-----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, IAiIIh11ne2ctdqsxROPxvR2xjK8MdZxRv/7hQTO9pFzrowSnk9RZPzvwBMFksGi nS/rBnkjWoqhPlJhNv8nNg== 0000950123-98-009947.txt : 19981118 0000950123-98-009947.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950123-98-009947 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEEL DYNAMICS INC CENTRAL INDEX KEY: 0001022671 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [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: 98750119 BUSINESS ADDRESS: STREET 1: 4500 COUNTY RD 59 CITY: BUTLER STATE: IN ZIP: 46721 BUSINESS PHONE: 2198688000 MAIL ADDRESS: STREET 1: 4500 COUNTY RD 59 CITY: BUTLER STATE: IN ZIP: 46721 10-Q 1 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 September 30, 1998 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, INDIANA 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 October 27, 1998, Registrant had outstanding 47,864,179 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 September 30, 1998 (unaudited) and December 31, 1997 ......................................................1 Consolidated Statements of Operations for the three and nine-month periods ended September 30, 1998 and 1997 (unaudited)...................2 Consolidated Statements of Cash Flows for the three and nine-month periods ended September 30, 1998 and 1997 (unaudited)...................3 Notes to Consolidated Financial Statements................................4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................................6 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................10 SIGNATURE..............................................................11
3 STEEL DYNAMICS, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1998 1997 --------- --------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents ........................................... $ 3,987 $ 8,618 Accounts receivable, net ............................................ 44,529 33,465 Accounts receivable-related parties ................................. 22,355 11,210 Inventories ......................................................... 116,286 60,163 Deferred taxes ...................................................... 12,444 19,688 Other current assets ................................................ 4,410 2,158 --------- --------- Total current assets .......................................... 204,011 135,302 PROPERTY, PLANT, AND EQUIPMENT, NET .................................... 620,757 491,859 OTHER ASSETS ........................................................... 31,300 13,721 --------- --------- TOTAL ASSETS .................................................. $ 856,068 $ 640,882 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .................................................... $ 35,687 $ 39,347 Accounts payable-related parties .................................... 20,778 15,352 Accrued interest .................................................... 3,267 2,319 Other accrued expenses .............................................. 14,892 13,366 Current maturities of long-term debt ................................ 6,791 6,144 --------- --------- Total current liabilities ..................................... 81,415 76,528 LONG-TERM DEBT, less current maturities ................................ 407,598 213,397 DEFERRED REVENUE ....................................................... 15,066 DEFERRED TAXES ......................................................... 8,205 13,362 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock voting, $.01 par value; 100,000,000 shares authorized; 49,158,279 and 49,131,273 shares issued and outstanding as of September 30, 1998 and December 31, 1997, respectively .............. 492 491 Treasury stock, at cost; 1,252,200 and 75,000 shares as of September 30, 1998 and December 31, 1997, respectively ............................ (18,783) (1,236) Additional paid-in capital ............................................. 334,312 334,164 Retained earnings ...................................................... 27,763 4,176 --------- --------- Total stockholders' equity .................................... 343,784 337,595 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $ 856,068 $ 640,882 ========= =========
See notes to consolidated financial statements. 1 4 STEEL DYNAMICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 --------- --------- --------- --------- NET SALES Unrelated parties ........................................... $ 105,251 $ 62,086 $ 277,594 $ 176,376 Related parties ............................................. 35,707 42,616 102,868 129,103 --------- --------- --------- --------- Total net sales .......................................... 140,958 104,702 380,462 305,479 Cost of goods sold ............................................. 114,892 81,004 320,216 231,182 --------- --------- --------- --------- GROSS PROFIT ................................................... 26,066 23,698 60,246 74,297 Selling, general and administrative expenses ................... 5,998 7,471 13,104 19,689 --------- --------- --------- --------- OPERATING INCOME ............................................... 20,068 16,227 47,142 54,608 Interest expense ............................................... (5,965) (1,487) (12,925) (5,480) Other income ................................................... 69 251 4,906 1,515 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS ...................................... 14,172 14,991 39,123 50,643 Income tax expense ............................................. 5,674 1,954 15,536 7,452 --------- --------- --------- --------- INCOME BEFORE EXTRAORDINARY LOSS ............................ 8,498 13,037 23,587 43,191 Extraordinary loss, net of $5,083 deferred tax benefit in 1997.. (7,624) (7,624) --------- --------- --------- --------- NET INCOME ............................................... $ 8,498 $ 5,413 $ 23,587 $ 35,567 ========= ========= ========= ========= BASIC EARNINGS PER SHARE: Income before extraordinary loss ............................ $ .18 $ .27 $ .48 $ .90 Extraordinary loss .......................................... (.16) (.16) --------- --------- --------- --------- Net income .................................................. $ .18 $ .11 $ .48 $ .74 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE: Income before extraordinary loss ............................ $ .18 $ .27 $ .48 $ .89 Extraordinary loss .......................................... (.16) (.16) --------- --------- --------- --------- Net income .................................................. $ .18 $ .11 $ .48 $ .73 ========= ========= ========= =========
See notes to consolidated financial statements. 2 5 STEEL DYNAMICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 --------- --------- --------- --------- OPERATING ACTIVITIES: Net income .................................................. $ 8,498 $ 5,413 $ 23,587 $ 35,567 Adjustments to reconcile net income to net cash provided (used) in operating activities: Depreciation and amortization ............................ 8,411 6,016 22,652 17,623 Foreign currency gain .................................... 1 (260) Deferred taxes ........................................... 3,524 (4,509) 2,086 (3,041) Extraordinary loss ....................................... 11,019 11,019 Changes in certain assets and liabilities: Accounts receivable ...................................... (20,363) (5,141) (22,209) (9,670) Inventories .............................................. (23,511) 3,031 (56,123) 12,113 Other assets ............................................. 285 (1,079) (2,252) (697) Accounts payable ......................................... 3,271 (2,723) 1,767 (5,527) Accrued expenses ......................................... 3,102 2,587 2,472 5,993 Deferred revenue ......................................... (887) (402) --------- --------- --------- --------- NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES ........ (17,670) 14,615 (28,422) 63,120 --------- --------- --------- --------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment ................. (46,483) (49,935) (151,016) (131,459) Other ....................................................... (879) 91 (1,428) 147 --------- --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES ................... (47,362) (49,844) (152,444) (131,312) FINANCING ACTIVITIES: Issuance of long-term debt .................................. 63,421 199,092 Repayments of long-term debt ................................ (1,380) (1,243) (4,073) (3,669) Purchase of treasury stock .................................. (2,900) (17,547) Issuance of common stock, net of expenses ................... 29,711 150 29,944 Debt issuance costs ......................................... (291) (443) (1,387) (454) --------- --------- --------- --------- NET CASH PROVIDED IN FINANCING ACTIVITIES ............... 58,850 28,025 176,235 25,821 --------- --------- --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS .......................... (6,182) (7,204) (4,631) (42,371) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 10,169 22,293 8,618 57,460 --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 3,987 $ 15,089 $ 3,987 $ 15,089 ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest ......................................... $ 6,379 $ 3,949 $ 16,456 $ 10,906 ========= ========= ========= ========= Cash paid for taxes ............................................ $ 2,159 $ 1,750 $ 13,619 $ 5,840 ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION: Investment in Nakornthai Strip Mill received in exchange for the right to use SDI technology ................................. $ $ $ 15,468 $ ========= ========= ========= =========
See notes to consolidated financial statements. 3 6 STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The preparation of financial statements in conformity with generally accepted accounting principles requires that management make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may also be affected by the estimates and assumptions management is required to make. Actual results may differ from those estimates. In the opinion of management these estimates reflect all adjustments, consisting of only normal recurring accruals, including elimination of all significant intercompany balances and transactions, which are necessary to a fair statement of the results for the interim periods covered by such statements. Certain amounts from prior year financial statements have been reclassified to conform to the current year presentation. These financial statements and notes should be read in conjunction with the audited financial statements included in the Company's 1997 Annual Report on Form 10-K. 2. INVENTORIES (in thousands)
September 30, December 31, 1998 1997 -------- -------- Raw materials ...................... $ 52,141 $ 22,851 Supplies ........................... 35,749 17,861 Work-in-progress ................... 8,759 6,656 Finished goods ..................... 19,637 12,795 -------- -------- $116,286 $ 60,163 ======== ========
3. EARNINGS PER SHARE (in thousands) The following is a reconciliation of the weighted average common shares for the basic and diluted earnings per share computations:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1998 1997 1998 1997 ------ ------ ------ ------ Basic weighted average common shares ........... 48,113 48,540 48,662 48,080 Dilutive effect of stock options ............... 365 566 425 512 ------ ------ ------ ------ Diluted weighted average common shares ......... 48,478 49,106 49,087 48,592 ====== ====== ====== ======
4. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 1998 the Company adopted Statement of Financial Accounting Standard No. 130 ("SFAS No. 130"), "Comprehensive Income", which requires that separate disclosure of certain items, including foreign currency translation adjustments and gains and losses on certain securities be shown in the financial statements. SFAS No. 130 does not require a specific format for the financial statement in which comprehensive income is reported, but does require that an amount representing total comprehensive income be reported in that statement. It has been determined that the Company currently has no amounts which require classification under comprehensive income. On January 1, 1998 the Company adopted Statement of Financial Accounting Standard No. 131 ("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related Information" which changes the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. SFAS No. 131 also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. It has not yet been determined that the Company is required to provide additional disclosure as a result of the adoption of SFAS No. 131. 4 7 Statement of Financial Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998 and is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. 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) depends on 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. 5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Sales Aggregate net sales increased to $141.0 million in the third quarter of 1998 from $104.7 million in the third quarter of 1997, an aggregate increase of 35%. Net sales of hot bands alone, for the third quarter of 1998, decreased 31% to $60.9 million, on shipments of 191,138 tons, at an average price of $319 per net ton, compared to net sales of $87.6 million on shipments of 254,570 tons of hot bands for the third quarter of 1997, at an average price of $344 per ton. Hot band sales in the third quarter of 1998 decreased by 31% from the third quarter of 1997 due to the Company's deliberate use of a substantial portion of its hot band production as feed stock during the continued start-up of its Cold Mill. Hot band production increased 36% from third quarter 1997 to third quarter 1998. Net sales of Cold Mill products, including pickled and oiled, cold-rolled, hot-rolled galvanized and cold-rolled galvanized coils, which did not begin until the third quarter of 1997, increased to $80.1 million for the third quarter of 1998 on shipments of 187,679 tons, for an average price for Cold Mill products of $427 per ton from $17.1 million for the third quarter of 1997 on shipments of 46,337 tons, for an average price for Cold Mill products of $369 per ton. Aggregate net sales of hot band and Cold Mill products, for the first nine months of 1998, increased to $380.5 million from $305.5 million in the first nine month of 1997, an increase of approximately 25%. Overall, the Company's revenues were up by an average of $23 per ton. The Company anticipates, however, that revenues during the fourth quarter of 1998 and the first quarter of 1999 across all product lines, but principally affecting hot band sales, will reflect the industry wide softening in demand and selling prices due in large part to the current uncontrolled influx of cheap foreign steel, of varying qualities, primarily from Russia and Asia. This situation has been exacerbated by the collapse of the Asian consumer markets for new steel and the concurrent strength of the U.S. dollar. On September 30, 1998, the Company and eleven other producers of carbon hot-rolled sheet products joined the United Steelworkers of America and the Independent Steelworkers Union in filing antidumping cases against steel imports from Russia, Japan and Brazil. The International Trade Commission will make a preliminary injury decision within 45 days and the U.S. Department of Commerce will issue a preliminary subsidy determination within 85 days and preliminary dumping determinations within 160 days. Cost of Goods Sold For the third quarters of 1998 and 1997, total cost of goods sold was $114.9 million and $81.0 million, respectively. Gross profit for the third quarters of 1998 and 1997 were $26.1 million and $23.7 million, respectively. For the first nine months of 1998 and 1997, total cost of goods sold was $320.2 million and $231.2 million, respectively. Gross profit for the first nine months of 1998 and 1997 were $60.2 million and $74.3 million, respectively. As a percentage of net sales, cost of goods sold was 82% and 77% for the third quarter of 1998 and 1997, respectively. As a percentage of net sales cost of goods sold was 84% and 76% for the first nine months of 1998 and 1997, respectively. The gross margin percentage decrease from 1997 to 1998 is attributable to increasing scrap costs (up $3 per ton for the first nine months of 1998 compared to 1997) and the start-up of the Cold Mill Project that began in the second half of 1997 and continued into 1998. In connection with that start-up, and in order not to have to cut back on its hot band commitments to existing customers, the Company purchased hot band coils in the open market, at prices that were higher than the Company's cost of production for similar products. These coils were used to supply the Cold Mill operations, in part, during its start-up, and until the Company's new second caster became operational in June 1998, increasing its annual output capacity for hot bands from 1.3 to 2.3 million tons. Since September, market prices for scrap have decreased $30-$40 per ton and market prices for hot bands have decreased an estimated $20-$30 per ton. Selling, General and Administrative Selling, general and administrative expense was $6.0 million and $7.5 million for the third quarter of 1998 and 1997, respectively, compared to $13.1 million and $19.7 million for the first nine months of 1998 and 1997, respectively. The decrease in selling, general and administrative expense is primarily due to the reduction in start-up costs related to certain of the Company's expansion projects. During the first quarter of 1998, the Company entered into a ten-year Reciprocal License and Technology Sharing Agreement (the "License Agreement") with Nakornthai Strip Mill Public Co. Limited ("NSM") providing NSM with the right to use the Company's technology in exchange for shares and warrants of NSM stock valued at $15.5 million. The Company's ownership in NSM is recorded in Other Assets at its estimated fair value. Income relating to the License Agreement was deferred and is being recognized in income ratably over the ten-year term of the agreement. Concurrently, the Company entered into a ten-year Management Advisory and Technical Assistance Agreement to provide training and advice to a management company under contract with NSM to manage NSM's mill, for which the Company is to receive a fee of $2.0 million annually. Such amount is payable annually in advance and is being recognized in income ratably throughout each year of service. 6 9 Interest Expense Interest expense totaled $6.0 million and $1.5 million for the third quarter of 1998 and 1997, respectively and $12.9 million and $5.5 million for the first nine months of 1998 and 1997, respectively. The additional interest expense is a result of additional borrowings to finance the expansion projects along with decreased capitalized interest. Other Income Other income was $4.9 million and $1.5 million for the first nine months of 1998 and 1997, respectively. The increase in other income is primarily attributable to nonrecurring income associated with services provided by the Company in connection with the NSM transaction. Taxes The provision for income taxes for the third quarter of 1998 and 1997, was $5.7 million and $2.0 million, respectively and for the first nine months of 1998 and 1997 was $15.5 million and $7.5 million, respectively. The tax provision for 1998 reflects income tax expense for the Company at the statutory income tax rates. For 1997, the Company's effective tax rate differed from the statutory rate as a result of the reduction in a deferred tax valuation allowance. LIQUIDITY AND CAPITAL RESOURCES Steel Dynamics' business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of equipment used in its steelmaking and finishing operations and compliance with environmental laws. The Company's liquidity needs arise primarily from capital investments, working capital requirements and principal and interest payments on its indebtedness. Since its inception, SDI has met these liquidity requirements with cash provided by equity, long-term borrowings, state and local government grants and from operations. The Company anticipates that, under current market conditions, its available resources will be adequate to complete its Iron Dynamics Project in Butler, Indiana and its new Structural Mill Project currently slated to be built in Whitley County, Indiana, commencing in the fourth quarter of 1998. Net cash used by operating activities totaled $17.7 million for the third quarter of 1998 and $28.4 million for the first nine months of 1998 primarily to build the Company's scrap inventory and increases in accounts receivable. Net cash provided by operating activities totaled $14.6 million for the third quarter of 1997 and $63.1 million for the first nine months of 1997. During the third quarter of 1997, the increase in cash from operating activities was primarily related to net income and recognition of an extraordinary loss. During the first nine months of 1997 the increase in cash from operating activities was primarily related to net income, decreased scrap inventory and recognition of an extraordinary loss. Net cash used in investing activities totaled $47.4 million and $49.8 million for the third quarter of 1998 and 1997, respectively, and $152.4 million and $131.3 million for the first nine months of 1998 and 1997, respectively. Investing activities primarily consisted of capital expenditures for the construction of the Company's existing facilities, the Cold Mill Project, the Caster Project, and the Iron Dynamics Project. Cash provided by financing activities totaled $58.9 million for the third quarter of 1998 and $176.2 million for the first nine months of 1998. The 1998 increase in cash provided by financing activities is attributable primarily to borrowings of senior term debt of $63.4 million for the third quarter of 1998 and $199.1 million for the first nine of 1998 under the Company's credit facility. STOCK REPURCHASE Under a previously announced stock repurchase program, the Company during the third quarter of 1998 acquired 277,200 shares of its stock in open market purchases, at an average price per share of $11.93. In total, the Company has purchased 1,252,200 shares at an average price per share of $15.32 through the end of the third quarter. ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES SDI has incurred and, in the future, will continue to incur capital expenditures and operating expenses for matters relating to environmental control, remediation, monitoring and compliance. Steel Dynamics believes that compliance with current environmental laws and regulations is not likely to have a material adverse effect on the Company's financial condition, results of operations or liquidity; however, environmental laws and regulations have changed rapidly in recent years and SDI may become subject to more stringent environmental laws and regulations in the future. INFLATION SDI does not believe that inflation has had a material effect on its results of operations. IMPACT OF YEAR 2000 The so-called "Year 2000" or "Y2K" problem has become a general matter of concern to business, and has been identified by the Securities and Exchange Commission as a matter requiring discussion by publicly held manufacturing companies in their periodic reports effective with 7 10 the next quarter ending after August 4, 1998, as a result of the fact that, historically, most computer programs have been written using 2 digits rather than four to define the applicable year. If not corrected, this could result in computers recognizing a date that includes "00" as the year 1900 rather than the year 2000, which could then cause any computer application that is date dependent to either fail or to produce erroneous information. This could, in turn, result in major systems failures or miscalculations with regard to such matters, for example, as manufacturing, shipping and receiving of product, the scheduling and availability of raw materials, parts and supplies inventories, billing and payments records, and the availability of utilities, telephone, data, and other essential services. Because the Company's plant and all of its equipment and computer systems are of recent vintage, from its original hot mill in 1994 to its post-1996 Cold Mill, its Second Caster Project, and its Iron Dynamics Project, the Company believes and has preliminarily determined that its own internal systems, including its manufacturing equipment and other process control systems that may have "imbedded" computer technology, as well as its own information and data systems, are or, with relatively minor modifications, will be "Year 2000 compliant" in a timely manner. The Company is in the process of completing its internal reviews, which it plans to do with its internal staff, its equipment vendors, and if necessary, with outside consultants, and intends to implement any remaining modifications that may be found to be necessary. The Company anticipates that the cost associated with its own internal Y2K compliance will not be material and will not pose any significant operational problems. The Company is in the process of developing and implementing a plan to obtain information from its external service providers, significant suppliers and customers, and financial institutions with the objective of confirming their plans and status of readiness to become Year 2000 compliant, in order to better understand and evaluate how their respective Year 2000 issues may affect the Company's operations, and in order to assess any possible risks of non-compliance. At this time, the Company is not in a position to assess this aspect of the year 2000 problem, but plans to take the necessary steps to provide itself with reasonable assurance that its suppliers, service providers, and customers are Year 2000 compliant. While the Company believes that its own internal assessment and its planning efforts with respect to its external suppliers, service providers and customers are and will be adequate to address its reasonable year 2000 concerns, there can be no assurance that these efforts will be successful, that the systems or other companies upon which the Company and its systems rely will in fact be converted or compliant in a timely manner, that it will be able to reasonably and adequately protect itself through third party assurances, or that it will not otherwise have a material adverse effect on the Company and its operations. However, based on the Company's assessment efforts to date, which does not yet include an assessment of incoming and outgoing transportation issues involving railroads and motor carriers, the Company believes that the reasonably worst case scenario resulting from one or more supply-side failures, internal imbedded operational failures, or sell-side failures, will not have a material adverse impact on its financial condition or results of operations. The Company already maintains, and will continue to maintain adequate on-site quantities of raw materials, parts and supplies, sufficient to buffer any anticipated vendor interruptions. The Company's manufacturing facilities, and the separate components of its melting, casting, and finishing facilities, are and will be capable of being operated manually should an unanticipated breakdown occur as a result of an imbedded failure. And the Company's order entry lead times are of sufficient magnitude to analyze and repair any anticipated problem that may arise before they would manifest themselves as a loss of or delay in sales. FORWARD LOOKING STATEMENTS Throughout this report or in other reports filed from time to time with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as well as in press releases or in statements made to the market by officers in oral discussions, there may be various statements that express Company expectations regarding future events or future results, in contrast with statements that reflect historical facts. These expressions, generally preceded by such typical conditional words as "anticipates," "believes," "estimates," and "expects," are intended to operate as "forward looking statements," as permitted by the Private Securities Litigation Reform Act of 1995. The Act creates a "safe harbor" for predictive statements of this kind, in the event that things do not turn out as anticipated. Forward looking statements, by their nature, involve risks and uncertainties. While management intends to express its best judgment when making statements about what may occur in the future, and although management believes them to be reasonable in light of the circumstances then known, a number of important factors can come into play to cause actual results to differ materially from those expected or implied by management in such forward looking statements. These factors include, but are not limited to, the following: (1) changes in economic conditions in the United States and other major international economies (especially affecting the significant steel producing and steel consuming nations in Asia, in Europe, and Russia); (2) elements of U.S. trade policy and actions regarding steel imports; (3) effects of changes, in the availability and costs of the principal raw materials, such as scrap steel, and other supplies used by the Company in its production processes; (4) changes in market demand (against available supply), for the Company's steel products, including the role of steel substitutes such as aluminum and plastics in the demand for new steel; (5) actions by the Company's domestic and foreign competitors, including new or existing production capability coming on or off line; (6) availability and cost, as well as unplanned outages, of electricity and other utilities, upon which the Company is dependent, especially in light of current and ongoing deregulation reforms; (7) unplanned equipment failures and other plant outages; (8) labor unrest, work stoppage, and/or strikes, not only if they involve the Company directly, but if they negatively impact the Company's suppliers and/or its customers; (9) the impact of monetary or fiscal policy or of interest rates; (10) the effect of weather or the elements; (11) the impact of changes in environmental laws; (12) risks and difficulties in implementing new technology that is not yet operational, such as the Company's Iron Dynamics Project to manufacture scrap substitutes; and (13) risks and difficulties in implementing information technology, including year 2000 compliance issues. 8 11 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits - Financial Data Schedule - Exhibit 27 (B) Reports on Form 8-K for the quarter ended September 30, 1998 None Items 1 - 5 of Part II are not applicable for this reporting period and have been omitted. 9 12 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, Steel Dynamics, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. November 12, 1998 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) 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 3,987,103 0 67,977,324 1,093,489 116,286,051 204,011,746 682,296,321 61,539,619 856,068,400 81,416,050 0 0 0 491,583 343,291,848 856,068,400 380,462,257 387,054,946 320,216,751 333,320,019 0 0 12,924,648 39,123,288 15,536,288 23,587,000 0 0 0 23,587,000 .48 .48
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