STEEL DYNAMICS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the period ended March 31, 2005

	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 incorporation or organization)		(I.R.S. Employer 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

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 checked box No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes checked box No

As of April 26, 2005, Registrant had 45,337,304 outstanding shares of Common Stock.

STEEL DYNAMICS, INC.
Table of Contents

	PART I. Financial Information

		Page

Item 1.	Consolidated Financial Information:

	Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004	1

	Consolidated Statements of Income for the three-month periods ended March 31, 2005 and 2004 (unaudited)	2

	Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2005 and 2004 (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 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	13


Item 6.	Exhibits	13


	Signature	13

Back to Contents

STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	March 31, 2005			December 31, 2004

	(unaudited)
ASSETS
Current assets:
Cash and equivalents	$	3,747		$	16,334
Accounts receivable, net		220,254			214,880
Accounts receivable-related parties		47,539			38,981
Inventories		395,635			381,488
Deferred taxes		7,400			6,856
Other current assets		7,726			18,980

Total current assets		682,301			677,519

Property, plant and equipment, net		1,022,198			1,024,044

Restricted cash		1,589			989

Other assets		30,359			31,067

Total assets	$	1,736,447		$	1,733,619



LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	151,647		$	136,517
Accounts payable-related parties		883			5,371
Accrued interest		3,157			8,796
Other accrued expenses		47,322			75,750
Current maturities of long-term debt		8,846			6,774

Total current liabilities		211,855			233,208

Long-term debt, including unamortized bond premium of $6,725 and $7,147, as of March 31, 2005 and December 31, 2004, respectively		460,330			441,605

Deferred taxes		222,792			209,215

Minority interest		2,588			2,469

Commitments and contingencies

Stockholders’ equity:
Common stock voting, $.01 par value; 100,000,000 shares authorized; 52,902,637 and 52,435,059 shares issued; and 46,806,673 and 48,485,671 shares outstanding, as of March 31, 2005 and December 31, 2004, respectively		527			523
Treasury stock, at cost; 6,095,964 and 3,949,388 shares, at March 31, 2005 and December 31, 2004, respectively		(160,841	)		(84,141	)
Additional paid-in capital		402,865			390,505
Retained earnings		596,331			540,235

Total stockholders’ equity		838,882			847,122

Total liabilities and stockholders’ equity	$	1,736,447		$	1,733,619

See notes to consolidated financial statements.

Back to Contents

STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

	Three Months Ended March 31,

	2005			2004


Net sales:
Unrelated parties	$	500,846		$	334,379
Related parties		69,860			49,766

Total net sales		570,706			384,145
Costs of goods sold		441,929			307,670

Gross profit		128,777			76,475
Selling, general and administrative expenses		22,454			17,935

Operating income		106,323			58,540
Interest expense		8,077			9,504
Other income, net		(578	)		(2,103	)

Income before income taxes		98,824			51,139
Income taxes		38,047			19,177

Net income	$	60,777		$	31,962






Basic earnings per share	$	1.27		$	.65


Weighted average common shares outstanding		47,703			48,947



Diluted earnings per share, including effect of assumed conversions	$	1.12		$	.58


Weighted average common shares and share equivalents outstanding		54,828			56,212


Dividends declared per share	$	.10		$	—

See notes to consolidated financial statements.

Back to Contents

STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Three Months Ended March 31,

	2005			2004

Operating activities:
Net income	$	60,777		$	31,962
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,830			18,779
Deferred income taxes		13,033			11,668
Loss on disposal of property, plant and equipment		—			145
Minority interest		119			649
Changes in certain assets and liabilities:
Accounts receivable		(13,932	)		(38,573	)
Inventories		(14,147	)		(51,493	)
Other assets		10,519			(8,405	)
Accounts payable		10,843			49,263
Accrued expenses		(34,067	)		(3,330	)

Net cash provided by operating activities		54,975			10,665


Investing activities:
Purchases of property, plant and equipment		(19,141	)		(23,905	)

Financing activities:
Issuance of long-term debt		61,308			29,939
Repayments of long-term debt		(40,511	)		(33,659	)
Issuance of common stock (net of expenses) and proceeds and tax benefits from exercise of stock options		12,364			10,086
Purchase of treasury stock		(76,700	)		(238	)
Dividends paid		(4,882	)		—
Debt issuance costs		—			(24	)

Net cash provided by (used in) financing activities		(48,421	)		6,104


Decrease in cash and equivalents		(12,587	)		(7,136	)
Cash and equivalents at beginning of period		16,334			65,430


Cash and equivalents at end of period	$	3,747		$	58,294




Supplemental disclosure of cash flow information:
Cash paid for interest	$	14,057		$	14,925

Cash paid for federal and state income taxes	$	170		$	77

See notes to consolidated financial statements.

Back to Contents

STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Accounting Policies
Principles of Consolidation. The consolidated financial statements include the accounts of Steel Dynamics, Inc. (SDI), together with its subsidiaries after elimination of 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 accounting principles generally accepted in the United States and, accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment; valuation allowances for trade receivables, inventories and deferred income tax assets; potential environmental liabilities, litigation claims and settlements. Actual results may differ from these estimates and assumptions.

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 Annual Report on Form 10-K for the year ended December 31, 2004.

Reclassifications. Certain prior year amounts have been reclassified to conform to the fiscal 2004 presentation. The company reclassified certain costs related to the receipt of materials, internal transportation of inventories and related employee salaries and benefits from selling, general and administrative expenses to costs of goods sold for the three months ended March 31, 2004. Generally, the company’s gross margin was reduced by approximately 1% due to this reclassification; however, total operating income was not affected.

Stock-Based Compensation. At March 31, 2005 and 2004, the company had three incentive stock option plans and accounted for these plans under the recognition and measurement principles of Accounting Standards Board APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB 25, no stock-based employee compensation cost related to the incentive stock option plans is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock.

The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Statement No. 123 to its stock-based employee compensation for the three-month periods ended March 31 (in thousands, except per share data):

	2005			2004

Net income, as reported	$	60,777		$	31,962
Stock-based employee compensation expense, using the fair value based method, net of related tax effect		(1,042	)		(716	)

Pro forma net income		59,735			31,246
Effect of assumed conversions, net of tax effect		664			645

Pro forma net income, diluted earnings per share	$	60,439		$	31,891


Basic earnings per share:
As reported	$	1.27		$	.65
Pro forma		1.25			.64
Diluted earnings per share:
As reported	$	1.12		$	.58
Pro forma		1.10			.57

In December 2004, the FASB issued FAS No. 123R (FAS 123R), “Share-Based Payments”, which among other things, eliminates the use of APB 25 and the intrinsic value method of accounting that the company uses to account for its stock option plans. FAS 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. On April 14, 2005, the Securities and Exchange Commission announced that it would provide for a phased-in implementation process for FAS 123R and that registrants that are not small business issuers must adopt FAS 123R no later than the beginning of the first fiscal year beginning after June 15, 2005, which is January 1, 2006 for the company.

Note 2. Earnings Per Share
The company computes and presents earnings per common share in accordance with FASB Statement No. 128, “Earnings Per Share”. Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes, in addition to the above, the weighted average dilutive effect of common share equivalents outstanding during the period. Common share equivalents represent dilutive stock options and dilutive shares related to the company’s convertible subordinated debt and are excluded from the computation in periods in which they have an anti-dilutive effect.

Back to Contents

STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation of the numerators and the denominators of the company’s basic and diluted earnings per share computations for net income for the three-month periods ended March 31 (in thousands, except per share data):

	2005						2004

	Net Income (Numerator)		Shares (Denominator)		Per Share Amount		Net Income (Numerator)		Shares (Denominator)		Per Share Amount

Basic earnings per share	$	60,777		47,703	$	1.27	$	31,962		48,947	$	.65
Dilutive stock option effect		—		362				—		502
Convertible subordinated debt effect		664		6,763				645		6,763

Diluted earnings per share	$	61,441		54,828	$	1.12	$	32,607		56,212	$	.58

The following table presents the common share equivalents that were excluded from the company’s diluted earnings per share calculation because they were anti-dilutive or not convertible at March 31 (in thousands):

	2005		2004

Stock options		—		56
Convertible subordinated debt		—		—

Excluded common share equivalents		—		56

Note 3. Comprehensive Income
The following table presents the company’s components of comprehensive income, net of related tax, for the three-month periods ended March 31 (in thousands):

			2005			2004