Edgar Filing: STEEL DYNAMICS INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2011

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0-21719

Steel Dynamics, Inc.

(Exact name of registrant as specified in its charter)

Indiana		35-1929476
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7575 West Jefferson Blvd, Fort Wayne, IN		46804
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (260) 969-3500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (see definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 29, 2011, Registrant had 218,414,086 outstanding shares of common stock.

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STEEL DYNAMICS, INC.

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		Page

PART I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010	1

	Consolidated Statements of Income for the three-month periods ended March 31, 2011 and 2010 (unaudited)	2

	Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2011 and 2010 (unaudited)	3

	Notes to Consolidated Financial Statements (unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4.	Controls and Procedures	22



PART II. Other Information

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 5.	Other Information	24

Item 6.	Exhibits	24

	Signatures	25

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STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	March 31,			December 31,
	2011			2010
	(unaudited)
Assets

Current assets
Cash and equivalents	$	160,810		$	186,513
Accounts receivable, net	828,514			584,068
Accounts receivable-related parties	55,423			38,121
Inventories	1,186,168			1,114,063
Deferred income taxes	21,007			20,684
Income taxes receivable	6,285			37,311
Other current assets	18,913			19,243
Total current assets	2,277,120			2,000,003

Property, plant and equipment, net	2,187,698			2,213,333

Restricted cash	21,448			23,132
Intangible assets, net	479,480			489,240
Goodwill	750,029			751,675
Other assets	111,830			112,551
Total assets	$	5,827,605		$	5,589,934

Liabilities and Equity
Current liabilities
Accounts payable	$	437,531		$	335,031
Accounts payable-related parties	15,883			13,570
Income taxes payable	19,640			5,227
Accrued expenses	199,211			175,041
Accrued profit sharing	16,163			23,524
Current maturities of long-term debt	1,216			8,924
Total current liabilities	689,644			561,317

Long-term debt
7 3/8% senior notes, due 2012	700,000			700,000
5.125% convertible senior notes, due 2014	287,500			287,500
6 ¾% senior notes, due 2015	500,000			500,000
7 ¾% senior notes, due 2016	500,000			500,000
7 5/8% senior notes, due 2020	350,000			350,000
Other long-term debt	40,780			40,397
	2,378,280			2,377,897

Deferred income taxes	469,043			457,432
Other liabilities	62,944			62,159
Commitments and contingencies

Redeemable noncontrolling interest	54,294			54,294

Equity
Common stock voting, $.0025 par value; 900,000,000 shares authorized; 254,642,621 and 254,002,799 shares issued; and 218,303,530 and 217,574,826 shares outstanding, as of March 31, 2011 and December 31, 2010, respectively	635			633
Treasury stock, at cost; 36,339,091 and 36,427,973 shares, as of March 31, 2011 and December 31, 2010, respectively	(725,849		)	(727,624		)
Additional paid-in capital	1,010,698			998,728
Retained earnings	1,905,207			1,821,133
Total Steel Dynamics, Inc. equity	2,190,691			2,092,870
Noncontrolling interests	(17,291		)	(16,035		)
Total equity	2,173,400			2,076,835
Total liabilities and equity	$	5,827,605		$	5,589,934

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended
	March 31,
	2011			2010

Net sales
Unrelated parties	$	1,941,664		$	1,496,082
Related parties	74,305			59,708
Total net sales	2,015,969			1,555,790

Costs of goods sold	1,720,215			1,345,308
Gross profit	295,754			210,482

Selling, general and administrative expenses	65,141			57,160
Profit sharing	15,203			9,444
Amortization of intangibles	10,084			11,581
Total selling, general and administrative expenses	90,428			78,185

Operating income	205,326			132,297

Interest expense, net of capitalized interest	43,346			37,515
Other income, net	(4,567		)	(3,081		)
Income before income taxes	166,547			97,863

Income taxes	62,317			34,474

Net income	104,230			63,389

Net loss attributable to noncontrolling interests	1,673			1,580

Net income attributable to Steel Dynamics, Inc.	$	105,903		$	64,969

Basic earnings per share attributable to Steel Dynamics, Inc. stockholders	$	.49		$	.30

Weighted average common shares outstanding	217,992			216,284

Diluted earnings per share attributable to Steel Dynamics, Inc. stockholders, including the effect of assumed conversions when dilutive	$	.46		$	.29

Weighted average common shares and share equivalents outstanding	236,224			234,659

Dividends declared per share	$	.100		$	.075

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended
	March 31,
	2011			2010

Operating activities:
Net income	$	104,230		$	63,389

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,746			56,272
Equity-based compensation	3,710			2,769
Deferred income taxes	12,935			8,468
(Gain) loss on disposal of property, plant and equipment	(43		)	956
Changes in certain assets and liabilities:
Accounts receivable	(261,748		)	(223,140		)
Inventories	(72,107		)	(48,058		)
Other assets	3,382			940
Accounts payable	94,175			118,217
Income taxes receivable/payable	45,439			37,133
Accrued expenses	19,218			55,796
Net cash provided by operating activities	3,937			72,742

Investing activities:
Purchases of property, plant and equipment	(18,693		)	(30,684		)
Other investing activities	(1,143		)	504
Net cash used in investing activities	(19,836		)	(30,180		)

Financing activities:
Issuance of current and long-term debt	5,126			544,550
Repayment of current and long-term debt	(7,325		)	(351,330		)
Debt issuance costs	—			(6,538		)
Issuance of common stock (net of expenses) and proceeds from exercise of stock options, including related tax effect	8,296			3,454
Contributions from noncontrolling investors, net	417			—
Dividends paid	(16,318		)	(16,200		)
Net cash provided by (used in) financing activities	(9,804		)	173,936

Increase (decrease) in cash and equivalents	(25,703		)	216,498
Cash and equivalents at beginning of period	186,513			9,008

Cash and equivalents at end of period	$	160,810		$	225,506

Supplemental disclosure information:
Cash paid for interest	$	15,110		$	3,769
Cash paid (received) for federal and state income taxes, net	$	1,520		$	(13,010	)

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Description of the Business and Significant Accounting Policies

Description of the Business

Steel Dynamics, Inc. (SDI), together with its subsidiaries (the company), is a domestic manufacturer of steel products and metals recycler. The company has three reporting segments: steel operations, metals recycling and ferrous resources operations, and steel fabrication operations.

Steel Operations. Steel operations include the company’s Flat Roll Division, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, Steel of West Virginia (SWVA) and The Techs operations. These operations consist of mini-mills, producing steel from steel scrap, using electric arc furnaces, continuous casting, automated rolling mills, and downstream finishing facilities. The company’s steel operations sell directly to end users and service centers. These products are used in numerous industry sectors, including the automotive, construction, commercial, transportation and industrial machinery markets. Steel operations accounted for approximately 59% and 63% of the company’s external net sales during the three-month periods ended March 31, 2011 and 2010, respectively.

Metals Recycling and Ferrous Resources Operations. Metals recycling and ferrous resources operations primarily are composed of the company’s steel scrap procurement and processing locations, operated through the company’s wholly-owned subsidiary, OmniSource Corporation (OmniSource), as well as Iron Dynamics (IDI), the company’s liquid pig iron facility. In addition, the impact related to the ongoing start-up of the Mesabi Nugget ironmaking facility and future mining operations, both in Hoyt Lakes, Minnesota is also included in this segment. Metals recycling and ferrous resources operations accounted for approximately 37% and 34% of the company’s external net sales during the three-month periods ended March 31, 2011 and 2010, respectively.

Steel Fabrication Operations. Steel fabrication operations represent the company’s New Millennium Building Systems plants located throughout the United States. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel decking used within the non-residential construction industry. Steel fabrication operations accounted for approximately 3% and 2% of the company’s external net sales during the three-month periods ended March 31, 2011 and 2010, respectively.

Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of SDI, together with its wholly and majority-owned or controlled subsidiaries, after elimination of significant intercompany accounts and transactions. Noncontrolling interests represent the noncontrolling owner’s proportionate share in the equity, income, or losses of the company’s majority-owned or controlled consolidated subsidiaries.

Use of Estimates. These financial statements are prepared in conformity with accounting principles generally accepted in the United States and, accordingly, include amounts that require management to make estimates and assumptions that affect the amounts reported in the financial statements and in the notes thereto. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, intangible assets and goodwill; valuation allowances for trade receivables, inventories and deferred income tax assets; income taxes; unrecognized income tax benefits; potential environmental liabilities; and litigation claims and settlements. Actual results may differ from these estimates and assumptions.

In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Goodwill. The company’s goodwill is allocated to the following reporting units at March 31, 2011 and December 31, 2010, (in thousands):

	March 31,		December 31,
	2011		2010
OmniSource — Metal Recycling/Ferrous Resources Segment	$	576,280	$	577,926
The Techs — Steel Segment	142,783		142,783
Roanoke Bar Division — Steel Segment	29,041		29,041
New Millennium Building Systems — Fabrication Segment	1,925		1,925
	$	750,029	$	751,675

OmniSource goodwill decreased $1.6 million from December 31, 2010 to March 31, 2011 in recognition of the 2011 tax benefit related to the amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. Earnings Per Share

Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive stock options and dilutive shares related to the company’s 5.125% convertible senior notes and are excluded from the computation in periods in which they have an anti-dilutive effect. Options to purchase 1.2 million and 1.3 million shares were anti-dilutive at March 31, 2011 and 2010, respectively.

The following table presents a reconciliation of the numerators and the denominators of the company’s basic and diluted earnings per share computations for net income attributable to Steel Dynamics, Inc. (in thousands, except per share data):

	Three Months Ended March 31,
	2011					2010
	Net Income (Numerator)		Shares (Denominator)	Per Share Amount		Net Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per share	$	105,903	217,992	$	.49	$	64,969	216,284	$	.30
Dilutive stock option effect	—		1,850			—		1,993
5.125% convertible senior notes	2,358		16,382			2,377		16,382
Diluted earnings per share	$	108,261	236,224	$	.46	$	67,346	234,659	$	.29

Note 3. Inventories

Inventories are stated at lower of cost or market. Cost is determined principally on a first-in, first-out basis. Inventories consisted of the following (in thousands):

	March 31,		December 31,
	2011		2010
Raw materials	$	624,445	$	589,859
Supplies	235,421		231,816
Work-in-progress	96,975		94,346
Finished goods	229,327		198,042
Total inventories	$	1,186,168	$	1,114,063

Note 4. Changes in Equity

The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to stockholders of Steel Dynamics, Inc. and equity attributable to the noncontrolling interests (in thousands):

				Stockholders of Steel Dynamics, Inc.
	Total			Common		Additional Paid-In		Retained			Treasury			Noncontrolling
	Equity			Stock		Capital		Earnings			Stock			Interests

Balances at January 1, 2011	$	2,076,835		$	633	$	998,728	$	1,821,133		$	(727,624	)	$	(16,035	)
Proceeds from the exercise of stock options, including related tax effect	8,296			2		8,294		—			—			—
Dividends declared	(21,829		)	—		—		(21,829		)	—			—
Equity-based compensation and issuance of restricted stock	5,451			—		3,676		—			1,775			—
Contributions from noncontrolling investors	597			—		—		—			—			597
Distributions to noncontrolling investor	(180		)	—		—		—			—			(180		)
Net and comprehensive income (loss)	104,230			—		—		105,903			—			(1,673		)
Balances at March 31, 2011	$	2,173,400		$	635	$	1,010,698	$	1,905,207		$	(725,849	)	$	(17,291	)

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5. Derivative Financial Instruments

The company is exposed to certain risks relating to its ongoing business operations. At times the company utilizes derivative instruments to mitigate commodity margin risk, interest rate risk, and foreign currency exchange rate risk. Forward contracts on various commodities are entered into to manage the price risk associated with forecasted purchases and sales of nonferrous materials (specifically aluminum, copper, nickel and silver) from the company’s metals recycling operations. Interest rate swaps are entered into to manage interest rate risk associated with the company’s fixed and floating-rate borrowings. Forward exchange contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk as necessary.

Cash Flow Hedging Strategy. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “interest expense” when the hedged transactions are interest cash flows associated with floating-rate borrowings). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffectiveness portion), or hedge components excluded from the assessment of effectiveness, are recognized in the statement of income during the current period.

Commodity Futures Contracts. If the company is “long” on futures contracts, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity. If the company is “short” on futures contracts, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s commodity futures contract commitments as of March 31, 2011 (MT represents metric tons and Lbs represents pounds):

Commodity	Long/Short	Total
Aluminum	Long	3,250	MT
Aluminum	Short	2,500	MT
Copper	Long	6,895	MT
Copper	Short	9,412	MT
Silver	Long	343	Lbs
Silver	Short	343	Lbs

The following summarizes the location and amounts of the fair values and gains or losses related to derivatives included in the company’s financial statements as of March 31, 2011 and December 31, 2010, and for the three-month periods ended March 31, 2011 and 2010 (in thousands):

		Fair Value
Balance Sheets		March 31, 2011		December 31, 2010
Commodity futures net asset	Other current assets	$	4,536	$	—
Commodity futures net liability	Accrued expenses	—		4,988

		Gain for Three Months Ended
Statements of Operations		March 31, 2011		March 31, 2010
Commodity futures contracts	Costs of goods sold	$	2,923	$	1,931

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Fair Value Measurements

FASB accounting standards provide a comprehensive framework for measuring fair value and sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. Levels within the hierarchy are defined as follows:

· Level 1—Unadjusted quoted prices for identical assets and liabilities in active markets;

· Level 2—Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable for the asset or liability, either directly or indirectly; and

· Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective levels to which the fair value measurements are classified within the fair value hierarchy as of March 31, 2011, and December 31, 2010 (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2011
Commodity futures — financial assets	$	5,854	$	—	$	5,854	$	—
Commodity futures — financial liabilities	1,318		—		1,318		—

December 31, 2010
Commodity futures — financial assets	7,052		—		7,052		—
Commodity futures — financial liabilities	12,040		—		12,040		—

The carrying amounts of financial instruments including cash and equivalents, accounts receivable and accounts payable approximate fair value, because of the relatively short maturity of these instruments. The fair values of commodity futures contracts are estimated by the use of quoted market prices, estimates obtained from brokers, and other appropriate valuation techniques based on references available. The fair value of long-term debt, including current maturities, was approximately $2.6 billion (with a corresponding carrying amount in the consolidated balance sheet of $2.4 billion) and $2.5 billion (with a corresponding carrying amount in the consolidated balance sheet of $2.4 billion) at March 31, 2011, and December 31, 2010, respectively, and was based on quoted market prices.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7. Commitments and Contingencies

On September 17, 2008, the company and eight other steel manufacturing companies were served with a class action antitrust complaint, filed in the United States District Court for the Northern District of Illinois in Chicago by Standard Iron Works of Scranton, Pennsylvania, alleging violations of Section 1 of the Sherman Act. The Complaint alleges that the defendants conspired to fix, raise, maintain and stabilize the price at which steel products were sold in the United States, starting in 2005, by artificially restricting the supply of such steel products. Seven additional lawsuits, each of them materially similar to the original, have also been filed in the same federal court, each of them likewise seeking similar class certification. All but one of the Complaints purport to be brought on behalf of a class consisting of all direct purchasers of steel products between January 1, 2005, and the present. The other Complaint purports to be brought on behalf of a class consisting of all indirect purchasers of steel products within the same time period. In addition, on December 28, 2010, the company and the other co-defendants were served with a substantially similar complaint in the Circuit Court of Cocke County, Tennessee, purporting to be on behalf of indirect purchasers of steel products in Tennessee. Defendants removed the case to federal court and are seeking to transfer it to and to consolidate it with the cases pending in the Northern District of Illinois, but Plaintiff is seeking to have the case remanded back to the Tennessee state court. All Complaints seek treble damages and costs, including reasonable attorney fees, pre- and post-judgment interest and injunctive relief.

On January 2, 2009, Steel Dynamics and the other defendants filed a Joint Motion to Dismiss all of the direct purchaser lawsuits. On June 12, 2009, however, the Court denied the Motion. The parties are currently conducting discovery. Although the company believes that the lawsuits are without merit and we are aggressively defending these actions, it cannot presently predict the outcome of this litigation or make any judgment with respect to its potential exposure, if any.

On October 25, 2010, the company’s wholly-owned indirect subsidiary, OmniSource Indianapolis LLC, was indicted by a Grand Jury in Marion, County, Indiana, on multiple criminal charges, some involving the alleged receipt or attempted receipt of stolen property, and some asserting various “Corrupt Business Influence” racketeering charges pursuant to Indiana’s RICO statute. A week earlier, the company had initiated a civil (replevin) lawsuit against the Marion County Prosecutor, seeking the return of a sum of cash unlawfully seized by the police during a 2009 search of our Indianapolis facilities.

In the company’s lawsuit against the Prosecutor, the company maintained that the police action and the conduct of the Prosecutor, subsequently evidenced by the criminal and related civil proceedings against us, constituted part of a meritless plan to extract money from OmniSource, under a threat of potential civil forfeiture of millions of dollars’ worth of the company’s property. And, as the company expected, on December 30, 2010, the Prosecutor, based upon what the company believed to be meritless “Corrupt Business Influence” charges in the criminal proceeding, filed a counterclaim to the company’s replevin complaint, seeking the forfeiture of all of the company’s Indianapolis scrap facilities and certain other valuable properties, as well as other remedies.

The company maintained from the outset that these charges, all of them involving small dollar individual retail scrap metal transactions, were baseless, and the company promptly initiated a vigorous defense. On December 30, 2010, the company filed a Motion to Dismiss all counts of the indictment, on multiple grounds. On February 4, 2011, after briefing by the parties, the company’s Motion was argued, and on May 4, 2011, the Judge of the Marion Superior Court ruled on the company’s Motion, dismissing all of the Corrupt Business Influence (racketeering) charges, while leaving for trial a total of only five “attempted receipt of stolen property” charges with a combined total retail value of less than $200, each of which, even upon a conviction, carries a maximum $10,000 fine. The company believes that the dismissal of the Corrupt Business Influence charges eviscerates the basis of the Prosecutor’s civil forfeiture counterclaim, and the company will take all necessary further action in that regard. In addition, the company will continue to defend as well against the remaining minor, but what the company believes are equally baseless attempted receipt of stolen property charges.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Segment Information

The company has three reportable segments: steel operations, metals recycling and ferrous resources operations, and steel fabrication operations. These operations are described in Note 1 to the financial statements. Revenues included in the category “Other” are from subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of further processing, slitting, and sale of certain steel products and the resale of certain secondary and excess steel products. In addition, “Other” also includes certain unallocated corporate accounts, such as the company’s senior secured credit facilities, senior notes and convertible senior notes, certain other investments, and certain profit sharing expenses.

The company’s operations are primarily organized and managed by operating segment. Operating segment performance and resource allocations are primarily based on operating results before income taxes. The accounting policies of the reportable segments are consistent with those described in Note 1 to the financial statements. Intra-segment and intra-company sales and any related profits are eliminated in consolidation. Refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2010, for more information related to the company’s segment reporting. The company’s segment results for the three-month periods ended March 31, 2011 and 2010 are as follows (in thousands):

For the three months ended			Metals Recycling /		Steel Fabrication
March 31, 2011	Steel Operations		Ferrous Resources		Operations			Other			Eliminations			Consolidated

Net Sales
External	$	1,146,489	$	672,341	$	52,079		$	25,524		$	—		$	1,896,433
External Non-U.S.	48,575		70,824		—			137			—			119,536
Other segments	51,946		365,250		573			2,471			(420,240		)	—
	1,247,010		1,108,415		52,652			28,132			(420,240		)	2,015,969
Operating income (loss)	192,955		39,490		(2,883		)	(24,256		)(1)	20		(2)	205,326
Income (loss) before income taxes	172,709		29,084		(4,445		)	(30,742		)	(59		)	166,547
Depreciation and amortization	27,193		24,914		1,502			1,188			(51		)	54,746
Capital expenditures	7,279		10,251		532			631						18,693

As of March 31, 2011
Assets	2,553,428		2,522,940		205,650			792,356		(3)	(246,769		)(4)	5,827,605
Liabilities	277,973		485,117		13,198			3,060,121		(5)	(236,498		)(6)	3,599,911

Footnotes related to March 31, 2011 segment results (in millions):

(1)	Corporate SG&A	$	(9.3	)
	Company-wide stock option expense	(3.7		)
	Profit sharing	(13.3		)
	Other, net	2.0
		$	(24.3	)

(2)	Margin impact from intra-company sales	$	(0.02	)

(3)	Cash and equivalents	$	149.9
	Property, plant and equipment, net	69.0
	Debt issuance costs, net	22.9
	Intra-company debt receivable	147.4
	Deferred income taxes	308.4
	Other	94.8
		$	792.4

(4)	Elimination of intra-company receivables	$	(42.0	)
	Deferred income tax elimination	(46.5		)
	Elimination of intra-company debt	(147.4		)
	Other	(10.9		)
		$	(246.8	)

(5)	Accounts payable	$	41.7
	Income taxes payable	19.6
	Accrued interest	61.8
	Accrued profit sharing	13.6
	Debt	2,341.0
	Deferred income taxes	515.5
	Other	66.9
		$	3,060.1

(6)	Elimination of intra-company payables	$	(42.0	)
	Elimination of intra-company debt	(147.4		)
	Deferred income tax elimination	(46.5		)
	Other	(0.6		)
		$	(236.5	)

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Segment Information (continued)

For the three months ended			Metals Recycling /		Steel Fabrication
March 31, 2010	Steel Operations		Ferrous Resources		Operations			Other			Eliminations			Consolidated

Net Sales
External	$	943,218	$	475,417	$	23,961		$	27,078		$	—		$	1,469,674
External Non-U.S.	29,349		56,646		—			121			—			86,116
Other segments	39,929		224,240		37			2,219			(266,425		)	—
	1,012,496		756,303		23,998			29,418			(266,425		)	1,555,790
Operating income (loss)	134,738		24,134		(6,580		)	(18,875		)(1)	(1,120		)(2)	132,297
Income (loss) before income taxes	117,888		13,413		(7,756		)	(23,923		)	(1,759		)	97,863
Depreciation and amortization	28,160		25,684		1,373			1,082			(27		)	56,272
Capital expenditures	12,071		17,676		107			1,468			(638		)	30,684
As of March 31, 2010
Assets	2,365,971		2,374,955		162,304			1,006,296		(3)	(327,404		)(4)	5,582,122
Liabilities	272,136		521,034		8,083			3,044,426		(5)	(321,452		)(6)	3,524,227

Footnotes related to March 31, 2010 segment results (in millions):

(1)	Corporate SG&A	$	(9.5	)
	Company-wide stock option expense	(2.3		)
	Profit sharing	(8.5		)
	Other, net	1.4
		$	(18.9	)

(2)	Margin impact from intra-company sales	$	(1.1	)

(3)	Cash and equivalents	$	218.1
	Income taxes receivable	125.0
	Property, plant and equipment, net	45.4
	Debt issuance costs, net	28.7
	Intra-company debt receivable	209.8
	Deferred income taxes	307.0
	Other	72.3
		$	1,006.3

(4)	Elimination of intra-company receivables	$	(36.6	)
	Deferred taxes elimination	(71.7		)
	Elimination of intra-company debt	(209.8		)
	Other	(9.3		)
		$	(327.4	)

(5)	Accounts payable	$	39.0
	Income taxes payable	30.7
	Accrued interest	62.3
	Accrued profit sharing	8.7
	Debt	2,341.2
	Deferred income taxes	497.6
	Other	64.9
		$	3,044.4

(6)	Elimination of intra-company payables	$	(37.1	)
	Elimination of intra-company debt	(209.8		)
	Deferred income tax elimination	(74.1		)
	Other	(0.5		)
		$	(321.5	)

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Condensed Consolidating Information

Certain 100%-owned subsidiaries of SDI have fully and unconditionally guaranteed all of the indebtedness relating to the issuance of the company’s senior notes due 2012, 2014, 2015, 2016, and 2020. Following are the company’s condensed consolidating financial statements, including the guarantors, which present the financial position, results of operations and cash flows of (i) SDI (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries of SDI, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information for the company on a consolidated basis. The following statements should be read in conjunction with the accompanying consolidated financial statements and the company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Condensed Consolidating Balance Sheets (in thousands)

						Combined			Consolidating			Total
As of March 31, 2011	Parent			Guarantors		Non-Guarantors			Adjustments			Consolidated
Cash and equivalents	$	147,752		$	8,976	$	4,082		$	—		$	160,810
Accounts receivable, net	372,097			790,087		16,465			(294,712		)	883,937
Inventories	592,672			524,191		75,817			(6,512		)	1,186,168
Other current assets	65,268			10,723		1,927			(31,713		)	46,205
Total current assets	1,177,789			1,333,977		98,291			(332,937		)	2,277,120
Property, plant and equiment, net	1,094,612			673,400		422,668			(2,982		)	2,187,698
Intangible assets, net	—			479,480		—			—			479,480
Goodwill	—			750,029		—			—			750,029
Other assets, including investments in subs	3,142,781			35,919		7,333			(3,052,755		)	133,278
Total assets	$	5,415,182		$	3,272,805	$	528,292		$	(3,388,674	)	$	5,827,605

Accounts payable	$	150,051		$	316,205	$	26,728		$	(39,570	)	$	453,414
Accrued expenses	155,856			95,292		7,881			(24,015		)	235,014
Current maturities of long-term debt	423			313		19,273			(18,793		)	1,216
Total current liabilities	306,330			411,810		53,882			(82,378		)	689,644
Long-term debt	2,344,290			—		197,025			(163,035		)	2,378,280
Other liabilities	573,871			2,223,528		27,612			(2,293,024		)	531,987

Redeemable noncontrolling interest	—			—		54,294			—			54,294

Common stock	635			33,896		16,121			(50,017		)	635
Treasury stock	(725,849		)	—		—			—			(725,849		)
Additional paid-in-capital	1,010,698			117,737		258,058			(375,795		)	1,010,698
Retained earnings	1,905,207			485,834		(61,409		)	(424,425		)	1,905,207
Total Steel Dynamics, Inc. equity	2,190,691			637,467		212,770			(850,237		)	2,190,691
Noncontrolling interests	—			—		(17,291		)	—			(17,291		)
Total equity	2,190,691			637,467		195,479			(850,237		)	2,173,400
Total liabilities and equity	$	5,415,182		$	3,272,805	$	528,292		$	(3,388,674	)	$	5,827,605

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Condensed Consolidating Information (continued)

Condensed Consolidating Balance Sheets (in thousands)

						Combined			Consolidating			Total
As of December 31, 2010	Parent			Guarantors		Non-Guarantors			Adjustments			Consolidated
Cash and equivalents	$	173,563		$	10,628	$	2,322		$	—		$	186,513
Accounts receivable, net	283,883			614,412		7,282			(283,388		)	622,189
Inventories	548,726			487,298		84,183			(6,144		)	1,114,063
Other current assets	96,040			9,757		3,444			(32,003		)	77,238
Total current assets	1,102,212			1,122,095		97,231			(321,535		)	2,000,003
Property, plant and equiment, net	1,110,350			684,118		421,897			(3,032		)	2,213,333
Intangible assets, net	—			489,240		—			—			489,240
Goodwill	—			751,675		—			—			751,675
Other assets, including investments in subs	3,069,880			36,617		7,601			(2,978,415		)	135,683
Total assets	$	5,282,442		$	3,083,745	$	526,729		$	(3,302,982	)	$	5,589,934

Accounts payable	$	127,246		$	227,823	$	26,015		$	(32,483	)	$	348,601
Accrued expenses	123,498			102,114		8,497			(30,317		)	203,792
Current maturities of long-term debt	7,554			325		34,604			(33,559		)	8,924
Total current liabilities	258,298			330,262		69,116			(96,359		)	561,317
Long-term debt	2,344,399			—		168,278			(134,780		)	2,377,897
Other liabilities	586,875			2,158,725		27,072			(2,253,081		)	519,591

Redeemable noncontrolling interest	—			—		54,294			—			54,294

Common stock	633			33,901		16,121			(50,022		)	633
Treasury stock	(727,624		)	—		—			—			(727,624		)
Additional paid-in-capital	998,728			117,737		256,905			(374,642		)	998,728
Retained earnings	1,821,133			443,120		(49,022		)	(394,098		)	1,821,133
Total Steel Dynamics, Inc. equity	2,092,870			594,758		224,004			(818,762		)	2,092,870
Noncontrolling interests	—			—		(16,035		)	—			(16,035		)
Total equity	2,092,870			594,758		207,969			(818,762		)	2,076,835
Total liabilities and equity	$	5,282,442		$	3,083,745	$	526,729		$	(3,302,982	)	$	5,589,934

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Condensed Consolidating Information (continued)

Condensed Consolidating Statements of Operations (in thousands)

For the three months ended,							Combined			Consolidating			Total
March 31, 2011	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	912,817		$	2,301,547		$	47,522		$	(1,245,917	)	$	2,015,969
Costs of goods sold	729,541			2,165,378			57,595			(1,232,299		)	1,720,215
Gross profit	183,276			136,169			(10,073		)	(13,618		)	295,754
Selling, general and administrative	36,664			55,893			2,122			(4,251		)	90,428
Operating income	146,612			80,276			(12,195		)	(9,367		)	205,326
Interest expense, net of capitalized interest	25,696			17,262			2,314			(1,926		)	43,346
Other (income) expense, net	(3,179		)	(2,675		)	(718		)	2,005			(4,567		)
Income before income taxes and equity in net income of subsidiaries	124,095			65,689			(13,791		)	(9,446		)	166,547
Income taxes	40,929			24,904			43			(3,559		)	62,317
	83,166			40,785			(13,834		)	(5,887		)	104,230
Equity in net income of subsidiaries	22,737			—			—			(22,737		)	—
Net loss attributable to noncontrolling interests	—			—			1,673			—			1,673
Net income attributable to Steel Dynamics, Inc.	$	105,903		$	40,785		$	(12,161	)	$	(28,624	)	$	105,903

For the three months ended,							Combined			Consolidating			Total
March 31, 2010	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	727,033		$	1,732,431		$	31,410		$	(935,084	)	$	1,555,790
Costs of goods sold	607,982			1,622,755			39,456			(924,885		)	1,345,308
Gross profit	119,051			109,676			(8,046		)	(10,199		)	210,482
Selling, general and administrative	28,891			50,047			2,347			(3,100		)	78,185
Operating income (loss)	90,160			59,629			(10,393		)	(7,099		)	132,297
Interest expense, net of capitalized interest	21,847			15,181			2,111			(1,624		)	37,515
Other (income) expense, net	(2,784		)	(2,850		)	290			2,263			(3,081		)
Income (loss) before income taxes and equity in net income of subsidiaries	71,097			47,298			(12,794		)	(7,738		)	97,863
Income taxes (benefit)	23,986			17,573			(4,796		)	(2,289		)	34,474
	47,111			29,725			(7,998		)	(5,449		)	63,389
Equity in net income of subsidiaries	17,858		(1)	—			—			(17,858		)(1)	—
Net loss attributable to noncontrolling interests	—			—			1,580			—			1,580
Net income (loss) attributable to Steel Dynamics, Inc.	$	64,969		$	29,725		$	(6,418	)	$	(23,307	)	$	64,969

(1) The Parent Statement of Operations for the three-month period ended March 31, 2010, was adjusted to change Equity in Net Income of Subsidiaries to $17,858 (from $21,727) to reflect in net income attributable to Steel Dynamics, Inc. the net loss attributable to the noncontrolling interests, and the net loss effect of consolidating adjustments. These adjustments had no impact on previously reported combined non-guarantors or total consolidated amounts.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Condensed Consolidating Information (continued)

Condensed Consolidating Statements of Cash Flows (in thousands)

For the three months ended,							Combined			Consolidating		Total
March 31, 2011	Parent			Guarantors			Non-Guarantors			Adjustments		Consolidated
Net cash provided by (used in) operating activities	$	53,478		$	(39,355	)	$	(10,152	)	$	—	$	3,971
Net cash used in investing activities	(5,843		)	(10,554		)	(3,439		)	—		(19,836		)
Net cash provided by (used in) financing activities	(73,446		)	48,257			15,351			—		(9,838		)
Increase (decrease) in cash and equivalents	(25,811		)	(1,652		)	1,760			—		(25,703		)
Cash and equivalents at beginning of period	173,563			10,628			2,322			—		186,513
Cash and equivalents at end of period	$	147,752		$	8,976		$	4,082		$	—	$	160,810

For the three months ended,							Combined			Consolidating			Total
March 31, 2010	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	102,341		$	(3,071	)	$	(26,202	)	$	(326	)	$	72,742
Net cash used in investing activities	(43,621		)	(8,855		)	21,970			326			(30,180		)
Net cash provided by financing activities	156,810			12,833			4,293			—			173,936
Increase in cash and equivalents	215,530			907			61			—			216,498
Cash and equivalents at beginning of period	430			6,363			2,215			—			9,008
Cash and equivalents at end of period	$	215,960		$	7,270		$	2,276		$	—		$	225,506

Table of Contents

ITEM 2.

MANAGEMENT’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 domestic and global economies, conditions in the steel and recycled metals marketplaces, our revenue, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements 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. Such predictive statements are not guarantees of future performance, and actual results could differ materially from our current expectations. Factors that could cause such predictive statements to turn out other than as anticipated or predicted include, among others: the effects of a prolonged recession resulting in a decrease of demand for our products; cyclical changes in market supply and demand for steel and recycled metals consumption; the impact of price competition, whether domestic or the result of foreign imports; risks and uncertainties involving new products or new technologies; changes in the availability or cost of steel scrap or substitute materials; increases in energy costs; occurrence of unanticipated equipment failures and plant outages; labor unrest; and the effect of the elements on production or consumption.

More specifically, we refer you to the sections titled Special Note Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the year ended December 31, 2010, as well as in other reports which we file with the Securities and Exchange Commission, for a more detailed discussion of some of the many factors, variable risks and uncertainties that could cause actual results to differ materially from those we may have expected or anticipated. These reports are available publicly on the SEC web site, www.sec.gov, and on our web site, www.steeldynamics.com. Forward-looking or predictive statements we make are based upon information and assumptions, concerning our businesses and the environments in which they operate, which we consider reasonable as of the date on which these statements are made. Due to the foregoing risks and uncertainties however, as well as, matters beyond our control which can affect forward-looking statements, you are cautioned not to place undue reliance on these predictive statements, which speak only as of the date of this report. We undertake no duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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 segment, 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 method, which is based on the percentage of steel consumed to date as compared to the estimated total steel 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 for our steel operations are steel scrap and scrap substitutes (which represent the most significant single component of our consolidated costs of goods sold), alloys, zinc, natural gas, argon, direct and indirect labor and related benefits, electricity, oxygen, electrodes, depreciation, materials and freight. The principal elements of these costs for our metals recycling and ferrous resources operations are the costs of procuring the unprocessed scrap materials, material transportation costs, and processing expenses, such as direct and indirect labor and related benefits, depreciation and utilities. The principal elements of these costs for our steel fabrication operations include purchased steel and direct and indirect labor and related benefit expenses.

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, 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 any other non-operating income activity, including gains on certain short-term investments and income from non-consolidated investments accounted for under the equity method. Other expense consists of any non-operating costs.

Overview

Net income was $105.9 million, or $.46 per diluted share, during the first quarter of 2011, compared with net income of $65.0 million, or $.29 per diluted share, during the first quarter of 2010, and compared with net income of $7.8 million, or $0.04 per diluted share, during the fourth quarter of 2010. Our net sales increased $460.2 million , or 30%, to $2.0 billion in the first quarter of 2011 versus the first quarter of 2010, and our first quarter 2011 net sales increased $487.8 million , or 32% versus the fourth quarter of 2010. Our gross profit percentage was 15% during the first quarter of 2011 as compared to 14% for the first quarter of 2010, and 9% for the fourth quarter of 2010.

During the first quarter of 2011, our gross margin and our operating income margin percentages increased 1% and 2%, respectively, compared to the first quarter of 2010, and 6% and 7%, respectively, compared to the fourth quarter of 2010. The improvements for the first quarter 2010 versus the fourth quarter 2010 were primarily the result of increased shipping volumes and metal spreads within our steel operations and metals recycling operations. We have continued to experience improved demand in most of our markets, with non-residential construction continuing to be the notable exception. We currently anticipate overall relative steady demand and pricing in our markets in the second quarter.

Table of Contents

Segment Operating Results 2011 vs. 2010 (dollars in thousands)

Three Months Ended

Fourth

Linked

March 31,

Quarter

2011

%
Change

2010

%
Change

Net sales

Steel

1,247,010