Table of Contents

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 September 30, 2014

OR

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)

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 website, 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):

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 October 31, 2014, Registrant had 240,415,834 outstanding shares of common stock.

Table of Contents

STEEL DYNAMICS, INC.

Table of Contents

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

See notes to consolidated financial statements.

1

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

See notes to consolidated financial statements.

2

Table of Contents

STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

See notes to consolidated financial statements.

3

Table of Contents

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 —Butler Flat Roll Division, Columbus Flat Roll Division (acquired September 16, 2014), The Techs galvanizing lines, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division and Steel of West Virginia. These operations consist of mini-mills, producing steel from steel scrap, using electric arc furnaces, continuous casting, automated rolling mills, and downstream finishing facilities. Steel operations accounted for 62% and 61% of the company’s external net sales during the three-month periods ended September 30, 2014 and 2013, respectively, and 61% and 60% of the company’s external net sales during the nine-month periods ended September 30, 2014 and 2013, respectively.

Metals Recycling and Ferrous Resources Operations. Metals recycling and ferrous resources operations primarily include OmniSource Corporation, the company’s metals recycling, steel scrap procurement, and processing locations, and our two ironmaking initiatives: Iron Dynamics, a liquid pig iron production facility; and our Minnesota iron operations, an iron nugget production facility and operations to supply the nugget facility with its primary raw material, iron concentrate. Metals recycling and ferrous resources operations accounted for 29% and 32% of the company’s external net sales during the three-month periods ended September 30, 2014 and 2013, respectively, and 30% and 33% of the company’s external net sales during the nine-month periods ended September 30, 2014 and 2013, respectively.

Steel Fabrication Operations.  Steel fabrication operations include the company’s six New Millennium Building Systems joist and deck plants located throughout the United States and Northern Mexico. 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 8% and 6% of the company’s external net sales during the three-month periods ended September 30, 2014 and 2013, respectively, and 7% and 6% of the company’s external net sales during the nine-month periods ended September 30, 2014 and 2013, 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; unrecognized 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, 2013.

Goodwill.  The company’s goodwill is allocated to the following reporting units at September 30, 2014, and December 31, 2013, (in thousands):

OmniSource goodwill decreased $4.9 million from December 31, 2013 to September 30, 2014, in recognition of the 2014 tax benefit related to the amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.

Additional goodwill, if any, allocated to Columbus may be determined after the accounting for the Columbus acquisition is completed (see Note 2).

4

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.  Description of the Business and Significant Accounting Policies (continued)

Recently Issued Accounting Standards.

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition. The company is currently evaluating the impact of the provisions of ASC 606.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern), effective for annual and interim periods ending after December 15, 2016. ASU 2014-15 requires management to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. There are required disclosures if substantial doubt is identified including documentation of principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans), management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern. This ASU is not expected to have any impact on our overall results of operations, financial position or cash flows.

Note 2.  Acquisition

On September 16, 2014, the company completed its acquisition of 100% of Severstal Columbus, LLC (Columbus), on a debt-free basis, for a purchase price of $1.625 billion, with additional working capital adjustments of $35.3 million. The Columbus acquisition was funded through the issuance of $1.2 billion in Senior Notes (See Note 5), borrowings under the company’s senior secured credit facility, and available cash. The company purchased Columbus to significantly expand and diversify its steel operating base with the addition of 3.4 million tons of hot roll steel production capacity diversified with respect to width, gauge, and strength when compared to the capabilities of our Butler Flat Roll Division. Located in northeast Mississippi, Columbus is one of the newest and most technologically advanced sheet steel mini-mills in North America, with access to the high-growth oil country tubular goods (OCTG) and automotive markets. Additionally, Columbus is advantageously located to serve the growing markets in the southern U.S. and Mexico, providing the company with geographic diversification and growth opportunities.  Columbus’ operating results have been reflected in the company’s financial statements since September 16, 2014, the effective date of the acquisition, in the steel operations reporting segment. Columbus reported revenues of $126.5 million and $13.5 million pretax income during the September 16 to September 30, 2014 period, before giving effect to $14.5 million of purchase accounting related cost of goods sold expenses associated with the estimated step-up in inventory and fixed assets. In conjunction with the acquisition, the company recognized $25.0 million of acquisition and related costs that are included in other expenses in the consolidated income statements for the three- and nine-month periods ended September 30, 2014.

The aggregate purchase price was preliminarily allocated to the opening balance sheet of Columbus as of the September 16, 2014 acquisition date.  The following initial allocation of the purchase price (in thousands) is preliminary. The accounting for the acquisition has not yet been completed because we have not finalized the valuations of the acquired assets, assumed liabilities and identifiable intangible assets, including goodwill, if any.

We provisionally assigned $40.0 million of intangible assets to customer relationships with an assigned ten-year life. The company plans to utilize an accelerated amortization methodology to follow the pattern in which the economic benefits of the intangible assets are anticipated to be consumed. However, the expected life and specific amortization method is subject to finalization of the company’s valuation process.

Unaudited Pro Forma Results

Columbus’ operating results have been reflected in the company’s financial statements since the effective date of the acquisition, September 16, 2014.  The following unaudited pro forma information is presented below as if the Columbus acquisition was completed as of January 1, 2013, (in thousands, except per share amounts):

5

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2.  Acquisition (continued)

The information presented is for information purposes only and is not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of the respective period, nor are they necessarily indicative of future operating results of the combined companies under the ownership and management of the company.  The 2014 and 2013 pro forma results reflect Columbus operations for the three- and nine-month periods ended September 30, 2014 and 2013.   As the unaudited pro forma information is presented as if the merger had occurred on January 1, 2013, the gross margin reduction related to the estimated step-up in inventory of $17.7 million and acquisition and related costs of $25.0 million is reflected in the first quarter of 2013. Therefore, the effect of these items is included in the nine-month period ended September 30, 2013 unaudited pro forma results presented above, but not in the nine-month period ended September 30, 2014, or either of the three-month periods.

Note 3.  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, restricted stock units, deferred stock units, and dilutive shares related to the company’s 5.125% Convertible Senior Notes, which matured on June 15, 2014 and were dilutive through then; and are excluded from the computation in periods in which they have an anti-dilutive effect. No options to purchase shares were anti-dilutive at September 30, 2014, while options to purchase 2.4 million shares were anti-dilutive at September 30, 2013.

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):

Note 4.  Inventories

Inventories are stated at lower of cost or market.  Cost is determined using a weighted average cost method for scrap, and on a first-in, first-out basis for all other inventory.  Inventory consisted of the following (in thousands):

6

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5.  Debt

On September 9, 2014, the company issued $700.0 million of 5.125% Senior Notes due 2021 (2021 Senior Notes) and $500.0 million of 5.500% Senior Notes due 2024 (2024 Senior Notes), combined the Senior Notes. The proceeds from the issuance of the Senior Notes, along with cash on hand and borrowings under the company’s senior secured credit facility were used to fund the September 16, 2014 acquisition of Columbus.  Interest on the Senior Notes is due semiannually on October 1 and April 1, with the first payment due on April 1, 2015. The Senior Notes are unsecured and rank pari passu with all existing and future senior unsubordinated unsecured indebtedness and senior in right of payment to all subordinated indebtedness.

·                  The 2021 Senior Notes are redeemable at any time on and after October 1, 2017. The redemption price (expressed as a percentage of principal amount) is 102.563% during the period October 1, 2017 to September 30, 2018; 101.281% during the period October 1, 2018 to September 30, 2019; and 100% on and after October 1, 2019; each plus accrued interest to, but excluding, the redemption date. In addition, at any time prior to October 1, 2017, the company may redeem up to 35% of the principal amount of the 2021 Senior Notes at the redemption price of 105.125% of its principal amount plus accrued interest to, but excluding, the redemption date, with the net cash proceeds from one or more sales of the company’s common stock. At any time prior to October 1, 2017, the company may redeem some or all of the 2021 Senior Notes by paying a “make-whole” premium plus accrued interest to, but excluding, the redemption date.

·                  The 2024 Senior Notes are redeemable at any time on and after October 1, 2019. The redemption price (expressed as a percentage of principal amount) is 102.750% during the period October 1, 2019 to September 30, 2020; 101.833% during the period October 1, 2020 to September 30, 2021; 100.917% during the period October 1, 2021 to September 30, 2022; and 100% on and after October 1, 2022; each plus accrued interest to, but excluding, the redemption date. In addition, at any time prior to October 1, 2017, the company may redeem up to 35% of the principal amount of the 2024 Senior Notes at the redemption price of 105.500 of its principal amount plus accrued interest to, but excluding, the redemption date, with the net cash proceeds from one or more sales of the company’s common stock. At any time prior to October 1, 2019, the company may redeem some or all of the 2024 Senior Notes by paying a “make-whole” premium plus accrued interest to, but excluding, the redemption date.

Holders of $271.8 million principal amount of the company’s 5.125% Convertible Senior Notes due June 15, 2014 (the “Notes”) exercised their option to convert the Notes into shares of common stock by the close of business on June 12, 2014, the conversion election deadline. The conversion rate provided under the terms of the Notes was 58.4731 shares of common stock per $1,000 principal amount of Notes, equivalent to a conversion price of approximately $17.10 per share of common stock, resulting in the company issuing a total of 15,893,457 shares of common stock from treasury shares upon conversion of the Notes. The remaining $15.7 million of the outstanding Notes was paid in cash on June 16, 2014.

Note 6.  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 and redeemable amounts attributable to the noncontrolling interests (in thousands):

7

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7.  Derivative Financial Instruments

The company is exposed to certain risks relating to its ongoing business operations. The company utilizes derivative instruments to mitigate interest rate risk, foreign currency exchange rate risk, and commodity margin risk. Interest rate swaps may be entered into to manage interest rate risk associated with the company’s fixed and floating-rate borrowings. Forward exchange contracts on various foreign currencies may be entered into to manage foreign currency exchange rate risk as necessary. No interest rate swaps or forward exchange contracts on foreign currency existed for the periods presented. The company routinely enters into forward exchange traded futures and option contracts to manage the price risk associated with nonferrous metals inventory as well as purchases and sales of nonferrous metals (specifically aluminum, copper, nickel and silver).  The company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under master netting agreements. The company designates certain of its nonferrous metals, forward exchange futures contracts as fair value hedges of inventory and firm sales commitments.

Commodity Futures Contracts.  If the company is “long” on a futures contract, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity.  If the company is “short” on a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s futures contract commitments as of September 30, 2014 (MT represents metric tons and Lbs represents pounds):

The following summarizes the location and amounts of the fair values reported on the company’s balance sheets as of September 30, 2014, and December 31, 2013, and gains and losses related to derivatives included in the company’s statement of income for the three- and nine-month periods ended September 30, 2014 and 2013 (in thousands):

The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements, which totaled $7.0 million at September 30, 2014 and $3.6 million at December 31, 2013, are reflected in other current assets in the consolidated balance sheet.

8

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7.  Derivative Financial Instruments (continued)