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Steel Dynamics Reports First Quarter 2014 Diluted Earnings Per Share of $0.17

FORT WAYNE, Ind., April 16, 2014 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced first quarter net income of $39 million, or $0.17 per diluted share, on net sales of $1.8 billion. By comparison, prior year first quarter net income was $48 million, or $0.21 per diluted share, on net sales of $1.8 billion, and sequential fourth quarter 2013 net income was $55 million, or $0.24 per diluted share, on net sales of $1.9 billion.

First quarter 2014 earnings include a benefit of approximately $0.01 per diluted share related to a recent change in Indiana's corporate income tax rate which resulted in the reduction of the company's deferred income tax liability.

"The first quarter 2014 was one of the most severe winter periods in recent history across much of the United States, especially in the Midwest where a majority of our operations are located," said Chief Executive Officer, Mark Millett.  "The uncharacteristically severe and prolonged winter weather conditions resulted in increased energy costs, reduced production, diminished availability of transportation and lower shipments.  This environment was a major driver of the 25 percent decline in our consolidated operating income for the first quarter 2014, as compared to the sequential fourth quarter of 2013.

"Essentially all of our businesses were negatively impacted in some way; however, our Midwest steel operations were especially impacted.   Operating income for our steel operations declined $47 million for the first quarter 2014, as compared to the sequential quarter.  Most impactful, sheet steel volumes decreased 12 percent and metal spread also declined, as transportation issues delayed shipments; meaningfully higher energy costs were incurred; and the average quarterly product price improvement did not outpace the higher cost of scrap that was consumed earlier in the quarter.  As weather conditions improved, demand also strengthened with increased order activity throughout our steel operations.

"We achieved two important goals during the quarter," stated Millett.  "We shipped our first premium rail and the first product from our new smaller-diameter engineered bar rolling mill.   We anticipate continued growth in demand for these products throughout 2014 and into 2015." 

The company's fabrication business continues to improve, based on increased market share, and more importantly, increased construction demand.  Both order inquiries and bookings are strong, supporting the premise of a nonresidential construction market recovery.  While first quarter 2014 shipments were seasonally lower on a sequential basis, operating income improved meaningfully compared to both the sequential and prior year quarter. 

First Quarter Review

First quarter shipments across the company's operating platforms were generally lower, when compared to the fourth quarter 2013.  As a result of higher energy costs at our Midwest steel operations resulting from the severe weather and reduced metal spread at the Flat Roll Division, first quarter 2014 operating income for the company's steel operations decreased 31 percent to $108 million, as compared to the fourth quarter 2013, despite only a 3 percent decline in net sales.  Although overall steel metal margin increased in the first quarter 2014, metal margin for steel sheet decreased as improved product pricing was more than offset by early-quarter scrap costs.    The average selling price per ton for the company's total steel operations increased $30 sequentially to $835 in the first quarter 2014, while the average ferrous scrap cost per ton melted increased $24 per ton. 

First quarter 2014 operating income attributable to the company's sheet steel operations decreased 28 percent when compared to the sequential quarter, and operating income from long product operations decreased 34 percent.  The company's steel mill production utilization rate decreased slightly to 86 percent in the first quarter 2014, compared to 88 percent in the fourth quarter 2013, unrelated to demand dynamics but rather due to production interruptions related to power company curtailments. 

Operating income from the company's metals recycling operations was $10 million for the first quarter 2014, compared to $12 million for the fourth quarter 2013.  The $2 million reduction in profitability was directly related to costs associated with building damage related to excessive snow accumulation.  Operationally, external ferrous volumes and overall metal spreads were somewhat lower as transportation was hindered, while nonferrous volumes and metal spreads were somewhat improved. 

During the first quarter 2014, the company initiated a two week outage at the nugget production facility in February, due to significantly higher natural gas prices related to weather conditions.  The impact of losses from the company's Minnesota operations for first quarter 2014 consolidated net income was $8.9 million, or $0.04 per diluted share, as compared to $8.1 million, or $0.03 per diluted share in the fourth quarter 2013.  Despite the outage, the increased loss was directly related to the higher natural gas costs. As referenced in the company's fourth quarter 2013 earnings release, certain meaningful adjunct trials related to product yield and the cost of production were scheduled to be completed during the first quarter 2014. Due to the unanticipated severe weather, not all of the trials were able to be completed; however, meaningful progress was made.  The remaining trials are expected to be completed before the end of the second quarter 2014.  Given the increased cost of production while testing continues, current expectations concerning losses associated with the Minnesota operations for the second quarter of 2014 are anticipated to be similar to those recorded in the first quarter. 

Outlook

"We are optimistic," said Millett. "Rather than a structural change in growth during the first quarter, we believe weather conditions impacted the economy.  We have confidence that the broader U.S. economy will continue to improve and that the non-service sector portion of domestic GDP has the ability to grow at a higher rate than overall GDP, driven by strengthened asset values, domestic energy investment and increased infrastructure spending. Steel consuming industries, such as manufacturing, automotive, heavy machinery and the construction market continue to grow, indicative of underlying strength in steel demand.  We are poised to be the beneficiaries.  We believe our broad range of quality products, our differentiated customer value, combined with the strength of our exceptional employees and historically low-cost operating platforms, uniquely position us to capitalize on the imminent opportunities."

Summary Operating Information

The following tables highlight operating results for each of the company's primary operating platforms. References to operating income in the following paragraphs exclude profit-sharing expenses and amortization pertaining to intangible assets.  Dollar amounts are in thousands, except for per ton data. 

Steel Operations

This segment includes five electric-arc-furnace steel mills and related steel finishing and processing facilities, including The Techs. The company's steel operations produce flat-rolled steel, structural steel, merchant bars, special-bar-quality steel, rebar, rail, and specialty shapes.



First Quarter



Sequential



2014


2013



4Q 2013

Total Sales


$1,189,933


$1,142,075



$1,222,907

External Sales


1,117,599


1,061,312



1,146,701

Operating Income


107,776


121,589



155,107









Total Shipments (tons)


1,450,732


1,469,802



1,542,289

External Shipments (tons)


1,338,573


1,344,432



1,423,953









Production (tons)


1,519,566


1,565,067



1,588,394









Average External Sales Price Per Ton  


$835


$789



$805

Average Ferrous Scrap Cost Per Ton


$380


$351



$356

Metals Recycling and Ferrous Resources Operations

This segment principally includes the company's metals recycling operations (OmniSource Corporation), a liquid pig iron production facility (Iron Dynamics), and the company's Minnesota operations.



First Quarter


Sequential



2014


2013


4Q 2013

Metals Recycling & Ferrous Resources







Total Sales


$ 993,505


$ 914,568


$ 907,668

     External Sales


575,774


621,128


572,840

Operating Income (Loss)


(10,981)


(4,309)


(13,020)

Unrealized Hedging Gain (Loss), Net


4,066


2,354


(2,626)











OmniSource Standalone





Total Sales


$ 880,618


$  835,039


$  797,034

External Sales


523,124


609,918


535,549

Operating Income


9,549


24,965


11,667

Unrealized Hedging Gain (Loss), Net


2,730


691


(1,707)








Ferrous Shipments (gross tons)


1,364,533


1,342,929


1,356,258

% Shipments to SDI Steel Mills


52%


43%


47%

Nonferrous Shipments (pounds 000's)


270,978


279,656


254,876

Steel Fabrication Operations

Steel fabrication operations include New Millennium Building Systems, which fabricates steel joists, trusses, and decking used in the construction of non-residential buildings. 



First Quarter



Sequential



2014


2013



4Q 2013

Total Sales


$115,861


$  94,375



$ 121,853

Operating Income (Loss)


3,126


1,530



(122)









Total Shipments (tons)


94,667


77,583



101,132

Average Sales Price Per Ton


$1,224


$1,214



$1,205

About Steel Dynamics, Inc.

Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with annual sales of $7.4 billion in 2013, over 6,800 employees, and manufacturing facilities primarily located throughout the United States (including five steel mills, six steel processing facilities, two iron production facilities, over 90 metals recycling locations and six steel fabrication plants). 

Forward-Looking Statement

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements are intended to be made as "forward-looking," subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of a recurrent slowing economy on industrial demand; (2) changes in economic conditions, either generally or in any of the steel or scrap-consuming sectors which affect demand for our products, including the strength of the non-residential and residential construction, automotive, appliance, and other steel-consuming industries; (3) fluctuations in the cost of key raw materials (including steel scrap, iron units, and energy costs) and our ability to pass-on any cost increases; (4) the impact of domestic and foreign import price competition; (5) risks and uncertainties involving product and/or technology development; and (6) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to SDI's more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form 10-K, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These are available publicly on the SEC Web site, www.sec.gov, and on the Steel Dynamics Web site, www.steeldynamics.com.

Conference Call and Webcast

On Thursday, April 17, 2014, at 10:00 a.m. Eastern Time, Steel Dynamics will host a conference call with investors and analysts to discuss the company's first quarter 2014 operating and financial results.  We invite you to listen to the live audiocast of the conference call accessible from our website (http://www.steeldynamics.com), or via telephone (the conference call number may also be obtained on our website).   A replay of the discussion will be available on our website until 11:59 p.m. Eastern Time on April 24, 2014.  A podcast/MP3 file of the event will also be available and can be downloaded from our website.    

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)



Three Months Ended


Three Months
Ended


March 31,


December 31,


2014


2013


2013















Net sales

$

1,830,082

$

1,795,696

$

1,864,150

Costs of goods sold               


1,666,778


1,619,432


1,666,154

        Gross profit


163,304


176,264


197,996








Selling, general and administrative expenses


70,042


65,262


74,606

Profit sharing


5,395


6,643


7,873

Amortization of intangible assets


6,935


8,127


7,695

        Operating income       


80,932


96,232


107,822








Interest expense, net of capitalized interest


30,569


34,629


30,664

Other expense (income), net


(631)


(1,046)


111

        Income before income taxes


50,994


62,649


77,047








Income taxes          


17,296


21,397


29,146

        Net income


33,698


41,252


47,901








Net loss attributable to noncontrolling interests


4,881


6,963


6,754








        Net income attributable to Steel
             Dynamics, Inc.

 

$

38,579

 

$

48,215

 

$

54,655






















Basic earnings per share attributable to

        Steel Dynamics, Inc. stockholders

$

0.17

$

0.22

$

0.25








Weighted average common shares outstanding


223,011


219,995


222,273















Diluted earnings per share attributable to        

Steel Dynamics, Inc. stockholders,

including the effect of assumed

conversions when dilutive              

$

0.17

$

0.21

$

0.24








Weighted average common shares and

    equivalents outstanding


241,394


238,087


240,493








Dividends declared per share

$

0.115

$

0.110

$

0.110

 

 

Steel Dynamics, Inc.
UNAUDITED SUPPLEMENTAL OPERATING INFORMATION
(dollars in thousands)





Quarter Ended


Quarter Ended




March 31,


December 31,




2014


2013


2013

Steel Operations*














Shipments (tons)







Flat Roll Division

641,520


704,290


738,998


Structural and Rail Division








Structural

248,380


228,089


259,884



Rail

43,936


52,808


35,043


Engineered Bar Products Division

144,303


112,821


123,865


Roanoke Bar Division

143,782


139,950


150,986


Steel of West Virginia

75,574


80,707


70,972


The Techs

153,237


151,137


162,541



Total

1,450,732


1,469,802


1,542,289



   Intra-company

(112,159)


(125,370)


(118,336)



External

1,338,573


1,344,432


1,423,953









Steel Operations Production (tons)

1,519,566


1,565,067


1,588,394









Net sales







Total

$        1,189,933


$        1,142,075


$        1,222,907


   Intra-company

(72,334)


(80,763)


(76,206)


External

$        1,117,599


$        1,061,312


$        1,146,701















Operating income before amortization of intangibles

$           107,776


$           121,589


$           155,107


Amortization of intangibles

(2,133)


(2,288)


(2,133)

Operating income (Note 1)

$           105,643


$           119,301


$           152,974









Metals Recycling and Ferrous Resources Operations**














OmniSource






  Ferrous metals shipments (gross tons)







Total

1,364,533


1,342,929


1,356,258


   Intra-company

(714,981)


(553,890)


(638,333)


External

649,552


789,039


717,925









  Nonferrous metals shipments (thousands of pounds)







Total

270,978


279,656


254,876


   Intra-company

(19,390)


(3,529)


(3,738)


External

251,588


276,127


251,138









Mesabi Nugget shipments (metric tons) - Intra-company

37,488


59,685


59,460









Iron Dynamics (metric tons) - Intra-company

57,122


64,685


57,659









Net sales







Total

$           993,505


$           914,568


$           907,668


   Intra-company

(417,731)


(293,440)


(334,828)


External

$           575,774


$           621,128


$           572,840









Operating loss before amortization of intangibles

$           (10,981)


$             (4,309)


$           (13,020)


Amortization of intangibles

(4,538)


(5,515)


(5,238)

Operating loss (Note 1)

$           (15,519)


$             (9,824)


$           (18,258)









Steel Fabrication Operations***














Shipments (tons)







Total

94,667


77,583


101,132


   Intra-company

-


(334)


(98)


External

94,667


77,249


101,034









Net sales







Total

$           115,861


$             94,375


$           121,853


   Intra-company

-


(578)


(125)


External

$           115,861


$             93,797


$           121,728









Operating income (loss) (Note 1)

$               3,126


$               1,530


$                (122)

















*

  Steel Operations include the company's five steelmaking divisions and The Techs three galvanizing plants.

**

  Metals Recycling and Ferrous Resources Operations include OmniSource; Iron Dynamics (all shipments are internal); 


  and Minnesota Operations, including Mesabi Nugget (all shipments have been internal).

***

  Steel Fabrication Operations include the company's joist and deck fabrication operations.

(Note 1) Segment operating income (loss) excludes profit sharing expense.

 

Steel Dynamics, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)



March 31,

2014


December 31,

2013


(unaudited)



Assets






Current assets






        Cash and equivalents     

$

342,919


$

395,156

        Accounts receivable, net


811,100



720,600

        Inventories     


1,332,101



1,314,747

        Deferred income taxes    


17,871



17,964

        Other current assets       


24,363



25,167

                     Total current assets        


2,528,354



2,473,634







Property, plant and equipment, net  


2,197,503



2,226,134







Restricted cash     


18,588



23,827







Intangible assets, net


379,488



386,159







Goodwill


730,360



731,996







Other assets         


59,564



91,256

                    Total assets      

$

5,913,857


$

5,933,006







Liabilities and Equity






Current liabilities






        Accounts payable          

$

417,168


$

414,932

        Income taxes payable


23,531



4,023

        Accrued expenses          


167,010



214,679

        Current maturities of long-term debt


343,722



341,544

                     Total current liabilities 


951,431



975,178







Long-term debt






        Term note


209,687



220,000

        Senior notes   


1,500,000



1,500,000

        Other long-term debt     


45,341



46,045

                     Total long-term debt


1,755,028



1,766,045







Deferred income taxes        


550,225



556,038

Other liabilities


22,843



23,376







Commitments and contingencies












Redeemable noncontrolling interests


121,834



116,514







Equity






        Common stock               


646



645

        Treasury stock, at cost  


(716,545)



(718,529)

        Additional paid-in capital              


1,092,281



1,085,694

        Retained earnings           


2,192,413



2,179,513

                     Total Steel Dynamics, Inc. equity


2,568,795



2,547,323

        Noncontrolling interests


(56,299)



(51,468)

                     Total equity     


2,512,496



2,495,855

                     Total liabilities and equity            

$

5,913,857


$

5,933,006

 

 

Steel Dynamics, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)



Three Months Ended


March 31,


2014


2013











Operating activities:





        Net income                     

$

33,698

$

41,252






        Adjustments to reconcile net income to net cash provided by
            (used in) operating activities:





                Depreciation and amortization              


57,568


57,061

                Equity-based compensation


5,768


4,753

                Deferred income taxes            


(4,091)


10,935

                Changes in certain assets and liabilities:





                        Accounts receivable       


(88,950)


(110,938)

                        Inventories     


(17,354)


32,348

                        Accounts payable          


5,041


38,988

                        Income taxes receivable/payable


19,393


(3,022)

                        Other assets and liabilities             


(38,320)


(41,667)

                Net cash provided by (used in) operating activities              


(27,247)


29,710

Investing activities:





        Purchase of property, plant and equipment  


(24,841)


(45,346)

        Other investing activities


28,884


33,934

                Net cash provided by (used in) investing activities


4,043


(11,412)






Financing activities:





        Issuance of current and long-term debt          


-


409,261

        Repayment of current and long-term debt     


(12,793)


(305,691)

        Debt issuance costs       


-


(5,997)

        Proceeds from exercise of stock options, including
            related tax effect


2,905


7,614

        Contributions from noncontrolling investors, net


5,370


411

        Dividends paid               


(24,515)


(21,952)

                Net cash provided by (used in) financing activities               


(29,033)


83,646






        Increase (decrease) in cash and equivalents   


(52,237)


101,944

        Cash and equivalents at beginning of period  


395,156


375,917






        Cash and equivalents at end of period

$

342,919

$

477,861































Supplemental disclosure information:





        Cash paid for interest

$

39,663

$

49,732

        Cash paid for federal and state income taxes, net

$

2,143

$

11,165






 

SOURCE Steel Dynamics, Inc.

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