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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the period ended June 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 of (I.R.S. employer Identification No.)
incorporation or organization)
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 August 9, 2002, Registrant had outstanding shares of 47,548,530 Common
Stock.
STEEL DYNAMICS, INC.
Table of Contents
PART I. Financial Information
Page
----
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001..... 1
Consolidated Statements of Income for the three and six-month periods ended
June 30, 2002 and 2001 (unaudited).................................................. 2
Consolidated Statements of Cash Flows for the three and six-month periods ended
June 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
PART II. Other Information
Item 1. Legal Proceedings..................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................................... 13
Item 5. Other Information..................................................................... 13
Item 6. Exhibits and Reports on Form 8-K...................................................... 14
Signature............................................................................. 15
STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
2002 2001
---------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 48,747 $ 78,241
Accounts receivable, net ................................................ 72,181 65,589
Accounts receivable-related parties ..................................... 17,441 16,290
Inventories ............................................................. 114,755 118,368
Deferred taxes .......................................................... 21,873 24,600
Other current assets .................................................... 3,904 9,116
----------- -----------
Total current assets ........................................... 278,901 312,204
Property, plant, and equipment, net .......................................... 884,554 852,061
Restricted cash .............................................................. 3,622 3,030
Other assets ................................................................. 32,831 12,803
----------- -----------
Total assets ................................................... $ 1,199,908 $ 1,180,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 25,441 $ 30,228
Accounts payable-related parties ........................................ 20,129 11,101
Accrued interest ........................................................ 11,130 4,052
Other accrued expenses .................................................. 34,249 26,697
Current maturities of long-term debt .................................... 5,888 46,033
----------- -----------
Total current liabilities ...................................... 96,837 118,111
Long-term debt, less current maturities ...................................... 545,787 553,891
Deferred taxes ............................................................... 66,729 62,765
Minority interest ............................................................ 4,999 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;
49,901,810 and 49,586,473 shares issued; and 47,515,896 and
45,743,473 shares outstanding, as of June 30, 2002 and
December 31, 2001, respectively ...................................... 499 495
Treasury stock, at cost; 2,385,914 and 3,843,000 shares, at June 30, 2002
and December 31, 2001, respectively ................................. (28,889) (46,526)
Additional paid-in capital ................................................... 346,300 337,733
Retained earnings ....................................................... 151,597 132,229
Other accumulated comprehensive loss .................................... (5,938) (5,356)
----------- -----------
Total stockholders' equity ..................................... 463,569 418,575
----------- -----------
Total liabilities and stockholders' equity ..................... $ 1,199,908 $ 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 June 30, Six Months Ended June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Net Sales:
Unrelated parties .................................. $ 179,562 $ 126,804 $ 318,711 $ 256,070
Related parties .................................... 34,177 30,835 61,931 55,655
--------- --------- --------- ---------
Total net sales ................................ 213,739 157,639 380,642 311,725
Cost of goods sold ...................................... 160,696 132,140 300,225 260,663
--------- --------- --------- ---------
Gross profit ............................................ 53,043 25,499 80,417 51,062
Selling, general and administrative expenses ............ 19,779 18,176 32,867 31,978
--------- --------- --------- ---------
Operating income ................................... 33,264 7,323 47,550 19,084
Interest expense ........................................ 5,030 4,169 9,295 9,008
Other (income) expense .................................. (131) (22) 4,022 (226)
--------- --------- --------- ---------
Income before income taxes and extraordinary items . 28,365 3,176 34,233 10,302
Income taxes ............................................ 10,637 1,223 12,837 3,966
--------- --------- --------- ---------
Income before extraordinary items .................. 17,728 1,953 21,396 6,336
Extraordinary loss on debt extinguishment,
net of tax benefit of $1,216 ....................... -- -- 2,028 --
--------- --------- --------- ---------
Net income .............................................. $ 17,728 $ 1,953 $ 19,368 $ 6,336
========= ========= ========= =========
Basic earnings per share:
Income before extraordinary items .................. $ 0.37 $ 0.04 $ 0.46 $ 0.14
Extraordinary loss on debt extinguishment .......... -- -- (0.05) --
--------- --------- --------- ---------
Net income ......................................... $ 0.37 $ 0.04 $ 0.41 0.14
========= ========= ========= =========
Weighted average number of shares outstanding ........... 47,423 45,648 46,734 45,578
========= ========= ========= =========
Diluted earnings per share:
Income before extraordinary items .................. $ 0.37 $ 0.04 $ 0.45 $ 0.14
Extraordinary loss on debt extinguishment .......... -- -- (0.04) --
--------- --------- --------- ---------
Net income ......................................... $ 0.37 $ 0.04 $ 0.41 $ 0.14
========= ========= ========= =========
Weighted average number of shares and share
equivalents outstanding ............................ 47,859 45,891 47,103 45,799
========= ========= ========= =========
See notes to consolidated financial statements.
2
STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended June 30, Six Months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Operating activities:
Net income ............................................ $ 17,728 $ 1,953 $ 19,368 $ 6,336
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on debt extinguishment ......... -- -- 3,244 --
Depreciation and amortization ..................... 14,247 12,277 28,080 23,828
Deferred income taxes ............................. 8,395 (1,207) 6,691 (313)
Minority interest ................................. (26) 137 230 550
Changes in certain assets and liabilities:
Accounts receivable .......................... (3,294) 1,315 (7,743) (1,211)
Inventories .................................. (2,399) 762 3,613 (6,980)
Other assets ................................. (9,882) (14,494) (5,293) (9,625)
Accounts payable ............................. (4,965) 5,272 4,242 15,402
Accrued expenses ............................. 13,336 (508) 13,197 (4,516)
--------- --------- --------- ---------
Net cash provided by operating activities ......... 33,140 5,507 65,629 23,471
--------- --------- --------- ---------
Net cash used in investing activity:
Purchases of property, plant, and equipment ........... (25,438) (14,457) (59,197) (24,810)
Financing activities:
Issuance of long-term debt ............................ 9,766 82,020 485,915 88,319
Repayments of long-term debt .......................... (3,761) (61,521) (512,164) (80,437)
Issuance of common stock, net of expenses and proceeds
and tax benefits from exercise of stock options ..... 3,105 1,101 4,208 1,443
Debt issuance costs ................................... (384) -- (13,885) --
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 8,726 21,600 (35,926) 9,325
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ........... 16,428 12,650 (29,494) 7,986
Cash and cash equivalents at beginning of period ........... 32,319 5,520 78,241 10,184
--------- --------- --------- ---------
Cash and cash equivalents at end of period ................. $ 48,747 $ 18,170 $ 48,747 $ 18,170
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................ $ 2,699 $ 8,693 $ 12,229 $ 18,307
========= ========= ========= =========
Cash paid for federal and state income taxes .......... $ 4,125 $ 3,073 $ 4,235 $ 3,613
========= ========= ========= =========
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):
June 30, December 31,
2002 2001
----------- -----------
Raw Materials......................... $ 43,966 $ 44,807
Supplies.............................. 46,591 42,258
Work-in-progress...................... 9,086 8,512
Finished Goods........................ 15,112 22,791
----------- -----------
$ 114,755 $ 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 six-month periods ended June 30 are
as follows (in thousands):
Three Months Ended Six Months Ended
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Basic weighted average common shares outstanding......... 47,423 45,648 46,734 45,578
Dilutive effect of stock options......................... 436 243 369 221
----------- ----------- ----------- -----------
Diluted weighted average common shares
and share equivalents outstanding..................... 47,859 45,891 47,103 45,799
=========== =========== =========== ===========
4. Comprehensive Income
The following table presents the company's components of comprehensive income,
net of related tax, for the three and six-month periods ended June 30 (in
thousands):
Three Months Ended Six Months Ended
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income available to common shareholders.............. $ 17,728 $ 1,953 $ 19,368 $ 6,336
Cumulative effect of an accounting change........... - - - (2,468)
Unrealized gain (loss) on derivative instrument..... (1,189) 529 (582) (974)
----------- ----------- ----------- -----------
Comprehensive income..................................... $ 16,539 $ 2,482 $ 18,786 $ 2,894
=========== =========== =========== ===========
The company recorded a gain from hedging activities of approximately $45,000 and
a loss from hedging activities of approximately $41,000, for the six-month
periods ended June 30, 2002 and 2001, respectively, and a gain of approximately
$47,000, for the three-month period ended June 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 $1.5 million for the three months ended
June 30, 2002 and 2001 and $4.0 million and $3.1 million for the six months
ended June 30, 2002 and 2001, respectively. Segment results for the three and
six-month periods ended June 30 are as follows (in thousands):
Three Months Ended Six Months Ended
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Steel Operations
Net sales
External $ 191,211 $ 141,602 $ 337,504 $ 283,335
Other segments 14,055 8,745 25,237 13,821
Operating income 38,067 18,010 57,426 36,589
Assets 946,407 865,739 946,407 865,739
- ----------------------------------------------------------------------------------------------------
Steel Scrap Substitute Operations
Net sales
External $ - $ - $ - $ -
Other segments - 4,057 - 4,660
Operating loss (2,027) (5,567) (4,815) (9,394)
Assets 152,604 154,189 152,604 154,189
- ----------------------------------------------------------------------------------------------------
All Other
Net sales
External $ 22,528 $ 16,037 $ 43,138 $ 28,390
Other segments 118 678 326 678
Operating loss (1,804) (4,774) (3,655) (7,477)
Assets 190,054 155,663 190,054 155,663
- ----------------------------------------------------------------------------------------------------
Eliminations
Net sales
External $ - $ - $ - $ -
Other segments (14,173) (13,480) (25,563) (19,159)
Operating loss (972) (346) (1,406) (634)
Assets (89,157) (82,784) (89,157) (82,784)
- ----------------------------------------------------------------------------------------------------
Consolidated
Net sales $ 213,739 $ 157,639 $ 380,642 $ 311,725
Operating income 33,264 7,323 47,550 19,084
Assets 1,199,908 1,092,807 1,199,908 1,092,807
====================================================================================================
5
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Condensed Consolidating Information
SDI Investment Company (SDI Investment) is a 100% owned subsidiary of SDI and
was incorporated in 2000. SDI Investment has 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 SDI Investment, as
the guarantor. 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) SDI Investment, as the guarantor, (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):
As of June 30, 2002 Combined Consolidating Total
Parent Guarantor non-guarantors adjustments consolidated
----------- ----------- ----------- ----------- -----------
Cash.................................. $ 44,453 $ 167 $ 4,127 $ - $ 48,747
Accounts receivable................... 88,339 - 13,149 (11,866) 89,622
Inventories........................... 99,125 - 16,881 (1,251) 114,755
Other current assets.................. 26,206 - 105 (534) 25,777
----------- ----------- ----------- ----------- -----------
Total current assets............... 258,123 167 34,262 (13,651) 278,901
Property, plant and equipment, net.... 742,652 - 142,008 (106) 884,554
Other assets.......................... 160,008 29,687 423 (153,665) 36,453
----------- ----------- ----------- ----------- -----------
Total assets....................... $ 1,160,783 $ 29,854 $ 176,693 $ (167,422) $ 1,199,908
=========== =========== =========== =========== ===========
Accounts payable...................... $ 35,011 $ 8,010 $ 14,415 $ (11,866) $ 45,570
Accrued expenses...................... 43,160 - 2,220 (1) 45,379
Current maturities of long-term debt.. 2,574 - 3,331 (17) 5,888
----------- ----------- ----------- ----------- -----------
Total current liabilities.......... 80,745 8,010 19,966 (11,884) 96,837
Other liabilities..................... 88,821 - 46 (151) 88,716
Long-term debt........................ 525,776 - 20,527 (516) 545,787
Minority interest..................... 642 - - 4,357 4,999
Common stock.......................... 499 1 172,164 (172,165) 499
Treasury stock........................ (28,889) - - - (28,889)
Additional paid in capital............ 346,300 16 - (16) 346,300
Retained earnings..................... 152,827 21,827 (36,010) 12,953 151,597
Other accumulated comprehensive loss.. (5,938) - - - (5,938)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity......... 464,799 21,844 136,154 (159,228) 463,569
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity........................ $ 1,160,783 $ 29,854 $ 176,693 $ (167,422) $ 1,199,908
=========== =========== =========== =========== ===========
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,
June 30, 2002 Combined Consolidating Total
Parent Guarantor non-guarantors adjustments consolidated
----------- ----------- ----------- ----------- -----------
Net sales............................. $ 205,267 $ - $ 22,645 $ (14,173) $ 213,739
Cost of good sold..................... 151,607 - 22,202 (13,113) 160,696
----------- ----------- ----------- ----------- -----------
Gross profit....................... 53,660 - 443 (1,060) 53,043
Selling, general and administration... 17,447 4 2,416 (88) 19,779
----------- ----------- ----------- ----------- -----------
Operating income (loss)............... 36,213 (4) (1,973) (972) 33,264
Interest expense...................... 4,740 - 299 (9) 5,030
Other (income) expense................ 12,327 (12,482) (7) 31 (131)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
equity in net loss of subsidiaries 19,146 12,478 (2,265) (994) 28,365
Income tax (expense) benefit....... (6,807) (4,679) 849 - (10,637)
Equity in net income of subsidiaries 6,383 - - (6,383) -
----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ 18,722 $ 7,799 $ (1,416) $ (7,377) $ 17,728
=========== =========== =========== =========== ===========
For the Three Months Ended,
June 30, 2001
Net sales............................. $ 150,348 $ - $ 20,771 $ (13,480) $ 157,639
Cost of good sold..................... 127,275 - 18,185 (13,320) 132,140
----------- ----------- ----------- ----------- -----------
Gross profit....................... 23,073 - 2,586 (160) 25,499
Selling, general and administration... 8,946 (6) 9,049 187 18,176
----------- ----------- ----------- ----------- -----------
Operating income (loss)............... 14,127 6 (6,463) (347) 7,323
Interest expense...................... 4,154 - 490 (475) 4,169
Other (income) expense................ 8,718 (9,215) - 475 (22)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
equity in net loss of subsidiaries 1,255 9,221 (6,953) (347) 3,176
Income tax (expense) benefit....... (350) (3,550) 2,677 - (1,223)
Equity in net income of subsidiaries 1,395 - - (1,395) -
----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ 2,300 $ 5,671 $ (4,276) $ (1,742) $ 1,953
=========== =========== =========== =========== ===========
Condensed Consolidating Statement of Income (in thousands):
For the Six Months Ended,
June 30, 2002 Combined Consolidating Total
Parent Guarantor non-guarantors adjustments consolidated
----------- ----------- ----------- ----------- -----------
Net sales............................. $ 362,742 $ - $ 43,463 $ (25,563) $ 380,642
Cost of good sold..................... 282,621 - 41,937 (24,333) 300,225
----------- ----------- ----------- ----------- -----------
Gross profit....................... 80,121 - 1,526 (1,230) 80,417
Selling, general and administration... 27,998 7 4,685 177 32,867
----------- ----------- ----------- ----------- -----------
Operating income (loss)............... 52,123 (7) (3,159) (1,407) 47,550
Interest expense...................... 8,121 - 1,187 (13) 9,295
Other (income) expense................ 25,936 (21,971) (10) 67 4,022
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes,
equity in net income of subsidiaries
and extraordinary items........... 18,066 21,964 (4,336) (1,461) 34,233
Income tax (expense) benefit.......... (6,482) (8,009) 1,654 - (12,837)
------------ ------------ ----------- ----------- ------------
Income (loss) before equity in net income
of subsidiaries and extraordinary items 11,584 13,955 (2,682) (1,461) 21,396
Extraordinary loss on debt extinguishment,
net of tax benefit of $1,216....... (1,564) - (464) - (2,028)
Equity in net income of subsidiaries.. 10,809 - - (10,809) -
----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ 20,829 $ 13,955 $ (3,146) $ (12,270) $ 19,368
=========== =========== =========== =========== ===========
7
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended,
June 30, 2001 Combined Consolidating Total
Parent Guarantor non-guarantors adjustments consolidated
----------- ----------- ----------- ----------- -----------
Net sales............................. $ 297,157 $ - $ 33,726 $ (19,158) $ 311,725
Cost of good sold..................... 251,066 - 28,633 (19,036) 260,663
----------- ----------- ----------- ----------- -----------
Gross profit....................... 46,091 - 5,093 (122) 51,062
Selling, general and administration... 17,484 7 14,300 187 31,978
----------- ----------- ----------- ----------- -----------
Operating income (loss)............... 28,607 (7) (9,207) (309) 19,084
Interest expense...................... 8,782 - 966 (740) 9,008
Other (income) expense................ 17,309 (18,274) - 739 (226)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
equity in net income of subsidiaries 2,516 18,267 (10,173) (308) 10,302
Income tax (expense) benefit.......... (1,146) (6,725) 3,905 - (3,966)
Equity in net income of subsidiaries.. 5,275 - - (5,275) -
----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ 6,645 $ 11,542 $ (6,268) $ (5,583) $ 6,336
=========== =========== =========== =========== ===========
Condensed Consolidating Statements of Cash Flows (in thousands):
For the Six Months Ended
June 30, 2002 Combined Total
Parent Guarantor non-guarantors consolidated
----------- ----------- ------------ -----------
Net cash provided by operations...................... $ 61,374 $ 84 $ 4,171 $ 65,629
Net cash provided by (used in) investing activities.. (62,233) - 3,036 (59,197)
Net cash used in financing activities................ (32,095) - (3,831) (35,926)
----------- ----------- ------------ -----------
Increase (decrease) in cash and cash equivalents..... (32,954) 84 3,376 (29,494)
Cash and cash equivalents at beginning of year....... 77,407 83 751 78,241
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year............. $ 44,453 $ 167 $ 4,127 $ 48,747
=========== =========== =========== ===========
For the Six Months Ended
June 30, 2001
Net cash provided by (used in) operations............ $ 4,712 $ 33,435 $ (14,676) $ 23,471
Net cash used in investing activities................ (19,820) - (4,990) (24,810)
Net cash provided by (used in) financing activities.. 22,633 (33,440) 20,132 9,325
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents..... 7,525 (5) 466 7,986
Cash and cash equivalents at beginning of year....... 8,924 40 1,220 10,184
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year............. $ 16,449 $ 35 $ 1,686 $ 18,170
=========== =========== =========== ===========
7. Subsequent Event
On July 29, 2002, the company announced that it had entered into a definitive
agreement with Qualitech Steel SBQ LLC to purchase its special bar quality
mini-mill assets located in Pittsboro, Indiana for $45 million in cash. The
company plans to invest between $60 and $70 million of additional capital to
convert the facility to the production of merchant and reinforcing bar products.
The company plans to close the transaction within 25 days, and barring any
unforeseen circumstances, anticipates that it will complete construction and
start-up of the facility within twelve months after the closing of the
transaction.
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 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.
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.
Subject to our receipt of applicable permits, we anticipate starting
construction of the facility within the next several months 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 1.3 million tons and produce
structural steel and rails at a higher quality and lower cost than comparable
mini-mills. We expect to spend approximately $315 million to construct this
mini-mill, of which $280 million has been spent as of June 30, 2002. We
commenced structural steel operations in late June 2002 and we have shipped our
first structural products to initial customers. We expect to ramp up these
operations through regular product introductions and be fully operational by the
end of 2002. In addition, we expect to commence production of rails during the
first 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, we announced that we entered into a definitive agreement with
Qualitech Steel SBQ LLC to purchase Qualitech's special bar quality mini-mill
assets located in Pittsboro, Indiana. We agreed to pay $45 million for the
assets and currently plan 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. We currently
expect to close the transaction within 25 days, subject to certain conditions
and approvals. In addition we currently plan to complete construction and
start-up of this mini-mill within 12 months after the closing of the transaction
and to begin shipping our first products during the second half of 2003.
However, on Friday, August 2, 2002, Nucor Corporation filed suit against
Qualitech Steel SBQ LLC seeking to enjoin Qualitech from selling its assets by
reason of a prior purchase agreement. We may also be delayed in meeting our
current schedule based upon other unforeseen circumstances and events outside
our control.
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.
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.
9
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 June 30, 2002 Compared with Three Months Ended June 30, 2001
Net Sales. Our net sales were $213.7 million, with total shipments of 628,000
net tons for the three months ended June 30, 2002, as compared to net sales of
$157.6 million, with total shipments of 516,000 net tons for the three months
ended June 30, 2001, an increase in net sales of $56.1 million, or 36%, and an
increase in total shipments of 112,000 net tons, or 22%. During the second
quarter of 2002, the average consolidated selling price per ton increased
approximately $34, or 11%, in comparison to the same period in 2001 and
increased approximately $43, or 14%, in comparison to the first quarter of 2002.
We are already experiencing higher selling prices in our order backlog for the
third quarter of 2002.
We sold approximately 16% and 20% of our net sales to Heidtman Steel Products,
Inc (or affiliates) (Heidtman) for the three months ended June 30, 2002 and
2001, respectively.
Cost of Goods Sold. Cost of goods sold was $160.7 million for the three months
ended June 30, 2002, as compared to $132.1 million for the three months ended
June 30, 2001, an increase of $28.6 million, or 22%, which was primarily volume
related. As a percentage of net sales, cost of goods sold represented
approximately 75% and 84% for the three months ended June 30, 2002 and 2001,
respectively. Steel scrap represented approximately 44% and 45% of our total
cost of goods sold for the three months ended June 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 trend ended in
the second quarter of 2002 with a slight increase in scrap prices. The average
scrap cost per hot band ton produced during the second quarter of 2002 averaged
$11, or 11%, more than in the first quarter of 2002 and remained flat when
compared to the 2001 annual average. 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. We currently anticipate a further
strengthening in our gross margin through the third quarter of 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $19.8 million for the three months ended June 30,
2002, as compared to $18.2 million for the three months ended June 30, 2001, an
increase of $1.6 million, or 9%. As a percentage of net sales, selling, general
and administrative expenses represented approximately 9% and 12% for the three
months ended June 30, 2002 and 2001, respectively. Start-up costs were $8.4
million, all of which were related to construction and production ramp-up of our
structural and rail mill, for the three months ended June 30, 2002, as compared
to start-up costs of $8.9 million, of which Iron Dynamics represents $7.2
million, for the three months ended June 30, 2001, a decrease of $500,000, or
6%.
Interest Expense. Interest expense was $5.0 million for the three months ended
June 30, 2002, as compared to $4.2 million for the three months ended June 30,
2001, an increase of $900,000, or 21%. Gross interest expense increased 29% to
$11.5 million and capitalized interest increased 112% to $6.4 million, for the
three months ended June 30, 2002, as compared to the same period in 2001. Gross
interest expense increased 44% for the second quarter of 2002 as compared to the
first quarter of 2002 despite a 2% decrease in net debt (total debt, including
other long-term contingent liabilities, less cash and cash equivalents). This
increase is 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. Interest required to be capitalized with
respect to our structural and rail mill construction also increased accordingly.
Other (Income) Expense. Other income was $131,000 and $22,000 for the three
months ended June 30, 2002 and 2001, respectively, resulting in an increase of
$109,000, or 495%.
Income Taxes. Our income tax provision was $10.6 million for the three months
ended June 30, 2002, as compared to $1.2 million for the same period in 2001, an
increase of $9.4 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
June 30, 2002.
Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001
Net Sales. Our net sales were $380.6 million, with total shipments of 1,190,000
net tons for the six months ended June 30, 2002, as compared to net sales of
$311.7 million, with total shipments of 998,000 net tons for the six months
ended June 30, 2001, an increase in net sales of $68.9 million, or 22%, and an
increase in total shipments of 192,000 net tons, or 19%. During the first half
of 2002, the average consolidated selling price per ton increased approximately
$8, or 3%, in comparison to the same period in 2001 and increased approximately
$14, or 5%, in comparison to the second half of 2001. We are already
experiencing higher selling prices in our order backlog for the third quarter of
2002.
We sold approximately 16% and 18% of our net sales to Heidtman for the six
months ended June 30, 2002 and 2001, respectively.
10
Cost of Goods Sold. Cost of goods sold was $300.2 million for the six months
ended June 30, 2002, as compared to $260.7 million for the six months ended June
30, 2001, an increase of $39.5 million, or 15%, which was primarily volume
related. As a percentage of net sales, cost of goods sold represented
approximately 79% and 84% for the six months ended June 30, 2002 and 2001,
respectively. Steel scrap represented approximately 43% and 44% of our total
cost of goods sold for the six months ended June 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 trend ended in
the second quarter of 2002 with a slight increase in scrap prices. The average
scrap cost per hot band ton produced during the first half of 2002 averaged $4,
or 3%, less than in the first half of 2001 and averaged $8, or 7% less than in
the second half 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 half of 2002, our
gross margin strengthened as our average product pricing increased by a greater
degree than our average scrap cost. We currently anticipate a further
strengthening in our gross margin through the third quarter of 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $32.9 million for the six months ended June 30,
2002, as compared to $32.0 million for the six months ended June 30, 2001, an
increase of $889,000, or 3%. As a percentage of net sales, selling, general and
administrative expenses represented approximately 9% and 10% for the six months
ended June 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 six months ended June 30, 2002, as compared to
start-up costs of $14.0 million, of which Iron Dynamics represents $11.0
million, for the six months ended June 30, 2001, a decrease of $1.0 million, or
7%.
Interest Expense. Interest expense was $9.3 million for the six months ended
June 30, 2002, as compared to $9.0 million for the six months ended June 30,
2001, an increase of $287,000 or 3%. Gross interest expense increased 6% to
$19.5 million and capitalized interest increased 33% to $10.2 million, for the
six months ended June 30, 2002, as compared to the same period in 2001. This
increase in capitalized interest is due to an increase in our start-up assets
related to the structural and rail mill for which associated interest is
required to be capitalized.
Other (Income) Expense. Other expense was $4.0 million for the six months ended
June 30, 2002, and other income was $226,000 for the same period in 2001, an
increase in expenses of $4.2 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 $12.8 million, net a $1.2 million tax
benefit related to our extraordinary loss on debt extinguishment, for the six
months ended June 30, 2002, as compared to $4.0 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 June 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 six months ended June 30, 2002, cash provided by operating activities
was $65.6 million, as compared to $23.5 million for the six months ended June
30, 2001, an increase of $42.1 million, or 180%. Cash used in investing
activities, which represented capital investments, was $59.2 million and $24.8
million for the six months ended June 30, 2002 and 2001, respectively.
Substantially all of our capital investment costs incurred during the first half
of 2002 were utilized in construction efforts related to our structural steel
and rail mill. Cash used in financing activities was $35.9 million for the six
months ended June 30, 2002, as compared to cash provided by financing activities
of $9.3 million for the six months ended June 30, 2001, a decrease in cash of
$45.2 million. 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.
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 not to exceed $22.0 million.
11
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 six months ended June 30, 2002, our cash position decreased
$29.5 million to $48.7 million and our working capital position decreased $12.0
million, or 6%, to $182.1 million, as compared to December 31, 2001. As of June
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 new senior secured credit agreement,
will be adequate for the next two years 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 planned 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 June 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.
12
PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 29, 2002, we announced that we entered into a definitive agreement with
Qualitech Steel SBQ LLC to purchase Qualitech's special bar quality mini-mill
assets located in Pittsboro, Indiana. We 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 us 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 our purchase
agreement pending a preliminary injunction hearing scheduled for August 19,
2002. On August 7, 2002, we intervened in that lawsuit to assert our rights
under our purchase agreement with Qualitech. The court has ordered accelerated
discovery.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held May 16, 2002. Proxies were solicited
for the Annual Meeting in accordance with the requirements of the Securities
Exchange Act 1935. At the Annual Meeting, the following occurred:
o With respect to Item 1 in our Proxy Statement (Election of
Directors):
Shares Voted Against
Director Shares Voted For or Withheld
-------------------------------------------------------------------
Keith E. Busse 35,338,446 7,960,243
Richard P. Teets, Jr. 35,844,650 7,454,039
Mark D. Millett 35,845,035 7,453,654
Tracy L. Shellabarger 35,310,589 7,988,100
Leonard Rifkin 43,127,038 171,651
John C. Bates 43,135,368 163,321
Naoki Hidaka 41,796,861 1,501,828
Dr. Jurgen Kolb 37,653,215 5,645,474
Joseph D. Ruffolo 43,179,950 118,739
Richard J. Freeland 42,267,401 1,031,288
James E. Kelley 42,366,201 932,488
Paul B. Edgerley 43,194,550 104,139
o With respect to Item 2 in our Proxy Statement (Ratification of
the Appointment of Independent Auditors) Ernst & Young LLP was
approved as our independent auditors for the year 2002:
Shares Voted For 42,333,897
Shares Voted Against 954,412
Abstentions 10,380
ITEM 5. OTHER INFORMATION
On July 29, 2002, we announced that we entered into a definitive agreement with
Qualitech Steel SBQ LLC to purchase Qualitech's special bar quality mini-mill
assets located in Pittsboro, Indiana. We 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. We agreed to
close the transaction within 25 days, subject to certain conditions and
approvals. In addition, we also announced our plans to complete construction and
start-up of this mini-mill within 12 months after the closing of the transaction
and to begin shipping our first products during the second half of 2003.
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 us 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 our purchase agreement pending a
preliminary injunction hearing scheduled for August 19, 2002. On August 7, we
intervened in this lawsuit to assert our rights under our purchase agreement
with Qualitech. The pendency of this litigation, including the possibility of
appeals, creates uncertainties with respect to our ability to close the
13
transaction or our ability to implement our conversion and start-up plans. We
may also be limited or delayed achieving our objectives based upon other
unforeseen circumstances and events beyond our control.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits -
*99.1 Certification Pursuant to Section 906 of the
Sarbanes--Oxley Act of 2002
(B) Reports on Form 8-K for the quarter ended June 30, 2002:
Report on Form 8-K filed May 10, 2002.
- --------------------------------------------------------------------------------
*Filed herewith
Items 2 and 3 of Part II are not applicable for this reporting period and have
been omitted.
14
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.
August 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)
15