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, 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 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 Note Regarding Forward-Looking Statements
and
Risk Factors
, in our most recent Annual Report on Form 10-K for the year ended December 31, 201
6
,
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
under “Investors – SEC Filings
.
”
Description of the Business
We are one of the largest domestic steel producers and metal recyclers in the United States based on current estimated steelmaking and coating capacity of 11 million tons and actual metals recycling volumes. The primary source of revenues are from the manufacture and sale of steel products, processing and sale of recycled ferrous and nonferrous metals, and fabrication and sale of steel joists and deck products. We have three reportable segments: steel operations, metals recycling operations, and steel fabrication operations.
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 the steel fabrication operations, we recognize revenues from sales and the allowance for estimated returns and claims from these sales at the time the title of the product transfers, upon shipment. Provision is made for estimated product returns and customer claims based on historical experience. If the historical data used in the estimates does not reflect future returns and claims trends, additional provision may be necessary. Our steel fabrication operations recognizes revenues 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, electricity
,
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 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.
Othe
r
Expense
(Income)
,
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 inco
me decreased $12.8 million, or 5
%, to $271.0 million for the third quarter 2017, compared to the third quarter 2016. Third quarter 2017 net income attributable to Steel Dynamics, Inc. decreased $4.1 million, or 3%, to $153.3 million, compared to the third quarter 2016.
Consolidated operating income increased $199.0 million, or 30%, to $870.9 million for the first nine months of 2017, compared to $671.9 million for the first nine months of 2016. First nine months 2017 net income attributable to Steel Dynamics, Inc. increased $145.9 million, or 40%, to $508.0 million, compared to the first nine months of 2016.
Our consolidated results for the third quarter and first nine months of 2017 benefited from continued strong demand primarily for our sheet and special-bar-quality steel products coupled with continued low customer inventory levels. However, increased import levels
continued hindering the ability of domestic steel prices to keep pace with raw material costs
. Decreased scrap volumes for our metals recycling operations were offset by improved pricing and
ferrous
metal spreads and reduced operating expenses, resulting in
significantly
increased operating income
during the 2017 third quarter and year-to-date periods compared to the same periods in 2016
. The non-residential construction market remained strong, resulting in record quarterly shipments for our steel fabrication operations for the third straight quarter.
Segment Operating Results
2017
vs.
2016
(
dollars in thousands
)
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Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
% Change
|
|
|
2016
|
|
2017
|
|
% Change
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|
2016
|
Net sales:
|
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|
Steel Operations Segment
|
$
|
1,848,126
|
|
14%
|
|
$
|
1,627,886
|
|
$
|
5,445,754
|
|
23%
|
|
$
|
4,419,572
|
Metals Recycling Operations Segment
|
|
709,197
|
|
25%
|
|
|
565,263
|
|
|
2,123,350
|
|
29%
|
|
|
1,643,172
|
Steel Fabrication Operations Segment
|
|
211,394
|
|
18%
|
|
|
178,640
|
|
|
603,511
|
|
14%
|
|
|
530,441
|
Other
|
|
101,173
|
|
65%
|
|
|
61,395
|
|
|
282,156
|
|
32%
|
|
|
214,149
|
|
|
2,869,890
|
|
|
|
|
2,433,184
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|
|
8,454,771
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6,807,334
|
Intra-company
|
|
(426,508)
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|
(331,874)
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|
|
(1,252,453)
|
|
|
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|
(940,821)
|
|
$
|
2,443,382
|
|
16%
|
|
$
|
2,101,310
|
|
$
|
7,202,318
|
|
23%
|
|
$
|
5,866,513
|
|
|
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Operating income (loss):
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Steel Operations Segment
|
$
|
276,547
|
|
(10)%
|
|
$
|
307,553
|
|
$
|
895,008
|
|
26%
|
|
$
|
712,939
|
Metals Recycling Operations Segment
|
|
17,624
|
|
186%
|
|
|
6,154
|
|
|
51,968
|
|
160%
|
|
|
20,014
|
Steel Fabrication Operations Segment
|
|
21,862
|
|
23%
|
|
|
17,744
|
|
|
65,735
|
|
(10)%
|
|
|
73,230
|
Other
|
|
(44,326)
|
|
7%
|
|
|
(47,687)
|
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|
(141,406)
|
|
(13)%
|
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|
(125,186)
|
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|
271,707
|
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|
283,764
|
|
|
871,305
|
|
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|
680,997
|
Intra-company
|
|
(692)
|
|
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|
91
|
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|
(371)
|
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|
|
|
(9,055)
|
|
$
|
271,015
|
|
(5)%
|
|
$
|
283,855
|
|
$
|
870,934
|
|
30%
|
|
$
|
671,942
|
|
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 eleven downstream steel coating lines, and several bar processing lines, as well as Iron Dynamics, our liquid pig iron production facility that supplies solely the Butler Flat Roll Division. Our steel operations sell directly to end-users, steel fabricators, and service centers. These products are used in numerous industry sectors, including the construction, automotive, manufacturing, transportation, heavy and agriculture equipment, and pipe and tube (including OCTG) markets
. Steel operations accounted for
73
% and
74
% of our consolidated external net sales during the
third
quarter of
2017
and
2016, respectively, and 73% and 72% of
our consolidated external net sales during the
first nine months of 2017 and 2016, respectively.
Sheet
Steel
Products.
Our sheet steel products operations consist of Butler and Columbus Flat Roll Divisions, and downstream coating lines. These operations sell a broad range of sheet steel products, consisting of hot roll, cold roll and coated steel products, including a wide variety of specialty products, such as light gauge hot roll, galvanized, Galvalume
®
, and painted products. The Techs is comprised of three galvanizing lines which sell specialized galvanized sheet steels used in primarily 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, merchant-bar-quality, round
‑cornered squares, and smaller-diameter engineered round bars. Vulcan
Threaded Products
produces threaded rod products and also cold drawn and heat treated 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,
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Nine Months Ended September 30,
|
|
2017
|
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% Change
|
|
2016
|
|
2017
|
|
% Change
|
|
2016
|
|
|
|
|
|
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|
Total shipments
|
2,458,992
|
|
8%
|
|
2,271,230
|
|
7,362,636
|
|
5%
|
|
7,039,801
|
Intra-segment shipments
|
(88,211)
|
|
|
|
(65,438)
|
|
(279,567)
|
|
|
|
(216,217)
|
Steel Operations Segment Shipments
|
2,370,781
|
|
7%
|
|
2,205,792
|
|
7,083,069
|
|
4%
|
|
6,823,584
|
|
|
|
|
|
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|
External shipments
|
2,279,228
|
|
8%
|
|
2,104,219
|
|
6,830,877
|
|
5%
|
|
6,517,253
|
Segment Results
2017
vs.
2016
Overall domestic steel demand remained strong, but elevated
levels of steel imports persisted during the quarter, hindering the ability for domestic steel prices to keep pace with raw material costs
.
Steel operations segment shipments increased 7
% in the
third
quarter 2017
,
as compared to the same period in 2016
,
driven by improved flat roll and engineered bar shipments. Demand from the construction sector continues to improve, and energy has shown a continued positive demand trend. Demand has also improved for heavy off-road equipment and more general industrial manufacturing. Conversely, demand from the domestic automotive sectors has softened somewhat, but still remains near historically high levels.
Our steel mill
utilization rate averaged 92
% for the
third
quarter 2017, as compared to
85
% in the
third
quarter 2016.
Sheet
steel average selling prices increased
4
% in the
third
quarter 2017 compared to the same period in 2016, while l
ong products rose 8%
. Net sales
for
the steel operations increased 14
% in the
third
quarter
2017
, when compared to the same period in
2016
,
due to
an increase
of $
39 per ton, or 5%, in average selling prices combined with a
7
%
in
crease in steel operations shipments.
Net sales for the steel operations increased 23% in the first nine months of 2017, when compared to the same period in 2016, due to a 4% increase in steel operations segment shipments combined with an increase of $118 per ton, or 18%, in average selling prices. The increase in shipments and pricing for the first nine months of 2017 was the result of much stronger markets in the first and third quarters 2017, compared to the same periods in 2016.
Metallic raw materials used in our electric arc furnaces represent our single most significant steel
manufacturing cost, generally comprising approximately 60% 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 con
sumed in our steel operations in
creased $
55, or 22
%, in the
third
quarter
2017
, c
ompared to the same period in 2016, consistent with overall increased domestic scrap pricing
.
In the first nine months of 2017, our metallic raw material cost per net ton consumed increased $70, or 32%, compared to the same period in 2016.
Operating in
come for the steel operations de
creased
10
%,
to $
276.5
million, in the
third
quarter 2017, compared to the same period in 2
016,
due to
a 3% decrease in
metal spread
(which we define as the difference between average selling prices and the cost of ferrous scrap consumed)
more than offsetting increased steel shipments.
O
perating income
for the f
irst
nine months
2017 increased
26
%, to $
895.0
million, compared to the first
nine months
of 2016, due to a
n
1
1
%
expansion of steel
segment operations
metal spread, coupled with a
4
% increase in
steel shipments.
|
Metals Recycling Operations Segment
|
Metals Recycling Operations Segment.
Metals recycling operations consists solely of OmniSource and includes both ferrous and nonferrous scrap metal processing, transportation, marketing, brokerage, and consulting services strategically located primarily in close proximity to our steel mills and other end-user scrap consumers throughout the eastern half of the United States. In addition, OmniSource designs, installs, and manages customized scrap management programs for industrial manufacturing companies at
hundreds of
locations throughout North America. Our steel mills utilize a large portion
(61% - 63% for the periods presented)
of the ferrous scrap
sold by
OmniSource as raw material in our steelmaking operations, and the remainder is sold to other consumers, such as other steel manufacturers and foundries
. Our m
etals recycling operations accounted for
1
4
%
and 15%
of
our
consolidated external net sales during the
third quarter of 2017 and 2016, respectively, and 15% for each of the first nine months of 2017 and 2016.
Metals Recycling Operations Shipments:
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|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
% Change
|
|
2016
|
|
2017
|
|
% Change
|
|
2016
|
Ferrous metal (gross tons)
|
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|
Total
|
1,219,582
|
|
(2)%
|
|
1,243,277
|
|
3,780,958
|
|
(3)%
|
|
3,894,755
|
Inter-company
|
(756,899)
|
|
|
|
(774,779)
|
|
(2,366,355)
|
|
|
|
(2,383,223)
|
External shipments
|
462,683
|
|
(1)%
|
|
468,498
|
|
1,414,603
|
|
(6)%
|
|
1,511,532
|
|
|
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|
Nonferrous metals (thousands of pounds)
|
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|
Total
|
261,716
|
|
(7)%
|
|
280,107
|
|
815,763
|
|
(2)%
|
|
828,715
|
Inter-company
|
(37,316)
|
|
|
|
(25,185)
|
|
(107,863)
|
|
|
|
(83,741)
|
External shipments
|
224,400
|
|
(12)%
|
|
254,922
|
|
707,900
|
|
(5)%
|
|
744,974
|
Segment Results
2017
vs.
2016
Metals recycling operations operating income in the
third
quarter
2017
of $
17.6 million was 186%
higher than the
third
quarter
2016
operating
income
of $
6.2
mil
lion
, due to improvements in ferrous and nonferrous metal spread (which we define as the difference between average selling prices and the cost of purchased scrap)
, and reduced operating costs
. Net sales increased
25
% in the
third
quarter 2017 as compared to the same period in 2016
, driven by increased
pricing, which more than offset decreased shipments
. Overall domestic steel mill utilization was
75
% in the
third
quarter
of 2017, compared to 70% in the same
2016
period
. Ferrous shi
pments to our own steel mills decreased by 2
% in the
third
quarter 2017, compared to the same period in 2016.
Ferrous
scrap
average selling prices
increased 30
% during the
third
quarter
2017
compared to the same period in
2016, while nonferrous average selling prices increased 36% compared to the same period in 2016, resulting in
f
errous metal spread increas
ing
11
%,
and
nonferrous metal spread
increasing 2%
.
Metals recycling operations operating income in the
first nine months of
2017 of $52.0 million was 160%
higher than the
first nine months 2016
operating
income
of $
20.0
mil
lion
, due to
increased selling prices resulting in a 17%
improvement in ferrous
metal spread, and reduced operating expenses
. Net sales increased
29
% in the
first nine months of
2017 as compared to the same period in 2016
, driven by increased
pricing for both ferrous and nonferrous products, which increased
40
%
and 27%, respectively,
during the
first nine months of
2017 compared to the same period in 2016.
|
Steel Fabrication Operations Segment
|
Steel fabrication operations include our 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 steel joists, trusses, girders and steel deck used within the non-residential construction industry
.
Steel fabrication operations accounted for
9
%
and 8%
o
f
our
consolidated external net sales during the
third quarter of
2017 and 2016
,
respectively, and 8% and 9% during the first nine months of 2017 and 2016, respectively
.
Segment Results
2017
vs.
2016
The overall non-residential construction market has continued to remain strong
,
demonstrating
a positive growth profile,
as our fabrication operations achieved
a third consecutive
quarterly shipments
record
in the
third
quarter
of
2017.
Net sales
for the steel fabrication operations increased $
32.8 million, or 18
%, during the
third
quarter
2017
,
compared
to the same period in
2016
,
as shipments increased 13
%,
while average selling
prices increased $
64 per ton, or 5
%.
Net sales for the segment increased $73.1 million, or 14%, in the first nine months of 2017, compared to the first nine months of 2016, as volumes increased 7% and selling prices increased 6%.
Our steel fabrication operations continue to realize strength in order activity and resulting shipments, as we
continue to leverage our national operating footprint to
sustain and improve
market share, and market demand continues to
improve
.
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 12
% in the
third
quarter
2017
, as compared to the same period in
2016, while average
selling prices
increased
only 5%, resulting in
metal spread
(which we define as the difference between average selling prices and the cost of purchased steel)
declining 2%
.
However, operating income increased 23% to $21.9 million in the third quarter 2017 compared to the same period in 2016, as increased shipments more than offset metal spread contraction.
S
egment operating income of $65.7 million in the first nine months of 2017 decreased 10%, from $73.2 million in the first nine months of 2016, despite a 7% increase in shipments, as metal spreads decreased 7% year over year.
Other operations consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our
idled
Minnesota ironmaking operations and 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
.
Third
Quarter Consolidated Results
2017
vs.
2016
Selling, General and Administrative Expenses.
Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $
125.5
million during the
third
quarter
2017
were consistent with the
$
124.6
million during the
third
quarter
2016
,
representing approximately
5.1
% and
5.9
% of net sales, respectively
.
Interest Expense, net of Capitalized Interest.
During the
third
quarter 20
17, interest expense decreased 6
% to
$
34.2
million
from
$
36.2
million
during the same period in 2016,
due primarily to the December 2016
refinancing of
$400.0 million of 6.125% senior notes due 2019
with
5.000% senior notes due 2026. In addition, in December 2016
we repaid the remaining $228.1 million of outstanding Senior Term Loan debt, which was set to mature on November 14, 2019
.
Income Tax Expense
.
During the
third
quarter
2017
, our income tax expense was $
83.3
million at an effective income tax rate of
35.6
%, as compared to $
88.9
million at
an
effective income tax rate of
36.5
%, during the
third quarter
2016
.
The lower effective tax rate in 2017 is due
primarily to additional permanent tax benefit items, most notably the 2017 domestic manufacturing deduction, resulting from increases in taxable income.
First Nine Months Consolidated Results 2017 vs. 2016
Selling, General and Administrative Expenses.
Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $390.3 million during the first nine months of 2017 increased 11% from $353.0 million during the first nine months of 2016,
representing approximately 5.4% and 6.0% of net sales, respectively
. The increase in the first nine months 2017 expenses compared to the same period in 2016 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 2017, interest expense decreased $7.9 million to $102.0 million, when compared to the same period in 2016.
The decrease in interest expense is due primarily to the December 2016
refinancing of
$400.0 million of 6.125% senior notes due 2019
with
5.000% senior notes due 2026. In addition, in December 2016
we repaid the remaining $228.1 million of outstanding Senior Term Loan debt, which was set to mature on November 14, 2019
.
Income Tax Expense
.
During the first nine months of 2017, our income tax expense was $271.3 million at an effective income tax rate of 35.1%, as compared to $205.1 million at an effective income tax rate of 36.5%, during the first nine months of 2016. The lower effective tax rate in 2017 is due
primarily to additional permanent tax benefit items, most notably the 2017 domestic manufacturing deduction, resulting from increases in taxable income
.
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
, 201
7
, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents*
|
|
$
|
934,750
|
|
|
|
|
|
|
Revolver availability
|
|
|
1,188,121
|
|
|
|
|
|
|
Total liquidity
|
|
$
|
2,122,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Adjusted to reflect the October 13, 2017, repayment of the remaining $167.1 million 6.375% Senior Notes due 2022.
|
|
Our total outstanding debt remained relatively unchanged during the first
nine months
of
2017 at $2.4
billion
(adjusted to reflect the October 13, 2017, repayment of the remaining $167.1 million 6.375% Senior Notes due 2022)
. Our
total
adjusted
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
43.9
% at
September 30
, 201
7
,
compared to
44.9
% at December 31,
2016.
In September 2017, we
issued $350.0 million of 4.125% senior notes due 2025 (the "2025 Notes"), the proceeds of which, along with available cash, were used to fund the September 2017 tender to purchase at a redemption price of 103.563%
,
$182.9 million principal amount, plus
accrued and unpaid interest to, but not including,
the date of repurchase, of
our
6.375% senior notes due 2022 (the "2022 Notes"), and the October 2017 call and repayment at a redemption price of 103.188% of the $167.1 million remaining outstanding principal amount of the 2022 Notes
,
plus accrued and unpaid interest
to, but not including, the date of repayment. The $167.1 remaining outstanding principal amount is included in current maturities of long-term debt in our September 30, 2017, balance sheet.
Our November 2014 senior secured credit facility (Facility), which provides a $1.2 billion Revolver, matures November 2019. Subject to certain conditions, we have the opportunity to increase the Revolver size by at least $750.0 million. The Facility is guaranteed by certain of our subsidiaries; and is secured by substantially all of our and our wholly-owned subsidiaries’ receivables and inventories, and by pledges of all shares of our wholly-owned subsidiaries’ capital stock or other equity interests, and intercompany debt held by us as collateral. The Revolver is available to fund working capital, capital expenditures, and other general corporate purposes. The Facility contains financial covenants 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, or 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
,
2017
, we had $1.2 billion of ava
ilability on the Revolver, $11.9
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-months (LTM) consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain other non-cash transactions as allowed in the 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
,
2017
, our interest coverage ratio and net debt leverage ratio were
10.22
:1.00 and 1.
49
:1.00, respectively. We were, therefore, in compliance with these covenants at
September 30
,
2017
, and we anticipate we will continue to be in compliance during the next twelve months
.
Working Capital.
We generated cash flow from operations of $
547.6
million in the first
nine months of
2017. Operational working capital (representing amounts invested in trade receivables and inventories, less current liabilities other than income taxes payable and debt)
increased $230.9 million to $1.5 billion at September 30, 2017
. Increases in volumes, pricing and profitability resulted in increased accounts receivable
, and related increases in
inventory
, which were only
partially
offset by
related
increases in accounts payable
.
Capital Investments.
During the first
nine months of
2017
, we invested $
127.7
million in property, plant and equipment, primarily within our steel operations segment, compared with $
123.2
million invested during the same period in
2016
.
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 11
% to $0.
155
per share in the first quarter
2017
(from $0.
140
per share in
2016
), resulting in declared cash dividends of $
111.4
million during
the first nine months of 2017
, compared to $
102.3
million during
the same period in 2016
. We paid cash dividends of $
108.8
million and $
101.6
million during
the first nine months of
201
7
and 201
6
, 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 Facility and the indentures relating to our senior notes may restrict the amount of cash dividends we can pay
.
Other.
In 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
.
We acquired
7.0
million shares
of our common stock for $237.2 million in the first nine months of 2017 pursuant to this program. See Part II Other Information, Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
for additional information.
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
if necessary
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
.