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, 2002 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 (I.R.S. employer Identification No.) incorporation or organization) 6714 Pointe Inverness Way, Suite 200, Fort Wayne, IN 46804 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (260) 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 9, 2002, Registrant had outstanding shares of 47,548,530 Common Stock.
STEEL DYNAMICS, INC. Table of Contents PART I. Financial Information <TABLE> <CAPTION> Page ---- <S> <C> Item 1. Consolidated Financial Statements: Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001..... 1 Consolidated Statements of Income for the three and six-month periods ended June 30, 2002 and 2001 (unaudited).................................................. 2 Consolidated Statements of Cash Flows for the three and six-month periods ended June 30, 2002 and 2001 (unaudited).................................................. 3 Notes to Consolidated Financial Statements............................................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................ 12 PART II. Other Information Item 1. Legal Proceedings..................................................................... 13 Item 4. Submission of Matters to a Vote of Security Holders................................... 13 Item 5. Other Information..................................................................... 13 Item 6. Exhibits and Reports on Form 8-K...................................................... 14 Signature............................................................................. 15 </TABLE>
STEEL DYNAMICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) <TABLE> <CAPTION> June 30, December 31, 2002 2001 ---------- ----------- (unaudited) ASSETS <S> <C> <C> Current assets: Cash and cash equivalents ............................................... $ 48,747 $ 78,241 Accounts receivable, net ................................................ 72,181 65,589 Accounts receivable-related parties ..................................... 17,441 16,290 Inventories ............................................................. 114,755 118,368 Deferred taxes .......................................................... 21,873 24,600 Other current assets .................................................... 3,904 9,116 ----------- ----------- Total current assets ........................................... 278,901 312,204 Property, plant, and equipment, net .......................................... 884,554 852,061 Restricted cash .............................................................. 3,622 3,030 Other assets ................................................................. 32,831 12,803 ----------- ----------- Total assets ................................................... $ 1,199,908 $ 1,180,098 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................ $ 25,441 $ 30,228 Accounts payable-related parties ........................................ 20,129 11,101 Accrued interest ........................................................ 11,130 4,052 Other accrued expenses .................................................. 34,249 26,697 Current maturities of long-term debt .................................... 5,888 46,033 ----------- ----------- Total current liabilities ...................................... 96,837 118,111 Long-term debt, less current maturities ...................................... 545,787 553,891 Deferred taxes ............................................................... 66,729 62,765 Minority interest ............................................................ 4,999 4,769 Other long-term contingent liabilities ....................................... 21,987 21,987 Commitments and contingencies Stockholders' equity: Common stock voting, $.01 par value; 100,000,000 shares authorized; 49,901,810 and 49,586,473 shares issued; and 47,515,896 and 45,743,473 shares outstanding, as of June 30, 2002 and December 31, 2001, respectively ...................................... 499 495 Treasury stock, at cost; 2,385,914 and 3,843,000 shares, at June 30, 2002 and December 31, 2001, respectively ................................. (28,889) (46,526) Additional paid-in capital ................................................... 346,300 337,733 Retained earnings ....................................................... 151,597 132,229 Other accumulated comprehensive loss .................................... (5,938) (5,356) ----------- ----------- Total stockholders' equity ..................................... 463,569 418,575 ----------- ----------- Total liabilities and stockholders' equity ..................... $ 1,199,908 $ 1,180,098 =========== =========== </TABLE> See notes to consolidated financial statements. 1
STEEL DYNAMICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, 2002 2001 2002 2001 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net Sales: Unrelated parties .................................. $ 179,562 $ 126,804 $ 318,711 $ 256,070 Related parties .................................... 34,177 30,835 61,931 55,655 --------- --------- --------- --------- Total net sales ................................ 213,739 157,639 380,642 311,725 Cost of goods sold ...................................... 160,696 132,140 300,225 260,663 --------- --------- --------- --------- Gross profit ............................................ 53,043 25,499 80,417 51,062 Selling, general and administrative expenses ............ 19,779 18,176 32,867 31,978 --------- --------- --------- --------- Operating income ................................... 33,264 7,323 47,550 19,084 Interest expense ........................................ 5,030 4,169 9,295 9,008 Other (income) expense .................................. (131) (22) 4,022 (226) --------- --------- --------- --------- Income before income taxes and extraordinary items . 28,365 3,176 34,233 10,302 Income taxes ............................................ 10,637 1,223 12,837 3,966 --------- --------- --------- --------- Income before extraordinary items .................. 17,728 1,953 21,396 6,336 Extraordinary loss on debt extinguishment, net of tax benefit of $1,216 ....................... -- -- 2,028 -- --------- --------- --------- --------- Net income .............................................. $ 17,728 $ 1,953 $ 19,368 $ 6,336 ========= ========= ========= ========= Basic earnings per share: Income before extraordinary items .................. $ 0.37 $ 0.04 $ 0.46 $ 0.14 Extraordinary loss on debt extinguishment .......... -- -- (0.05) -- --------- --------- --------- --------- Net income ......................................... $ 0.37 $ 0.04 $ 0.41 0.14 ========= ========= ========= ========= Weighted average number of shares outstanding ........... 47,423 45,648 46,734 45,578 ========= ========= ========= ========= Diluted earnings per share: Income before extraordinary items .................. $ 0.37 $ 0.04 $ 0.45 $ 0.14 Extraordinary loss on debt extinguishment .......... -- -- (0.04) -- --------- --------- --------- --------- Net income ......................................... $ 0.37 $ 0.04 $ 0.41 $ 0.14 ========= ========= ========= ========= Weighted average number of shares and share equivalents outstanding ............................ 47,859 45,891 47,103 45,799 ========= ========= ========= ========= </TABLE> See notes to consolidated financial statements. 2
STEEL DYNAMICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) <TABLE> <CAPTION> Three Months Ended June 30, Six Months ended June 30, --------------------------- ------------------------- 2002 2001 2002 2001 --------- --------- --------- --------- <S> <C> <C> <C> <C> Operating activities: Net income ............................................ $ 17,728 $ 1,953 $ 19,368 $ 6,336 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss on debt extinguishment ......... -- -- 3,244 -- Depreciation and amortization ..................... 14,247 12,277 28,080 23,828 Deferred income taxes ............................. 8,395 (1,207) 6,691 (313) Minority interest ................................. (26) 137 230 550 Changes in certain assets and liabilities: Accounts receivable .......................... (3,294) 1,315 (7,743) (1,211) Inventories .................................. (2,399) 762 3,613 (6,980) Other assets ................................. (9,882) (14,494) (5,293) (9,625) Accounts payable ............................. (4,965) 5,272 4,242 15,402 Accrued expenses ............................. 13,336 (508) 13,197 (4,516) --------- --------- --------- --------- Net cash provided by operating activities ......... 33,140 5,507 65,629 23,471 --------- --------- --------- --------- Net cash used in investing activity: Purchases of property, plant, and equipment ........... (25,438) (14,457) (59,197) (24,810) Financing activities: Issuance of long-term debt ............................ 9,766 82,020 485,915 88,319 Repayments of long-term debt .......................... (3,761) (61,521) (512,164) (80,437) Issuance of common stock, net of expenses and proceeds and tax benefits from exercise of stock options ..... 3,105 1,101 4,208 1,443 Debt issuance costs ................................... (384) -- (13,885) -- --------- --------- --------- --------- Net cash provided by (used in) financing activities 8,726 21,600 (35,926) 9,325 --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents ........... 16,428 12,650 (29,494) 7,986 Cash and cash equivalents at beginning of period ........... 32,319 5,520 78,241 10,184 --------- --------- --------- --------- Cash and cash equivalents at end of period ................. $ 48,747 $ 18,170 $ 48,747 $ 18,170 ========= ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest ................................ $ 2,699 $ 8,693 $ 12,229 $ 18,307 ========= ========= ========= ========= Cash paid for federal and state income taxes .......... $ 4,125 $ 3,073 $ 4,235 $ 3,613 ========= ========= ========= ========= Issuance of common stock from treasury to extinguish portion of long-term debt ................ $ -- $ -- $ 22,000 $ -- ========= ========= ========= ========= </TABLE> See notes to consolidated financial statements. 3
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), including New Millennium Building Systems LLC, 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 subsidiaries. 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 financial statements 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 2001 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, 2002 2001 ----------- ----------- Raw Materials......................... $ 43,966 $ 44,807 Supplies.............................. 46,591 42,258 Work-in-progress...................... 9,086 8,512 Finished Goods........................ 15,112 22,791 ----------- ----------- $ 114,755 $ 118,368 =========== =========== 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-month periods ended June 30 are as follows (in thousands): <TABLE> <CAPTION> Three Months Ended Six Months Ended -------------------------- -------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Basic weighted average common shares outstanding......... 47,423 45,648 46,734 45,578 Dilutive effect of stock options......................... 436 243 369 221 ----------- ----------- ----------- ----------- Diluted weighted average common shares and share equivalents outstanding..................... 47,859 45,891 47,103 45,799 =========== =========== =========== =========== </TABLE> 4. Comprehensive Income The following table presents the company's components of comprehensive income, net of related tax, for the three and six-month periods ended June 30 (in thousands): <TABLE> <CAPTION> Three Months Ended Six Months Ended -------------------------- -------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net income available to common shareholders.............. $ 17,728 $ 1,953 $ 19,368 $ 6,336 Cumulative effect of an accounting change........... - - - (2,468) Unrealized gain (loss) on derivative instrument..... (1,189) 529 (582) (974) ----------- ----------- ----------- ----------- Comprehensive income..................................... $ 16,539 $ 2,482 $ 18,786 $ 2,894 =========== =========== =========== =========== </TABLE> The company recorded a gain from hedging activities of approximately $45,000 and a loss from hedging activities of approximately $41,000, for the six-month periods ended June 30, 2002 and 2001, respectively, and a gain of approximately $47,000, for the three-month period ended June 30, 2001. 4
STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Segment Information The company has two reportable segments: steel operations and steel scrap substitute operations. The steel operations segment includes the company's flat rolled division and structural and rail division. The flat rolled division sells a broad range of hot-rolled, cold-rolled and coated steel products, including a large variety of specialty products such as thinner gauge hot-rolled products and galvanized products. The flat rolled division sells directly to end-users and service centers located primarily in the Midwestern United States and these products are used in numerous industry sectors, including the automotive, construction and commercial industries. The company began significant construction of its structural and rail division in May 2001 and commenced limited structural production in June 2002. The company expects to ramp up the structural operations through regular product introductions and be fully operational by the end of 2002. In addition, the company expects to commence production of rails during the first quarter of 2003. This facility is designed to produce and sell structural steel beams, pilings, and other steel components directly to end-users and service centers for the construction, transportation and industrial machinery markets. This facility is also designed to produce and sell a variety of standard and premium grade rails for the railroad industry. Steel scrap substitute operations include the revenues and expenses associated with the company's wholly owned subsidiary, Iron Dynamics. Since operational start-up processes at Iron Dynamics were halted in 2001, IDI's costs are composed of those expenses required to maintain the facility and further evaluate the project and its related benefits. Revenues included in the category "All Other" are from two subsidiary operations that are below the quantitative thresholds required for reportable segments. These revenues are from the fabrication of trusses, girders, steel joist and steel decking for the non-residential construction industry; from the further processing, or slitting, and sale of certain steel products; and from the resale of certain secondary and excess steel products. In addition, "All Other" also includes certain unallocated corporate accounts, such as the company's senior secured credit facilities, senior unsecured notes, and certain other investments. The company's operations are primarily organized and managed by operating segment. Operating segment performance and resource allocations are primarily based on operating results before income taxes. The accounting policies of the reportable segments are consistent with those described in Note 1 to the financial statements. Intersegment sales and any related profits are eliminated in consolidation. The external net sales of the company's steel operations include sales to non-U.S. companies of $1.5 million for the three months ended June 30, 2002 and 2001 and $4.0 million and $3.1 million for the six months ended June 30, 2002 and 2001, respectively. Segment results for the three and six-month periods ended June 30 are as follows (in thousands): <TABLE> <CAPTION> Three Months Ended Six Months Ended --------------------------- --------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Steel Operations Net sales External $ 191,211 $ 141,602 $ 337,504 $ 283,335 Other segments 14,055 8,745 25,237 13,821 Operating income 38,067 18,010 57,426 36,589 Assets 946,407 865,739 946,407 865,739 - ---------------------------------------------------------------------------------------------------- Steel Scrap Substitute Operations Net sales External $ - $ - $ - $ - Other segments - 4,057 - 4,660 Operating loss (2,027) (5,567) (4,815) (9,394) Assets 152,604 154,189 152,604 154,189 - ---------------------------------------------------------------------------------------------------- All Other Net sales External $ 22,528 $ 16,037 $ 43,138 $ 28,390 Other segments 118 678 326 678 Operating loss (1,804) (4,774) (3,655) (7,477) Assets 190,054 155,663 190,054 155,663 - ---------------------------------------------------------------------------------------------------- Eliminations Net sales External $ - $ - $ - $ - Other segments (14,173) (13,480) (25,563) (19,159) Operating loss (972) (346) (1,406) (634) Assets (89,157) (82,784) (89,157) (82,784) - ---------------------------------------------------------------------------------------------------- Consolidated Net sales $ 213,739 $ 157,639 $ 380,642 $ 311,725 Operating income 33,264 7,323 47,550 19,084 Assets 1,199,908 1,092,807 1,199,908 1,092,807 ==================================================================================================== </TABLE> 5
STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Condensed Consolidating Information SDI Investment Company (SDI Investment) is a 100% owned subsidiary of SDI and was incorporated in 2000. SDI Investment has fully and unconditionally guaranteed all of the indebtedness relating to the issuance of $200.0 million of Senior Notes in March 2002 and due 2009. Set forth below are condensed consolidating financial statements of the company, including SDI Investment, as the guarantor. The following condensed consolidating financial statements present the financial position, results of operations and cash flows of (i) SDI (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) SDI Investment, as the guarantor, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information for the company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of the company and the company's Report on Form 10-K for the year ended December 31, 2001. Condensed Consolidating Balance Sheets (in thousands): <TABLE> <CAPTION> As of June 30, 2002 Combined Consolidating Total Parent Guarantor non-guarantors adjustments consolidated ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Cash.................................. $ 44,453 $ 167 $ 4,127 $ - $ 48,747 Accounts receivable................... 88,339 - 13,149 (11,866) 89,622 Inventories........................... 99,125 - 16,881 (1,251) 114,755 Other current assets.................. 26,206 - 105 (534) 25,777 ----------- ----------- ----------- ----------- ----------- Total current assets............... 258,123 167 34,262 (13,651) 278,901 Property, plant and equipment, net.... 742,652 - 142,008 (106) 884,554 Other assets.......................... 160,008 29,687 423 (153,665) 36,453 ----------- ----------- ----------- ----------- ----------- Total assets....................... $ 1,160,783 $ 29,854 $ 176,693 $ (167,422) $ 1,199,908 =========== =========== =========== =========== =========== Accounts payable...................... $ 35,011 $ 8,010 $ 14,415 $ (11,866) $ 45,570 Accrued expenses...................... 43,160 - 2,220 (1) 45,379 Current maturities of long-term debt.. 2,574 - 3,331 (17) 5,888 ----------- ----------- ----------- ----------- ----------- Total current liabilities.......... 80,745 8,010 19,966 (11,884) 96,837 Other liabilities..................... 88,821 - 46 (151) 88,716 Long-term debt........................ 525,776 - 20,527 (516) 545,787 Minority interest..................... 642 - - 4,357 4,999 Common stock.......................... 499 1 172,164 (172,165) 499 Treasury stock........................ (28,889) - - - (28,889) Additional paid in capital............ 346,300 16 - (16) 346,300 Retained earnings..................... 152,827 21,827 (36,010) 12,953 151,597 Other accumulated comprehensive loss.. (5,938) - - - (5,938) ----------- ----------- ----------- ----------- ----------- Total stockholders' equity......... 464,799 21,844 136,154 (159,228) 463,569 ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity........................ $ 1,160,783 $ 29,854 $ 176,693 $ (167,422) $ 1,199,908 =========== =========== =========== =========== =========== As of December 31, 2001 Cash.................................. $ 77,407 $ 83 $ 751 $ - $ 78,241 Accounts receivable................... 78,461 - 10,375 (6,957) 81,879 Inventories........................... 100,709 - 17,680 (21) 118,368 Other current assets.................. 32,973 (16) 1,095 (336) 33,716 ----------- ----------- ----------- ----------- ----------- Total current assets............... 289,550 67 29,901 (7,314) 312,204 Property, plant and equipment, net.... 703,896 - 148,270 (105) 852,061 Other assets.......................... 90,044 7,822 1,405 (83,438) 15,833 ----------- ----------- ----------- ----------- ----------- Total assets....................... $1,083,490 $ 7,889 $ 179,576 $ (90,857) $ 1,180,098 =========== =========== =========== =========== =========== Accounts payable...................... $ 40,081 $ 1 $ 8,204 $ (6,957) $ 41,329 Accrued expenses...................... 28,165 - 2,585 (1) 30,749 Current maturities of long-term debt.. 2,337 - 43,696 - 46,033 ----------- ----------- ----------- ----------- ----------- Total current liabilities.......... 70,583 1 54,485 (6,958) 118,111 Other liabilities..................... 61,308 - 2,728 20,716 84,752 Long-term debt........................ 532,350 - 21,876 (335) 553,891 Minority interest..................... 639 - - 4,130 4,769 Common stock.......................... 495 1 133,351 (133,352) 495 Treasury stock........................ (46,526) - - - (46,526) Additional paid in capital............ 337,733 16 - (16) 337,733 Retained earnings..................... 132,264 7,871 (32,864) 24,958 132,229 Other accumulated comprehensive loss.. (5,356) - - - (5,356) ----------- ----------- ----------- ----------- ----------- Total stockholders' equity......... 418,610 7,888 100,487 (108,410) 418,575 ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity........................ $ 1,083,490 $ 7,889 $ 179,576 $ (90,857) $ 1,180,098 =========== =========== =========== =========== =========== </TABLE> 6
STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Income (in thousands): <TABLE> <CAPTION> For the Three Months Ended, June 30, 2002 Combined Consolidating Total Parent Guarantor non-guarantors adjustments consolidated ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Net sales............................. $ 205,267 $ - $ 22,645 $ (14,173) $ 213,739 Cost of good sold..................... 151,607 - 22,202 (13,113) 160,696 ----------- ----------- ----------- ----------- ----------- Gross profit....................... 53,660 - 443 (1,060) 53,043 Selling, general and administration... 17,447 4 2,416 (88) 19,779 ----------- ----------- ----------- ----------- ----------- Operating income (loss)............... 36,213 (4) (1,973) (972) 33,264 Interest expense...................... 4,740 - 299 (9) 5,030 Other (income) expense................ 12,327 (12,482) (7) 31 (131) ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes and equity in net loss of subsidiaries 19,146 12,478 (2,265) (994) 28,365 Income tax (expense) benefit....... (6,807) (4,679) 849 - (10,637) Equity in net income of subsidiaries 6,383 - - (6,383) - ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 18,722 $ 7,799 $ (1,416) $ (7,377) $ 17,728 =========== =========== =========== =========== =========== <CAPTION> For the Three Months Ended, June 30, 2001 <S> <C> <C> <C> <C> <C> Net sales............................. $ 150,348 $ - $ 20,771 $ (13,480) $ 157,639 Cost of good sold..................... 127,275 - 18,185 (13,320) 132,140 ----------- ----------- ----------- ----------- ----------- Gross profit....................... 23,073 - 2,586 (160) 25,499 Selling, general and administration... 8,946 (6) 9,049 187 18,176 ----------- ----------- ----------- ----------- ----------- Operating income (loss)............... 14,127 6 (6,463) (347) 7,323 Interest expense...................... 4,154 - 490 (475) 4,169 Other (income) expense................ 8,718 (9,215) - 475 (22) ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes and equity in net loss of subsidiaries 1,255 9,221 (6,953) (347) 3,176 Income tax (expense) benefit....... (350) (3,550) 2,677 - (1,223) Equity in net income of subsidiaries 1,395 - - (1,395) - ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 2,300 $ 5,671 $ (4,276) $ (1,742) $ 1,953 =========== =========== =========== =========== =========== <CAPTION> Condensed Consolidating Statement of Income (in thousands): For the Six Months Ended, June 30, 2002 Combined Consolidating Total Parent Guarantor non-guarantors adjustments consolidated ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Net sales............................. $ 362,742 $ - $ 43,463 $ (25,563) $ 380,642 Cost of good sold..................... 282,621 - 41,937 (24,333) 300,225 ----------- ----------- ----------- ----------- ----------- Gross profit....................... 80,121 - 1,526 (1,230) 80,417 Selling, general and administration... 27,998 7 4,685 177 32,867 ----------- ----------- ----------- ----------- ----------- Operating income (loss)............... 52,123 (7) (3,159) (1,407) 47,550 Interest expense...................... 8,121 - 1,187 (13) 9,295 Other (income) expense................ 25,936 (21,971) (10) 67 4,022 ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes, equity in net income of subsidiaries and extraordinary items........... 18,066 21,964 (4,336) (1,461) 34,233 Income tax (expense) benefit.......... (6,482) (8,009) 1,654 - (12,837) ------------ ------------ ----------- ----------- ------------ Income (loss) before equity in net income of subsidiaries and extraordinary items 11,584 13,955 (2,682) (1,461) 21,396 Extraordinary loss on debt extinguishment, net of tax benefit of $1,216....... (1,564) - (464) - (2,028) Equity in net income of subsidiaries.. 10,809 - - (10,809) - ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 20,829 $ 13,955 $ (3,146) $ (12,270) $ 19,368 =========== =========== =========== =========== =========== </TABLE> 7
STEEL DYNAMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS <TABLE> <CAPTION> For the Six Months Ended, June 30, 2001 Combined Consolidating Total Parent Guarantor non-guarantors adjustments consolidated ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Net sales............................. $ 297,157 $ - $ 33,726 $ (19,158) $ 311,725 Cost of good sold..................... 251,066 - 28,633 (19,036) 260,663 ----------- ----------- ----------- ----------- ----------- Gross profit....................... 46,091 - 5,093 (122) 51,062 Selling, general and administration... 17,484 7 14,300 187 31,978 ----------- ----------- ----------- ----------- ----------- Operating income (loss)............... 28,607 (7) (9,207) (309) 19,084 Interest expense...................... 8,782 - 966 (740) 9,008 Other (income) expense................ 17,309 (18,274) - 739 (226) ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes and equity in net income of subsidiaries 2,516 18,267 (10,173) (308) 10,302 Income tax (expense) benefit.......... (1,146) (6,725) 3,905 - (3,966) Equity in net income of subsidiaries.. 5,275 - - (5,275) - ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 6,645 $ 11,542 $ (6,268) $ (5,583) $ 6,336 =========== =========== =========== =========== =========== <CAPTION> Condensed Consolidating Statements of Cash Flows (in thousands): For the Six Months Ended June 30, 2002 Combined Total Parent Guarantor non-guarantors consolidated ----------- ----------- ------------ ----------- <S> <C> <C> <C> <C> Net cash provided by operations...................... $ 61,374 $ 84 $ 4,171 $ 65,629 Net cash provided by (used in) investing activities.. (62,233) - 3,036 (59,197) Net cash used in financing activities................ (32,095) - (3,831) (35,926) ----------- ----------- ------------ ----------- Increase (decrease) in cash and cash equivalents..... (32,954) 84 3,376 (29,494) Cash and cash equivalents at beginning of year....... 77,407 83 751 78,241 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of year............. $ 44,453 $ 167 $ 4,127 $ 48,747 =========== =========== =========== =========== For the Six Months Ended June 30, 2001 Net cash provided by (used in) operations............ $ 4,712 $ 33,435 $ (14,676) $ 23,471 Net cash used in investing activities................ (19,820) - (4,990) (24,810) Net cash provided by (used in) financing activities.. 22,633 (33,440) 20,132 9,325 ----------- ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents..... 7,525 (5) 466 7,986 Cash and cash equivalents at beginning of year....... 8,924 40 1,220 10,184 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of year............. $ 16,449 $ 35 $ 1,686 $ 18,170 =========== =========== =========== =========== </TABLE> 7. Subsequent Event On July 29, 2002, the company announced that it had entered into a definitive agreement with Qualitech Steel SBQ LLC to purchase its special bar quality mini-mill assets located in Pittsboro, Indiana for $45 million in cash. The company plans to invest between $60 and $70 million of additional capital to convert the facility to the production of merchant and reinforcing bar products. The company plans to close the transaction within 25 days, and barring any unforeseen circumstances, anticipates that it will complete construction and start-up of the facility within twelve months after the closing of the transaction. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward looking statements as a result of these risks and uncertainties, including those set forth in our Form 10-K under "Forward Looking Statements" and under "Risk Factors." You should read the following discussion in conjunction with "Selected Financial Data" set forth in our Form 10-K and our consolidated financial statements and notes appearing elsewhere in this filing. Overview We own and operate two state-of-the-art, low-cost mini-mills: a flat-rolled mini-mill located in Butler, Indiana, with an annual production capacity of 2.2 million tons, and a newly built structural steel and rail mini-mill located in Columbia City, Indiana, with an annual production capacity of 1.3 million tons, depending on product mix. Our Butler mini-mill produces a broad range of high quality hot-rolled, cold-rolled and coated steel products, including a large variety of high value-added and high margin specialty products such as thinner gauge rolled products and galvanized products. We sell these products directly to end-users, intermediate steel processors and steel service centers primarily in the Midwestern United States. Our products are used in numerous industry sectors, including the automotive, construction and commercial industries. In May 2002, we announced plans to construct a low-cost, coil coating facility at our Butler mini-mill that will further increase our range of value-added capabilities. Subject to our receipt of applicable permits, we anticipate starting construction of the facility within the next several months and expect to commence coating operations in the middle of 2003. The coating facility is currently expected to have an annual production capacity of 240,000 tons and is estimated to cost between $25 and $30 million. In May 2001, we began construction of a new state-of-the-art structural steel and rail mini-mill in Columbia City, Indiana. Our Columbia City mini-mill is designed to have an annual production capacity of 1.3 million tons and produce structural steel and rails at a higher quality and lower cost than comparable mini-mills. We expect to spend approximately $315 million to construct this mini-mill, of which $280 million has been spent as of June 30, 2002. We commenced structural steel operations in late June 2002 and we have shipped our first structural products to initial customers. We expect to ramp up these operations through regular product introductions and be fully operational by the end of 2002. In addition, we expect to commence production of rails during the first quarter of 2003. Our structural steel operation is designed to produce steel products for the construction, transportation and industrial machinery markets. Our rail manufacturing operation is designed to produce a variety of rail products for the railroad industry. On July 29, 2002, we announced that we entered into a definitive agreement with Qualitech Steel SBQ LLC to purchase Qualitech's special bar quality mini-mill assets located in Pittsboro, Indiana. We agreed to pay $45 million for the assets and currently plan to invest between $60 and $70 million of additional capital to convert the Qualitech mini-mill to the production of between 500,000 and 600,000 annual tons of merchant and reinforcing bar products. We currently expect to close the transaction within 25 days, subject to certain conditions and approvals. In addition we currently plan to complete construction and start-up of this mini-mill within 12 months after the closing of the transaction and to begin shipping our first products during the second half of 2003. However, on Friday, August 2, 2002, Nucor Corporation filed suit against Qualitech Steel SBQ LLC seeking to enjoin Qualitech from selling its assets by reason of a prior purchase agreement. We may also be delayed in meeting our current schedule based upon other unforeseen circumstances and events outside our control. Net Sales Our total net 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 charge marginally higher prices for our value-added products from our cold mill. These products include hot-rolled and cold-rolled galvanized products and cold-rolled products. Cost of Goods Sold Our cost of goods sold represents all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are steel scrap and scrap substitutes, alloys, natural gas, argon, direct and indirect labor benefits, electricity, oxygen, electrodes and depreciation. 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 our 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. Interest Expense Interest expense consists of interest associated with our senior credit facilities and other debt agreements as described in the notes to our financial statements set forth in our Form 10K, net of capitalized interest costs that are related to construction expenditures during the construction period of capital projects. 9
Other (Income) Expense Other income consists of interest income earned on our cash balances and any other non-operating income activity, including insurance proceeds from litigation efforts. Other expense consists of any non-operating costs, including permanent impairments of reported investments and settlement costs from litigation efforts. Results of Operations Three Months Ended June 30, 2002 Compared with Three Months Ended June 30, 2001 Net Sales. Our net sales were $213.7 million, with total shipments of 628,000 net tons for the three months ended June 30, 2002, as compared to net sales of $157.6 million, with total shipments of 516,000 net tons for the three months ended June 30, 2001, an increase in net sales of $56.1 million, or 36%, and an increase in total shipments of 112,000 net tons, or 22%. During the second quarter of 2002, the average consolidated selling price per ton increased approximately $34, or 11%, in comparison to the same period in 2001 and increased approximately $43, or 14%, in comparison to the first quarter of 2002. We are already experiencing higher selling prices in our order backlog for the third quarter of 2002. We sold approximately 16% and 20% of our net sales to Heidtman Steel Products, Inc (or affiliates) (Heidtman) for the three months ended June 30, 2002 and 2001, respectively. Cost of Goods Sold. Cost of goods sold was $160.7 million for the three months ended June 30, 2002, as compared to $132.1 million for the three months ended June 30, 2001, an increase of $28.6 million, or 22%, which was primarily volume related. As a percentage of net sales, cost of goods sold represented approximately 75% and 84% for the three months ended June 30, 2002 and 2001, respectively. Steel scrap represented approximately 44% and 45% of our total cost of goods sold for the three months ended June 30, 2002 and 2001, respectively. We experienced a steady decline in scrap pricing from the second quarter of 2000 through the first quarter of 2002; however, this trend ended in the second quarter of 2002 with a slight increase in scrap prices. The average scrap cost per hot band ton produced during the second quarter of 2002 averaged $11, or 11%, more than in the first quarter of 2002 and remained flat when compared to the 2001 annual average. We experienced a narrowing of our gross margin throughout 2001 as our average sales price per ton decreased more rapidly than our average scrap cost per ton; however, during the second quarter of 2002, our gross margin strengthened as our average product pricing increased by a greater degree than our average scrap cost. We currently anticipate a further strengthening in our gross margin through the third quarter of 2002. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $19.8 million for the three months ended June 30, 2002, as compared to $18.2 million for the three months ended June 30, 2001, an increase of $1.6 million, or 9%. As a percentage of net sales, selling, general and administrative expenses represented approximately 9% and 12% for the three months ended June 30, 2002 and 2001, respectively. Start-up costs were $8.4 million, all of which were related to construction and production ramp-up of our structural and rail mill, for the three months ended June 30, 2002, as compared to start-up costs of $8.9 million, of which Iron Dynamics represents $7.2 million, for the three months ended June 30, 2001, a decrease of $500,000, or 6%. Interest Expense. Interest expense was $5.0 million for the three months ended June 30, 2002, as compared to $4.2 million for the three months ended June 30, 2001, an increase of $900,000, or 21%. Gross interest expense increased 29% to $11.5 million and capitalized interest increased 112% to $6.4 million, for the three months ended June 30, 2002, as compared to the same period in 2001. Gross interest expense increased 44% for the second quarter of 2002 as compared to the first quarter of 2002 despite a 2% decrease in net debt (total debt, including other long-term contingent liabilities, less cash and cash equivalents). This increase is due to an increase in our average interest rate primarily driven by the March 26, 2002, refinancing of our capital structure, in which we introduced higher priced public debt components. Interest required to be capitalized with respect to our structural and rail mill construction also increased accordingly. Other (Income) Expense. Other income was $131,000 and $22,000 for the three months ended June 30, 2002 and 2001, respectively, resulting in an increase of $109,000, or 495%. Income Taxes. Our income tax provision was $10.6 million for the three months ended June 30, 2002, as compared to $1.2 million for the same period in 2001, an increase of $9.4 million. Our effective tax rate was 37.5% during 2002, as compared to 38.5% during 2001. During the fourth quarter of 2001, we recorded a $1.9 million deferred tax asset valuation allowance related to foreign tax credits that may not be fully realized. This allowance is still outstanding at June 30, 2002. Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001 Net Sales. Our net sales were $380.6 million, with total shipments of 1,190,000 net tons for the six months ended June 30, 2002, as compared to net sales of $311.7 million, with total shipments of 998,000 net tons for the six months ended June 30, 2001, an increase in net sales of $68.9 million, or 22%, and an increase in total shipments of 192,000 net tons, or 19%. During the first half of 2002, the average consolidated selling price per ton increased approximately $8, or 3%, in comparison to the same period in 2001 and increased approximately $14, or 5%, in comparison to the second half of 2001. We are already experiencing higher selling prices in our order backlog for the third quarter of 2002. We sold approximately 16% and 18% of our net sales to Heidtman for the six months ended June 30, 2002 and 2001, respectively. 10
Cost of Goods Sold. Cost of goods sold was $300.2 million for the six months ended June 30, 2002, as compared to $260.7 million for the six months ended June 30, 2001, an increase of $39.5 million, or 15%, which was primarily volume related. As a percentage of net sales, cost of goods sold represented approximately 79% and 84% for the six months ended June 30, 2002 and 2001, respectively. Steel scrap represented approximately 43% and 44% of our total cost of goods sold for the six months ended June 30, 2002 and 2001, respectively. We experienced a steady decline in scrap pricing from the second quarter of 2000 through the first quarter of 2002; however, this trend ended in the second quarter of 2002 with a slight increase in scrap prices. The average scrap cost per hot band ton produced during the first half of 2002 averaged $4, or 3%, less than in the first half of 2001 and averaged $8, or 7% less than in the second half of 2001. We experienced a narrowing of our gross margin throughout 2001 as our average sales price per ton decreased more rapidly than our average scrap cost per ton; however, during the second half of 2002, our gross margin strengthened as our average product pricing increased by a greater degree than our average scrap cost. We currently anticipate a further strengthening in our gross margin through the third quarter of 2002. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $32.9 million for the six months ended June 30, 2002, as compared to $32.0 million for the six months ended June 30, 2001, an increase of $889,000, or 3%. As a percentage of net sales, selling, general and administrative expenses represented approximately 9% and 10% for the six months ended June 30, 2002 and 2001, respectively. Start-up costs were $13.0 million, all of which were related to construction and production ramp-up of our structural and rail mill, for the six months ended June 30, 2002, as compared to start-up costs of $14.0 million, of which Iron Dynamics represents $11.0 million, for the six months ended June 30, 2001, a decrease of $1.0 million, or 7%. Interest Expense. Interest expense was $9.3 million for the six months ended June 30, 2002, as compared to $9.0 million for the six months ended June 30, 2001, an increase of $287,000 or 3%. Gross interest expense increased 6% to $19.5 million and capitalized interest increased 33% to $10.2 million, for the six months ended June 30, 2002, as compared to the same period in 2001. This increase in capitalized interest is due to an increase in our start-up assets related to the structural and rail mill for which associated interest is required to be capitalized. Other (Income) Expense. Other expense was $4.0 million for the six months ended June 30, 2002, and other income was $226,000 for the same period in 2001, an increase in expenses of $4.2 million. During the first quarter of 2002, we recorded settlement costs in association with the Nakornthai Strip Mill Public Company Ltd. (NSM) related lawsuits. On May 6, 2002, we settled the remaining NSM-related lawsuit, which was outstanding on March 31, 2002. Accordingly, we reflected a settlement cost of $4.5 million, net of any insurance proceeds, in our financial results for the first quarter of 2002. Income Taxes. Our income tax provision was $12.8 million, net a $1.2 million tax benefit related to our extraordinary loss on debt extinguishment, for the six months ended June 30, 2002, as compared to $4.0 million for the same period in 2001. Our effective tax rate was 37.5% during 2002, as compared to 38.5% during 2001. During the fourth quarter of 2001, we recorded a $1.9 million deferred tax asset valuation allowance related to foreign tax credits that may not be fully realized. This allowance is still outstanding at June 30, 2002. 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. Cash Flows For the six months ended June 30, 2002, cash provided by operating activities was $65.6 million, as compared to $23.5 million for the six months ended June 30, 2001, an increase of $42.1 million, or 180%. Cash used in investing activities, which represented capital investments, was $59.2 million and $24.8 million for the six months ended June 30, 2002 and 2001, respectively. Substantially all of our capital investment costs incurred during the first half of 2002 were utilized in construction efforts related to our structural steel and rail mill. Cash used in financing activities was $35.9 million for the six months ended June 30, 2002, as compared to cash provided by financing activities of $9.3 million for the six months ended June 30, 2001, a decrease in cash of $45.2 million. This decrease in funds due to financing activities was the result of our change in capital structure after the first quarter 2002 refinancing activities and the result of a decrease in debt associated with Iron Dynamics due to an agreement with the Iron Dynamics lenders to extinguish the debt under the Iron Dynamics credit agreement at the end of March 2002. On January 28, 2002, we entered into an agreement with the Iron Dynamics lenders to extinguish the debt under the Iron Dynamics credit agreement at the end of March 2002. We complied with each of the settlement requirements, thus constituting full and final settlement of all of Iron Dynamics' obligations and our guarantees under the IDI credit agreement, causing the IDI credit agreement to terminate. In meeting the requirements of the settlement agreement, we paid $15.0 million in cash and issued an aggregate of $22.0 million, or 1.5 million shares of our common stock during March 2002. In addition, if IDI resumes operations by January 27, 2007, and generates positive cash flow (as defined in the settlement agreement), we are required to make contingent future payments in an aggregate not to exceed $22.0 million. 11
Liquidity We believe the principal indicators of our liquidity are our cash position, remaining availability under our bank credit facilities and excess working capital. During the six months ended June 30, 2002, our cash position decreased $29.5 million to $48.7 million and our working capital position decreased $12.0 million, or 6%, to $182.1 million, as compared to December 31, 2001. As of June 30, 2002, $75.0 million under our senior secured revolving credit facility remained undrawn and available. Our ability to draw down the revolver is dependent upon continued compliance with the financial covenants and other covenants contained in the senior credit agreement. Our ability to meet our debt service obligations and reduce our total debt will depend upon our future performance, which in turn, will depend upon general economic, financial and business conditions, along with competition, legislation and regulation, factors that are largely beyond our control. In addition, we cannot assure you that our operating results, cash flow and capital resources will be sufficient for repayment of our indebtedness in the future. We believe that based upon current levels of operations and anticipated growth, cash flow from operations, together with other available sources of funds, including additional borrowings under our new senior secured credit agreement, will be adequate for the next two years for making required payments of principal and interest on our indebtedness and for funding anticipated capital expenditures and working capital requirements. Inflation We believe that inflation has not had a material effect on our results of operations. 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 steel and rail mill project in Columbia City, 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, 2002, 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, 2001. 12
PART IIOTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 29, 2002, we announced that we entered into a definitive agreement with Qualitech Steel SBQ LLC to purchase Qualitech's special bar quality mini-mill assets located in Pittsboro, Indiana. We agreed to close the transaction within 25 days, subject to certain conditions and approvals. However, on August 2, 2002, Nucor Corporation filed suit against Qualitech Steel SBQ LLC in Hendricks County, Indiana Superior Court, Cause Number 32D01-0208-CT-24, seeking to enjoin Qualitech from selling its assets to us by reason of rights they allege under a prior purchase agreement. On August 6, 2002, the court entered a temporary restraining order prohibiting Qualitech from closing under our purchase agreement pending a preliminary injunction hearing scheduled for August 19, 2002. On August 7, 2002, we intervened in that lawsuit to assert our rights under our purchase agreement with Qualitech. The court has ordered accelerated discovery. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held May 16, 2002. Proxies were solicited for the Annual Meeting in accordance with the requirements of the Securities Exchange Act 1935. At the Annual Meeting, the following occurred: o With respect to Item 1 in our Proxy Statement (Election of Directors): Shares Voted Against Director Shares Voted For or Withheld ------------------------------------------------------------------- Keith E. Busse 35,338,446 7,960,243 Richard P. Teets, Jr. 35,844,650 7,454,039 Mark D. Millett 35,845,035 7,453,654 Tracy L. Shellabarger 35,310,589 7,988,100 Leonard Rifkin 43,127,038 171,651 John C. Bates 43,135,368 163,321 Naoki Hidaka 41,796,861 1,501,828 Dr. Jurgen Kolb 37,653,215 5,645,474 Joseph D. Ruffolo 43,179,950 118,739 Richard J. Freeland 42,267,401 1,031,288 James E. Kelley 42,366,201 932,488 Paul B. Edgerley 43,194,550 104,139 o 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 2002: Shares Voted For 42,333,897 Shares Voted Against 954,412 Abstentions 10,380 ITEM 5. OTHER INFORMATION On July 29, 2002, we announced that we entered into a definitive agreement with Qualitech Steel SBQ LLC to purchase Qualitech's special bar quality mini-mill assets located in Pittsboro, Indiana. We agreed to pay $45 million for the assets and announced plans to invest between $60 and $70 million of additional capital to convert the Qualitech mini-mill to the production of between 500,000 and 600,000 annual tons of merchant and reinforcing bar products. We agreed to close the transaction within 25 days, subject to certain conditions and approvals. In addition, we also announced our plans to complete construction and start-up of this mini-mill within 12 months after the closing of the transaction and to begin shipping our first products during the second half of 2003. However, on August 2, 2002, Nucor Corporation filed suit against Qualitech Steel SBQ LLC in Hendricks County, Indiana Superior Court, seeking to enjoin Qualitech from selling its assets to us by reason of rights they allege under a prior purchase agreement. On August 6, 2002, the court entered a temporary restraining order prohibiting Qualitech from closing under our purchase agreement pending a preliminary injunction hearing scheduled for August 19, 2002. On August 7, we intervened in this lawsuit to assert our rights under our purchase agreement with Qualitech. The pendency of this litigation, including the possibility of appeals, creates uncertainties with respect to our ability to close the 13
transaction or our ability to implement our conversion and start-up plans. We may also be limited or delayed achieving our objectives based upon other unforeseen circumstances and events beyond our control. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits - *99.1 Certification Pursuant to Section 906 of the Sarbanes--Oxley Act of 2002 (B) Reports on Form 8-K for the quarter ended June 30, 2002: Report on Form 8-K filed May 10, 2002. - -------------------------------------------------------------------------------- *Filed herewith Items 2 and 3 of Part II are not applicable for this reporting period and have been omitted. 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 14, 2002 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) 15