FORT WAYNE, INDIANA, December 12, 2008—(NASDAQ-GS: STLD)—During a
publicly announced webcast on December 4, 2008, Steel Dynamics’ Chairman
and Chief Executive Officer, Keith E. Busse, spoke about the likelihood
that Steel Dynamics would incur a fourth quarter loss for 2008. Based
on current loss expectations, Steel Dynamics now estimates full year
2008 earnings to be in the range of $2.35 to $2.40 per diluted share,
compared with earlier estimates of about $3.25. Despite fourth quarter
loss expectations of $0.35 to $0.40 per diluted share, the company
expects to achieve record annual revenues, operating income, and cash
flow from operations during 2008.
“It is disappointing to report an expected fourth quarter operating
loss, detracting from our stellar performance during the first three
quarters of the year,” said Busse. “We are in the midst of a rapidly
changing and very challenging global economic environment. We have seen a
sharp drop in demand for all products: steel, recycled metals and
fabrication. The global credit crisis has had a profoundly negative
impact on what was already a weakening and very fragile world economy.
Rising unemployment and low consumer confidence levels will likely
prolong an anemic consumer environment into next year. In spite of these
circumstances, entering 2009 Steel Dynamics will be well positioned to
not only weather these challenges, but to prosper in this environment.
This demonstrates our strong operational discipline and superior cost
structure.”
The company’s fourth quarter results will be negatively impacted by
sharp declines in steel and recycled metal demand. Specifically,
end-user demand for flat rolled steel declined dramatically. Consumers
also reduced and canceled orders to decrease their own higher-priced
inventory positions in an effort to generate cash in response to the
credit crisis and uncertain economic environment. Due primarily to the
rapid decline in ferrous material costs, the company’s steel operations
expect to decrease finished goods and work-in-process inventory values,
causing a potential write-down in excess of $60 million during December.
In addition, in the metals recycling business the company enters into
financial hedges to mitigate market risk associated with physical
positions of certain commodities, such as copper, stainless steel and
aluminum. The severe decline in copper values will likely cause the
company to record non-cash, unrealized hedging losses approaching $35
million in the fourth quarter. Heavy losses in the recycling arena
occurred as ferrous prices fell from approximately $850 per ton to $150
per ton and were principally realized in the fourth quarter, as
higher-priced inventory worked through the system.
The company’s combined steel operations are expected to operate at
about a 50% utilization rate during the fourth quarter. Even at low
operating rates, the highly variable cost structure of the company’s
steel mills creates the potential for profitability even at low
operating rates as the higher-cost scrap inventories purchased earlier
in the quarter are primarily eliminated. The company’s current 2009 plan
reflects a difficult market environment; however, the company expects
to achieve a strong relative-performance and believes that 2009
financial results could approach and possibly surpass full-year 2008
record earnings.
“We are cautiously optimistic about market conditions as we enter
December,” said Busse. “We believe that the precipitous decline in
ferrous scrap prices has run its course, as prices rose slightly from
November to December. A more stable recycled metallic market, combined
with lower-cost ferrous scrap inventories at our flat and long product
steel operations positions the company to achieve improved operating
margins in the first quarter of 2009, as we believe that steel selling
prices are at the bottom and could likely see modest increases.
“We believe our core strategy of being the lowest cost steel producer
and now metals recycler, along with the high variability of our
manufacturing cost framework, enables us to achieve superior results in
challenging as well as robust economic environments. These fundamental
practices will sustain us and allow us to remain one of the most
competitive companies in our markets,” concluded Busse.
Liquidity Outlook
The company continues to focus on further reductions in leverage,
while maintaining appropriate capital investment provisions, positioning
for profitable long-term growth. The company has increased its
liquidity position during the quarter through significant reductions in
working capital and anticipates further improvements throughout 2009.
Availability on the company’s $874 million revolving credit facility
could be as much as $450 million by the end of 2008. The company’s first
significant debt amortization occurs mid-2012 with the maturing of its
senior secured revolving and Term A loan facility.
The company currently estimates 2009 capital spending to approach $350 million allocated as follows:
The company currently estimates 2009 capital spending to approach $350 million allocated as follows:
- $125 million to complete and commence operations at the Mesabi
Nugget plant, expected to start-up during the third quarter of 2009;
- $75 million to begin construction of the iron ore mining and concentrating operations for the Mesabi Nugget project;
- $50 million to complete and commence operations of the second caster at the company’s Structural Division;
- $35 million for our metals recycling and substitute operations; and
- approximately $65 million for various improvement and maintenance projects, many of which were carryover projects from 2008.
The above estimated capital spending program has not been fully
committed and will continue to be monitored and adjusted in
correspondence with the company’s current industry outlook and liquidity
position.
Contact:
Fred Warner, Investor Relations Manager
(260) 969-3564
f.warner@steeldynamics.com
Forward Looking Statements
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