Steel Dynamics : Reports Fourth Quarter and Annual 2017 Results

FORT WAYNE, Ind., Jan. 22, 2018/PRNewswire/ --

Annual 2017 Results:

• Record company-wide safety performance
• Record steel shipments of 9.7 million tons
• Record fabrication shipments of over 627,000 tons
• Record net sales of $9.5 billion
• Record operating income of $1.1 billionand pretax income of $935 million
• Record EBITDA of $1.4 billion

Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced fourth quarter and annual 2017 financial results. The company reported fourth quarter 2017 net sales of $2.3 billionand net income of $305 million, or $1.28per diluted share, which includes the following items:

• Lower pretax earnings of $7 million, or $0.02per diluted share, related to debt refinancing and repayment charges,
• Lower pretax earnings of approximately $27 million, or $0.07per diluted share, related to the company's two flat roll division planned outages, which resulted in higher costs and lower value-add shipments, as indicated in the company's December 15, 2017guidance press release,
• A tax benefit of approximately $16 million, or $0.07per diluted share, related to certain discrete valuation allowance reductions, state tax refunds and equity-based compensation, and
• An additional one-time tax benefit of $181 million, or $0.76per diluted share, resulting from the company's revaluation of its deferred tax assets and liabilities in connection with the recently enacted U.S. Federal 'Tax Cuts and Jobs Act of 2017' (TCJA). The company currently estimates the related reduction in its corporate tax rate will result in an effective tax rate of between 24 percent and 25 percent for 2018.

Comparatively, prior year fourth quarter net sales were $1.9 billion, with net income of $20 million, or $0.08per diluted share, which included non-cash goodwill and asset impairment charges of $0.31per diluted share and debt refinancing and repayment charges of $0.04per diluted share. Sequential third quarter 2017 net sales were $2.4 billion, with net income of $153 million, or $0.64per diluted share, which includes debt refinancing and repayment charges of $0.02per diluted share.

Annual 2017 net income was $813 million, or $3.36per diluted share. Excluding the one-time TCJA tax benefit and debt refinancing costs, the company still achieved record annual net income of $641 million, or $2.65per diluted share. Comparatively, annual 2016 net income was $382 million, or $1.56per diluted share. Excluding charges related to litigation settlements, non-cash goodwill and asset impairment, and debt refinancing, annual 2016 adjusted net income was $472 million, or $1.92per diluted share.

'The performance of the entire Steel Dynamics team was exceptional this year,' said Mark D. Millett, President and Chief Executive Officer. 'We performed at the top of our industry, both operationally and financially, and most importantly, we did it safely. We achieved numerous annual records, including steel and fabrication shipments, operating income of $1.1 billion, and EBITDA of $1.4 billion. Based on our strong cash flow generation from operations of $740 millionin 2017, we maintained near-record liquidity of over $2.2 billion, while simultaneously investing in our company through organic growth, a sustained positive dividend profile and the continuation of our share repurchase program. We have a firm foundation for our continued growth. In recognition of the team's tremendous achievements during the year, we were pleased to award each non-executive employee a special cash performance bonus in December which totaled $7 million.

'In spite of the continuation of elevated levels of steel imports, which were over 15 percent higher than in 2016,' continued Millett, 'the domestic steel industry benefited in 2017 from an improvement in underlying demand, as the automotive sector remained strong, and the construction and energy sectors continued to improve. Our steel operations achieved record annual operating income of $1.1 billion. Supported by improved domestic steel utilization, the metals recycling team maintained volume, increased metal spread and reduced costs throughout the year, resulting in annual 2017 operating income of $85 million, more than double last year's performance.

'Our fabrication platform also had a solid year with annual 2017 operating income of $87 million, achieving record shipments which substantially offset margin compression caused by higher average raw material steel costs,' said Millett. 'Our fabrication order backlog and customer sentiment remains strong. We believe this is a positive indication that the non-residential construction market is continuing to strengthen.'

Fourth Quarter 2017 Comments

Fourth quarter 2017 operating income for the company's steel operations decreased 26 percent to $207 millionsequentially, based on a four percent decline in shipments, product mix shift, and metal spread compression. During October, the company successfully completed an equipment upgrade and facility expansion at the Butler Flat Roll Division and an equipment upgrade with additional value-add product opportunities at the Columbus Flat Roll Division. However, the longer than typical planned outages resulted in higher costs and lower value-add shipments, reducing fourth quarter 2017 pretax earnings by approximately $27 million. The company's average overall steel product price decreased more than consumed raw material scrap costs, resulting in steel metal spread compression. The fourth quarter 2017 average product selling price for the company's steel operations decreased $17to $761per ton. The average ferrous scrap cost per ton melted decreased $5to $300per ton.

Fourth quarter 2017 operating income attributable to the company's flat roll products decreased 30 percent when compared to the sequential third quarter, based on lower shipments, the prolonged outages, and metal spread compression. Operating income from long products decreased eight percent as a result of lower shipments, as merchant steel volumes remained under pressure from prefabricated steel imports and excess domestic production capability. Prefabricated steel imports increased more than 80 percent in a five year timeframe. The company's steel production utilization rate was 89 percent in the fourth quarter 2017, compared to 92 percent in the sequential third quarter and compared to the domestic industry utilization rate of approximately 73 percent.

Fourth quarter 2017 operating income from the company's metals recycling operations was $22 million, compared to $21 millionin the sequential third quarter. Despite decreased shipments and lower average quarterly ferrous pricing, ferrous metal spread remained steady and non-ferrous metal spread improved.

The company's fabrication operations fourth quarter 2017 operating income was $22 million, consistent with sequential third quarter results. The fabrication group achieved another quarter of record shipments and maintains a strong order backlog.

During the second half of 2017, the company successfully refinanced $350 millionof senior notes, reducing its ongoing interest burden, extending its debt maturity profile, and further supporting continued growth. These actions reduced third and fourth quarter 2017 pretax income by $8 millionand $7 million, respectively, due to the required call premium and other associated finance expenses, and are expected to provide an estimated annual interest savings of approximately $8 million.

Annual 2017 Comparison

Annual 2017 net sales were a record $9.5 billioncompared to $7.8 billionin 2016. Each of the company's three operating platforms achieved higher average annual selling values and the steel and fabrication operating platforms also each achieved record shipments. Annual 2017 operating income was a record $1.1 billioncompared to adjusted 2016 operating income of $861(which excludes non-cash goodwill and asset impairment charges of $133 million). The improvement in annual earnings resulted from record results for the company's steel operations and significant increase in the metals recycling financial performance. The average 2017 selling price for the company's steel operations increased $107to $765per ton. The average 2017 ferrous scrap cost per ton melted increased $73to $293per ton.

Outlook

'We remain confident that current and anticipated macroeconomic and market conditions are in place to benefit domestic steel consumption in 2018,' said Millett. 'Domestic steel inventory levels have moderated. World steel demand and pricing have structurally improved and domestic steel demand remains healthy. We believe North American automotive steel consumption will be steady, and we continue to gain momentum in that sector. We also believe that there will be continued additional growth in the construction and energy sectors. We believe the recent tax reform will also provide a stimulus for additional domestic fixed asset investment and growth. In combination with our own SDI expansion initiatives, we believe there are firm drivers for growth in 2018.'

'We continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy. We are well-positioned for growth, and remain focused on delivering shareholder value through organic and strategic growth opportunities,' concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss fourth quarter and annual 2017 operating and financial results on Tuesday, January 23, 2018, at 10:00 a.m. Eastern Time. You may access the call and find dial-in information on the Investors section of the company's website at www.steeldynamics.com. A replay of the call will be available on our website until 11:59 p.m. Eastern Time on January 28, 2018.

About Steel Dynamics, Inc.

Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United Statesbased on estimated annual steelmaking and metals recycling capability, with facilities located throughout the United States, and in Mexico. Steel Dynamics produces steel products, including hot roll, cold roll, and coated sheet steel, structural steel beams and shapes, rail, engineered special-bar-quality steel, cold finished steel, merchant bar products, specialty steel sections and steel joists and deck. In addition, the company produces liquid pig iron and processes and sells ferrous and nonferrous scrap.

Note Regarding Non-GAAP Financial Measures

The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings Per Share, EBITDA and Adjusted EBITDA, non-GAAP financial measures, provide additional meaningful information regarding the company's performance and financial strength. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's reported results prepared in accordance with GAAP. In addition, because not all companies use identical calculations, EBITDA included in this release may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements, which we generally precede or accompany by such typical conditional words as 'anticipate,' 'intend,' 'believe,' 'estimate,' 'plan,' 'seek,' 'project' or 'expect,' or by the words 'may,' 'will,' or 'should,' are intended to be made as 'forward-looking,' subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of uncertain economic conditions; (2) cyclical and changing industrial demand; (3) changes in conditions in any of the steel or scrap-consuming sectors of the economy which affect demand for our products, including the strength of the non-residential and residential construction, automotive, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials (including steel scrap, iron units, and energy costs) and our ability to pass-on any cost increases; (5) the impact of domestic and foreign import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired businesses; (7) risks and uncertainties involving product and/or technology development; and (8) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to Steel Dynamics' more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form 10-K under the headings Special Note Regarding Forward-Looking Statements and Risk Factors, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These are available publicly on the SEC website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com : Investors: SEC Filings.

Steel Dynamics, Inc. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data)
	Three Months Ended						Year Ended						Three Months
	December 31,						December 31,						Ended
	2017			2016			2017			2016			September 30, 2017
Net sales	$	2,336,479		$	1,910,596		$	9,538,797		$	7,777,109		$	2,443,382
Costs of goods sold		2,015,655			1,600,654			7,956,783			6,442,245			2,046,864
Gross profit		320,824			309,942			1,582,014			1,334,864			396,518
Selling, general and administrative expenses		96,209			94,110			394,631			374,009			97,056
Profit sharing		21,595			19,563			91,309			71,285			21,175
Amortization of intangible assets		7,073			7,406			29,193			28,765			7,272
Asset impairment charge		-			132,839			-			132,839			-
Operating income		195,947			56,024			1,066,881			727,966			271,015
Interest expense, net of capitalized interest		32,380			36,149			134,399			146,037			34,177
Other expense (income), net		2,215			17,055			(2,753)			17,796			2,526
Income before income taxes		161,352			2,820			935,235			564,133			234,312
Income tax expense (benefit)		(141,819)			(1,012)			129,439			204,127			83,300
Net income		303,171			3,832			805,796			360,006			151,012
Net loss attributable to noncontrolling interests		1,562			16,180			6,945			22,109			2,246
Net income attributable to Steel Dynamics, Inc.	$	304,733		$	20,012		$	812,741		$	382,115		$	153,258
Basic earnings per share attributable to
Steel Dynamics, Inc. stockholders	$	1.28		$	0.08		$	3.38		$	1.57		$	0.64
Weighted average common shares outstanding		237,177			243,687			240,132			243,576			239,066
Diluted earnings per share attributable to
Steel Dynamics, Inc. stockholders, including the effect
of assumed conversions when dilutive	$	1.28		$	0.08		$	3.36		$	1.56		$	0.64
Weighted average common shares
and share equivalents outstanding		238,677			245,511			241,781			245,298			240,880
Dividends declared per share	$	0.155		$	0.1400		$	0.620		$	0.5600		$	0.155

Steel Dynamics, Inc. CONSOLIDATED BALANCE SHEETS (in thousands)
	December 31,				December 31,
Assets	2017				2016
	(unaudited)
Current assets
Cash and equivalents	$	1,028,649			$	841,483
Accounts receivable, net		868,837				729,784
Inventories		1,519,347				1,275,211
Other current assets		91,509				83,197
Total current assets		3,508,342				2,929,675
Property, plant and equipment, net		2,675,904				2,787,215
Restricted cash		16,939				18,060
Intangible assets, net		256,909				283,977
Goodwill		386,893				393,351
Other assets		10,745				11,454
Total assets	$	6,855,732			$	6,423,732
Liabilities and Equity
Current liabilities
Accounts payable	$	489,448			$	395,196
Income taxes payable		3,696				5,593
Accrued expenses		346,580				308,394
Current maturities of long-term debt		28,795				3,632
Total current liabilities		868,519				712,815
Long-term debt		2,353,145				2,353,194
Deferred income taxes		305,949				448,375
Other liabilities		21,811				20,649
Total liabilities		3,549,424				3,535,033
Commitments and contingencies
Redeemable noncontrolling interests		111,240				111,240
Equity
Common stock		644				641
Treasury stock, at cost		(665,297)				(416,829)
Additional paid-in capital		1,141,534				1,132,749
Retained earnings		2,874,693				2,210,459
Total Steel Dynamics, Inc. equity		3,351,574				2,927,020
Noncontrolling interests		(156,506)				(149,561)
Total equity		3,195,068				2,777,459
Total liabilities and equity	$	6,855,732			$	6,423,732

Steel Dynamics, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
	Three Months Ended						Year Ended
	December 31,						December 31,
	2017			2016			2017			2016
Operating activities:
Net income	$	303,171		$	3,832		$	805,796		$	360,006
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		74,931			73,139			298,999			296,109
Asset impairment charge		-			132,839			-			132,839
Equity-based compensation		11,639			10,069			36,197			31,656
Deferred income taxes		(153,748)			(33)			(135,899)			53,846
Other adjustments		6,013			17,450			14,068			20,676
Changes in certain assets and liabilities:
Accounts receivable		54,179			43,193			(139,054)			(106,617)
Inventories		(31,157)			(13,236)			(242,883)			(115,575)
Other assets		5,891			198			4,188			12,053
Accounts payable		(37,189)			(10,699)			96,062			106,521
Income taxes receivable/payable		(39,692)			(54,881)			(33,889)			(13,921)
Accrued expenses		(2,037)			5,536			36,021			75,176
Net cash provided by operating activities		192,001			207,407			739,606			852,769
Investing activities:
Purchases of property, plant and equipment		(37,189)			(74,992)			(164,935)			(198,160)
Acquisition of businesses, net of cash acquired		(674)			(14,286)			(6,192)			(123,351)
Other investing activities		1,636			2,851			32,022			8,618
Net cash used in investing activities		(36,227)			(86,427)			(139,105)			(312,893)
Financing activities:
Issuance of current and long-term debt		118,593			400,000			620,041			473,903
Repayment of current and long-term debt		(278,575)			(656,855)			(609,914)			(728,993)
Dividends paid		(36,728)			(34,128)			(145,565)			(135,767)
Purchase of treasury stock		(15,088)			(25,034)			(252,242)			(25,034)
Other financing activities		(17,291)			(14,969)			(25,655)			(9,534)
Net cash used in financing activities		(229,089)			(330,986)			(413,335)			(425,425)
Increase (decrease) in cash and equivalents		(73,315)			(210,006)			187,166			114,451
Cash and equivalents at beginning of period		1,101,964			1,051,489			841,483			727,032
Cash and equivalents at end of period	$	1,028,649		$	841,483		$	1,028,649		$	841,483
Supplemental disclosure information:
Cash paid for interest	$	55,226		$	53,074		$	135,381		$	150,679
Cash paid for income taxes, net	$	49,701		$	55,826		$	296,493		$	159,950

Steel Dynamics, Inc. SUPPLEMENTAL INFORMATION (dollars in thousands)
			Fourth Quarter						Year to Date
			2017			2016			2017			2016			1Q 2017			2Q 2017			3Q 2017
External Net Sales
Steel		$	1,669,384		$	1,393,329		$	6,931,764		$	5,634,711		$	1,721,333		$	1,758,242		$	1,782,805
Fabrication			220,515			173,015			823,782			701,041			194,096			197,866			211,305
Metals Recycling			354,460			282,783			1,410,040			1,169,342			363,836			343,529			348,215
Other			92,120			61,469			373,211			272,015			88,951			91,083			101,057
Consolidated		$	2,336,479		$	1,910,596		$	9,538,797		$	7,777,109		$	2,368,216		$	2,390,720		$	2,443,382
Operating Income
Steel		$	207,358		$	217,778		$	1,113,884		$	941,126		$	352,423		$	273,818		$	280,285
Fabrication			21,601			17,766			87,459			91,167			23,767			20,188			21,903
Metals Recycling			22,379			9,511			84,826			40,304			21,341			19,988			21,118
Metals Recycling Impairment Charge			-			(5,500)			-			(5,500)			-			-			-
Operations			251,338			239,555			1,286,169			1,067,097			397,531			313,994			323,306
Non-cash Amortization of Intangible Assets			(7,073)			(7,406)			(29,193)			(28,765)			(7,424)			(7,424)			(7,272)
Profit Sharing Expense			(21,595)			(19,563)			(91,309)			(71,285)			(27,231)			(21,308)			(21,175)
Non-segment Operations			(26,723)			(29,223)			(98,786)			(111,742)			(28,310)			(19,909)			(23,844)
Minnesota Impairment Charge			-			(127,339)			-			(127,339)			-			-			-
Consolidated Operating Income			195,947			56,024			1,066,881			727,966			334,566			265,353			271,015
Non-cash Impairment Charge			-			132,839			-			132,839			-			-			-
Adjusted Operating Income		$	195,947		$	188,863		$	1,066,881		$	860,805		$	334,566		$	265,353		$	271,015
Adjusted EBITDA
Earnings Before Taxes		$	161,352		$	2,820		$	935,235		$	564,133		$	304,252		$	235,319		$	234,312
Net Interest Expense			28,990			34,752			124,250			141,148			32,333			31,629			31,298
Depreciation			66,460			64,199			264,317			261,281			66,269			65,014			66,574
Amortization of Intangible Assets			7,073			7,406			29,193			28,765			7,424			7,424			7,272
Non-controlling Interest			1,562			16,180			6,945			22,109			2,152			985			2,246
EBITDA			265,437			125,357			1,359,940			1,017,436			412,430			340,371			341,702
Non-cash Adjustments
Unrealized Hedging (Gain) Loss			7,325			(143)			4,688			484			(637)			724			(2,724)
Inventory Valuation			198			154			2,955			986			162			2,359			236
Asset Impairment Charge			-			119,764			-			119,764			-			-			-
Equity-based Compensation			11,636			10,069			34,560			30,230			9,074			6,975			6,875
Financing Expenses			1,242			3,104			2,635			3,104			-			-			1,393
Adjusted EBITDA		$	285,838		$	258,305		$	1,404,778		$	1,172,004		$	421,029		$	350,429		$	347,482
Other Operating Information
Steel
Average External Sales Price (Per ton)		$	761		$	680		$	765		$	658		$	743		$	779		$	778
Average Ferrous Cost (Per ton melted)		$	300		$	220		$	293		$	220		$	264		$	303		$	305
Flat Roll Shipments			1,659,049			1,565,157			6,865,413			6,631,089			1,735,954			1,737,404			1,733,006
Long Product Shipments
Structural and Rail Division			339,597			319,265			1,339,558			1,299,551			350,555			311,421			337,985
Engineered Bar Products Division			191,652			134,262			757,027			507,163			192,140			180,787			192,448
Roanoke Bar Division			107,319			112,007			470,071			496,808			125,869			116,231			120,652
Steel of West Virginia			66,724			75,453			294,908			311,335			77,229			76,054			74,901
Shipments (Tons)			2,364,341			2,206,144			9,726,977			9,245,946			2,481,747			2,421,897			2,458,992
External Shipments (Tons)			2,184,135			2,041,078			9,015,013			8,558,331			2,305,080			2,246,569			2,279,229
Steel Production (Tons)			2,437,851			2,237,200			9,995,082			9,503,465			2,544,082			2,476,159			2,536,990
Metals Recycling
Nonferrous Shipments (000's of pounds)			271,036			274,790			1,086,799			1,103,505			283,603			270,444			261,716
Ferrous Shipments (Gross tons)			1,172,015			1,175,625			4,952,973			5,070,380			1,338,599			1,222,777			1,219,582
External Ferrous Shipments (Gross tons)			429,512			446,232			1,844,115			1,957,764			485,414			466,506			462,683
Fabrication
Average External Sales Price (Per ton)		$	1,335		$	1,310		$	1,314		$	1,249		$	1,291		$	1,311		$	1,317
Shipments (Tons)			165,338			132,186			627,274			562,725			150,402			151,052			160,482

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SOURCE Steel Dynamics, Inc.