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 income increased $
9.2
million, or
4
%, to $
265.4
million for the
second
quarter
2017
, compared to the
second
quarter
2016
.
Second
quarter
2017
net income increased $
12.0
million, or
8
%, to $
153.9
million,
compared to
the
second
quarter
2016
.
Consolidated operating income increased $
211.8
million, or
55
%, to $
599.9
million for the
first
half of
2017
, compared to $
388.1
million for the
first
half of
2016
.
First
half
2017
net income increased $
150.0
million, or
73
%, to $
354.8
million,
compared to
the
first
half
2016
.
Our consolidated results for the second quarter
and first half
of 2017 benefited from continued strong demand primarily for our sheet
and special-bar-quality
steel products coupled with continued historically
low customer inventory levels
.
H
owever, increased
pressure
from imports
with
some hesitancy in customer order entry
, and a planned outage and new product start-up at two of our steel mills
, put downward pressure on
steel
shipments
and profitability
during the second quarter of 2017
.
D
ecreased scrap volumes for o
ur metals recycling operations were
offset by improved pricing and metal spreads
and reduced operating expenses
, resulting in increased operating incom
e
. The non-residential construction market remains strong, resulting in record quarterly shipments for our steel fabrication operations for the second straight quar
t
er; however, metal spreads
and operating income
contracted as increases in average selling prices have been outpaced by rising steel input costs.
Segment Operating Results
2017
vs.
2016
(
dollars in thousands
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
% Change
|
|
|
2016
|
|
2017
|
|
% Change
|
|
2016
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Operations Segment
|
$
|
1,821,952
|
|
19%
|
|
$
|
1,533,298
|
|
$
|
3,597,628
|
|
29%
|
|
$
|
2,791,686
|
Metals Recycling Operations Segment
|
|
694,016
|
|
17%
|
|
|
590,724
|
|
|
1,414,153
|
|
31%
|
|
|
1,077,909
|
Steel Fabrication Operations Segment
|
|
198,009
|
|
15%
|
|
|
171,720
|
|
|
392,117
|
|
11%
|
|
|
351,801
|
Other
|
|
91,698
|
|
19%
|
|
|
76,865
|
|
|
180,983
|
|
18%
|
|
|
152,754
|
|
|
2,805,675
|
|
|
|
|
2,372,607
|
|
|
5,584,881
|
|
|
|
|
4,374,150
|
Intra-company
|
|
(414,955)
|
|
|
|
|
(348,705)
|
|
|
(825,945)
|
|
|
|
|
(608,947)
|
|
$
|
2,390,720
|
|
18%
|
|
$
|
2,023,902
|
|
$
|
4,758,936
|
|
26%
|
|
$
|
3,765,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steel Operations Segment
|
$
|
269,929
|
|
(1)%
|
|
$
|
273,111
|
|
$
|
618,461
|
|
53%
|
|
$
|
405,386
|
Metals Recycling Operations Segment
|
|
16,495
|
|
49%
|
|
|
11,093
|
|
|
34,344
|
|
148%
|
|
|
13,860
|
Steel Fabrication Operations Segment
|
|
20,147
|
|
(14)%
|
|
|
23,470
|
|
|
43,873
|
|
(21)%
|
|
|
55,486
|
Other
|
|
(43,110)
|
|
5%
|
|
|
(45,569)
|
|
|
(97,080)
|
|
(25)%
|
|
|
(77,499)
|
|
|
263,461
|
|
|
|
|
262,105
|
|
|
599,598
|
|
|
|
|
397,233
|
Intra-company
|
|
1,892
|
|
|
|
|
(5,983)
|
|
|
321
|
|
|
|
|
(9,146)
|
|
$
|
265,353
|
|
4%
|
|
$
|
256,122
|
|
$
|
599,919
|
|
55%
|
|
$
|
388,087
|
|
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
72
% of our consolidated external net sales during the
second
quarter of
2017
and
2016, respectively, and 73% and 71% of
our consolidated external net sales during the
first half of 2017 and 2016, respectively.
Sheet
Steel
Products.
Our sheet steel products operations consist of Butler and Columbus Flat Roll Divisions, and our 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
% Change
|
|
2016
|
|
2017
|
|
% Change
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
2,421,897
|
|
(3)%
|
|
2,491,362
|
|
4,903,644
|
|
3%
|
|
4,768,571
|
Intra-segment shipments
|
(88,571)
|
|
|
|
(85,720)
|
|
(191,356)
|
|
|
|
(150,779)
|
Steel Operations Segment Shipments
|
2,333,326
|
|
(3)%
|
|
2,405,642
|
|
4,712,288
|
|
2%
|
|
4,617,792
|
|
|
|
|
|
|
|
|
|
|
|
|
External shipments
|
2,246,569
|
|
(2)%
|
|
2,291,162
|
|
4,551,649
|
|
3%
|
|
4,413,034
|
Segment Results
2017
vs.
2016
Overall
domestic steel demand outlook remained strong, with automotive remaining steady and construction and energy markets improving, particularly benefiting our Engineered Bar Products Division, which achieved increased shipments of 29% in the second quarter 2017 compared to second quarter 2016.
Overall steel shipments decreased 3% in the second quarter 2017
,
as compared to the same period in 2016
,
due in part to a planned outage at ou
r
Butler Flat Roll Division
,
in which we
upgraded our equipment while completing a
galvanizing line
expansion
. In addition, the Columbus Flat Roll Division experienced some
quality issues related to the
start-up
of
our new
Galvalume and
paint line. Each of these matters reduced our ability to ship value-added coated sheet products. Lastly, structural and merchant steel shipments were adversely affected by increased import pressure during the second quarter 2017
.
Our steel mill
utilization rate averaged 91% for the second quarter 2017, as compared to 95% in the second quarter 2016.
Sheet
steel average selling prices increased
25
% in the
second
quarter 2017 compared to the same period in 2016, while l
ong products rose 14%
. Net sales
for
the steel operations increased 19
% in the
second
quarter
2017
, when compared to the same period in
2016
, as
an increase
of $
140 per ton, or 22%, in average selling prices more than offset the
3
%
de
crease in steel operations shipments.
Net sales for the steel operations increased 29% in the first half of 2017, when compared to the same period in 2016, due to a 3% increase in steel operations shipments combined with an increase of $155 per ton, or 26%, in average selling prices. The increase in shipments for the first half of 2017 was the result of much stronger market in the first quarter 2017, compared to the first quarter 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 $
76, or 33
%, in the
second
quarter
2017
, c
ompared to the same period in 2016, consistent with overall increased domestic scrap pricing
.
In the first half of 2017, our metallic raw material cost per net ton consumed increased $77, or 37%, compared to the same period in 2016.
Operating in
come for the steel operations de
creased
1
%,
to $
269.9
million, in the
second
quarter 2017, compared to the same period in 2
016,
due to
the decrease in
steel shipments
more than offsetting the impact of the increase in metal spread
(which we define as the difference between average selling prices and the cost of ferrous scrap consumed).
Sheet steel and long-products metal spread increased 18% and 10%, respectively, period over period.
First half 2017 operating income increased 53%, to $618.5 million, compared to the first half of 2016, due to a 19%
expansion of overall steel operations metal spread, coupled with a 3% 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 approximately 700 locations throughout North America. Our steel mills utilize a large portion
(60% - 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
second quarter of 2017 and 2016, respectively, and 15% for the first half of 2017 and 2016.
Metals Recycling Operations Shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
% Change
|
|
2016
|
|
2017
|
|
% Change
|
|
2016
|
Ferrous metal (gross tons)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
1,222,777
|
|
(9)%
|
|
1,346,324
|
|
2,561,376
|
|
(3)%
|
|
2,651,478
|
Inter-company
|
(756,271)
|
|
|
|
(807,077)
|
|
(1,609,456)
|
|
|
|
(1,608,444)
|
External shipments
|
466,506
|
|
(13)%
|
|
539,247
|
|
951,920
|
|
(9)%
|
|
1,043,034
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonferrous metals (thousands of pounds)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
270,444
|
|
(3)%
|
|
278,198
|
|
554,047
|
|
1%
|
|
548,608
|
Inter-company
|
(39,880)
|
|
|
|
(30,706)
|
|
(70,547)
|
|
|
|
(58,556)
|
External shipments
|
230,564
|
|
(7)%
|
|
247,492
|
|
483,500
|
|
(1)%
|
|
490,052
|
Segment Results
2017
vs.
2016
Metals recycling operations operating income in the
second
quarter
2017
of $
16.5 million was 49%
higher than the
second
quarter
2016
operating
income
of $
11.1
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
17
% in the
second
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
74
% in the
second
quarter
of both 2017 and
2016,
while
our own steel mill utilization
declined
moderately
(
91%, compared to 95
%
in the second quarter 2016)
. Ferrous shi
pments to our own steel mills de
creased by 6% in the
second
quarter 2017, compared to the same period in 2016.
Both ferrous and n
onferrous
scrap
average selling prices
increased 27
% during the
second
quarter
2017
compared to the same period in
2016
.
Ferrous metal spread increased
5
%,
along with a
3%
increase in nonferrous metal spread.
Metals recycling operations operating income in the
first half of
2017 of $34.3 million was 148%
higher than the
first half 2016
operating
income
of $
13.9
mil
lion
, due to
increased selling prices and a 21%
improvement in ferrous
metal spread
. Net sales increased
31
% in the
first half of
2017 as compared to the same period in 2016
, driven by increased
pricing for both ferrous and nonferrous products, which increased
46
%
and 23%, respectively,
during the
first half of
2017 compared to the same period in 2016.
|
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 steel joists, trusses, girders and steel deck used within the non-residential construction industry
.
Steel fabrication operations accounted for
8%
o
f
our
consolidated external net sales during the
second quarter of
2017 and 2016
,
and 8% and 9% during the first half of 2017 and 2016, respectively
.
Segment Results
2017
vs.
2016
The overall non-residential construction market has continued to remain strong
,
and shows signs of further growth
,
as our fabrication operations
again
achieved record quarterly shipments in the
second
quarter
of
2017
, slightly beating the previous record set in the first quarter 2017
.
I
ncreases in selling prices were
,
h
owever
,
outpaced by increased steel input costs during the
second
quarter 2017 compared to the same period in 2016, resulting in metal spread (which we define as the difference between average selling prices and the cost of purchased steel)
contraction, and decreased operating income
. Net sales
for the steel fabrication operations increased $
26.3 million, or 15
%, during the
second
quarter
2017
,
compared
to the same period in
2016
,
as shipments increased 6
%,
while average selling
prices increased $
109 per ton, or 9
%.
Net sales for the segment increased $40.3 million, or 11%, in the first half of 2017, compared to the first half of 2016, as volumes increased 5% 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 be strong
.
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 24
% in the
second
quarter
2017
, as compared to the same period in
2016
.
With
selling prices
increasing
only 9%,
metal spread decline
d 6%
, resulting in a
14
% decrease in operating income to $
20.1
million in the
second
quarter
2017
, as compared to $
23.5
mil
lion in the same period in 2016
.
S
egment operating income of $43.9 million in the first half of 2017 decreased 21%, from $55.5 million in the first half of 2016, as metal spreads decreased 8% 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
.
Second
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 $
127.2
million during the
second
quarter
2017
increased
2
% from $
124.3
million during the
second
quarter
2016
,
representing approximately
5.3
% and
6.1
% of net sales, respectively
. The
slight
increase in the
second
quarter
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
second
quarter 2017, interest expense decreased 8% to
$
33.9
million
from
$
36.6
million
during 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
second
quarter
2017
, our income tax expense was $
82.4
million at an effective income tax rate of
35.0
%, as compared to $
80.9
million at
an
effective income tax rate of
36.5
%, during the
second 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 Six 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 $264.8 million during the first half of 2017 increased 16% from $228.3 million during the first half of 2016,
representing approximately 5.6% and 6.1% of net sales, respectively
. The increase in the first half 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 half of 2017, interest expense decreased $5.8 million to $67.8 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 half of 2017, our income tax expense was $188.0 million at an effective income tax rate of 34.8%, as compared to $116.2 million at an effective income tax rate of 36.6%, during the first half 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
June 30
, 201
7
, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
908,843
|
|
|
|
|
|
|
Revolver availability
|
|
|
1,188,148
|
|
|
|
|
|
|
Total liquidity
|
|
$
|
2,096,991
|
|
|
|
Our total outstanding debt remained relatively unchanged during the first
half
of
2017 at $2.4
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
43.9
% at
June 30
, 201
7
,
from
44.9
% at December 31,
2016, due to our increased profitability during the first half of 2017.
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
June 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
June 30
,
2017
, our interest coverage ratio and net debt leverage ratio were
10.17
:1.00 and 1.
36
:1.00, respectively. We were, therefore, in compliance with these covenants at
June 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 $
321.5
million in the first
half of
2017. Operational working capital (representing amounts invested in trade receivables and inventories, less current liabilities other than income taxes payable and debt)
increased $233.9 million to $1.5 billion at June 30, 2017
. Increases in volumes, pricing and profitability resulted in increased accounts receivable
, with related increases in
inventory
, which were only
partially
offset by
related
increases in accounts payable
.
Capital Investments.
During the first
half of
2017
, we invested $
85.0
million in property, plant and equipment, primarily within our steel operations segment, compared with $
63.4
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 $
74.7
million during
the first half of 2017
, compared to $
68.2
million during
the same period in 2016
. We paid cash dividends of $
71.7
million and $
67.5
million during
the first half 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 4.1 million shares
of our common stock for $138.1 million in the first half 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
.