equivalents at end of period ......................... $ 24,173 $ 14,803 $ 24,173 $ 14,803
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ........................................ $ 15,691 $ 8,781 $ 27,920 $ 27,087
========= ========= ========= =========
Cash paid for federal and state income taxes .................. $ 2,647 $ 785 $ 6,882 $ 4,398
========= ========= ========= =========
Issuance of common stock from treasury to
extinguish portion of long-term debt ........................ $ -- $ -- $ 22,000 $ --
========= ========= ========= =========
See notes to consolidated financial statements.
3
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Principles of Consolidation. The consolidated financial statements include the
accounts of Steel Dynamics, Inc. (SDI), together with its subsidiaries (the
company), including New Millennium Building Systems LLC, after elimination of
the significant intercompany accounts and transactions. Minority interest
represents the minority shareholders' proportionate share in the equity or
income of the company's consolidated subsidiaries.
Use of Estimates. These financial statements are prepared in conformity with
generally accepted accounting principles and, accordingly, include amounts that
are based on management's estimates and assumptions that affect the amounts
reported in the financial statements and in the notes thereto. Actual results
may differ from those estimates.
In the opinion of management, these financial statements reflect all normal
recurring adjustments necessary for a fair presentation of the interim period
results. These financial statements and notes should be read in conjunction with
the audited financial statements included in the company's 2001 Annual Report on
Form 10-K.
2. Inventories
Inventories are stated at lower of cost (principally standard cost which
approximates actual cost on a first-in, first-out basis) or market. Inventories
consisted of the following (in thousands):
September 30, December 31,
2002 2001
------------- ------------
Raw Materials ........... $ 51,477 $ 44,807
Supplies ................ 50,104 42,258
Work-in-progress ........ 12,140 8,512
Finished Goods .......... 21,766 22,791
-------- --------
$135,487 $118,368
======== ========
3. Earnings Per Share
Diluted earnings per share amounts are based upon the weighted average number of
common and common equivalent shares outstanding during the year. Common
equivalent shares are excluded from the computation in periods in which they
have an anti-dilutive effect. The difference between basic and diluted earnings
per share for the company is solely attributable to the dilutive effect of stock
options. The reconciliations of the weighted average common shares for basic and
diluted earnings per share for the three and nine-month periods ended September
30 are as follows (in thousands):
Three Months Ended Nine Months Ended
-------------------- --------------------
2002 2001 2002 2001
------ ------ ------ ------
Basic weighted average common shares outstanding ........ 47,545 45,723 47,005 45,626
Dilutive effect of stock options ........................ 309 206 349 216
------ ------ ------ ------
Diluted weighted average common shares
and share equivalents outstanding .................... 47,854 45,929 47,354 45,842
====== ====== ====== ======
4. Comprehensive Income
The following table presents the company's components of comprehensive income
(loss), net of related tax, for the three and nine-month periods ended September
30 (in thousands):
Three Months Ended Nine Months Ended
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income available to common shareholders ............ $ 29,131 $ 2,122 $ 48,499 $ 8,458
Cumulative effect of an accounting change ......... -- -- -- (2,468)
Unrealized loss on derivative instrument .......... (966) (2,752) (1,548) (3,726)
-------- -------- -------- --------
Comprehensive income (loss) ............................ $ 28,165 $ (630) $ 46,951 $ 2,264
======== ======== ======== ========
The company realized no net gain or loss from hedging activities during the
three month period ended September 30, 2002 and realized a gain of approximately
$45,000 for the nine-month period ended September 30, 2002, which resulted in a
net effect of zero for the period since inception of the hedge. The company
realized a gain of approximately $41,000 for the three-month period ended
September 30, 2001, which resulted in a net effect of zero for the nine months
ended September 30, 2001.
4
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Segment Information
The company has two reportable segments: steel operations and steel scrap
substitute operations. The steel operations segment includes the company's flat
rolled division and structural and rail division. The flat rolled division sells
a broad range of hot-rolled, cold-rolled and coated steel products, including a
large variety of specialty products such as thinner gauge hot-rolled products
and galvanized products. The flat rolled division sells directly to end-users
and service centers located primarily in the Midwestern United States and these
products are used in numerous industry sectors, including the automotive,
construction and commercial industries. The company began significant
construction of its structural and rail division in May 2001 and commenced
limited structural production in June 2002. The company expects to ramp up the
structural operations through regular product introductions and be fully
operational by the end of 2002. In addition, the company expects to commence
production of rails during the first quarter of 2003. This facility is designed
to produce and sell structural steel beams, pilings, and other steel components
directly to end-users and service centers for the construction, transportation
and industrial machinery markets. This facility is also designed to produce and
sell a variety of standard and premium grade rails for the railroad industry.
Steel scrap substitute operations include the revenues and expenses associated
with the company's wholly owned subsidiary, Iron Dynamics. Since operational
start-up processes at Iron Dynamics were halted in 2001, IDI's costs are
composed of those expenses required to maintain the facility and further
evaluate the project and its related benefits.
Revenues included in the category "All Other" are from two subsidiary operations
that are below the quantitative thresholds required for reportable segments.
These revenues are from the fabrication of trusses, girders, steel joist and
steel decking for the non-residential construction industry; from the further
processing, or slitting, and sale of certain steel products; and from the resale
of certain secondary and excess steel products. In addition, "All Other" also
includes certain unallocated corporate accounts, such as the company's senior
secured credit facilities, senior unsecured notes, and certain other
investments.
The company's operations are primarily organized and managed by operating
segment. Operating segment performance and resource allocations are primarily
based on operating results before income taxes. The accounting policies of the
reportable segments are consistent with those described in Note 1 to the
financial statements. Intersegment sales and any related profits are eliminated
in consolidation. The external net sales of the company's steel operations
include sales to non-U.S. companies of $2.7 and $2.0 million for the three
months ended September 30, 2002 and 2001 and $6.7 million and $5.1 million for
the nine months ended September 30, 2002 and 2001, respectively. Segment results
for the three and nine-month periods ended September 30 are as follows (in
thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
STEEL OPERATIONS
Net sales
External $ 221,312 $ 137,374 $ 558,816 $ 420,709
Other segments 12,710 10,251 37,947 24,072
Operating income 63,311 12,288 120,737 48,877
Assets 1,021,477 870,087 1,021,477 870,087
----------- ----------- ----------- -----------
STEEL SCRAP SUBSTITUTE OPERATIONS
Net sales
External $ -- $ -- $ -- $ --
Other segments -- -- -- 4,660
Operating loss (2,271) (2,046) (7,086) (11,440)
Assets 151,404 155,106 151,404 155,106
----------- ----------- ----------- -----------
ALL OTHER
Net sales
External $ 19,385 $ 19,433 $ 62,523 $ 47,823
Other segments 162 18 488 696
Operating loss (4,293) (871) (7,948) (8,348)
Assets 160,150 149,745 160,150 149,745
----------- ----------- ----------- -----------
ELIMINATIONS
Net sales
External $ -- $ -- $ -- $ --
Other segments (12,872) (10,269) (38,435) (29,428)
Operating income (loss) 329 (273) (1,077) (907)
Assets (101,016) (86,465) (101,016) (86,465)
----------- ----------- ----------- -----------
CONSOLIDATED
Net sales $ 240,697 $ 156,807 $ 621,339 $ 468,532
Operating income 57,076 9,098 104,626 28,182
Assets 1,232,015 1,088,473 1,232,015 1,088,473
=========== =========== =========== ===========
5
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Condensed Consolidating Information
Certain 100% owned subsidiaries of SDI, one of which was incorporated in 2000
and the others in 2002 have fully and unconditionally guaranteed all of the
indebtedness relating to the issuance of $200.0 million of Senior Notes in March
2002 and due 2009. Set forth below are condensed consolidating financial
statements of the company, including the guarantors. The following condensed
consolidating financial statements present the financial position, results of
operations and cash flows of (i) SDI (in each case, reflecting investments in
its consolidated subsidiaries under the equity method of accounting), (ii) the
guarantor subsidiaries of SDI, (iii) the non-guarantor subsidiaries of SDI, and
(iv) the eliminations necessary to arrive at the information for the company on
a consolidated basis. The condensed consolidating financial statements should be
read in conjunction with the accompanying consolidated financial statements of
the company and the company's Report on Form 10-K for the year ended December
31, 2001.
Condensed Consolidating Balance Sheets (in thousands):
COMBINED CONSOLIDATING TOTAL
AS OF SEPTEMBER 30, 2002 PARENT GUARANTORS NON-GUARANTORS ADJUSTMENTS CONSOLIDATED
----------- ----------- -------------- ------------- ------------
Cash .............................................. $ 19,549 $ 214 $ 4,410 $ -- $ 24,173
Accounts receivable ............................... 91,975 -- 10,576 (9,898) 92,653
Inventories ....................................... 119,315 -- 17,415 (1,243) 135,487
Other current assets .............................. 9,589 -- 38 (276) 9,351
----------- ----------- ----------- ----------- -----------
Total current assets ........................... 240,428 214 32,439 (11,417) 261,664
Property, plant and equipment, net ................ 750,943 45,408 139,463 (106) 935,708
Other assets ...................................... 199,376 43,713 257 (208,703) 34,643
----------- ----------- ----------- ----------- -----------
Total assets ................................... $ 1,190,747 $ 89,335 $ 172,159 $ (220,226) $ 1,232,015
=========== =========== =========== =========== ===========
Accounts payable .................................. $ 43,013 $ 13,286 $ 11,565 $ (9,897) $ 57,967
Accrued expenses .................................. 44,271 125 2,734 (62) 47,068
Current maturities of long-term debt .............. 11,592 -- 16,002 (18) 27,576
----------- ----------- ----------- ----------- -----------
Total current liabilities ...................... 98,876 13,411 30,301 (9,977) 132,611
Other liabilities ................................. 81,307 -- (838) (132) 80,337
Long-term debt .................................... 516,353 -- 8,506 (2,697) 522,162
Minority interest ................................. 629 -- -- 4,177 4,806
Common stock ...................................... 499 45,332 172,164 (217,496) 499
Treasury stock .................................... (28,889) -- -- -- (28,889)
Additional paid in capital ........................ 346,849 16 -- (16) 346,849
Retained earnings ................................. 182,027 30,576 (37,790) 5,915 180,728
Other accumulated comprehensive loss .............. (6,904) -- (184) -- (7,088)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity ..................... 493,582 75,924 134,190 (211,597) 492,099
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity ..... $ 1,190,747 $ 89,335 $ 172,159 $ (220,226) $ 1,232,015
=========== =========== =========== =========== ===========
AS OF DECEMBER 31, 2001
Cash .............................................. $ 77,407 $ 83 $ 751 $ -- $ 78,241
Accounts receivable ............................... 78,461 -- 10,375 (6,957) 81,879
Inventories ....................................... 100,709 -- 17,680 (21) 118,368
Other current assets .............................. 32,973 (16) 1,095 (336) 33,716
----------- ----------- ----------- ----------- -----------
Total current assets ........................... 289,550 67 29,901 (7,314) 312,204
Property, plant and equipment, net ................ 703,896 -- 148,270 (105) 852,061
Other assets ...................................... 90,044 7,822 1,405 (83,438) 15,833
----------- ----------- ----------- ----------- -----------
Total assets ................................... $ 1,083,490 $ 7,889 $ 179,576 $ (90,857) $ 1,180,098
=========== =========== =========== =========== ===========
Accounts payable .................................. $ 40,081 $ 1 $ 8,204 $ (6,957) $ 41,329
Accrued expenses .................................. 28,165 -- 2,585 (1) 30,749
Current maturities of long-term debt .............. 2,337 -- 43,696 -- 46,033
----------- ----------- ----------- ----------- -----------
Total current liabilities ...................... 70,583 1 54,485 (6,958) 118,111
Other liabilities ................................. 61,308 -- 2,728 20,716 84,752
Long-term debt .................................... 532,350 -- 21,876 (335) 553,891
Minority interest ................................. 639 -- -- 4,130 4,769
Common stock ...................................... 495 1 133,351 (133,352) 495
Treasury stock .................................... (46,526) -- -- -- (46,526)
Additional paid in capital ........................ 337,733 16 -- (16) 337,733
Retained earnings ................................. 132,264 7,871 (32,864) 24,958 132,229
Other accumulated comprehensive loss .............. (5,356) -- -- -- (5,356)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity ..................... 418,610 7,888 100,487 (108,410) 418,575
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity ..... $1,083,490$ 7,889 $ 179,576 $ (90,857) $ 1,180,098
=========== =========== =========== =========== ===========
6
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Income (in thousands):
FOR THE THREE MONTHS ENDED,
SEPTEMBER 30, 2002
COMBINED CONSOLIDATING TOTAL
PARENT GUARANTORS NON-GUARANTORS ADJUSTMENTS CONSOLIDATED
--------- ---------- -------------- ------------- ------------
Net sales .......................................... $ 234,022 $ -- $ 19,547 $ (12,872) $ 240,697
Cost of good sold .................................. 161,246 -- 19,576 (12,880) 167,942
--------- --------- --------- --------- ---------
Gross profit .................................... 72,776 -- (29) 8 72,755
Selling, general and administration ................ 13,518 97 2,385 (321) 15,679
--------- --------- --------- --------- ---------
Operating income (loss) ............................ 59,258 (97) (2,414) 329 57,076
Interest expense ................................... 10,209 -- 440 (69) 10,580
Other (income) expense ............................. 13,883 (14,092) (7) 103 (113)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
equity in net loss of subsidiaries ............ 35,166 13,995 (2,847) 295 46,609
Income tax (expense) benefit .................... (13,298) (5,248) 1,068 -- 17,478
Equity in net income of subsidiaries ............ 7,017 -- -- (7,017) --
--------- --------- --------- --------- ---------
Net income (loss) .................................. $ 28,885 $ 8,747 $ (1,779) $ (6,722) $ 29,131
========= ========= ========= ========= =========
FOR THE THREE MONTHS ENDED,
SEPTEMBER 30, 2001
Net sales .......................................... $ 147,624 $ -- $ 19,452 $ (10,269) $ 156,809
Cost of good sold .................................. 127,087 -- 18,080 (10,279) 134,888
--------- --------- --------- --------- ---------
Gross profit .................................... 20,537 -- 1,372 10 21,919
Selling, general and administration ................ 10,061 5 2,472 283 12,821
--------- --------- --------- --------- ---------
Operating income (loss) ............................ 10,476 (5) (1,100) (273) 9,098
Interest expense ................................... 3,727 -- 2,036 (562) 5,201
Other (income) expense ............................. 9,066 (9,172) (9) 562 447
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
equity in net loss of subsidiaries ............ (2,317) 9,167 (3,127) (273) 3,450
Income tax (expense) benefit .................... 997 (3,529) 1,204 -- (1,328)
Equity in net income of subsidiaries ............ 3,715 -- -- (3,715) --
--------- --------- --------- --------- ---------
Net income (loss) .................................. $ 2,395 $ 5,638 $ (1,923) $ (3,988) $ 2,122
========= ========= ========= ========= =========
Condensed Consolidating Statement of Income (in thousands):
FOR THE NINE MONTHS ENDED,
SEPTEMBER 30, 2002
COMBINED CONSOLIDATING TOTAL
PARENT GUARANTORS NON-GUARANTORS ADJUSTMENTS CONSOLIDATED
--------- ---------- -------------- ------------- ------------
Net sales .......................................... $ 596,764 $ -- $ 63,010 $ (38,435) $ 621,339
Cost of good sold .................................. 443,867 -- 61,513 (37,213) 468,167
--------- --------- --------- --------- ---------
Gross profit .................................... 152,897 -- 1,497 (1,222) 153,172
Selling, general and administration ................ 41,516 104 7,070 (144) 48,546
--------- --------- --------- --------- ---------
Operating income (loss) ............................ 111,381 (104) (5,573) (1,078) 104,626
Interest expense ................................... 18,330 -- 1,627 (82) 19,875
Other (income) expense ............................. 39,819 (36,063) (17) 170 3,909
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
equity in net income of subsidiaries
and extraordinary items ........................ 53,232 35,959 (7,183) (1,166) 80,842
Income tax (expense) benefit ....................... (19,780) (13,257) 2,722 -- (30,315)
--------- --------- --------- --------- ---------
Income (loss) before equity in net income
of subsidiaries and extraordinary items ......... 33,452 22,702 (4,461) (1,166) 50,527
Extraordinary loss on debt extinguishment,
net of tax benefit of $1,216 .................... (1,564) -- (464,) -- (2,028)
Equity in net income of subsidiaries ............... 17,826 -- -- (17,826) --
--------- --------- --------- --------- ---------
Net income (loss) .................................. $ 49,714 $ 22,702 $ (4,925) $ (18,992) $ 48,499
========= ========= ========= ========= =========
7
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
COMBINED CONSOLIDATING TOTAL
PARENT GUARANTORS NON-GUARANTORS ADJUSTMENTS CONSOLIDATED
--------- ---------- -------------- ------------- ------------
Net sales ....................................... $ 444,782 $ -- $ 53,178 $ (29,427) $ 468,533
Cost of good sold ............................... 378,153 -- 46,713 (29,315) 395,551
--------- --------- --------- --------- ---------
Gross profit ................................. 66,629 -- 6,465 (112) 72,982
Selling, general and administration ............. 27,546 12 16,772 470 44,800
--------- --------- --------- --------- ---------
Operating income (loss) ......................... 39,083 (12) 10,307 (582) 28,182
Interest expense ................................ 12,509 -- 3,002 (1,302) 14,209
Other (income) expense .......................... 26,375 (27,446) (9) 1,301 221
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
equity in net income of subsidiaries ......... 199 27,434 (13,300) (581) 13,752
Income tax (expense) benefit .................... 149 (10,254) 5,109 -- (5,294)
Equity in net income of subsidiaries ............ 8,990 -- -- (8,990) --
--------- --------- --------- --------- ---------
Net income (loss) ............................... $ 9,040 $ 17,180 $ (8,191) $ (9,571) $ 8,458
========= ========= ========= ========= =========
Condensed Consolidating Statements of Cash Flows (in thousands):
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002 COMBINED TOTAL
PARENT GUARANTORS NON-GUARANTORS CONSOLIDATED
--------- ---------- -------------- ------------
Net cash provided by operations ............................. $ 106,436 $ 131 $ 2,576 $ 109,143
Net cash provided by (used in) investing activities ......... (129,069) -- 3,982 (125,087)
Net cash used in financing activities ....................... (35,225) -- (2,899) (38,124)
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ............ (57,858) 131 3,659 (54,068)
Cash and cash equivalents at beginning of year .............. 77,407 83 751 78,241
--------- --------- --------- ---------
Cash and cash equivalents at end of year .................... $ 19,549 $ 214 $ 4,410 $ 24,173
========= ========= ========= =========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net cash provided by (used in) operations ................... $ 40,243 $ 33,492 $ (20,494) $ 53,241
Net cash used in investing activities ....................... (46,195) -- (5,904) (52,099)
Net cash provided by (used in) financing activities ......... 11,028 (33,440) 25,889 3,477
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ............ 5,076 52 (509) 4,619
Cash and cash equivalents at beginning of year .............. 8,924 40 1,220 10,184
--------- --------- --------- ---------
Cash and cash equivalents at end of year .................... $ 14,000 $ 92 $ 711 $ 14,803
========= ========= ========= =========
7. Pittsboro, Indiana Acquisition
On July 29, 2002, the company announced that it entered into a definitive
agreement with Qualitech Steel SBQ LLC to purchase Qualitech's special bar
quality mini-mill assets located in Pittsboro, Indiana. The company agreed to
pay $45 million for the assets and announced plans to invest between $60 and $70
million of additional capital to convert the Qualitech mini-mill to the
production of between 500,000 and 600,000 annual tons of merchant and
reinforcing bar products. The company agreed to close the transaction within 25
days, subject to certain conditions and approvals. However, on August 2, 2002,
Nucor Corporation filed suit against Qualitech Steel SBQ LLC in Hendricks
County, Indiana Superior Court, seeking to enjoin Qualitech from selling its
assets to the company by reason of rights they allege under a prior purchase
agreement. On August 6, 2002, the court entered a temporary restraining order
prohibiting Qualitech from closing under the company's purchase agreement
pending a preliminary injunction hearing scheduled for August 19, 2002. On
August 7, 2002, the company intervened in this lawsuit to assert its rights
under its purchase agreement with Qualitech. On August 19, 2002, after the
conclusion of evidence at the preliminary injunction hearing, the Hendricks
County, Indiana Superior Court ruled that Nucor "has little, if any, chance of
prevailing at a trial based upon the evidence presented" and denied Nucor's
injunction request. On August 20, 2002, Nucor filed a notice of appeal to the
Indiana Court of Appeals, and the appeal is currently pending. On September 6,
2002, the company closed the purchase and acquired the asset, not withstanding
the pendency for the litigation. Discovery is continuing and the court has set a
date of January 13, 2003, for a trial on the merits.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward looking statements that involve
numerous risks and uncertainties. Our actual results could differ materially
from those discussed in the forward looking statements as a result of these
risks and uncertainties, including those set forth in our Form 10-K under
"Forward Looking Statements" and under "Risk Factors." You should read the
following discussion in conjunction with "Selected Financial Data" set forth in
our Form 10-K and our consolidated financial statements and notes appearing
elsewhere in this filing.
OVERVIEW
We own and operate two state-of-the-art, low-cost mini-mills: a flat-rolled
mini-mill located in Butler, Indiana, with an estimated annual production
capacity of 2.2 million tons, and a newly built structural steel and rail
mini-mill located in Columbia City, Indiana, with an annual production capacity
of 1.3 million tons, depending on product mix. We are currently operating our
Butler mini-mill at an annualized capacity of 2.4 million tons to meet current
market demand; however, we may not be able to sustain this elevated production
level through the remainder of the year.
Our Butler mini-mill produces a broad range of high quality hot-rolled,
cold-rolled and coated steel products, including a large variety of high
value-added and high margin specialty products such as thinner gauge rolled
products and galvanized products. We sell these products directly to end-users,
intermediate steel processors and steel service centers primarily in the
Midwestern United States. Our products are used in numerous industry sectors,
including the automotive, construction and commercial industries. In May 2002,
we announced plans to construct a low-cost, coil coating facility at our Butler
mini-mill that will further increase our range of value-added capabilities. We
have started construction of the facility and expect to commence coating
operations in the middle of 2003. The coating facility is currently expected to
have an annual production capacity of 240,000 tons and is estimated to cost
between $25 and $30 million.
In May 2001, we began construction of a new state-of-the-art structural steel
and rail mini-mill in Columbia City, Indiana. Our Columbia City mini-mill is
designed to have an annual production capacity of up to 1.3 million tons and
produce structural steel and rails at a higher quality and lower cost than
comparable mills. We expect to spend approximately $315 million to construct
this mini-mill, of which approximately $298 million has been spent as of
September 30, 2002. We commenced structural steel operations and shipped our
first structural products to initial customers in late June 2002. We expect to
ramp up these operations through regular product introductions and be fully
operational by the first quarter 2003. In addition, we expect to commence
production of standard rail during the first quarter of 2003 and premium rail
during the second quarter of 2003. Our structural steel operation is designed to
produce steel products for the construction, transportation and industrial
machinery markets. Our rail manufacturing operation is designed to produce a
variety of rail products for the railroad industry.
On July 29, 2002, the company announced that it entered into a definitive
agreement with Qualitech Steel SBQ LLC to purchase Qualitech's special bar
quality mini-mill assets located in Pittsboro, Indiana. The company agreed to
pay $45 million for the assets and announced plans to invest between $60 and $70
million of additional capital to convert the Qualitech mini-mill to the
production of between 500,000 and 600,000 annual tons of merchant and
reinforcing bar products. The company agreed to close the transaction within 25
days, subject to certain conditions and approvals. However, on August 2, 2002,
Nucor Corporation filed suit against Qualitech Steel SBQ LLC in Hendricks
County, Indiana Superior Court, seeking to enjoin Qualitech from selling its
assets to the company by reason of rights they allege under a prior purchase
agreement. On August 6, 2002, the court entered a temporary restraining order
prohibiting Qualitech from closing under the company's purchase agreement
pending a preliminary injunction hearing scheduled for August 19, 2002. On
August 7, 2002, the company intervened in this lawsuit to assert its rights
under its purchase agreement with Qualitech. On August 19, 2002, after the
conclusion of evidence at the preliminary injunction hearing, the Hendricks
County, Indiana Superior Court ruled that Nucor "has little, if any, chance of
prevailing at a trial based upon the evidence presented" and denied Nucor's
injunction request. On August 20, 2002, Nucor filed a notice of appeal to the
Indiana Court of Appeals, and the appeal is currently pending. On September 6,
2002, the company closed the purchase and acquired the asset, not withstanding
the pendency for the litigation. Discovery is continuing and the court has set a
date of January 13, 2003, for a trial on the merits.
NET SALES
Our total net sales are a factor of net tons shipped, product mix and related
pricing. Our net sales are determined by subtracting product returns, sales
discounts, return allowances and claims from total sales. We charge premium
prices for certain grades of steel, dimensions of product, or certain smaller
volumes, based on our cost of production. We also charge marginally higher
prices for our value-added products from our cold mill. These products include
hot-rolled and cold-rolled galvanized products and cold-rolled products.
COST OF GOODS SOLD
Our cost of goods sold represents all direct and indirect costs associated with
the manufacture of our products. The principal elements of these costs are steel
scrap and scrap substitutes, alloys, natural gas, argon, direct and indirect
labor benefits, electricity, oxygen, electrodes and depreciation. Steel scrap
and scrap substitutes represent the most significant component of our cost of
goods sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses are comprised of all costs
associated with our sales, finance and accounting, materials and transportation,
and administrative departments. These costs include labor and benefits,
professional services, financing cost amortization, property taxes, profit
sharing expense and start-up costs associated with new projects.
9
INTEREST EXPENSE
Interest expense consists of interest associated with our senior credit
facilities and other debt agreements as described in the notes to our financial
statements set forth in our Form 10K, net of capitalized interest costs that are
related to construction expenditures during the construction period of capital
projects.
OTHER (INCOME) EXPENSE
Other income consists of interest income earned on our cash balances and any
other non-operating income activity, including insurance proceeds from
litigation efforts. Other expense consists of any non-operating costs, including
permanent impairments of reported investments and settlement costs from
litigation efforts.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001
Net Sales. Our net sales were $240.7 million, with total shipments of 598,000
net tons for the three months ended September 30, 2002, as compared to net sales
of $156.8 million, with total shipments of 500,000 net tons for the three months
ended September 30, 2001, an increase in net sales of $83.9 million, or 53%, and
an increase in total shipments of 98,000 net tons, or 20%. During the third
quarter of 2002, the average consolidated selling price per ton increased
approximately $89, or 28%, in comparison to the same period in 2001 and
increased approximately $63, or 19%, in comparison to the second quarter of
2002. We are currently experiencing similar selling prices in our order backlog
for the fourth quarter of 2002.
We sold approximately 16% and 17% of our net sales to Heidtman Steel Products,
Inc (or affiliates) (Heidtman) for the three months ended September 30, 2002 and
2001, respectively.
Cost of Goods Sold. Cost of goods sold was $167.9 million for the three months
ended September 30, 2002, as compared to $134.9 million for the three months
ended September 30, 2001, an increase of $33.0 million, or 25%, which was
primarily volume related. As a percentage of net sales, cost of goods sold
represented approximately 70% and 86% for the three months ended September 30,
2002 and 2001, respectively. During the third quarter, this reduction in cost of
goods sold as a percentage of net sales is primarily the direct result of
operating efficiencies derived from increased production levels. Steel scrap
represented approximately 51% and 46% of our total cost of goods sold for the
three months ended September 30, 2002 and 2001, respectively. We experienced a
steady decline in scrap pricing from the second quarter of 2000 through the
first quarter of 2002; however, this downward trend ended in the second quarter
of 2002. The average scrap cost per hot band ton produced during the third
quarter of 2002 averaged $29, or 29%, more than in the first quarter of 2002 and
averaged $14, or 11%, more than the third quarter of 2001. We experienced a
narrowing of our gross margin throughout 2001 as our average sales price per ton
decreased more rapidly than our average scrap cost per ton; however, during the
second quarter of 2002, our gross margin strengthened as our average product
pricing increased by a greater degree than our average scrap cost. Our gross
margin continued to strengthen during the third quarter of 2002 as scrap pricing
remained competitive and as we realized greater efficiencies through increased
production.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $15.7 million for the three months ended September
30, 2002, as compared to $12.8 million for the three months ended September 30,
2001, an increase of $2.9 million, or 22%. This increase is primarily the result
of increased performance-related employee incentive programs. As a percentage of
net sales, selling, general and administrative expenses represented
approximately 7% and 8% for the three months ended September 30, 2002 and 2001,
respectively. During the three months ended September 30, 2002, we did not incur
start-up expenses classified as selling, general and administrative costs. The
costs related to the production ramp-up at our structural and rail mill were
recorded within cost of goods sold, as compared to start-up costs of $2.4
million for the three months ended September 30, 2001, which were recorded as
part of selling, general and administrative costs.
Interest Expense. Interest expense was $10.6 million for the three months ended
September 30, 2002, as compared to $5.2 million for the three months ended
September 30, 2001, an increase of $5.4 million, or 103%. Gross interest expense
increased 33% to $11.1 million and capitalized interest decreased 83% to
$541,000, for the three months ended September 30, 2002, as compared to the same
period in 2001. This decrease resulted from the reduction of interest required
to be capitalized with respect to our structural and rail mill since
construction was substantially complete at June 30, 2002.
Other (Income) Expense. Other income was $113,000 and other expense was $446,000
for the three months ended September 30, 2002 and 2001, respectively, resulting
in an increase to income of $559,000, or 125%.
Income Taxes. Our income tax provision was $17.5 million for the three months
ended September 30, 2002, as compared to $1.3 million for the same period in
2001, an increase of $16.2 million. Our effective tax rate was 37.5% during
2002, as compared to 38.5% during 2001. During the fourth quarter of 2001, we
recorded a $1.9 million deferred tax asset valuation allowance related to
foreign tax credits that may not be fully realized. This allowance is still
outstanding at September 30, 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net Sales. Our net sales were $621.3 million, with total shipments of 1,788,000
net tons for the nine months ended September 30, 2002, as compared to net sales
of $468.5 million, with total shipments of 1,498,000 net tons for the nine
months ended September 30, 2001, an increase
10
in net sales of $152.8 million, or 33%, and an increase in total shipments of
290,000 net tons, or 19%. During the first nine months of 2002, the average
consolidated selling price per ton increased approximately $35, or 11%, in
comparison to the same period in 2001. We sold approximately 16% and 18% of our
net sales to Heidtman for the nine months ended September 30, 2002 and 2001,
respectively.
Cost of Goods Sold. Cost of goods sold was $468.2 million for the nine months
ended September 30, 2002, as compared to $395.6 million for the nine months
ended September 30, 2001, an increase of $72.6 million, or 18%, which was
primarily volume related. As a percentage of net sales, cost of goods sold
represented approximately 75% and 84% for the nine months ended September 30,
2002 and 2001, respectively. Steel scrap represented approximately 46% and 45%
of our total cost of goods sold for the nine months ended September 30, 2002 and
2001, respectively. We experienced a steady decline in scrap pricing from the
second quarter of 2000 through the first quarter of 2002; however, this downward
trend ended in the second quarter of 2002. The average scrap cost per hot band
ton produced during the first nine months of 2002 averaged $2, or 2%, more than
in the same period of 2001. We experienced a narrowing of our gross margin
throughout 2001 as our average sales price per ton decreased more rapidly than
our average scrap cost per ton; however, during the second quarter of 2002, our
gross margin strengthened as our average product pricing increased by a greater
degree than our average scrap cost. Our gross margin continued to strengthen
during the third quarter of 2002 as scrap pricing remained competitive and as we
realized greater efficiencies through increased production.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $48.5 million for the nine months ended September
30, 2002, as compared to $44.8 million for the nine months ended September 30,
2001, an increase of $3.7 million, or 8%. This increase is primarily the result
of increased performance-related employee incentive programs. As a percentage of
net sales, selling, general and administrative expenses represented
approximately 8% and 10% for the nine months ended September 30, 2002 and 2001,
respectively. Start-up costs were $13.0 million, all of which were related to
construction and production ramp-up of our structural and rail mill, for the
nine months ended September 30, 2002, as compared to start-up costs of $16.4
million, of which Iron Dynamics represents $11.0 million, for the nine months
ended September 30, 2001, a decrease of $3.4 million, or 21%.
Interest Expense. Interest expense was $19.9 million for the nine months ended
September 30, 2002, as compared to $14.2 million for the nine months ended
September 30, 2001, an increase of $5.7 million, or 40%. Gross interest expense
increased 15% to $30.6 million and capitalized interest decreased 1% to $10.7
million, for the nine months ended September 30, 2002, as compared to the same
period in 2001. This decrease resulted from the reduction of interest required
to be capitalized with respect to our structural and rail mill since
construction was substantially complete at June 30, 2002. The 15% increase in
our year to date gross interest expense despite a less than 1% increase in net
debt (total debt, including other long-term contingent liabilities, less cash
and cash equivalents) was due to an increase in our average interest rate
primarily driven by the March 26, 2002, refinancing of our capital structure, in
which we introduced higher priced public debt components
Other (Income) Expense. Other expense was $3.9 million for the nine months ended
September 30, 2002, as compared to $220,000 for the nine months ended September
30, 2001, an increase of $3.7 million. During the first quarter of 2002, we
recorded settlement costs in association with the Nakornthai Strip Mill Public
Company Ltd. (NSM) related lawsuits. On May 6, 2002, we settled the remaining
NSM-related lawsuit, which was outstanding on March 31, 2002. Accordingly, we
reflected a settlement cost of $4.5 million, net of any insurance proceeds, in
our financial results for the first quarter of 2002.
Income Taxes. Our income tax provision was $30.3 million, net of a $1.2 million
tax benefit related to our extraordinary loss on debt extinguishment, for the
nine months ended September 30, 2002, as compared to $5.3 million for the same
period in 2001. Our effective tax rate was 37.5% during 2002, as compared to
38.5% during 2001. During the fourth quarter of 2001, we recorded a $1.9 million
deferred tax asset valuation allowance related to foreign tax credits that may
not be fully realized. This allowance is still outstanding at September 30,
2002.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires substantial expenditures for,
among other things, the purchase and maintenance of equipment used in our
steelmaking and finishing operations and to remain compliant with environmental
laws. Our short-term and long-term liquidity needs arise primarily from capital
expenditures, working capital requirements and principal and interest payments
related to our outstanding indebtedness. We have met these liquidity
requirements with cash provided by operations, equity, long-term borrowings,
state and local grants and capital cost reimbursements.
CASH FLOWS
For the nine months ended September 30, 2002, cash provided by operating
activities was $109.1 million, as compared to $53.2 million for the nine months
ended September 30, 2001, an increase of $55.9 million, or 105%. Cash used in
investing activities, which represented capital investments, was $125.1 million
and $52.1 million for the nine months ended September 30, 2002 and 2001,
respectively. Approximately 63% of our capital investment costs incurred during
the first nine months of 2002 were utilized in construction efforts related to
our structural steel and rail mill and substantially all of the remaining costs
incurred related to our third quarter purchase of the steel producing assets
located in Pittsboro, Indiana. Cash used in financing activities was $38.1
million for the nine months ended September 30, 2002, as compared to cash
provided by financing activities of $3.5 million for the nine months ended
September 30, 2001. This decrease in funds due to financing activities was the
result of our change in capital structure after the first quarter 2002
refinancing activities and the result of a decrease in debt associated with Iron
Dynamics due to an agreement with the Iron Dynamics lenders to extinguish the
debt under the Iron Dynamics credit agreement at the end of March 2002.
11
On January 28, 2002, we entered into an agreement with the Iron Dynamics lenders
to extinguish the debt under the Iron Dynamics credit agreement at the end of
March 2002. We complied with each of the settlement requirements, thus
constituting full and final settlement of all of Iron Dynamics' obligations and
our guarantees under the IDI credit agreement, causing the IDI credit agreement
to terminate. In meeting the requirements of the settlement agreement, we paid
$15.0 million in cash and issued an aggregate of $22.0 million, or 1.5 million
shares of our common stock during March 2002. In addition, if IDI resumes
operations by January 27, 2007, and generates positive cash flow (as defined in
the settlement agreement), we are required to make contingent future payments in
an aggregate amount not to exceed $22.0 million.
LIQUIDITY
We believe the principal indicators of our liquidity are our cash position,
remaining availability under our bank credit facilities and excess working
capital. During the nine months ended September 30, 2002, our cash position
decreased $54.1 million to $24.2 million and our working capital position
decreased $65.0 million, or 34%, to $129.1 million, as compared to December 31,
2001. As of September 30, 2002, $75.0 million under our senior secured revolving
credit facility remained undrawn and available. Our ability to draw down the
revolver is dependent upon continued compliance with the financial covenants and
other covenants contained in the senior credit agreement.
Our ability to meet our debt service obligations and reduce our total debt will
depend upon our future performance, which in turn, will depend upon general
economic, financial and business conditions, along with competition, legislation
and regulation, factors that are largely beyond our control. In addition, we
cannot assure you that our operating results, cash flow and capital resources
will be sufficient for repayment of our indebtedness in the future.
We believe that based upon current levels of operations and anticipated growth,
cash flow from operations, together with other available sources of funds,
including additional borrowings under our senior secured credit agreement, will
be adequate for the next twelve months for making required payments of principal
and interest on our indebtedness and for funding anticipated capital
expenditures and working capital requirements.
INFLATION
We believe that inflation has not had a material effect on our results of
operations.
ENVIRONMENTAL AND OTHER CONTINGENCIES
We have incurred, and in the future will continue to incur, capital expenditures
and operating expenses for matters relating to environmental control,
remediation, monitoring and compliance. We believe, apart from our dependence on
environmental construction and operating permits for our existing and proposed
manufacturing facilities, such as our structural steel and rail mill project in
Columbia City, Indiana, that compliance with current environmental laws and
regulations is not likely to have a material adverse effect on our financial
condition, results of operations or liquidity; however, environmental laws and
regulations have changed rapidly in recent years and we may become subject to
more stringent environmental laws and regulations in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
In the normal course of business our market risk is limited to changes in
interest rates. We utilize long-term debt as a primary source of capital. A
portion of our debt has an interest component that resets on a periodic basis to
reflect current market conditions. We manage exposure to fluctuations in
interest rates through the use of an interest rate swap. We agree to exchange,
at specific intervals, the difference between fixed rate and floating rate
interest amounts calculated on an agreed upon notional amount. This interest
differential paid or received is recognized in the consolidated statements of
income as a component of interest expense. At September 30, 2002, no material
changes had occurred related to our interest rate risk from the information
disclosed in the Annual Report of Steel Dynamics, Inc. and on Form 10-K for the
year ended December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the we carried out an
evaluation, under the supervision and with the participation of the our
management, including the our President and Chief Executive Officer along with
the our Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon that evaluation, our President and Chief Executive
Officer along with our Chief Financial Officer concluded that the disclosure
controls and procedures are effective in timely alerting them to material
information relating to the company (including our consolidated subsidiaries)
required to be included in our periodic SEC filings. There have been no
significant changes in these internal controls or in other factors which could
significantly affect internal controls subsequent to the date we carried out the
evaluation.
12
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 29, 2002, the company announced that it entered into a definitive
agreement with Qualitech Steel SBQ LLC to purchase Qualitech's special bar
quality mini-mill assets located in Pittsboro, Indiana. The company agreed to
pay $45 million for the assets and announced plans to invest between $60 and $70
million of additional capital to convert the Qualitech mini-mill to the
production of between 500,000 and 600,000 annual tons of merchant and
reinforcing bar products. The company agreed to close the transaction within 25
days, subject to certain conditions and approvals. However, on August 2, 2002,
Nucor Corporation filed suit against Qualitech Steel SBQ LLC in Hendricks
County, Indiana Superior Court, Cause Number 32D01-0208-CT-24, seeking to enjoin
Qualitech from selling its assets to the company by reason of rights they allege
under a prior purchase agreement. On August 6, 2002, the court entered a
temporary restraining order prohibiting Qualitech from closing under the
company's purchase agreement pending a preliminary injunction hearing scheduled
for August 19, 2002. On August 7, 2002, the company intervened in this lawsuit
to assert its rights under its purchase agreement with Qualitech. On August 19,
2002, after the conclusion of evidence at the preliminary injunction hearing,
the Hendricks County, Indiana Superior Court ruled that Nucor "has little, if
any, chance of prevailing at a trial based upon the evidence presented" and
denied Nucor's injunction request. On August 20, 2002, Nucor filed a notice of
appeal to the Indiana Court of Appeals, and the appeal is currently pending. On
September 6, 2002, the company closed the purchase and acquired the asset, not
withstanding the pendency for the litigation. Discovery is continuing and the
court has set a date of January 13, 2003, for a trial on the merits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits -
(B) Reports on Form 8-K for the quarter ended September 30, 2002: None
filed.
--------------------------------------------------------------------------------
Filed herewith
Items 2 through 5 of Part II are not applicable for this reporting period and
have been omitted.
13
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act
of 1934, Steel Dynamics, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
November 14, 2002
STEEL DYNAMICS, INC.
By: /s/ TRACY L. SHELLABARGER
--------------------------
Tracy L. Shellabarger
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer and Duly
Authorized Officer)
Certifications
I, Keith E. Busse, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Steel Dynamics,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
ad have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
November 14, 2002
By: /s/ KEITH E. BUSSE
-------------------------------------------------
Keith E. Busse
President and Chief Executive Officer
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I, Tracy L. Shellabarger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Steel Dynamics,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
d. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
e. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "evaluation Date"); and
f. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
c. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
ad have identified for the registrant's auditors any material
weaknesses in internal controls; and
d. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
7. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
November 14, 2002
By: /s/ TRACY L. SHELLABARGER
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Tracy L. Shellabarger
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
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