Steel Dynamics Inc. (STLD) filed Quarterly Report for the period ended 2009-09-30.
Steel Dynamics Inc. owns and operates a flat-rolled steel mini-mill. Steel Dynamics operates in the production and sale of hot-rolled and cold-rolled steel coils. The company's customers consist of intermediate steel processors steel service centers and end users including manufacturers of cold-rolled strip oil and gas transmission pipe and mechanical and structural tubing. Steel Dynamics Inc. has a market cap of $3.1 billion; its shares were traded at around $14.42 with and P/S ratio of 0.4. The dividend yield of Steel Dynamics Inc. stocks is 2%. Steel Dynamics Inc. had an annual average earning growth of 31.9% over the past 10 years. GuruFocus rated Steel Dynamics Inc. the business predictability rank of 2.5-star.
Highlight of Business Operations:
Outlook. Net income was $69.0 million, or $.30 per diluted share, during the third quarter of 2009, compared with net income of $193.0 million, or $.98 per diluted share, during the third quarter of 2008 and a net loss of $16.0 million, or $.08 per diluted share, during the second quarter of 2009. As is the case throughout the global steel industry, we have been adversely impacted in recent quarters by the overall economic recession. We have, however, experienced positive trends in volumes and order entry activity during the third quarter of 2009 at some of our operations, specifically in our flat-rolled steel and metals recycling operations. While we believe that flat-rolled and recycled metals market conditions from both a pricing and volume perspective could weaken from third quarter levels, we continue to be well positioned to capitalized on order activity with a highly-variable cost structure.
Included in the amount of unrecognized tax benefits at September 30, 2009, are potential benefits of $17.5 million that, if recognized, would affect our effective tax rate. We recognize interest and penalties related to our tax contingencies on a net-of-tax basis in income tax expense. During the nine-month period ended September 30, 2009, we recognized interest expense of $1.0 million, net of tax, and benefits from the reduction of penalties of $49,000. At September 30, 2009, we had $8.7 million accrued for the payment of interest and penalties.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $203.8 million during the first nine months of 2009, as compared to $330.0 million during the same period in 2008, a decrease of $126.2 million, or 38%. During the first nine months of 2009 and 2008, selling, general and administrative expenses represented approximately 7% and 5% of net sales, respectively. The decrease in selling, general and administrative expenses in the first nine months of 2009 compared to the first nine months of 2008 primarily relates to a sharp reduction in profit sharing expense during 2009. Profit sharing expense was $76.2 million during the first nine months of 2008, compared to $409,000 during the same period of 2009.
Interest Expense, net Capitalized Interest. During the first nine months of 2009, gross interest expense increased $3.4 million, or 3%, to $121.4 million, and capitalized interest decreased $1.7 million, or 11%, to $13.6 million as compared to the same period in 2008. The increase in gross interest expense for the first nine months of 2009 compared to the first nine months of 2008 is a result of increased borrowings for, among other things, capital outlays for our expansion projects. The increase is also due to the prepayment of the term A loan, which resulted in the recording of an additional $2.2 million of interest expense due to the write off of the related capitalized financing costs. The interest capitalization that occurred during these periods primarily resulted from the interest required to be capitalized with respect to construction activities at our Structural and Rail division and our Mesabi Nugget operations.
Other Income, net. Other income was $2.1 million during the first nine months of 2009, as compared to $33.0 million during the same period in 2008. During the second quarter of 2009, the company recorded an expense of $1.3 million from the termination of an interest rate swap contract related to the term A loan. During 2008, other income of $21.0 million was attributable to earnings from investments in scrap procurement and processing entities which were accounted for under the equity method of accounting. As of the date of its acquisition, Recycle South, which was $20.4 million of other income during the first nine months of 2008, is no longer included in other income, as its results are consolidated in our financial statements after acquisition. Also during 2008, we recorded $8.6 million of other income on the sale of marketable securities.
Working Capital. During the first nine months of 2009, our operational working capital position, representing our cash invested in trade receivables and inventories less trade payables and accruals decreased $223.7 million to $762.7 million compared to December 31, 2008. Trade receivables decreased $22.5 million, or 4%, during the first nine months of 2009 to $480.4 million, of which over 95% were current or less than 60 days past due. Our largest customer is an affiliated company, Heidtman Steel, which represented 6% and 10% of our outstanding trade receivables at September 30, 2009 and December 31, 2008, respectively. Trade receivables declined during the first nine months of 2009 due to decreased product prices as compared to the second half of 2008. The dollar value of our raw materials, primarily steel scrap inventories, decreased by approximately $158.8 million during the first nine months of 2009. Steel scrap inventory volumes, including both steel operations and metals recycling and ferrous resources, decreased by 349,000 gross tons during the first nine months of 2009. The dollar value of total inventories decreased $188.2 million, or 18%, to $835.1 million during the first nine months of 2009, with volumes of work-in-process and fini
STLD is in the portfolios of John Hussman of Hussman Economtrics Advisors, Inc., George Soros of Soros Fund Management LLC, Kenneth Fisher of Fisher Asset Management, LLC.
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