FORT WAYNE, INDIANA, July 24, 2001—Steel Dynamics, Inc. (NASDAQ: STLD)
today reported second quarter consolidated earnings of $2.0 million, or
$.04 per diluted share, on sales of $158 million. Second quarter 2001
sales increased 2 percent from the first quarter, but were 17 percent
lower than the $191 million reported in the second quarter of 2000, a
quarter that had set a sales record for SDI. Shipments were up modestly
in the second quarter but, by comparison to a year earlier, profits were
hurt by continued extremely low selling prices and higher-than-expected
start-up costs.
“SDI’s second quarter suffered from ongoing industry inventory
overhang resulting from the influx of low-priced foreign imports and
sluggish demand,” said Keith Busse, president and chief executive
officer. “These factors are principally responsible for driving down
selling prices and have taken their toll on SDI’s and the industry’s
financial results. These conditions existed in the latter half of 2000
and have persisted in the first half of this year. Nonetheless, the
continued excellent operating performance of our steel-producing
operations helped SDI record its eighteenth consecutive profitable
quarter.”
Busse stated, “Although shipments were relatively strong this
quarter, realized flat-rolled selling values averaged $294 per ton, $88
per ton lower than a year ago and far below normalized market
conditions.” Consolidated net shipments for the quarter increased to
515,700 tons, up 7 percent from the first quarter of 2001. Hot-band
production increased 4 percent to 524,000 tons. Operating profit for the
second quarter (pretax income before interest and start-up costs)
declined only slightly, to $16.2 million, or $31 per ton shipped.
Busse suggested that the three main factors contributing to this
quarter’s lower earnings as compared to the first quarter were as
follows: lower selling prices ($12 per ton flat-roll), a slight increase
in scrap costs, and higher than anticipated start-up costs for Iron
Dynamics. SDI’s total start-up costs increased 75 percent in the second
quarter to $8.9 million, of which $7.2 million was related to Iron
Dynamics. This increase in start-up costs had a negative impact of $.05
per diluted share, in line with guidance provided at the May 24 annual
shareholder meeting.
Regarding the outlook for the third quarter and the rest of 2001,
Busse stated, “Although we recently have seen an increase in our order
entry rate, our third quarter will remain challenging due to seasonal
slowness and customer plant shutdowns. By the fall of this year we
expect to see improving market conditions due to a strengthening of the
U.S. economy. With respect to the Bush Administration’s Section 201
action, SDI fully expects the International Trade Commission to rule in
the steel industry’s favor against unfairly priced steel imports, and
expects the U.S. government to initiate needed and effective remedies.
The positive effects of these actions against steel imports should begin
to be seen later this year as well.”
Regarding Iron Dynamics, Inc. (IDI), Steel Dynamics announced today
that the restart of IDI’s ironmaking operations, which began at the end
of February, has been halted, with no specific date set for resumption
of actual production. During the second quarter, further technical
success of IDI’s ironmaking process was demonstrated, showing increasing
yields of liquid pig iron and substantial improvements in metallization
rates. Ironmaking operations, however, are being suspended as a result
of unacceptably high start-up costs driven by low production volumes
(with resulting high unit costs) and extraordinarily high energy costs.
These conditions were further compounded by additional process and
equipment problems that need to be addressed and resolved. Moreover,
scrap costs are presently lower than the cost of producing liquid pig
iron, making this an opportune time to suspend ironmaking operations.
These factors together render the current continuation of start-up
operations financially imprudent. Pending the completion of certain
further process and equipment refinements, the anticipated softening of
energy costs, and an opportunity for SDI to conduct a further evaluation
of the project’s capabilities and cost effectiveness, a future restart
as early as next year is probable.
Over the coming months, it is anticipated that various additional
repairs and modifications will be made by Iron Dynamics with the
assistance of certain of its suppliers and vendors. A basic crew of IDI
professionals will be retained to accomplish these tasks. Most of the
balance of IDI’s current workforce will be reassigned to SDI’s Butler or
Whitley County operations or to job opportunities at New Millennium
Building Systems, but will be subject to recall by Iron Dynamics
depending upon its future needs. This action will result in reducing
IDI’s monthly losses by approximately $1.5 million, conserving SDI’s
resources, yet enabling the company to study its future options.
During the second quarter, Steel Dynamics began construction of its
structural steel and rail mill in Whitley County, Indiana. On April 23,
the EPA’s Environmental Review Board announced its rejection of an
opponent’s appeal of an environmental permit needed for construction of
the mill, clearing the way for Steel Dynamics to proceed with the $310
million project. Construction began May 1 and has progressed very
quickly, running well ahead of schedule. The mill is expected to be
ready to begin ramp-up of production of the company’s first structural
steel products by early summer 2002. SDI’s capital expenditures in the
second quarter grew to $14.4 million, with the structural mill project
accounting for most of the increase.
SDI’s steel-building components joint venture, New Millennium
Building Systems, remains profitable and is performing very well in
spite of a slackening economic environment for building construction.
New Millennium is positioning itself as a premier producer of joists and
decking for the commercial and industrial building markets in the upper
Midwest.
Conference Call Webcast:
A conference call in which Steel Dynamics’ management will discuss
its second quarter 2001 results is scheduled for 11:00 am Eastern
Daylight Time on July 24, 2001. You are invited to listen in to the live broadcast of the conference call over the Internet, accessible from Steel Dynamics’ Web site home page. A replay of the Webcast will also be available from the SDI Web site for thirty days.
Forward Looking Statements
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