STEEL DYNAMICS, INC. Forward-Looking Statements
This report contains some predictive statements about future events, including
statements related to conditions in domestic or global economies, conditions in
steel and recycled metals market places,
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 in our most recent Annual Report on Form 10-K under
the headings Special Note Regarding Forward-Looking Statements and Risk Factors
for the year ended
Description of the Business
We are one of the largest domestic steel producers and metal recyclers in
Operating Statement Classifications
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 substrate, direct and indirect labor and
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related benefits, alloys, zinc, transportation and freight, repairs and maintenance, utilities such as 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, and property taxes. Companywide profit sharing and amortization of intangible assets are each separately presented in the statement of income.
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 short-term 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
Our consolidated results for the first quarter of 2021 were highlighted by
record net sales of
Consolidated operating income increased
Segment Operating Results 2021 vs. 2020 (dollars in thousands)
Three-Month Periods Ended March 31,
2021 % Change 2020
Net sales:
Steel Operations Segment $ 2,642,847 31% $ 2,016,152 Metals Recycling Operations Segment 1,079,912 72% 628,739 Steel Fabrication Operations Segment 259,020 17% 221,441
Other 307,481 155% 120,690
4,289,260 2,987,022
Intra-company (744,663) (411,922)
$ 3,544,597 38% $ 2,575,100
Operating income (loss):
Steel Operations Segment $ 637,411 121% $ 288,394 Metals Recycling Operations Segment 50,563 815% 5,528 Steel Fabrication Operations Segment 9,854 (66)% 29,163
Other (90,913) (96)% (46,355)
606,915 276,730
Intra-company (12,716) (3,044)
$ 594,199 117% $ 273,686
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Steel Operations Segment
Steel operations consist of our six operating EAF steel mills and our under-construction Southwest-Sinton Flat Roll Steel Division, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, and numerous value-added downstream steel coating and processing operations. 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 71% and 75% of our consolidated external net sales during the first quarter of 2021 and 2020, respectively.
Steel Operations Segment Shipments (tons):
Three Month Periods Ended March 31,
2021 % Change 2020
Total shipments 2,822,274 (1)% 2,847,182
Intra-segment shipments (286,296) (253,477)Steel Operations Segment shipments 2,535,978 (2)% 2,593,705
External shipments 2,410,817 (3)% 2,495,164
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Steel Operations Segment Results First Quarter 2021 vs. First Quarter 2020
During the first quarter of 2021, steel demand remained robust and product
pricing gained momentum across our entire steel operations segment. Historically
low customer inventories, coupled with continued strong steel demand from the
automotive, construction, and industrial sectors, resulted in higher selling
prices during the quarter, particularly within our sheet steel products. First
quarter 2021 average selling prices increased 35%, or
Metallic raw materials used in our electric arc furnaces represent our single
most significant steel manufacturing cost, generally comprising approximately 55
to 65% of our steel mill operations' manufacturing costs. Our metallic raw
material cost per net ton consumed in our steel operations increased
As a result of average selling prices increasing more than scrap costs, metal
spread (which we define as the difference between average steel mill selling
prices and the cost of ferrous scrap consumed in our steel mills) increased 32%
in the first quarter 2021 compared to the first quarter 2020. Due to this metal
spread expansion, operating income for the steel operations increased 121%, to a
record
Metals Recycling Operations Segment
Metals recycling operations includes both ferrous and nonferrous scrap metal processing, transportation, marketing, brokerage, and scrap management services. Our steel mills utilize a large portion of the ferrous scrap sold by our metals recycling operations as raw material in our steelmaking operations, and the remainder is sold to other consumers, such as other steel manufacturers and foundries. In the first quarter 2021, 69% of the metals recycling operations ferrous scrap was sold to our own steel mills (67% in first quarter 2020), as our steel mills utilization increased 9% to 93% in the first quarter of 2021. Our metals recycling operations accounted for 13% and 11% of our consolidated external net sales during the first quarter of 2021 and 2020, respectively.
Metals Recycling Operations Segment Shipments:
Three Month Periods Ended March 31,
2021 % Change 2020
Ferrous metal (gross tons)
Total 1,395,843 17% 1,192,144
Inter-company (958,661) 20% (798,493)
External shipments 437,182 11% 393,651
Nonferrous metals (thousands of pounds)
Total 280,809 3% 272,078
Inter-company (43,552) (40,678)
External shipments 237,257 3% 231,400
Metals Recycling Operations Segment Results First Quarter 2021 vs. First Quarter 2020
Our metals recycling operations benefitted from strong steel market demand and increased selling prices for recycled scrap in the first quarter of 2021. Domestic steel production continued to rise during the quarter, with domestic steel mill utilization rates increasing 5% to approximately 77% in the first quarter 2021 from the sequential fourth quarter 2020, and significantly higher than the COVID-19 impacted utilization rates of mid 2020. Net sales increased 72% during the first quarter of 2021 compared to the same period in 2020, driven by increased shipments, including
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those from the Mexican scrap company acquired in
Steel Fabrication Operations Segment
Steel fabrication operations include seven
[[Image Removed: Graphic]]Steel Fabrication Operations Segment Results First Quarter 2021 vs. First Quarter 2020
Our steel fabrication operations continue to benefit from a robust
non-residential construction market, as order activity remains strong, with
customer order backlogs at a record level at the end of the first quarter 2021.
Net sales for the steel fabrication operations increased 17% during the first
quarter 2021 compared to the same period in 2020, as average selling prices
increased 4%, or
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 24% in the first quarter 2021, as compared to the same period in 2020, consistent with increased steel selling prices in our steel operations. As a result of steel costs per ton increasing more than selling prices per ton, metal spread (which we define as the difference between average selling prices and the cost of purchased steel) decreased 19% in the first quarter 2021 compared to the same period in 2020. As a result of this metal spread compression, operating income
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decreased 66% to
Other Operations
Consolidated Results First Quarter 2021 vs. First Quarter 2020
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of
Interest Expense, net of Capitalized Interest. During the first quarter 2021,
interest expense of
Income Tax Expense. First quarter 2021 income tax expense of
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, currently including those related to our new
Southwest-Sinton Flat Roll Division, principal and interest payments related to
our outstanding indebtedness (no significant principal payments until 2024),
dividends to our shareholders, potential stock repurchases, 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 unsecured
Revolver. Our liquidity at
Cash and equivalents $ 1,245,165
Revolver availability 1,188,119
Total liquidity $ 2,433,284 Our total outstanding debt decreased
Our unsecured credit agreement has a senior unsecured revolving credit facility
(Facility), which provides a
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
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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 debt to
capitalization ratio of not more than 0.60:1.00 must be maintained. At
Working Capital. We generated cash flow from operations of
Capital Investments. During the first quarter of 2021, we invested
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 4% to
Other. In
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, business and ongoing COVID-19 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 borrowings under our Revolver, if necessary, 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 noted above.
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