-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SdGq/416BedZFZGBsn0pHXPROJGl0DZiYC164zDMM0z0PvCG+x0SbKI0C8R3TrqU uPtbPdT3wKdNCwmzTJiawA== /in/edgar/work/20000811/0000950123-00-007463/0000950123-00-007463.txt : 20000921 0000950123-00-007463.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950123-00-007463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEEL DYNAMICS INC CENTRAL INDEX KEY: 0001022671 STANDARD INDUSTRIAL CLASSIFICATION: [3312 ] IRS NUMBER: 351929476 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21719 FILM NUMBER: 693339 BUSINESS ADDRESS: STREET 1: 7030 POINTE INVERNESS WAY STREET 2: SUITE 310 CITY: FORT WAYNE STATE: IN ZIP: 46804 BUSINESS PHONE: 2194593553 MAIL ADDRESS: STREET 1: 7030 POINTE INVERNERSS WAY STREET 2: SUITE 310 CITY: FORT WAYNE STATE: IN ZIP: 46804 10-Q 1 e10-q.txt STEEL DYNAMICS, INC. 1 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, 2000 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.) 7030 Pointe Inverness Way, Suite 310, Fort Wayne, IN 46804 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (219) 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 8, 2000, Registrant had outstanding 46,548,443 shares of Common Stock. 2 STEEL DYNAMICS, INC. Table of Contents
PART I. Financial Information Item 1. Consolidated Financial Statements: Page ---- Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 ............... 1 Consolidated Statements of Income for the three and six-month periods ended June 30, 2000 and 1999 (unaudited)............................................................... 2 Consolidated Statements of Cash Flows for the three and six-month periods ended June 30, 2000 and 1999 (unaudited)............................................................... 3 Notes to Consolidated Financial Statements....................................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 9 PART II. Other Information Item 1. Legal Proceedings ............................................................................... 10 Item 2. Changes in Securities and Use of Proceeds........................................................ 10 Item 4. Submission of Matters to a Vote of Security Holders.............................................. 10 Item 6. Exhibits and Reports on Form 8-K................................................................. 11 Signature........................................................................................ 12
3 STEEL DYNAMICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30 December 31 2000 1999 ----------- ----------- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents ........................................................... $ 9,677 $ 16,615 Accounts receivable, net ............................................................ 88,193 74,642 Accounts receivable-related parties ................................................. 27,265 12,007 Inventories ......................................................................... 131,732 106,742 Deferred taxes ...................................................................... 6,083 10,987 Other current assets ................................................................ 3,975 4,808 ----------- ----------- Total current assets ....................................................... 266,925 225,801 PROPERTY, PLANT, AND EQUIPMENT, NET ...................................................... 774,638 742,787 RESTRICTED CASH .......................................................................... 4,576 6,696 OTHER ASSETS ............................................................................. 16,339 16,272 ----------- ----------- TOTAL ASSETS ............................................................... $ 1,062,478 $ 991,556 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .................................................................... $ 21,271 $ 19,622 Accounts payable-related parties .................................................... 15,521 18,014 Accrued interest .................................................................... 5,467 4,941 Other accrued expenses .............................................................. 22,615 20,077 Current maturities of long-term debt ................................................ 15,501 7,921 ----------- ----------- Total current liabilities .................................................. 80,375 70,575 LONG-TERM DEBT, less current maturities .................................................. 531,578 498,042 DEFERRED TAXES ........................................................................... 34,249 29,774 MINORITY INTEREST ........................................................................ 4,022 1,795 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Class A common stock voting, $.01 par value; 100,000,000 shares authorized; 49,330,943 and 49,265,078 shares issued; and 46,649,843 and 47,970,978 shares outstanding, as of June 30, 2000 and December 31, 1999, respectively ..... 493 493 Treasury stock, at cost; 2,681,100 and 1,294,100 shares as of June 30, 2000 and December 31, 1999, respectively ................................................. (33,358) (19,650) Additional paid-in capital .......................................................... 335,520 335,237 Retained earnings ................................................................... 109,599 75,290 ----------- ----------- Total stockholders' equity ................................................. 412,254 391,370 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 1,062,478 $ 991,556 =========== ===========
See notes to consolidated financial statements. 1 4 STEEL DYNAMICS, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
Three Months Ended June 30 Six Months Ended June 30 -------------------------- ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- (unaudited) (unaudited) NET SALES: Unrelated parties ........................... $ 145,901 $ 90,541 $ 297,576 $ 175,674 Related parties ............................. 44,836 76,120 82,333 108,440 --------- --------- --------- --------- Total net sales ......................... 190,737 166,661 379,909 284,114 Cost of goods sold ............................... 138,795 127,799 283,956 226,871 --------- --------- --------- --------- GROSS PROFIT ..................................... 51,942 38,862 95,953 57,243 Selling, general and administrative expenses ..... 14,930 10,919 28,780 19,018 --------- --------- --------- --------- OPERATING INCOME ................................. 37,012 27,943 67,173 38,225 Interest expense ................................. (5,030) (5,840) (9,959) (11,439) Other expense, net ............................... (1,306) (1,869) (1,123) (1,607) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES ....................... 30,676 20,234 56,091 25,179 Income taxes ..................................... 11,617 8,094 21,783 10,069 --------- --------- --------- --------- NET INCOME .................................. $ 19,059 $ 12,140 $ 34,308 $ 15,110 ========= ========= ========= ========= BASIC EARNINGS PER SHARE: Net income per share ............................. $ 0.40 $ 0.25 $ 0.72 $ 0.32 ========= ========= ========= ========= Weighted average common shares outstanding ....... 47,570 47,900 47,783 47,889 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE: Net income per share ............................. $ 0.40 $ 0.25 $ 0.72 $ 0.31 ========= ========= ========= ========= Weighted average common shares and share equivalents outstanding ............... 47,705 48,331 47,954 48,239 ========= ========= ========= =========
See notes to consolidated financial statements. 2 5 STEEL DYNAMICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended June 30 Six Months Ended June 30 -------------------------- ------------------------ 2000 1999 2000 1999 --------- -------- --------- -------- (unaudited) (unaudited) OPERATING ACTIVITIES: Net income .................................................... $ 19,059 $ 12,140 $ 34,308 $ 15,110 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................. 11,454 10,227 23,357 18,418 Deferred income taxes ..................................... 4,690 10,006 9,379 7,375 Minority interest ......................................... (562) - 2,227 - Changes in certain assets and liabilities: Accounts receivable .................................. (11,529) (9,613) (28,809) (9,456) Inventories .......................................... (12,809) 3,835 (24,990) 11,486 Other assets ......................................... 2,252 1,929 2,815 5,187 Accounts payable ..................................... (18,883) (7,721) (844) 7,104 Accrued expenses ..................................... (1,632) 612 3,064 (759) -------- -------- -------- -------- Net cash provided (used) in operating activities ..... (7,960) 21,415 20,507 54,465 -------- -------- -------- -------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment ................... (25,644) (28,281) (54,850) (76,132) Other ......................................................... 1,197 2,369 (108) 2,235 -------- -------- -------- -------- Net cash used in investing activities ................ (24,447) (25,912) (54,958) (73,897) -------- -------- -------- -------- FINANCING ACTIVITIES: Issuance of long-term debt .................................... 41,388 - 47,039 21,762 Repayments of long-term debt .................................. (1,638) (4,001) (5,923) (5,223) Issuance of common stock, net of expenses and proceeds and tax benefits from exercise of stock options .. 60 78 283 161 Purchase of treasury stock .................................... (13,708) - (13,708) - Debt issuance costs ........................................... (178) (25) (178) (39) -------- -------- -------- -------- Net cash provided (used) in financing activities ..... 25,924 (3,948) 27,513 16,661 -------- -------- -------- -------- Decrease in cash and cash equivalents .............................. (6,483) (8,445) (6,938) (2,771) Cash and cash equivalents at beginning of period ................... 16,160 10,917 16,615 5,243 -------- -------- -------- -------- Cash and cash equivalents at end of period ......................... $ 9,677 $ 2,472 $ 9,677 $ 2,472 ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest ............................................. $ 8,954 $ 9,128 $ 18,093 $ 17,374 ======== ======== ======== ======== Cash paid for taxes ................................................ $ 10,623 $ 1,475 $ 10,978 $ 1,785 ======== ======== ======== ========
See notes to consolidated financial statements. 3 6 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) 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 subsidiary, New Millennium Building Systems, LLC (NMBS). 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 estimates 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 1999 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 2000 1999 ---------- ---------- Raw Materials.................................................... $ 67,440 $ 46,171 Supplies......................................................... 40,635 39,981 Work-in-progress................................................. 7,896 3,754 Finished Goods................................................... 15,761 16,836 ---------- ---------- $ 131,732 $ 106,742 ========== ==========
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 months ended June 30 are as follows (in thousands):
Three Months Ended Six Months Ended --------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ----------- ---------- ---------- Basic weighted average common shares outstanding......... 47,570 47,900 47,783 47,889 Dilutive effect of stock options......................... 135 431 171 350 ----------- ---------- ---------- ---------- Diluted weighted average common shares and share equivalents outstanding..................... 47,705 48,331 47,954 48,239 =========== ========== ========== ==========
4. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998 and then was amended by SFAS No. 137 in June 1999. SFAS No. 137 deferred the effective date of SFAS No. 133 to all fiscal years beginning after June 15, 2000. This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. If certain conditions are met a derivative may be specifically designated as a fair value hedge, a cash flow hedge, or a hedge of foreign currency exposure. The accounting for changes in the fair value of a derivative (that is, gains and losses) is dependent upon the intended use of the derivative and the resulting designation. Management has not yet quantified the effect, if any, of the new standard on the financial statements. 4 7 STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. SEGMENT INFORMATION The company has two operating segments: Steel Operations and Steel Scrap Substitute Operations. Steel Operations include all revenues from the flat roll mill facility, which produces and sells hot rolled, cold rolled, and galvanized sheet steel; and also includes all start-up costs associated with the structural and rail mill, which will produce structural steel and rail products. Steel Scrap Substitute Operations include revenues from Iron Dynamics, Inc., which will provide liquid pig iron to the company. In addition, Corporate and Eliminations include certain unallocated corporate accounts, such as SDI senior bank debt and certain other investments, which include the start-up operation of NMBS. The company's operations are primarily organized and managed by operating segment. The company evaluates performance and allocates resources based on operating profit or loss before income taxes. The accounting policies of the operating segments are consistent with those described in Note 1 to the 1999 financial statements. Intersegment sales and transfers are accounted for at standard prices and are eliminated in consolidation. Segment results for the three and six months ended June 30, are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------- ------------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- STEEL OPERATIONS Net sales External $ 190,737 $ 166,661 $ 379,909 $ 284,114 Other segments 1,273 - 1,273 - Operating income 46,461 34,056 85,223 48,216 Assets 901,493 820,727 901,493 820,727 - ----------------------------------------------------------------------------------------------------------------------- STEEL SCRAP SUBSTITUTE OPERATIONS Net sales External $ - $ - $ - $ - Other segments 2,283 289 5,547 342 Operating loss (3,716) (3,141) (7,826) (6,102) Assets 129,867 111,169 129,867 111,169 - ----------------------------------------------------------------------------------------------------------------------- CORPORATE AND ELIMINATIONS Net sales External $ - $ - $ - $ - Other segments (3,556) (289) (6,820) (342) Operating loss (5,733) (2,972) (10,224) (3,889) Assets 31,118 22,578 31,118 22,578 - ----------------------------------------------------------------------------------------------------------------------- CONSOLIDATED Net sales External $ 190,737 $ 166,661 $ 379,909 $ 284,114 Operating income 37,012 27,943 67,173 38,225 Assets 1,062,478 954,474 1,062,478 954,474 - -----------------------------------------------------------------------------------------------------------------------
The external net sales of the company's Steel Operations include sales to Non-U.S. companies of $2.0 million and $294,000 for the three months ended June 30, 2000 and 1999, respectively, and $8.1 million and $738,000 for the six months ended June 30, 2000 and 1999, respectively. 5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statement as a result of risks and uncertainties, including those incorporated by reference herein from "Exhibit 99.1" filed with our Report on Form 10-K for the year ended December 31, 1999. You should read this commentary in conjunction with our Annual Report on Form 10-K, for the year ended December 31, 1999 for a full understanding of our financial condition and results of operations. Overview We operate a technologically advanced flat-rolled steel mini-mill in Butler, Indiana with an annual production capacity of 2.2 million tons. We manufacture and market a broad range of high quality flat-rolled carbon steel products. We sell hot rolled, cold rolled and coated steel products, including high strength low alloy and medium carbon steels. We sell these products directly to end users and through steel service centers primarily in the Midwestern United States. Our products are used for various applications, including automotive, appliance, manufacturing, consumer durable goods, industrial machinery, and various other applications. In addition to our flat-rolled mini-mill, we continue to do design modification and completion work on a second facility; we continue to await the conclusion of the administrative appeals process in connection with the issuance of a required permit to enable us to commence construction on a third facility; and we have an investment in a steel fabrication plant. Our second facility, operated by our subsidiary, Iron Dynamics Inc., involves the pioneering of a process to produce direct reduced iron, which we plan to convert into liquid pig iron, a high quality, lower-cost steel scrap substitute for use in our flat-rolled facility. During 1999, we determined that certain of Iron Dynamics' equipment and processes would require design modifications. The modifications are planned to occur during the second half of 2000. During the first six months of 2000, Iron Dynamics operated at limited production levels, in order to demonstrate its ability to achieve superior metallurgical results and to verify the operational and product benefits of using liquid pig iron in the flat-rolled mill's melt shop. Iron Dynamics suspended limited production in July 2000 to prepare for the necessary design modifications in the later half of the year. Our third facility, a planned structural and rail mill, and our investment in New Millennium Building Systems, LLC, (NMBS) will provide an opportunity for further product diversification and market penetration. Upon completion of the structural and rail mill, which we now anticipate will take approximately twelve to fourteen months from the final issuance of a construction permit which we believe will be resolved within the next four to five months, we plan to manufacture structural steel beams, pilings and rails for the construction and railroad markets. In addition, our investment in New Millennium provides a like opportunity for our steel to access the non-residential construction markets with steel joists, trusses and girders and roof and floor decking products. Successful test-production occurred in June 2000, only six months after NMBS plant construction began, with commercial production beginning in the third quarter 2000. NET SALES Our 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 provide further value-added products from our cold mill. These products include hot rolled and cold rolled galvanized products, along with cold rolled products, allowing us to charge marginally higher prices compared to hot-rolled products. In order to ensure consistent and efficient hot band plant utilization, we have entered into a multi-year "off-take" sales and distribution agreement with Heidtman Steel Products, Inc. which accounts for approximately 30,000 tons of our monthly flat-rolled production at prevailing market prices. We do not enter into material fixed price, long-term, exceeding one calendar quarter, contracts for the sale of steel. Although fixed price contracts may reduce risks related to price declines, these contracts may also limit our ability to take advantage of price increases. COST OF GOODS SOLD Our cost of goods sold represents all direct and indirect costs associated with the manufacture of our flat-rolled carbon steel, and hot rolled, cold rolled and coated products. The principal elements of these costs are: - Alloys - Electricity - Natural gas - Oxygen - Argon - Electrodes - Steel scrap and scrap substitutes - Depreciation - Direct and indirect labor and benefits 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 the 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. 6 9 INTEREST EXPENSE Interest expense consists of interest associated with our senior credit facility and other debt agreements as described in our notes to financial statements, net of capitalized interest costs that are related to construction expenditures during the construction period of capital projects. OTHER INCOME (EXPENSE) Other income consists of interest income earned on our cash balance and any other non-operating income activity. Other expense consists of any non-operating costs, including permanent impairments of reported investments. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999 Net Sales. Our net sales were $190.7 million, with total shipments of 503,700 net tons for the three months ended June 30, 2000, as compared to net sales of $166.7 million, with total shipments of 505,900 net tons for the three months ended June 30, 1999, an increase in net sales of $24.0 million, or 14%. This increase was primarily attributable to an increase of approximately $52, or 16%, in our average price per ton, for the three months ended June 30, 2000, as compared to the same period in 1999. These price increases were experienced throughout our product lines, and most significantly within our cold rolled products, which drove a slight product mix change during the second quarter 2000 to these higher margin products. Cost of Goods Sold. Cost of goods sold was $138.8 million for the three months ended June 30, 2000, as compared to $127.8 million for the three months ended June 30, 1999, an increase of $11.0 million, or 9%. Steel scrap represented approximately 52% and 46% of our total cost of goods sold for the three months ended June 30, 2000 and 1999, respectively. Our costs associated with steel scrap averaged $20 per ton more during the second quarter of 2000 than during the second quarter of 1999 and $8 per ton less than during the first quarter of 2000. As a percentage of net sales, cost of goods sold represented approximately 73% and 77% for the three months ended June 30, 2000 and 1999, respectively, reflecting the increase in our average price per ton and in our constant focus on production efficiencies and cost savings. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $14.9 million for the three months ended June 30, 2000, as compared to $10.9 million for the three months ended June 30, 1999, an increase of $4.0 million, or 37%. This increase was partially attributable to an increase in start-up costs related to our expansion projects. Start-up costs related to our structural mill project, NMBS project and IDI were $6.4 million for the three months ended June 30, 2000, as compared to $4.5 million for the three months ended June 30, 1999, an increase of $1.9 million, or 42%. As a percentage of net sales, selling, general and administrative expenses represented approximately 8% and 7% for the three months ended June 30, 2000 and 1999, respectively. Interest Expense. Interest expense was $5.0 million for the three months ended June 30, 2000, as compared to $5.8 million for the three months ended June 30, 1999, a decrease of $800,000, or 14%. This decrease was the direct result of increased capitalized interest of $892,000, or 49%, offsetting interest costs which were substantially level when comparing the three months ended June 30, 2000 to the same period in 1999. Other Income (Expense). For the three months ended June 30, 2000, other income, composed of interest income, was $90,000, as compared to $241,000 for the three months ended June 30, 1999, a decrease of $151,000, or 63%. Other expense was $1.4 million, for the three months ended June 30, 2000, representing the write-off of our remaining investment in Nakornthai Strip Mill Public Company, Limited (NSM) and $2.1 million, for the three months ended June 30, 1999, of which $1.8 million represented the write-off of our entire cost-basis investment in Qualitech Steel Corporation (Qualitech). On May 8, 2000, the Central Bankruptcy Court of Thailand issued an order for the business reorganization of NSM and appointed an independent firm to manage the process. During the second quarter of 2000, active trading of NSM shares on the Stock Exchange of Thailand was also suspended. It is our belief that our investment in NSM was permanently and fully impaired at June 30, 2000. Federal Income Taxes. Our federal income tax provision was $10.7 million for the three months ended June 30, 2000, as compared to $7.1 million for the same period in 1999. This federal tax provision reflects income tax expense at the statutory income tax rate. 7 10 SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999 Net Sales. Our net sales were $379.9 million, with total shipments of 1,014,900 net tons for the six months ended June 30, 2000, as compared to net sales of $284.1 million, with total shipments of 875,400 net tons for the six months ended June 30, 1999, an increase in net sales of $95.8 million, or 34%. These increases were attributable in part to increased volumes of 139,500 net tons, or 16%, in conjunction with an increase in our average price per ton experienced throughout all product lines. Cost of Goods Sold. Cost of goods sold was $284.0 million for the six months ended June 30, 2000, as compared to $226.9 million for the six months ended June 30, 1999, an increase of $57.1 million, or 25%. Steel scrap represented approximately 54% and 48% of our total cost of goods sold for the six months ended June 30, 2000 and 1999, respectively. As a percentage of net sales, cost of goods sold represented approximately 75% and 80% for the six months ended June 30, 2000 and 1999, respectively, reflecting the increase in our average price per ton and in our constant focus on production efficiencies and cost savings. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $28.8 million for the six months ended June 30, 2000, as compared to $19.0 million for the six months ended June 30, 1999, an increase of $9.8 million, or 52%. This increase was partially attributable to an increase in start-up costs related to our expansion projects. Start-up costs related to our structural mill project, NMBS project and IDI were $12.5 million for the six months ended June 30, 2000, as compared to $8.5 million for the six months ended June 30, 1999, an increase of $4.0 million, or 47%. As a result of significantly improved operating results during the first quarter of 2000 as compared to 1999, employee performance-based incentives also comprised approximately $2.4 million of the total selling, general and administrative expense increase. As a percentage of net sales, selling, general and administrative expenses represented approximately 8% and 7% for the six months ended June 30, 2000 and 1999, respectively. Interest Expense. Interest expense was $10.0 million for the six months ended June 30, 2000, as compared to $11.4 million for the six months ended June 30, 1999, a decrease of $1.4 million, or 12%. This decrease was the direct result of increased capitalized interest of $1.5 million, or 43%, offsetting interest costs which were substantially level when comparing the first six months of 2000 to the same period in 1999. Other Income (Expense). For the six months ended June 30, 2000, other income, composed of interest income, was $273,000, as compared to $503,000 for the six months ended June 30, 1999, a decrease of $230,000, or 46%. Other expense was $1.4 million, for the six months ended June 30, 2000, representing the write-off of our remaining investment in Nakornthai Strip Mill Public Company, Limited (NSM) and $2.1 million, for the six months ended June 30, 1999, of which $1.8 million represented the write-off of our entire cost-basis investment in Qualitech Steel Corporation (Qualitech). On May 8, 2000, the Central Bankruptcy Court of Thailand issued an order for the business reorganization of NSM and appointed an independent firm to manage the process. During the second quarter of 2000, active trading of NSM shares on the Stock Exchange of Thailand was also suspended. It is our belief that our investment in NSM was permanently and fully impaired at June 30, 2000. Federal Income Taxes. Our federal income tax provision was $19.6 million for the six months ended June 30, 2000, as compared to $8.8 million for the same period in 1999. This federal tax provision reflects income tax expense at the statutory income tax rate. 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. For the six months ended June 30, 2000, cash provided by operating activities was $20.5 million, as compared to $54.5 million for the six months ended June 30, 1999, a decrease of $34.0 million. Increasing inventory and accounts receivable levels were the primarily drivers of this decrease. We increased steel scrap inventories to take advantage of the lower steel scrap pricing experienced throughout the first half of 2000. Cash used in investing activities was $55.0 million, as compared to $73.9 million for the six months ended June 30, 2000 and 1999, respectively. Substantially all of these funds were invested in our capital projects. Approximately 53% of our capital investment costs incurred during the first six months of 2000 were utilized in site preparation and other pre-construction activities for the structural mill. Cash provided by financing activities was $27.5 million for the six months ended June 30, 2000, as compared to $16.7 million for the same period in 1999. This increase in funds provided was the direct result of increased borrowings to fund steel scrap purchases and treasury stock purchases which totaled $13.7 million during the second half of 2000. We believe the liquidity of our existing cash and cash equivalents, cash from operating activities and our available credit facilities will provide sufficient funding for our working capital and capital expenditure requirements during 2000. However, we may, if we believe circumstances warrant, increase our liquidity through the issuance of additional equity or debt to finance growth or take advantage of other business opportunities. We have not paid dividends on our common stock. 8 11 INFLATION We believe that inflation has not had a material effect on our results of operation. 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 and rail mill project in Whitley County, 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, 2000, 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, 1999. 9 12 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We incorporate by reference Part I, Item III of our 1999 Form 10-K Annual Report, filed with the Securities and Exchange Commission on March 29, 2000, the description of our pending litigation involving the nine related lawsuits, aggregating some $240 million in claims, brought against us and various investment banking firms, relating to a note offering in March 1998 by Nakornthai Strip Mill Public Company Ltd. ("NSM") and its investment bankers (the other co-defendants in the litigation). Discovery is proceeding in all of these cases. We also incorporate by reference the description of a pending lawsuit brought by our Iron Dynamics subsidiary, for declaratory relief against Taft Contracting Company, involving a $1 million commercial dispute over some work Taft was contracted to provide. This suit is also in the discovery stage. A copy of the foregoing is annexed to this report as Exhibit 99.2. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On June 13, 2000, we granted a one time non-statutory stock option to Larry J. Lehtinen, incident to his resignation as an officer and employee of Steel Dynamics, Inc. and its subsidiary Iron Dynamics, Inc., for 30,000 shares of our common stock, at an exercise price of $9.625 per share, the fair market value of the shares at date of grant. The option is for 21 months and expires at 5:00 p.m. EST on March 12, 2002. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on May 18, 2000. Proxies were solicited for the Annual Meeting in accordance with the requirements of the Securities Exchange Act 1934. At the Annual Meeting, the following occurred: - With respects to Item 1 in our Proxy Statement (Election of Directors)
Shares Voted Against Director Shares Voted For or Withheld Keith E. Busse 39,863,071 58,350 Richard P. Teets, Jr. 39,863,671 57,750 Mark D. Millett 39,863,071 58,350 Tracy L. Shellabarger 36,517,450 3,403,971 Leonard Rifkin 39,626,524 294,897 John C. Bates 39,863,071 58,680 Kazuhiro Atsushi 36,516,850 3,404,571 Dr. Jurgen Kolb 39,918,641 2,780 Joseph D. Ruffolo 36,566,192 3,355,229 Richard J. Freeland 36,535,112 3,386,309 James E. Kelley 36,586,147 3,335,274
- 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 2000: Shares Voted For 40,239,194 Shares Voted Against 8,273 Abstentions 9,604
- With respect to Item 3 in our Proxy Statement (Approval of the Amended and Restated Officer and Manager Cash and Stock Bonus Plan): Shares Voted For 35,535,857 Shares Voted Against 1,693,362 Abstentions 27,852
10 13 - With respect to Item 4 in our Proxy Statement (Approval of Non-Employee Director Stock Option Plan): Shares Voted For 36,056,633 Shares Voted Against 1,171,268 Abstentions 29,170
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits - *10.23 (Revised) Officer and Manager Cash and Stock Bonus Plan *10.40 Non-Employee Director Stock Option Plan *27.1 Financial Data Schedule *99.2 Part I, Item III "Legal Proceedings" of Steel Dynamics, Inc. 1999 Form 10-K Annual Report (B) Reports on Form 8-K for the quarter ended June 30, 2000: None
-------------------------- *Filed herewith Items 3 and 5 of Part II are not applicable for this reporting period and have been omitted. 11 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 11, 2000 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) 12 EX-10.23 2 ex10-23.txt REVISED OFFICER & MANAGER CASH & STOCK BONUS PLAN 1 EXHIBIT 10.23 STEEL DYNAMICS, INC. AMENDED AND RESTATED OFFICER AND MANAGER CASH AND STOCK BONUS PLAN 1. PURPOSE. The purpose of the Plan is to provide incentives for Officers and Managers of the Company to increase the profitability and growth of the Company and to provide Officers and Managers an opportunity for an ownership interest in the Company. 2. EFFECTIVE DATE AND TERM OF PLAN. The Effective Date of the Plan is October 28, 1996, the date the Plan was originally adopted and approved of by the Board and shareholders of the Company. The effective date of the Amended and Restated Officer and Manager Cash and Stock Bonus Plan shall be January 1, 2000. All bonus amounts paid for Years prior to 2000 shall be governed by the terms of the original Plan in effect prior to January 1, 2000. The Plan commenced at the beginning of the Company's fiscal year beginning January 1, 1997, and no cash or stock bonuses under this Plan accrued until after conclusion of the Company's 1997 fiscal year. The Plan shall terminate on October 27, 2001, unless extended or earlier terminated by the Board. 3. DEFINITIONS. 3.1 "Adjusted Distribution Pool" has the meaning assigned to such term in Section 6.2. 3.2 "Adjusted Pre-Tax Net Income" means, for any Year, net income of the Company, before taxes, extraordinary items and bonuses payable to Participants under this Plan, as determined by the Company's outside auditors; provided, however, that, to the extent reasonably determinable, the effect upon Adjusted Pre- Tax Net Income of any income and start-up expenses associated with significant capital expenditures, for a period not to exceed twelve (12) months following start-up, shall be excluded from and not taken into account in determining such Adjusted Pre-Tax Net Income. 3.3 "Base Salary" means, with respect to a Participant, the regular annual salary paid in a Year for services rendered without including any bonus (paid under this Plan or otherwise) or severance pay. 3.4 "Board" means the Board of Directors of the Company. 3.5 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 3.6 "Committee" means a Committee of the Board as contemplated by Section 5. 3.7 "Company" means Steel Dynamics, Inc., an Indiana corporation, and its subsidiaries. 3.8 "Distribution Pool" means, for any Year, an amount determined by multiplying [Adjusted Pre-Tax Net Income, minus an amount equal to ten percent (10%) of "Stockholders Equity" as determined by Company's audited Consolidated Balance Sheets] by six percent (6%). 3.9 "Effective Date" has the meaning assigned to such term in Section 2. 3.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. 3.11 "Executive Officer" means an officer of the Company who is from time to time designated as an "Executive Officer" Participant by the Committee. Participant's status may be changed from year to year. -1- 2 3.12 "Fair Market Value" means, as of any date, the value of the Stock determined as follows: (i) If the Stock is listed on any established stock exchange or a national market system, including without limitation the NASDAQ National Market of the National Association of Securities Dealers, Inc. Automated Quotation (NASDAQ) System, the Fair Market Value of a share of Stock shall be the closing sales price for such Stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in the Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Committee deems reliable; (ii) If the Stock is quoted on the NASDAQ System (but not on the NASDAQ National Market thereof) or is regularly quoted by a recognized securities dealer but selling prices were not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Committee deems reliable; (iii) In the absence of an established market for the Stock, the Fair Market Value shall be determined in good faith by the Committee. 3.13 "Manager" means a manager of the Company who is from time to time designated as a "Manager" Participant by the Committee. A Participant's status may be changed from year to year. 3.14 "Officer" means an officer of the Company who is from time to time designated as an "Officer" Participant by the Committee. A Participant's status may be changed from year to year. 3.15 "Participant" means those Executive Officers, Officers and Managers selected from time to time to participate in the Plan by the Committee. 3.16 "Participant's Adjusted Base Salary" (a) for purposes of the cash portion of the bonus described in Section 6.1, means, with respect to any Executive Officer who is a Participant, two (2) times the Executive Officer's Base Salary, with respect to an Officer who is a Participant, one and one-half (1 1/2) times the Officer's Base Salary, and, with respect to any Manager who is a Participant, the Manager's Base Salary, and (b) for purposes of the stock portion of the bonus described in Section 6.2, means, with respect to an Executive Officer, the Executive Officer's Base Salary, with respect to an Officer, seventy-five percent (75%) of the Officer's Base Salary, and, with respect to a Manager, fifty percent (50%) of the Manager's Base Salary. 3.17 "Participant's Bonus Percentage" means, in any Year with respect to a Participant, a fraction, the numerator of which is equal to the Participant's Adjusted Base Salary and the denominator of which is equal to the sum of all the Participants' Adjusted Base Salaries, calculated separately for purposes of the separate bonus portions described in Sections 6.1 and 6.2. 3.18 "Plan" means the Steel Dynamics, Inc. Amended and Restated Officer and Manager Cash and Stock Bonus Plan, as it may be further amended from time to time. 3.19 "Restricted Stock" means Stock issued pursuant to the Plan as contemplated by Section 6.2. 3.20 "Retirement" means voluntary retirement by a Participant who is at least 60 years old. -2- 3 3.21 "Stock" means the $0.01 par value common stock of the Company. 3.22 "Ten Percent Return on Stockholders' Equity" means for any Year an amount determined by multiplying "Stockholder's Equity" as determined by the Company's audited Consolidated Balance Sheets by ten percent (10%). 3.23 "Vested Shares" has the meaning assigned to such term in Section 7. 3.24 "Year" means the Company's fiscal year, with the first Year beginning on January 1, 1997. 4. SHARES OF STOCK SUBJECT TO THE PLAN. 4.1 The total number of shares of Stock of the Company reserved and available for distribution pursuant to the Plan shall not exceed, in the aggregate, 450,000 shares of the authorized Stock of the Company, subject to adjustment as described below. 4.2 Stock which may be acquired under the Plan may be either authorized but unissued shares or shares of issued Stock held by the Company's treasury, or both, at the discretion of the Committee. Whenever any Stock is forfeited under the Plan, the shares forfeited may again be issued hereunder. 4.3 In the event of any stock dividend, stock split, combination or exchange of shares, recapitalization or other change in the capital structure of the Company, corporate separation or division (including, but not limited to, split-up, split-off, spin-off or distribution to Company stockholders other than a normal cash dividend), sale by the Company of all or a substantial portion of its assets, rights offering, merger, consolidation, reorganization or partial or complete liquidation, or any other corporate transaction or event having an effect similar to any of the foregoing, the aggregate number of shares reserved for issuance under the Plan, as the Committee shall deem necessary or appropriate to reflect equitably the effects of such changes, shall be appropriately substituted for new shares or adjusted, as determined by the Committee in its discretion. 5. ADMINISTRATION. If appointed by the Board, the Plan shall be administered by a committee of directors (the "Committee") of the Company, consisting of at least two (2) members of the Board, each of whom shall be both (i) a "non-employee director" as such term is defined in Rule 16b-3 promulgated under Section 16 of the Exchange Act or any successor provision, and (ii) an "outside director" as that term is used in Section 162 of the Code and the regulations promulgated thereunder. In the absence of an appointment of a Committee, however, the Board shall serve as the Committee. The Committee shall administer the Plan so as to comply at all times with Rule 16b-3 of the Exchange Act, and Section 162(m) of the Code or any other qualifying laws or rules that may be applicable from time to time. To the extent that any provision hereof is found not to be in compliance with any such Rule or requirement, the Committee shall have the full power and authority to effect such changes or amendments, without the necessity of any further approval by Shareholders. Subject to the foregoing, the Board may from time to time increase the size of the Committee and appoint additional members, remove members (with or without cause), substitute new members, and fill vacancies (however caused). A majority of the members of the Committee shall constitute a quorum, and the actions of a majority of the members of the Committee at a meeting at which a quorum is present shall be the actions of the Committee. The Committee has the exclusive power, authority and discretion to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable and to interpret the terms and provisions of the Plan. The Committee may require that a Participant sign a contract or agreement evidencing the terms and conditions of the Participant's rights to receive a bonus under this Plan. The Committee's interpretation of the -3- 4 Plan shall be final, binding and conclusive on all parties. The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in engaging such counsel, consultant or agent shall be paid by the Company. The Committee shall have the right, in its sole discretion, to waive the forfeiture provisions found in Section 7 below. 6. CASH AND STOCK BONUS. Subject to the terms, conditions and limitations set forth in this Plan each Year, if the Distribution Pool is a positive number, the Participants may receive a cash and stock bonus as follows: 6.1 CASH BONUS. Each Participant shall receive a cash bonus in an amount equal to the product of (i) the Participant's Bonus Percentage and (ii) the Distribution Pool; provided, however, that with respect to an Executive Officer, the cash bonus shall not exceed two (2) times the Executive Officer's Base Salary, with respect to an Officer, the cash bonus shall not exceed one and one-half (1 1/2) times the Officer's Base Salary, and, with respect to a Manager, the cash bonus shall not exceed the Manager's Base Salary. 6.2 STOCK BONUS. The excess of the Distribution Pool over the sum of the aggregate cash bonuses payable under Section 6.1 to all Participants (the "Adjusted Distribution Pool"), if any, shall be distributed to the Participants in the form of Restricted Stock, as follows: Each Participant shall receive that number of shares of Restricted Stock having, at the time of issuance, a Fair Market Value equal to the product of (i) the Participant's Bonus Percentage and (ii) the Adjusted Distribution Pool; provided that, with respect to an Executive Officer, the aggregate Fair Market Value of the Restricted Stock so issued shall not exceed the Executive Officer's Base Salary, with respect to an Officer, the aggregate Fair Market Value of the Restricted Stock so issued shall not exceed seventy-five percent (75%) of the Officer's Base Salary, and, with respect to a Manager, the aggregate Fair Market Value of the Restricted Stock so issued shall not exceed fifty percent (50%) of the Manager's Base Salary. 7. FORFEITURE AND VESTING OF RESTRICTED STOCK. Restricted Stock issued to a Participant shall vest and become nonforfeitable as follows: one-third (1/3) of the Restricted Stock shall vest immediately upon issuance, an additional one-third (1/3) will vest one year later, and the balance will vest on the second anniversary of the initial issuance date. Upon termination of the Participant's employment for any reason other than Retirement, all shares of Restricted Stock of the Participant which are not Vested Shares at the time of termination of employment shall be forfeited and returned to the Company, and the Participant shall no longer be the owner of or have any interest whatsoever in the forfeitable Restricted Stock. The Committee, in its sole discretion, may waive the forfeiture provisions of this Section 7 with respect to the Restricted Stock of a Participant whose employment has terminated for reasons other than Retirement. 8. RESTRICTION ON TRANSFER OF RESTRICTED STOCK. Restricted Stock that is forfeitable under the terms of this Plan may not be transferred, assigned, sold, pledged, hypothecated, or otherwise disposed of in any manner and shall not be subject to levy, attachment, or other legal process. 9. CERTIFICATES. Restricted Stock issued under this Plan shall be registered in the name of each Participant. Stock certificates so issued shall be held by the Company. Stock certificates shall bear such restrictive legends as the Committee may prescribe. Subject to all the terms, conditions, and limitations of this Plan, -4- 5 including provisions concerning forfeiture and restrictions on transfer, the Participant shall be the owner of the Restricted Stock with full dividend and voting rights. Upon the request of a Participant, separate stock certificates shall be issued and delivered to the Participant with respect to Vested Shares. 10. GENERAL PROVISIONS. 10.1 NONGUARANTY OF EMPLOYMENT. The adoption of the Plan shall not confer upon any Participant any right to continued employment with the Company nor shall it interfere in any way with the right of the Company to terminate its relationship with any Participant at any time. 10.2 WITHHOLDING OF TAXES. No later than the date as of which an amount first becomes includible in the gross income of a Participant for federal income tax purposes with respect to any Restricted Stock under the Plan, the Participant shall pay to the Company or make arrangements satisfactory to the Committee regarding the payment of any federal state or local taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under the Plan shall be conditioned on such payment or arrangements and the Company, to the extent permitted by law, shall have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 10.3 EXPENSES. The expenses of administering the Plan shall be borne by the Company. 10.4 FRACTIONAL SHARES. No fractional shares of Stock shall be issued, and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up. 10.5 GOVERNING LAW. To the extent not governed by federal law, the Plan shall be construed in accordance with and governed by the laws of the State of Indiana. IN WITNESS WHEREOF, Steel Dynamics, Inc., acting by and through its duly authorized officers, has executed this instrument as of the 17th day of February, 2000. -5- EX-10.40 3 ex10-40.txt NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1 EXHIBIT 10.40 STEEL DYNAMICS, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. PURPOSE. This Non-Qualified Stock Option Plan, to be known as the Steel Dynamics, Inc. Non-Employee Director Stock Option Plan (the "Plan") is intended to promote the interests of Steel Dynamics, Inc. (the "Company") by providing an inducement to attract and retain the services of qualified persons who are not employees or officers of the Company to serve as members of its Board of Directors (the "Board") and by strengthening the mutuality of interests between such directors and the Company's Stockholders. 2. AVAILABLE SHARES. The total number of shares of the Company's $.01 per share par value Common Stock (the "Common Stock") for which options may be granted under this Plan shall not exceed 100,000 shares, subject to adjustment in accordance with Section 10 of this Plan. Shares subject to this Plan may be authorized but unissued shares or shares that were once issued and subsequently reacquired by the Company. If any options granted under the Plan shall expire, terminate or be canceled for any reason without having been exercised in full, the number of unpurchased shares shall again become available for purposes of the Plan. 3. ADMINISTRATION. This Plan shall be administered by the Board or by a committee appointed by the Board (the "Committee"). In the event the Board fails to appoint or refrains from appointing a Committee, the Board shall have all power and authority to administer this Plan. In such event, the word "Committee," wherever used herein, shall be deemed to mean the Board. Subject to the provisions of the Plan, the Committee shall have the power to construe this Plan, to determine all questions hereunder, to accelerate the vesting or exercise of an option, and to adopt and amend such rules and regulations for the administration of this Plan as it may deem desirable. The Committee may also correct any defect, supply any omission, amend or conform the Plan to any change in law or regulation, or reconcile any inconsistency or ambiguity in the Plan or in any option in such manner and to the extent it shall deem necessary to carry the Plan into effect as intended. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any option granted under it. Any decision, interpretation or other action made or taken in good faith by the Committee in accordance with this Plan shall be final, binding and conclusive on the Company, all members of the Board and Committee, if any, all optionees, and their respective heirs, executors, administrators, successors and assigns. 4. AUTOMATIC GRANT OF OPTIONS. Subject to the availability of shares under this Plan: (a) each person who is a member of the Board on the day following the Company's 2000 Annual Meeting of Stockholders and who is not an employee or officer of the Company (a "Non-Employee Director") and each person who is a Non-Employee Director on November 15, 2000 (each an "Initial Grant Date") shall be automatically granted an option to purchase Common Stock of the Company on each such Initial Grant Date equal to the number of whole shares, rounded up from .50 or down from .49, calculated by dividing a grant value of $15,000 on each of the Initial Grant Dates by the fair market value of the Company's Common Stock on each such date, and (b) each person who is a Non-Employee Director on May 15 and on November 15 (each a "Grant Date") in each year beginning on January 1, 2001 during the term of this Plan shall be automatically granted on each such date a like option to purchase Common Stock of the Company equal to the number of whole shares, rounded up or down as previously described, calculated by dividing a grant value of $15,000, or such other amount, whether higher or lower, as is specified from time to time for "Grade 3 Supervisors/Professionals" under the Company's 1996 Incentive Stock Option Plan (or, in lieu thereof, as may be specified from time to time by the Committee), by the fair market value of the Company's Common Stock on each such Grant Date. The number of shares covered by options granted under this Section 4 shall be subject to adjustment in accordance with the provisions of Section 10 of this Plan. -1- 2 5. OPTION PRICE. The purchase price of the stock covered by options granted pursuant to this Plan shall be 100% of the fair market value of such shares on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of Section 10 of this Plan. For purposes of this Plan, "fair market value" shall be determined as of the last trading day for which the prices or quotes for the Company's publicly traded stock are available prior to the date such option is granted and shall mean (i) the last reported sale price (on that 29 date) of the Company's Common Stock on the Nasdaq National Market, if the Common Stock is traded on that market; or (ii) the average (on that date) of the high and low prices of the Company's Common Stock on the principal national securities exchange on which the Common Stock is traded if it is in fact traded on such an exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Company's Common Stock is not reported on the Nasdaq National Market List. 6. PERIOD OF OPTION. Unless sooner terminated in accordance with the provisions of Section 8 of this Plan, an option granted hereunder shall expire on the date which is five (5) years after the date of grant of the option. 7. VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS. (a) VESTING. Options granted under this Plan shall not be exercisable until they become vested. Options granted under this Plan shall become fully vested in the optionee and thus become exercisable six (6) months after the date of grant. (b) NON-TRANSFERABILITY. Any option granted pursuant to this Plan shall not be assignable or transferable other than by will or the laws of descent and distribution, pursuant to a valid domestic relations order, or otherwise in accordance with the terms of the optionee's stock option agreement, and shall be exercisable during the optionee's lifetime only by him or her and then only in accordance with the provisions of the Securities Act of 1933 and the rules promulgated thereunder. 8. TERMINATION OF OPTION RIGHTS. (a) If an optionee ceases to be a director of the Company, for whatever reason, no further grants of options shall be made to that optionee pursuant to this Plan. (b) Subject to the provisions of Section 8(d) and except as may otherwise be specified in the option agreement, in the event that an optionee ceases to be a director for any reason other than death, any portion of an option which is then vested but has not been exercised at the time the optionee so ceases to be a director may be exercised by the optionee, to the extent it is then vested, at any time prior to the scheduled expiration date of the option. (c) Except as may be otherwise specified in the option agreement, in the event that an optionee ceases to be a director by reason of his or her death, any unexercised options shall be exercisable by the optionee's personal representative, heir or legatee at any time prior to the scheduled expiration date of the option. (d) Except as may be otherwise specified in the option agreement, no portion of an option may be exercised if the optionee is removed from the Board for any of the following reasons: (i) disloyalty, gross negligence, dishonesty or breach of fiduciary duty to the Company; (ii) the commission of an act of embezzlement, fraud or deliberate disregard of the rules or policies of the Company; or (iii) the unauthorized disclosure or misappropriation of any trade secret or confidential information of the Company. -2- 3 9. EXERCISE OF OPTION. (a) Subject to the terms and conditions of this Plan and the option agreements, an option granted hereunder, to the extent then exercisable, shall be exercisable only for the full number of shares covered by that option, by giving written notice to the Company by mail or in person, at its principal executive offices, accompanied by payment in full for such shares in cash or by check in United States dollars. (b) Subject to the applicable requirements of the Securities and Exchange Commission, Regulation T, the Internal Revenue Code, and other federal, state and local tax and securities laws, and notwithstanding the requirements for cash payment set forth in Section 9(a) of this Plan, the Committee shall have the authority to determine any other methods, if any, by which the exercise price of an option may be paid by the optionee, including the form of payment and the methods by which shares of the Company's stock may be delivered or deemed to be delivered to the optionee. Likewise, the Committee, in the exercise of its discretion, may also allow an optionee to pay the exercise price of an option by delivering previously issued shares of the Company's Common Stock or by directing the Company to withhold from the shares of Common Stock that would otherwise be issued upon exercise of the option that number of shares having an fair market value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established from time to time by the Committee. (c) An optionee shall not exercise an option at any one time as to fewer than five hundred (500) shares, or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than five hundred (500) shares. (d) The holder of an option shall not have any rights of a stockholder with respect to the shares covered by the option, except to the extent that shares shall have been actually issued and transferred to him or her upon the exercise of the option. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER EVENTS. Upon the occurrence of any of the following events, an optionee's rights with respect to options granted to him or her hereunder shall be adjusted as hereinafter provided: (a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. (b) OTHER ADJUSTMENTS. In the event of a reorganization, recapitalization, merger, consolidation, or any other change in the corporate structure or shares of the Company, to the extent permitted by Rule 16b-3 under the Securities Exchange Act of 1934, there shall be an automatic adjustment in the number and kind of shares authorized by this Plan and in the option price of outstanding options under this Plan in such manner as will be necessary to maintain the proportionate interest of the optionee and to preserve, without exceeding, the value of such option. (c) OTHER ADJUSTMENTS. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Sections 2 and 4 of this Plan that are subject to options shall also be appropriately adjusted to reflect such events, including the conversion of the underlying shares into another class of securities, into securities of another person, into cash or into other property. The Board shall determine the specific adjustments to be made under this Section 10 and its determination shall be conclusive. -3- 4 11. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the provisions of Sections 4 and 9 of this Plan, the Company shall have no obligation to deliver any certificate or certificates or to cause the electronic transfer of shares upon exercise of an option until one of the following conditions shall be satisfied: (i) The issuance of the underlying shares with respect to which the option has been exercised is at the time of the issuance of such shares effectively registered under applicable federal and state securities laws as now in force or hereafter amended; or (ii) Counsel for the Company shall have rendered an opinion that the issuance of such shares is exempt from registration under applicable federal and state securities laws as now in force or hereafter amended; and the Company has complied with all applicable laws and regulations with respect thereto, including without limitation, all regulations required by the Nasdaq National Market or by any stock exchange upon which the Company's outstanding Common Stock is then listed. 12. LEGEND ON CERTIFICATES. The certificates representing shares issued pursuant to the exercise of an option granted hereunder may, if restricted, carry such appropriate legend, or appropriate restrictions may be noted electronically, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws. 13. OPTION AGREEMENT. Each option granted under the provisions of this Plan shall be evidenced by an option agreement, which agreement shall be duly executed and delivered on behalf of the Company and by the optionee to whom such option is granted. The option agreement shall contain such terms, provisions and conditions not inconsistent with this Plan as may be determined by the Committee or by its designee executing such option. 14. TERMINATION AND AMENDMENT OF PLAN. Options may no longer be granted under this Plan after January 1, 2010, and this Plan shall terminate when all options granted or to be granted hereunder are no longer outstanding. The Board may at any time terminate this Plan or make such modification or amendment thereof as it deems advisable. Subject to the provisions of Section 10, termination or any modification or amendment of this Plan shall not, without consent of a participant, affect his or her rights under any option already granted to him or her. 15. WITHHOLDING OF INCOME TAXES. Upon the exercise of an option, the Company, in accordance with Section 3402(a) of the Internal Revenue Code, may require the optionee to pay withholding taxes in respect of amounts considered to be compensation includible in the optionee's gross income. 16. COMPLIANCE WITH REGULATIONS. It is the Company's intent that the Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor or amended provision thereof) and any applicable Securities and Exchange Commission interpretations thereof. If any provision of this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall be null and void and may be modified and corrected by the Committee without the necessity of securing further stockholder approval. 17. NONQUALIFIED OPTIONS. All options granted under this Plan shall be nonqualified stock options (i.e., options that do not qualify as "incentive stock options" under Section 422 of the Internal Revenue Code). 18. NO RIGHT TO CONTINUE RELATIONSHIP. Neither the Plan nor the grant of an option under the Plan shall confer upon any person any right to continue as a director of the Company or to obligate the Company to nominate any director for reelection by the Company's stockholders. 19. COSTS. The Company shall bear all expenses incurred in administering -4- 5 the Plan, including the expenses of issuing Common Stock upon the exercise of options and of registering the same. 20. SEVERABILITY. If any part of this Plan shall be determined to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of this Plan, which shall continue in full force and effect and may be adjusted, in the Committee's discretion, so as to most closely approximate the original intent expressed herein. 21. GOVERNING LAW. The validity and construction of this Plan and the instruments evidencing options shall be governed by the laws of the State of Indiana, without giving effect to the principles of conflicts of law thereof. 22. EFFECTIVE DATE. This Plan shall be effective as of the 1st day of January, 2000, subject, however, to stockholder approval at the Company's annual meeting of stockholders on May 18, 2000, or any adjournment thereof, or pursuant to any special meeting of stockholders held thereafter but prior to December 31, 2000. In the event that such approval is not obtained, all option grants made hereunder shall be deemed null and void and the Plan shall be deemed terminated on the earlier to occur of stockholder nonapproval, if any, or December 31, 2000. -5- EX-27.1 4 ex27-1.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 9,677,092 0 115,457,944 1,555,382 131,731,954 266,924,835 906,278,868 131,640,999 1,062,477,847 80,375,402 0 0 0 493,309 411,760,801 1,062,477,847 379,909,118 379,909,118 283,955,720 28,780,550 1,123,571 150,000 9,958,470 56,090,807 21,783,133 34,307,674 0 0 0 34,307,674 .72 .72
EX-99.2 5 ex99-2.txt LEGAL PROCEEDINGS - 1999 FORM 10-K ANNUAL REPORT 1 EXHIBIT 99.2 ITEM 3. LEGAL PROCEEDINGS We have been sued in a total of eight separate but related lawsuits, aggregating approximately $240 million in claims (one of which is a duplicative filing) in either state or federal courts in California, New York, New Jersey, Minnesota, Connecticut and Illinois. The suits have been brought by various institutional investors which purchased certain high risk notes or "junk bonds" issued in March 1998 by two affiliates of Nakornthai Strip Mill Public Company, Limited, or "NSM," a Thailand owner and operator of a steel mini-mill project. Our president, Keith E. Busse, has also been named as a defendant in the New Jersey and Connecticut (duplicative) cases. Under our company's bylaws and pursuant to authorization of our board of directors, Mr. Busse is entitled to be indemnified by us for any costs or expenses that he may incur, as well as in respect of any judgments that may be rendered against him in connection with this litigation, subject to applicable legal procedures required by the Securities and Exchange Commission for submission of any such indemnity claim, if asserted, to a court of appropriate jurisdiction for a determination of whether such indemnity claim is against public policy as expressed in the Securities Act of 1933. The purchases were part of a U.S. $452 million financing marketed and sold to these and other institutional investors in a privately placed non-registered offering, pursuant to the SEC's Regulation D, and then resold by NatWest Capital Markets Limited, McDonald & Company Securities, Inc., PaineWebber Incorporated and ECT Securities Corp. pursuant to SEC Rule 144A. Although we were neither an issuer, a guarantor, a seller or an investment banker with respect to these notes, did not draft any of the offering materials in connection with the offering, were not listed as an expert, did not render any reports or evaluations of NSM prior to the offering; and only had a contractual relationship with the NSM mini-mill project--as a technical and operational advisor and consultant from and after the close of the financing--we have nonetheless been named as defendants on the basis of a variety of alleged state or federal statutory and common law fraud and related claims that posit that the plaintiffs were misled into purchasing and overpaying for the notes by reason of various alleged misrepresentations or omissions in the offering materials, or at one or more of the "road shows" in connection with the offering (some of which were attended by Mr. Busse). We deny any liability in connection with these cases, believe that we have ample legal and factual defenses and will defend ourselves in each such case to the limit of our ability. The eight pending lawsuits include Farallon Capital Partners, LP, et al v. Gleacher & Co., Inc., et al filed in the Superior Court of the State of California for the County of Los Angeles - Central District in August 1999 as Case No. BC 215260 (involving a $33 million claim); Merrill Lynch Global Allocation Fund, Inc., et al v. Natwest Finance, Inc., et al filed in the Superior Court of New Jersey, Law Division - Middlesex County, as Case No. MID-L-8457-99 in September 1999 (involving an $85 million claim), which also names a number of individuals as defendants, including our president, Keith E. Busse; a duplicative lawsuit covering approximately half of the claims in the Merrill Lynch New Jersey lawsuit, filed in the Superior Court for the Judicial District of Fairfield at Bridgeport, Connecticut, also in September 1999, under the caption Turnberry Capital Partners, LP, et al v. Natwest Finance, Inc. et al, which we anticipate will either be dismissed in its entirety or, if it proceeds, would transfer $42 million of the Merrill Lynch claims to Turnberry and would reduce the claim in the Merrill Lynch New Jersey litigation to $43 million; Zuri-Invest AG v. Nat West Finance, Inc., et al, filed in the United States District Court for the District of Minnesota, Fourth Division, as Civil File No. 99-CV-1452 DWF/AJB in September 1999 (involving an approximate $2 million claim); IDS Bond Fund, Inc., et al v. Gleacher Natwest, Inc., et al, also filed in the United States District Court for the District of Minnesota, Fourth Division, as Civil File No. 99-116 MJD/JGL (involving a $62 million claim); Gabriel Capital, LP, et al v. Natwest Finance, Inc., et al, filed in the United States District Court for the Southern District of New York in October 1999 as Cause No. 99-CV-10488 (SAS) (involving 2 an approximate $15 million claim); Legg Mason Income Trust, Inc., et al v. Gleacher & Co., Inc., et al, filed in October 1999 in the Superior Court of the State of California for the County of Los Angeles - Central District as Case No. BC 218294 (a $5 million claim); and Kemper High Yield Series - Kemper High Yield Fund, et al v. Gleacher Natwest, Inc., et al, filed November 24, 1999 in the Circuit Court of Cook County, Illinois as Cause No. 99L13363 (a $42 million claim). There is also a peripheral lawsuit pending in the Court of Common Pleas of Cuyahoga County (Cleveland) Ohio, as Case No. 385421, in which John W. Schultes, the former president and chief executive officer of NSM, has sued both McDonald and us for damages "in excess of $25,000," alleging that we bear contractual responsibility for causing his termination of employment and that we slandered his reputation. We deny that we have any liability to Mr. Schultes in connection with this lawsuit. In several unrelated matters, our Iron Dynamics subsidiary has brought several lawsuits relating to the construction of its plant facility in Butler, Indiana: In February 1999, we brought a lawsuit in the Superior Court of DeKalb County, Indiana, against Taft Contracting Company, Inc. The complaint is for damages and for a declaration of rights that a mechanic's lien for approximately $1.0 million filed in November 1998 by Taft, a former contractor working on the Iron Dynamics plant construction project, is invalid and should be declared null and void. The Taft lien covers alleged "extras," which Iron Dynamics contends are unsupportable under the contract, and we consider the lien to be entirely without merit. The lien was subsequently bonded and discharged. Also, in January 2000, we brought a lawsuit in the United States District Court, Northern District of Indiana, Fort Wayne Division, against Dover Conveyer, Inc. The complaint is for damages and for a declaration that the iron ore, coal and limestone conveying system manufactured by Dover does not comply with contractual specifications. We seek an order requiring Dover to honor its warranty and cure the defects. Dover has filed a counterclaim for damages totaling approximately $200,000 for retainages and out-of-pocket expenses. Iron Dynamics contends that Dover's counterclaim is entirely unsupportable under the contract. -----END PRIVACY-ENHANCED MESSAGE-----