ITEM 2.
MAN
AG
EMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, our 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, incorporated in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve both known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. 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 our more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out
differently
, as set forth under the headings
Special Notes Regarding Forward-Looking Statements
and
Risk Factors
, in our most recent Annual Report on Form 10-K for the year ended December 31, 2015,
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 reports are available publicly on the Securities and Exchange Commission website,
www.sec.gov
, and on our website,
www.steeldynamics.com
.
Description of the Business
We are a domestic manufacturer of steel products and metals recycler. We have three reportable segments: steel operations, metals recycling operations, and steel fabrication operations. Steel operations include our Butler Flat Roll Division, Columbus Flat Roll Division, The Techs galvanizing lines, Structural and Rail Division, Engineered Bar Products Division,
Vulcan Threaded Products – acquired August 1, 2016 (Vulcan),
Roanoke Bar Division, Steel of West Virginia, and Iron Dynamics, a liquid pig iron (scrap substitute) production facility that supplies solely the Butler Flat Roll Division. These
operations
include electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, and ten downstream coating facilities
, and one downstream SBQ processing facility
.
Metals recycling operations include our metals recycling processing locations, and ferrous scrap procurement operations, of OmniSource Corporation
. Steel fabrication operations include our eight New Millennium Building Systems’ joist and deck plants located throughout the United States
,
and
in
Northern Mexico. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel deck used within the non-residential construction industry.
The
“
Other” category consists of
subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our Minnesota ironmaking operations that were indefinitely idled in May 2015, and several smaller joint ventures. Also included in “Other” are certain unallocated corporate accounts, such as our senior secured credit facility, senior notes, certain other investments and certain profit sharing expenses.
Operating Statement Classifications
Net Sales
. Net sales from our operations are a factor of volumes shipped, product mix and related pricing. We charge premium prices for certain grades of steel, product dimensions, certain smaller volumes, and for value-added processing or coating of the steel products. Except for our steel fabrication operations, we recognize revenue from sales and the allowance for estimated costs associated with returns from these sales at the time the title of the product is
transferred
to the customer. Provision is made for estimated product returns and customer claims based on estimates and actual historical experience. Net sales from steel fabrication operations are recognized from construction contracts utilizing a percentage of completion methodology based on steel tons used on completed units to date as a percentage of estimated total steel tons required for each contract.
Costs of Goods Sold
. Our costs of goods sold represent all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are scrap and scrap substitutes (which represent the most significant single component of our consolidated costs of goods sold), steel, direct and indirect labor and related benefits, alloys, zinc, transportation and freight, repairs and maintenance, utilities (most notably electricity and natural gas), and depreciation.
Selling, General and Administrative Expenses
. Selling, general and administrative expenses consist of all costs associated with our sales, finance and accounting, and administrative departments. These costs include, among other items, labor and related benefits, professional services, insurance premiums, property taxes, company-wide profit sharing, and amortization of intangible and other assets.
Interest Expense, net of Capitalized Interest
. Interest expense consists of interest associated with our senior credit facilities and other debt net of interest costs that are required to be capitalized during the construction period of certain capital investment projects.
Other (Income) Expense
,
net
. Other income consists of interest income earned on our temporary cash deposits and investments; any other non-operating income activity, including income from non-consolidated investments accounted for under the equity method. Other expense consists of any non-operating costs, such as certain acquisition and financing expenses.
Results Overview
Consolidated operating income increased $152.8 million, or 117%, to $283.9 million for the third quarter 2016, compared to $131.0 million for the third quarter 2015. Third quarter 2016 net income increased $
96.8
million, or
160
%, to $
157.4
million, from $
60
.6 million for the
third
quarter 2015.
Consolidated operating income increased $
363.6
million, or
118
%, to $
671.9
million for the first
nine months
of 2016, compared to $
308.4
million for the first
nine months
of 2015. First
nine months
2016 net income increased $
239.2
million, or
195
%, to $
362.1
million, from $
122.9
million for the first
nine months
of 2015.
Our consolidated results for the third quarter and first nine months of 2016 benefited from continued positive momentum in the sheet steel supply environment, driving improved sheet steel metal
spreads
, as well as increased metal
spread
and operating cost reductions in our metals recycling operations. Underlying domestic steel consumption remains relatively
consistent
, with the heavy equipment, agriculture and energy markets remaining weak, while automotive and non-residential construction markets remain steady. Sheet steel import levels declined approximately 20% during the first nine months of 2016 as compared to the first nine months of 2015, amidst the duties levied pursuant to the trade cases filed with the US International Trade Commission, and customer inventory levels remained low compared to historical averages. While domestic steel mill utilization rates have flattened in the first nine months of 2016 compared to the first nine months of 2015,
resulting in lower ferrous volumes in our metals recycling operations,
our
metal spreads have
improved, particularly in nonferrous materials
, and we have benefi
ted from continued
operational
cost cutting efforts. The non-residential construction market for our steel fabrication operations remains
strong
, resulting in increased
shipments; however, average selling
prices
have contracted and rising steel input costs
have
resulted in
compressed metal
spread
during 2016.
Segment Operating Results 2016 vs. 2015 (
dollars in thousands
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
% Change
|
|
|
2015
|
|
2016
|
|
% Change
|
|
2015
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Operations Segment
|
$
|
1,627,886
|
|
16%
|
|
$
|
1,407,533
|
|
$
|
4,419,572
|
|
3%
|
|
$
|
4,271,091
|
Metals Recycling Operations Segment
|
|
565,263
|
|
(8)%
|
|
|
616,460
|
|
|
1,643,172
|
|
(14)%
|
|
|
1,913,921
|
Steel Fabrication Operations Segment
|
|
178,640
|
|
2%
|
|
|
174,956
|
|
|
530,441
|
|
8%
|
|
|
490,509
|
Other
|
|
61,395
|
|
(26)%
|
|
|
83,219
|
|
|
214,149
|
|
(20)%
|
|
|
267,127
|
|
|
2,433,184
|
|
|
|
|
2,282,168
|
|
|
6,807,334
|
|
|
|
|
6,942,648
|
Intra-company
|
|
(331,874)
|
|
|
|
|
(331,245)
|
|
|
(940,821)
|
|
|
|
|
(939,283)
|
|
$
|
2,101,310
|
|
8%
|
|
$
|
1,950,923
|
|
$
|
5,866,513
|
|
(2)%
|
|
$
|
6,003,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Operations Segment
|
$
|
307,553
|
|
147%
|
|
$
|
124,712
|
|
$
|
712,939
|
|
110%
|
|
$
|
338,690
|
Metals Recycling Operations Segment
|
|
6,154
|
|
273%
|
|
|
(3,555)
|
|
|
20,014
|
|
8640%
|
|
|
229
|
Steel Fabrication Operations Segment
|
|
17,744
|
|
(52)%
|
|
|
36,733
|
|
|
73,230
|
|
(15)%
|
|
|
85,754
|
Other
|
|
(47,687)
|
|
(68)%
|
|
|
(28,401)
|
|
|
(125,186)
|
|
(7)%
|
|
|
(117,273)
|
|
|
283,764
|
|
|
|
|
129,489
|
|
|
680,997
|
|
|
|
|
307,400
|
Intra-company
|
|
91
|
|
|
|
|
1,540
|
|
|
(9,055)
|
|
|
|
|
959
|
|
$
|
283,855
|
|
117%
|
|
$
|
131,029
|
|
$
|
671,942
|
|
118%
|
|
$
|
308,359
|
|
Steel Operations Segment
|
Steel Operations Segment
.
Steel operations consist of our six electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, and ten downstream coating lines
, one downstream SBQ processing facility
, and IDI, our liquid pig production facility that supplies solely our Butler Flat Roll Division mill. Our steel operations sell directly to end users and service centers. These products are used in numerous industry sectors, including the automotive, construction, manufacturing, transportation, heavy and agriculture equipment, and pipe and tube markets
. Steel operations accounted for 74% and 69% of our consolidated external net sales during the third quarter of 2016 and 2015, and 72% and 69% of our consolidated external net sales during the first nine months of 2016 and 2015, respectively.
Sheet Products.
Our sheet products operations consist of Butler and Columbus Flat Roll Divisions, and our downstream coating lines, including The Techs. These operations sell a broad range of sheet steel products, such as hot roll, cold roll and coated steel products, including a wide variety of specialty products, such as light gauge hot roll
,
galvanized
and Ga
lvalume
®
. Butler Flat Roll Division currently sells
painted
products, while Columbus Flat Roll Division is in the
final
construction phase of a $100 million expansion to add painted capacity. The
Techs is comprised of three galvanizing lines which sell specialized galvanized sheet steels used in non-automotive applications
.
Long Products.
Our Structural and Rail Division sells structural steel beams and pilings to the construction market, as well as standard
‑grade and premium rail to the railroad industry. Our Engineered Bar Products Division primarily sells engineered, special-bar-quality and merchant-bar-quality rounds, round
‑cornered squares, and smaller-diameter round engineered bars.
Vulcan Steel Products manufactures threaded rod products, and also cold drawn and heat treated steel bar.
Our Roanoke Bar Division primarily sells merchant steel products, including angles, merchant rounds, flats and channels, and reinforcing bar. Steel of West Virginia primarily sells beams, channels and specialty steel sections.
Steel Operations Segment Shipments (tons):
|
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|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
% Change
|
|
2015
|
|
2016
|
|
% Change
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
2,271,230
|
|
4%
|
|
2,191,204
|
|
7,039,801
|
|
10%
|
|
6,382,632
|
Intra-segment shipments
|
(65,438)
|
|
|
|
(56,836)
|
|
(216,217)
|
|
|
|
(175,347)
|
Steel Operations Segment Shipments
|
2,205,792
|
|
3%
|
|
2,134,368
|
|
6,823,584
|
|
10%
|
|
6,207,285
|
|
|
|
|
|
|
|
|
|
|
|
|
External shipments
|
2,104,219
|
|
4%
|
|
2,031,096
|
|
6,517,253
|
|
10%
|
|
5,926,152
|
Segment Results 2016 vs. 2015
Overall
steel operations performance in the third quarter and first nine months of 2016 benefited from continued positive momentum in the sheet steel supply environment. Sheet steel import levels have declined approximately 20% during the first nine months of 2016 compared to the first nine months of 2015, amidst the duties levied pursuant to the trade case rulings from the US International Trade Commission, and customer inventory levels remained low compared to historical levels, supporting higher domestic shipments
,
and thus higher
company
steel mill utilization.
Our sheet
steel
mill utilization rate
averaged 97% for the third quarter 2016, as compared to 89% in the
third quarter 2015.
The domestic steel demand outlook remained relatively unchanged and steady, with the heavy equipment, agricultural and energy markets remaining weak, while automotive continues to be strong and construction continues to improve. Sheet steel selling prices dropped throughout 2015, before rebounding during the
first nine months
of 2016. Net sales
for
the steel operations increased 16
% in the
third
quarter 2016, when compared to the same period in 2015, as a
3
% increase in steel operations shipments
combined with an increase
of $
78 per ton, or 12
%, in average selling prices. Net s
ales for the steel operations in
creased 3% in the first
nine months
of 2016, when compared to the same period in 2015, as a
10
% increase in steel operations shipments was more than offset by a decrease of $
41
per
ton, or 6
%, in average selling prices.
Metallic raw materials used in our electric arc furnaces represent our single most significant steel manufacturing cost. During the
third
quarter 2016 and 2015, our metallic raw material
costs represented 57% of our steel operations’
manufacturing costs, excluding the operations of The Techs
and Vulcan
, which purchase, rather than produce, the steel
they
further process. Our metallic raw material cost per net ton consumed in our steel operations decreased $
2, or
1%, in the
third
quarter 2016, c
ompared to the same period in 2015
.
In the first
nine months
of 2016, our metallic raw material cost per net ton consumed decreased $
50
, or
19
%, compared to the same period in 2015.
Operating income for the steel operations increased
147
%, to $
307.6
million, in the
third
quarter 2016, compared to the same period in 2015, due to increased steel shipments and overall steel operations metal spread (which we define as the difference between average selling prices and the cost of ferrous scrap consumed) expansion. Sheet steel metal spread expanded
37
%, while long products metal spread contracted
7
%.
First
nine months
2016 operating income increased
110
%, to $
712.9
million, compared to the first
nine months
of 2015, due to a
10
% increase
in steel shipments coupled with a 2% increase in overall steel operations metal spread
.
Sheet steel metal spread expanded
11
%, while long products metal spread contracted
10
%.
|
Metals Recycling Operations Segment
|
Metals Recycling Operations Segment.
Metals recycling operations include our metals recycling processing locations, and ferrous scrap procurement operations of OmniSource. OmniSource sells ferrous metals to steel mills and foundries, and nonferrous metals, such as copper, brass, aluminum and stainless steel to, among others, ingot manufacturers, copper refineries and mills, smelters, and specialty mills
. Our metals recycling operations
accounted for
15
% and
18
% of our consolidated external net sales during the third quarter of 2016 and 2015, and
15
% and
19
% of our consolidated external net sales during the first nine months of 2016 and 2015, respectively
.
Metals Recycling Operations Shipments:
|
|
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|
|
|
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|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
% Change
|
|
2015
|
|
2016
|
|
% Change
|
|
2015
|
Ferrous metal (gross tons)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
1,243,277
|
|
(8)%
|
|
1,354,339
|
|
3,894,755
|
|
(1)%
|
|
3,945,095
|
Inter-company
|
(774,779)
|
|
|
|
(803,263)
|
|
(2,383,223)
|
|
|
|
(2,125,675)
|
External shipments
|
468,498
|
|
(15)%
|
|
551,076
|
|
1,511,532
|
|
(17)%
|
|
1,819,420
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonferrous metals (thousands of pounds)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
280,107
|
|
(3)%
|
|
287,898
|
|
828,715
|
|
1%
|
|
823,240
|
Inter-company
|
(25,185)
|
|
|
|
(26,826)
|
|
(83,741)
|
|
|
|
(67,315)
|
External shipments
|
254,922
|
|
(2)%
|
|
261,072
|
|
744,974
|
|
(1)%
|
|
755,925
|
Segment Results 2016 vs. 2015
Metals recycling operations operating income in the third quarter 2016 of $6.2 million was 273% higher than the third quarter 2015 operating loss of $3.6 million, due to significant improvements in metal spread (which we define as the difference between average selling prices and the cost of purchased scrap) that more than offset shipment declines in both ferrous and nonferrous metals. Net sales decreased 8% in the third quarter 2016 as compared to the same period in 2015
, due primarily to decreased shipments
. Ferrous metal spread increased 16%, more than offsetting an 8% decrease in ferrous shipments. Overall domestic steel mill utilization was slightly lower in the third quarter 2016 compared to the third quarter 2015, even as our own steel mill utilization improved. Ferrous shipments to our own steel mills increased to 62% of total ferrous shipments in the third quarter 2016, compared to 59% during the same period in 2015. Nonferrous scrap costs declined more than the 8% decline in average selling prices during the third quarter 2016 compared to the same period in 2015, resulting in
a
27% improvement in metal spread as nonferrous shipments declined slightly.
Operating income for the metals recycling operations in the first nine months of 2016 of $20.0 million was $19.8 million higher than the first nine months of 2015, due to our continued focus on reduction of operating costs, along with improved nonferrous metal spread. Net sales decreased 14% in the first nine months of 2016 compared to the same period in 2015, with ferrous and nonferrous pricing decreasing 13% and 15%, respectively. While ferrous and nonferrous shipments were comparable during the first nine months of 2016 as compared to the same period in 2015, metal spreads for ferrous metal were flat year over year, while nonferrous materials metal spread improved 14%
.
|
Steel Fabrication Operations Segment
|
Steel fabrication operations include our eight New Millennium Building Systems’ joist and deck plants located throughout the United States
,
and
in
Northern
Mexico
. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel deck used within the non-residential construction industry. Steel fabrication operations
accounted for
8
% and
9
% of our consolidated external net sales during the third quarter of 2016 and 2015, and
9
% and
8
% of our consolidated external net sales during the first nine months of 2016 and 2015, respectively
.
Segment Results 2016 vs. 2015
The overall non-residential construction market has continued to remain strong; however, declines in selling prices coupled with increased steel input costs during the third quarter 2016 compared to the same period in 2015 resulted in metal spread
(which we define as the difference between average selling prices and the cost of purchased steel) compression
. Net sales for the steel fabrication operations increased $3.7 million, or 2%, during the third quarter 2016,
compared
to the same period in 2015,
as
shipments increased 11%, while average selling prices decreased $106 per ton, or 8%. Net sales for the segment increased $39.9 million, or 8%, in the first nine months of 2016, compared to the first nine months of 2015, as shipments increased 23%, offsetting a 12% decrease in average selling prices. Our steel fabrication operations continue to leverage our national operating footprint to sustain market share, and market demand continues to be steady.
The purchase of various steel products is the largest single cost of production for our steel fabrication operations, generally representing approximately two-thirds of the total cost of manufacturing. The average cost of steel consumed increased by 5% in the third quarter 2016, as compared to the same period in 2015. In addition, selling prices declined 8% causing metal spread to decline
19%
, resulting in a 52% decrease in operating income to $17.8 million in the third quarter 2016, as compared to $36.7 million in the same period in 2015. Segment operating income of $73.3 million in the first nine months of 2016 decreased 15%, from $85.8 million in the first nine months of 2015, as increased shipments of 23% were more than offset by
an 11%
decrease
in
metal spreads
.
Other operations consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our Minnesota ironmaking operations that were indefinitely idled in May 2015, and several smaller joint ventures. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior secured credit facility, senior notes, certain other investments and certain profit sharing expenses
. Prior to being indefinitely idled, our Minnesota ironmaking operations experienced operating losses, which have been significantly curtailed post-idling. The second quarter 2015 Minnesota ironmaking operations operating losses included $21.0 million of inventory lower-of-cost or market charges associated with the idle decision.
Third
Quarter Consolidated Results 2016 vs. 2015
Selling, General and Administrative Expenses.
Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $124.
6
million during the
third
quarter 2016 increased
28
% from $
97.7
million during the
third
quarter 2015,
representing approximately
5.9
% and
5.0
% of net sales, respectively
. The increase in the
third
quarter 2016 compared to the same period in 2015 is due most notably to increased performance-based incentive compensation, including profit sharing, associated with our increased profitability.
Interest Expense, net of Capitalized Interest.
During the
third
quarter 2016, interest expense of $36.
2
million was comparable to $37
.1
million during the same period in 2015, on comparable debt levels.
Other Expense, net.
During the
third quarter
of 2016, net other
expense
was $
4.4
million compared to
$239,000
in the same period in 2015
.
The increase in 2016 was due to $4.6 million of estimated litigation settlement charges
.
Income Tax Expense
.
During the
third
quarter 2016, our income tax expense was $
88.
9 million at an effective income tax rate of 36.5%, as compared to $
34.8
million at
a comparable
effective income tax rate of
37.2
%, during the
third quarter 2015
.
First
Nine
Months
Consolidated Results 2016 vs. 2015
Selling, General and Administrative Expenses.
Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $
353.0
million during the first
nine months
of 2016 increased 26% from $
279.2
million during the first
nine months
of 2015,
representing approximately 6.0% and 4.6
% of net
sales
, respectively
. The increase in the first
nine months
2016 compared to the same period in 2015 is due most notably to increased performance-based incentive compensation, including profit sharing, associated with our increased profitability.
Interest Expense, net of Capitalized Interest.
During the first
nine months
of 2016, interest expense decreased $
7.4
million to $
109.9
million, when compared to the same period in 2015. The decrease in interest expense is due primarily to the call and prepayment of our $350.0 million 7
5
/
8
% Senior Notes due 2020, in March 2015.
Other Expense, net.
During the first
nine months
of 2016, net other
expense
was $
741,000
compared to $15.
2
million in the same period in 2015, which included $16.7 million of call premium and other finance expenses associated with the March 2015 senior note call and prepayment.
Income Tax Expense
.
During the first
nine months
of 2016, our income tax expense was $
205.1
million at an e
ffective income tax rate of 36.5
%, as compared to $
64.7
million at
comparable
effective incom
e tax rate of 36.8
%, during the first
nine months
of 2015.
Liquidity and Capital Resources
Capital Resources and Long
‑term Debt.
Our business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of equipment
used
in our steel, metals recycling, and steel fabrication operations, and to remain in compliance with environmental laws. Our short-term and long-term liquidity needs arise primarily from working capital requirements, capital expenditures, principal and interest payments related to our outstanding indebtedness, dividends to our shareholders, and acquisitions. We have met these liquidity requirements primarily with cash provided by operations and long-term borrowings, and we also have availability under our Revolver
. Our liquidity at
September
30, 2016, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
1,051,489
|
|
|
|
|
|
|
Revolver availability
|
|
|
1,187,513
|
|
|
|
|
|
|
Total liquidity
|
|
$
|
2,239,002
|
|
|
|
Our total outstanding debt remained relatively unchanged during the first
nine months
of 2016 at $2.6 billion. Our total long-term debt to capitalization ratio (representing our long-term debt, including current maturities, divided by the sum of our long-term debt, redeemable noncontrolling interests, and our total stockholders’ equity) was
46.7
% at
September
30, 2016, compared to 49.3% at December 31, 2015.
We have a senior secured credit facility (Facility) that matures in November 2019 which provides for a $1.2 billion Revolver along with a term loan facility. Subject to certain conditions, we also have the ability to increase the combined facility size by a minimum of $750 million. The Facility contains financial and other covenants pertaining to our ability (which may under certain circumstances be limited) to make capital expenditures; incur indebtedness; permit liens on property; enter into transactions with affiliates; make restricted payments or investments; enter into mergers, acquisitions or consolidations; conduct asset sales; pay dividends or distributions and enter into other specified transactions and activities. Our ability to borrow funds within the terms of the Revolver is dependent upon our continued compliance with the financial and other covenants. At
September
30, 2016, we had $1.2 billion of availability on the Revolver, $12.
1
million of outstanding letters of credit and other obligations which reduce availability, and there were no borrowings outstanding.
The financial covenants under our Facility state that we must maintain an interest coverage ratio of not less than 2.50:1.00. Our interest coverage ratio is calculated by dividing our last-twelve trailing months (LTM) consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain other non-cash transactions as allowed in our Facility) by our LTM gross interest expense, less amortization of financing fees. In addition, a net debt (as defined in the Facility) to consolidated LTM adjusted EBITDA (net debt leverage ratio) of not more than 5.00:1.00 must be maintained. If the net debt leverage ratio exceeds 3.50:1:00 at any time, our ability to make certain payments as defined in the Facility (which includes cash dividends to stockholders and share purchases, among other things), is limited. At
September
30, 2016, our interest coverage ratio and net debt leverage ratio were
7.36
:1.00 and 2.
01
:1.00, respectively. We were, therefore, in compliance with these covenants at
September
30, 2016, and we anticipate we will continue to be in compliance during the
next twelve months
.
Working Capital.
We generated cash flow from operations of $
643.2
million in the first
nine months
of 2016. Operational working capital (representing amounts invested in trade receivables and inventories, less current liabilities other than income taxes payable and debt) of $1.3 billion at
September
30, 2016
,
was
comparable to
that at December 31, 2015. Increases in volumes, pricing and profitability have resulted in increased accounts receivable and inventory, which have been offset by increases in accounts payable and accrued expenses
.
Capital Investments.
During the first
nine months
of 2016, we invested $
123.2
million in property, plant and equipment, primarily within our steel operations segment, compared with $
86.5
million invested during the same period in 2015.
The increase in 2016 is primarily due to our
Columbus Flat Roll Division’s $100 million expansion to add painted and Galvalume
®
capacity.
Cash Dividends.
As a reflection of continued confidence in our current and future cash flow generation ability and financial position, we increased our quarterly cash dividend by 2% to $0.1400 per share in the first quarter 2016 (from $0.1375 per share in 2015), resulting in declared cash dividends of $
102.3
million during the first
nine months
of 2016, compared to $
99.8
million during the same period in 2015. We paid cash dividends of $
101.6
million and $
94.3
million during the first
nine months
of 2016 and 2015, respectively. Our board of directors, along with executive management, approves the payment of dividends on a quarterly basis. The determination to pay cash dividends in the future is at the discretion of our board of directors, after taking into account various factors, including our financial condition, results of operations, outstanding indebtedness, current and anticipated cash needs and growth plans. In addition, the terms of our senior secured credit facility and the indenture relating to our senior notes may restrict the amount of cash dividends we can pay
.
Other.
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 regulatory factors that are largely beyond our control. In addition, we cannot assure that our operating results, cash flows, access to credit markets 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 flows from operations, together with other available sources of funds, including additional borrowings under our Revolver through its term, will be adequate for the next twelve months for making required payments of principal and interest on our indebtedness, funding working capital requirements, and anticipated capital expenditures.
In October 2016, the board of directors authorized a share repurchase program of up to $450 million of our common stock. Under the share repurchase program, purchases will take place as and when we determine in open market or private transactions made based upon the market price of our common stock, the nature of other investment opportunities or growth projects, our cash flows from operations, and general economic conditions. The share repurchase program does not require us to acquire any specific number of shares, and may be modified, suspended, extended or terminated by us at any time
.