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 September 30, 2010

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 October 29, 2010, Registrant had 217,051,360 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 September 30, 2010 (unaudited) and December 31, 2009	1

	Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2010 and 2009 (unaudited)	2

	Consolidated Statements of Cash Flows for the three and nine-month periods ended September 30, 2010 and 2009 (unaudited)	3

	Notes to Consolidated Financial Statements (unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

PART II. Other Information

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 5.	Other Information	27

Item 6.	Exhibits	27

	Signatures	29

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STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30,			December 31,
	2010			2009
	(unaudited)
Assets

Current assets
Cash and equivalents	$	270,118		$	9,008
Accounts receivable, net	599,108			396,036
Accounts receivable-related parties	55,837			30,556
Inventories	1,008,309			852,831
Deferred income taxes	24,786			21,492
Income taxes receivable	30,413			137,024
Other current assets	21,451			9,856
Total current assets	2,010,022			1,456,803

Property, plant and equipment, net	2,214,105			2,254,050

Restricted cash	20,570			12,595
Intangible assets, net	500,021			533,510
Goodwill	753,355			758,259
Other assets	112,386			114,655
Total assets	$	5,610,459		$	5,129,872

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	356,042		$	255,520
Accounts payable-related parties	10,289			6,765
Income taxes payable	5,431			5,664
Accrued expenses	193,919			156,570
Accrued profit sharing	21,333			2,860
Senior secured revolving credit facility, due 2012	—			167,000
Current maturities of long-term debt	8,438			1,182
Total current liabilities	595,452			595,561

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% notes, due 2020	350,000			—
Other long-term debt	71,938			67,072
	2,409,438			2,054,572

Deferred income taxes	439,748			416,468
Other liabilities	62,145			60,006

Commitments and contingencies

Stockholders’ equity
Common stock voting, $.0025 par value; 900,000,000 shares authorized; 253,422,407 and 252,589,627 shares issued; and 216,994,434 and 215,999,801 shares outstanding, as of September 30, 2010 and December 31, 2009, respectively	632			629
Treasury stock, at cost; 36,427,973 and 36,589,826 shares, as of September 30, 2010 and December 31, 2009, respectively	(727,624		)	(730,857		)
Additional paid-in capital	988,972			972,985
Retained earnings	1,829,659			1,745,511
Total Steel Dynamics, Inc. stockholders’ equity	2,091,639			1,988,268
Noncontrolling interests	12,037			14,997
Total stockholders’ equity	2,103,676			2,003,265
Total liabilities and stockholders’ equity	$	5,610,459		$	5,129,872

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Net sales
Unrelated parties	$	1,520,346		$	1,129,024		$	4,584,285		$	2,689,971
Related parties	63,818			43,172			188,468			89,033
Total net sales	1,584,164			1,172,196			4,772,753			2,779,004

Costs of goods sold	1,444,632			955,503			4,230,755			2,534,101
Gross profit	139,532			216,693			541,998			244,903

Selling, general and administrative expenses	54,679			56,133			167,796			162,012
Profit sharing	4,562			451			21,833			409
Amortization of intangible assets	11,291			11,661			34,437			41,353
Total selling, general and administrative expenses	70,532			68,245			224,066			203,774

Operating income (loss)	69,000			148,448			317,932			41,129

Interest expense, net of capitalized interest	44,286			34,520			125,249			107,814
Other income, net	(6,215		)	(2,167		)	(12,817		)	(2,129		)
Income (loss) before income taxes	30,929			116,095			205,500			(64,556		)

Income taxes (benefit)	15,574			47,365			79,959			(26,991		)

Net income (loss)	15,355			68,730			125,541			(37,565		)

Net loss attributable to noncontrolling interests	3,386			288			7,376			2,730

Net income (loss) attributable to Steel Dynamics, Inc.	$	18,741		$	69,018		$	132,917		$	(34,835	)

Basic earnings (loss) per share attributable to Steel Dynamics, Inc. stockholders	$	.09		$	.32		$	.61		$	(.18	)

Weighted average common shares outstanding	216,881			215,218			216,600			195,689

Diluted earnings (loss) per share attributable to Steel Dynamics, Inc. stockholders, including the effect of assumed conversions when dilutive	$	.09		$	.30		$	.60		$	(.18	)

Weighted average common shares and share equivalents outstanding	234,543			234,080			243,601			195,689

Dividends declared per share	$	.075		$	.075		$	.225		$	.25

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Operating activities:
Net income (loss)	$	15,355		$	68,730		$	125,541		$	(37,565	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	57,278			51,915			168,948			166,643
Equity-based compensation	3,626			2,887			9,724			14,779
Deferred income taxes	2,735			8,341			21,620			21,833
(Gain) loss on disposal of property, plant and equipment	(176		)	(276		)	1,330			(1,023		)
Changes in certain assets and liabilities:
Accounts receivable	(26,820		)	(117,442		)	(228,537		)	18,354
Inventories	9,715			(96,062		)	(155,356		)	192,331
Other assets	(2,409		)	40,052			(10,998		)	43,296
Accounts payable	(12,446		)	130,610			83,064			82,763
Income taxes receivable/payable	8,829			2,432			106,378			1,027
Accrued expenses	33,733			45,495			59,799			(79,395		)
Net cash provided by operating activities	89,420			136,682			181,513			423,043

Investing activities:
Purchases of property, plant and equipment	(24,224		)	(95,662		)	(95,868		)	(243,166		)
Investment in direct financing lease	—			(27,967		)	—			(27,967		)
Other investing activities	936			(2,857		)	2,417			(13,370		)
Net cash used in investing activities	(23,288		)	(126,486		)	(93,451		)	(284,503		)

Financing activities:
Issuance of current and long-term debt	25,428			240,586			571,980			949,330
Repayment of current and long-term debt	(146		)	(251,219		)	(355,952		)	(1,451,666		)
Debt issuance costs	—			(221		)	(6,707		)	(13,972		)
Issuance of common stock (net of expenses) and proceeds from exercise of stock options, including related tax effect	1,566			6,645			8,004			417,134
Contribution from noncontrolling investors	1,805			—			4,416			5,000
Dividends paid	(16,260		)	(16,110		)	(48,693		)	(52,505		)
Net cash provided by (used in) financing activities	12,393			(20,319		)	173,048			(146,679		)

Increase (decrease) in cash and equivalents	78,525			(10,123		)	261,110			(8,139		)
Cash and equivalents at beginning of period	191,593			18,217			9,008			16,233

Cash and equivalents at end of period	$	270,118		$	8,094		$	270,118		$	8,094

Supplemental disclosure information:
Cash paid for interest	$	15,016		$	3,849		$	90,778		$	83,282
Cash paid (received) for federal and state income taxes, net	$	(12	)	$	228		$	(55,019	)	$	(53,546	)

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 61% and 63% of the company’s external net sales during the three- and nine-month periods ended September 30, 2010 and 2009, 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 iron-substitute production facility. In addition, the impact related to the construction and ongoing start-up of the Mesabi Nugget iron-making facility and potential future mining operations in Hoyt Lakes, Minnesota is also included in this segment. Mesabi Nugget, which was under construction during 2009 and had limited production in January 2010 and made its first shipment in February 2010, continues to ramp up production during 2010. Metals recycling and ferrous resources operations accounted for approximately 35% and 33% of the company’s external net sales during the three-month periods ended September 30, 2010 and 2009, respectively, and 35% and 31% during the nine-month periods ended September 30, 2010 and 2009, 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% of the company’s external net sales during the three-month periods ended September 30, 2010 and 2009, and 3% and 5% during the nine-month periods ended September 30, 2010 and 2009, 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/A for the year ended December 31, 2009.

Comprehensive Income (Loss) Attributable to Steel Dynamics, Inc. The components of comprehensive income (loss) are summarized in the following table (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Net income (loss) attributable to Steel Dynamics, Inc.	$	18,741	$	69,018	$	132,917	$	(34,835	)
Unrealized gain on interest rate swap, net of tax	—		—		—		581
Reversal of unrealized loss on interest rate swap, net of tax	—		—		—		830
Comprehensive income (loss) attributable to Steel Dynamics, Inc.	$	18,741	$	69,018	$	132,917	$	(33,424	)

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Goodwill. The company’s goodwill is allocated to the following reporting units at September 30, 2010 and December 31, 2009, (in thousands):

	September 30,		December 31,
	2010		2009
OmniSource	$	579,606	$	584,510
The Techs	142,783		142,783
Roanoke Bar Division	29,041		29,041
New Millennium Building Systems	1,925		1,925
	$	753,355	$	758,259

OmniSource goodwill decreased $4.9 million from December 31, 2009 to September 30, 2010 in recognition of the 2010 tax benefit related to the amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.

Income Taxes. The company’s estimated 2010 annual income tax rate increased to 38.9% during the three-months ended September 30, 2010, from 36.9% through June 30, 2010, resulting in additional income tax expense of $3.5 million ($.02 per diluted share) being recognized during the third quarter 2010.

Note 2. Earnings (Loss) Per Share

Basic earnings (loss) 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 2.3 million and 1.3 million shares were anti-dilutive at September 30, 2010 and 2009, 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 (loss) attributable to Steel Dynamics, Inc. (in thousands, except per share data):

	Three Months Ended September 30,
	2010					2009
	Net Income (Numerator)		Shares (Denominator)	Per Share Amount		Net Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per share	$	18,741	216,881	$	.09	$	69,018	215,218	$	.32
Dilutive stock option effect	—		1,280			—		2,480
5.125% convertible senior notes	2,377		16,382			2,211		16,382
Diluted earnings per share	$	21,118	234,543	$	.09	$	71,229	234,080	$	.30

	Nine Months Ended September 30,
	2010					2009
	Net Income (Numerator)		Shares (Denominator)	Per Share Amount		Net Loss (Numerator)			Shares (Denominator)	Per Share Amount
Basic earnings (loss) per share	$	132,917	216,600	$	.61	$	(34,835	)	195,689	$	(.18	)
Dilutive stock option effect	—		1,619			—			—
5.125% convertible senior notes	7,131		16,382			—			—
Diluted earnings (loss) per share	$	140,048	234,601	$	.60	$	(34,835	)	195,689	$	(.18	)

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):

	September 30,		December 31,
	2010		2009
Raw materials	$	513,876	$	405,794
Supplies	224,026		219,320
Work-in-progress	83,916		72,279
Finished goods	186,491		155,438
Total inventories	$	1,008,309	$	852,831

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Debt

7 5/8% Senior Notes

In March 2010, the company issued $350.0 million of 7 5/8% senior notes due 2020. The net proceeds from the notes were used to pay down the then outstanding senior secured revolving credit facility and for general corporate purposes.

Senior Secured Revolving Credit Facility, due 2012

On April 26, 2010, the company entered into an amendment to its senior secured revolving credit facility, due 2012 which provided for the addition of a lender who extended an additional commitment of $50.0 million, which increased the total revolving credit facility commitment from $874.0 million to $924.0 million.

Note 5. Changes in Stockholders’ Equity

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

				Stockholders of Steel Dynamics, Inc.
				Common		Additional Paid-In		Retained			Treasury			Noncontrolling
	Total			Stock		Capital		Earnings			Stock			Interests
Balances at January 1, 2010	$	2,003,265		$	629	$	972,985	$	1,745,511		$	(730,857	)	$	14,997
Proceeds from the exercise of stock options, including related tax effect	8,004			3		8,001		—			—			—
Dividends declared	(48,769		)	—				(48,769		)	—			—
Equity-based compensation and issuance of restricted stock	11,219			—		7,986		—			3,233			—
Contributions from noncontrolling investors	4,416			—		—		—			—			4,416
Comprehensive income (loss)	125,541			—		—		132,917			—			(7,376		)
Balances at September 30, 2010	$	2,103,676		$	632	$	988,972	$	1,829,659		$	(727,624	)	$	12,037

Note 6. 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 non-ferrous 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.

The company designated its interest rate swap, which was terminated in June 2009, as a cash flow hedge of floating-rate borrowings. Forward contracts on various commodities and forward exchange contracts on various foreign currencies are not designated as hedging instruments.

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 operations during the current period.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Derivative Financial Instruments (continued)

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 September 30, 2010 (MT represents metric tons):

Commodity	Long/Short	Total
Aluminum	Long	2,425	MT
Aluminum	Short	3,075	MT
Copper	Long	4,286	MT
Copper	Short	8,085	MT
Nickel	Long	126	MT
Nickel	Short	180	MT

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 September 30, 2010 and December 31, 2009, and for the three and nine-month periods ended September 30, 2010 and 2009 (in thousands):

		Fair Value
Balance Sheets		September 30, 2010		December 31, 2009
Commodity futures net asset	Other current assets	$	1,883	$	—
Commodity futures net liability	Accrued expenses	—		3,113

		Loss for Three Months Ended
Statements of Operations		September 30, 2010		September 30, 2009
Commodity futures contracts	Costs of goods sold	$	720	$	469

		Gain (Loss) for Nine Months Ended
Statements of Operations		September 30, 2010		September 30, 2009
Commodity futures contracts	Costs of goods sold	$	3,688	$	12,848
Interest rate swap	Other comprehensive income	—		2,294
Interest rate swap	Other expense	—		(1,350		)

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7. 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 September 30, 2010, and December 31, 2009 (in thousands):

September 30, 2010	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commodity futures — financial assets	$	5,192	$	—	$	5,192	$	—
Commodity futures — financial liabilities	3,309		—		3,309		—

December 31, 2009	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commodity futures — financial assets	$	3,819	$	—	$	3,819	$	—
Commodity futures — financial liabilities	6,932		—		6,932		—

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 value of long-term debt, including current maturities, was approximately $2.5 billion (with a corresponding carrying amount in the consolidated balance sheet of $2.4 billion) and $2.3 billion (with a corresponding carrying amount in the consolidated balance sheet of $2.2 billion) at September 30, 2010, and December 31, 2009, respectively.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. 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. 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 limited discovery. Although the company believes that the lawsuits are without merit and plans to aggressively defend these actions, the company cannot presently predict the outcome of this litigation or make any judgment with respect to its potential exposure, if any.

On October 25, 2010, our wholly-owned subsidiary, OmniSource Corporation, was indicted by a Grand Jury in Marion County, Indiana, on multiple criminal charges involving the alleged receipt or attempted receipt of stolen property. These charges, involving small dollar amount individual retail purchases of scrap metal, stem from a February 2009 police raid on the company’s Indianapolis facilities, are baseless and will be fiercely defended. Earlier, on October 18, 2010, our Indianapolis subsidiary filed its own lawsuit against the Prosecutor in Marion Superior Court, seeking return of cash seized by the police during that February 2009 raid.

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. 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. Refer to the company’s Annual Report on Form 10-K/A for the year ended December 31, 2009, for more information related to the company’s segment reporting. Intra-segment and intra-company sales and any related profits are eliminated in consolidation. The company’s segment results for the three month periods ended September 30, 2010 and 2009 are as follows (in thousands):

For the three months ended			Metals Recycling /			Steel Fabrication
September 30, 2010	Steel Operations		Ferrous Resources			Operations			Other			Eliminations			Consolidated

Net Sales
External	$	938,162	$	484,605		$	53,723		$	11,660		$	—		$	1,488,150
External Non-U.S.	21,509		74,265			—			240			—			96,014
Other segments	40,715		245,810			197			2,463			(289,185		)	—
	1,000,386		804,680			53,920			14,363			(289,185		)	1,584,164
Operating income (loss)	85,201		1,077			(494		)	(14,781		)(1)	(2,003		)(2)	69,000
Income (loss) before income taxes	65,666		(9,588		)	(1,919		)	(21,147		)	(2,083		)	30,929
Depreciation and amortization	28,596		26,224			1,404			1,105			(51		)	57,278
Capital expenditures	10,530		10,145			—			3,549			—			24,224

As of September 30, 2010
Assets	2,353,807		2,424,479			186,737			1,004,933		(3)	(359,497		)(4)	5,610,459
Liabilities	254,699		558,227			8,846			3,036,375		(5)	(351,364		)(6)	3,506,783

Footnotes related to the three months ended September 30, 2010 segment results (in millions):

(1)	Corporate SG&A	$	(5.8	)
	Company-wide stock option expense	(3.6		)
	Profit sharing	(3.5		)
	Other, net	(1.9		)
		$	(14.8	)

(2)	Margin reduction from intra-company sales	$	(2.0	)

(3)	Deferred income taxes	$	311.4
	Income taxes receivable	30.4
	Debt issuance costs	25.1
	Property, plant and equipment, net	57.7
	Intra-company debt receivable	235.8
	Cash and equivalents	258.9
	Other	85.6
		$	1,004.9

(4)	Elimination of intra-company receivables	$	(47.6	)
	Deferred income tax elimination	(63.7		)
	Elimination of intra-company debt	(235.8		)
	Other	(12.4		)
		$	(359.5	)

(5)	Debt	$	2,341.0
	Deferred income taxes	505.9
	Accounts payable	36.0
	Income taxes payable	5.4
	Accrued interest	61.8
	Other	86.3
		$	3,036.4

(6)	Deferred income tax elimination	$	(66.1	)
	Elimination of intra-company debt	(235.8		)
	Elimination of intra-company payables	(47.7		)
	Other	(1.8		)
		$	(351.4	)

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Segment Information (continued)

For the three months ended			Metals Recycling /		Steel Fabrication
September 30, 2009	Steel Operations		Ferrous Resources		Operations			Other			Eliminations			Consolidated

Net Sales
External	$	725,635	$	351,788	$	32,310		$	12,871		$	—		$	1,122,604
External Non-U.S.	17,455		32,094		—			43			—			49,592
Other segments	28,096		171,351		620			1,517			(201,584		)	—
	771,186		555,233		32,930			14,431			(201,584		)	1,172,196
Operating income (loss)	126,140		37,405		(3,228		)	(7,793		)(1)	(4,076		)(2)	148,448
Income (loss) before income taxes	111,047		28,006		(4,514		)	(14,368		)	(4,076		)	116,095
Depreciation and amortization	26,455		23,079		1,449			932			—			51,915
Capital expenditures	13,701		81,743		(26		)	244			—			95,662

As of September 30, 2009
Assets	2,297,886		2,230,991		154,089			636,580		(3)	(210,582		)(4)	5,108,964
Liabilities	279,415		323,227		8,682			2,717,413		(5)	(207,856		)(6)	3,120,881

Footnotes related to the three months ended September 30, 2009 segment results (in millions):

(1)	Corporate SG&A	$	(7.8	)

(2)	Margin reduction from intra-company sales	$	(4.1	)

(3)	Deferred income taxes	$	287.8
	Income taxes receivable	92.8
	Debt issuance costs	25.9
	Property, plant and equipment, net	30.3
	Intra-company debt receivable	104.8
	Other	95.0
		$	636.6

(4)	Elimination of intra-company receivables	$	(31.4	)
	Deferred income tax elimination	(86.4		)
	Elimination of intra-company debt	(104.8		)
	Other	12.0
		$	(210.6	)

(5)	Debt	$	2,076.2
	Deferred income taxes	476.2
	Accrued Interest	62.3
	Other	102.7
		$	2,717.4

(6)	Deferred income tax elimination	$	(90.6	)
	Elimination of intra-company debt	(104.3		)
	Other	(13.0		)
		$	(207.9	)

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Segment Information (continued)

For the nine months ended			Metals Recycling /			Steel Fabrication
September 30, 2010	Steel Operations		Ferrous Resources			Operations			Other			Eliminations			Consolidated

Net Sales
External	$	2,835,969	$	1,497,542		$	119,949		$	62,519		$	—		$	4,515,979
External Non-U.S.	72,906		183,317			—			551			—			256,774
Other segments	123,936		728,491			236			7,182			(859,845		)	—
	3,032,811		2,409,350			120,185			70,252			(859,845		)	4,772,753
Operating income (loss)	351,085		32,150			(11,787		)	(50,476		)(1)	(3,040		)(2)	317,932
Income (loss) before income taxes	295,332		(3,413		)	(15,696		)	(66,886		)	(3,837		)	205,500
Depreciation and amortization	84,894		76,351			4,516			3,323			(136		)	168,948
Capital expenditures	39,747		41,503			150			15,106			(638		)	95,868

Footnotes related to the nine months ended September 30, 2010 segment results (in millions):

(1)	Corporate SG&A	$	(22.8	)
	Company-wide stock option expense	(8.8		)
	Profit sharing	(18.8		)
	Other, net	(0.1		)
		$	(50.5	)

(2)	Margin reduction from intra-company sales	$	(3.0	)

For the nine months ended			Metals Recycling /			Steel Fabrication
September 30, 2009	Steel Operations		Ferrous Resources			Operations			Other			Eliminations			Consolidated

Net Sales
External	$	1,708,648	$	787,257		$	129,565		$	32,315		$	—		$	2,657,785
External Non-U.S.	46,377		74,729			—			113			—			121,219
Other segments	65,979		298,593			1,198			3,736			(369,506		)	—
	1,821,004		1,160,579			130,763			36,164			(369,506		)	2,779,004
Operating income (loss)	91,399		6,701			(152		)	(30,601		)(1)	(26,218		)(2)	41,129
Income (loss) before income taxes	42,940		(21,217		)	(4,341		)	(50,719		)	(31,219		)	(64,556		)
Depreciation and amortization	77,143		80,186			4,696			4,618			—			166,643
Capital expenditures	57,479		185,813			(475		)	349			—			243,166

Footnotes related to the nine months ended September 30, 2009 segment results (in millions):

(1)	Corporate SG&A	$	(28.3	)
	Other, net	(2.3		)
		$	(30.6	)

(2)	Margin reduction from intra-company sales	$	(24.6	)
	Other	(1.6		)
		$	(26.2	)

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. 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, 2015, 2016, and 2020 and convertible senior notes due 2014. 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/A for the year ended December 31, 2009.

Condensed Consolidating Balance Sheets (in thousands)

						Combined			Consolidating			Total
As of September 30, 2010	Parent			Guarantors		Non-Guarantors			Adjustments			Consolidated
Cash and equivalents	$	259,029		$	9,779	$	1,310		$	—		$	270,118
Accounts receivable, net	259,581			671,444		8,562			(284,642		)	654,945
Inventories	522,523			413,788		77,900			(5,902		)	1,008,309
Other current assets	89,605			10,780		3,070			(26,805		)	76,650
Total current assets	1,130,738			1,105,791		90,842			(317,349		)	2,010,022
Property, plant and equiment, net	1,123,598			689,308		404,281			(3,082		)	2,214,105
Intangible assets, net	—			500,021		—			—			500,021
Goodwill	—			753,355		—			—			753,355
Other assets, including investments in subs	2,836,130			328,506		7,484			(3,039,164		)	132,956
Total assets	$	5,090,466		$	3,376,981	$	502,607		$	(3,359,595	)	$	5,610,459

Accounts payable	$	128,608		$	248,656	$	30,920		$	(41,853	)	$	366,331
Accrued expenses	143,746			99,984		8,110			(31,157		)	220,683
Current maturities of long-term debt	856			338		51,134			(43,890		)	8,438
Total current liabilities	273,210			348,978		90,164			(116,900		)	595,452
Long-term debt	2,351,645			—		277,463			(219,670		)	2,409,438
Other liabilities	373,972			2,341,483		34,490			(2,248,052		)	501,893

Common stock	632			19,753		6,601			(26,354		)	632
Treasury stock	(727,624		)	—		—			—			(727,624		)
Additional paid-in-capital	988,972			117,753		123,301			(241,054		)	988,972
Retained Earnings	1,829,659			549,014		(41,449		)	(507,565		)	1,829,659
Total Steel Dynamics, Inc. stockholders’ equity	2,091,639			686,520		88,453			(774,973		)	2,091,639
Noncontrolling interests	—			—		12,037			—			12,037
Total stockholders’ equity	2,091,639			686,520		100,490			(774,973		)	2,103,676
Total liabilities and stockholders’ equity	$	5,090,466		$	3,376,981	$	502,607		$	(3,359,595	)	$	5,610,459

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Condensed Consolidating Information (continued)

Condensed Consolidating Balance Sheets (in thousands)

						Combined			Consolidating			Total
As of December 31, 2009	Parent			Guarantors		Non-Guarantors			Adjustments			Consolidated
Cash and equivalents	$	430		$	6,363	$	2,215		$	—		$	9,008
Accounts receivable, net	201,749			461,535		9,217			(245,909		)	426,592
Inventories	437,375			368,823		50,376			(3,743		)	852,831
Other current assets	177,271			5,954		551			(15,404		)	168,372
Total current assets	816,825			842,675		62,359			(265,056		)	1,456,803
Property, plant and equiment, net	1,159,215			728,601		368,815			(2,581		)	2,254,050
Intangible assets, net	—			533,510		—			—			533,510
Goodwill	—			758,259		—			—			758,259
Other assets, including investments in subs	2,726,175		(1)	326,293		9,415			(2,934,633		)(1)	127,250
Total assets	$	4,702,215		$	3,189,338	$	440,589		$	(3,202,270	)	$	5,129,872

Accounts payable	$	87,635		$	157,711	$	43,567		$	(26,628	)	$	262,285
Accured expenses	86,035			107,375		2,774			(31,090		)	165,094
Current maturities of long-term debt	167,832			350		14,907			(14,907		)	168,182
Total current liabilities	341,502			265,436		61,248			(72,625		)	595,561
Long-term debt	2,001,953			25		238,192			(185,598		)	2,054,572
Other liabilities	370,492			2,298,846		29,556			(2,222,420		)	476,474

Common stock	629			19,753		7,763			(27,516		)	629
Treasury stock	(730,857		)	—		—			—			(730,857		)
Additional paid-in-capital	972,985			117,753		112,437			(230,190		)	972,985
Retained earnings	1,745,511		(1)	487,525		(23,604		)	(463,921		)(1)	1,745,511
Total Steel Dynamics, Inc. stockholders’ equity	1,988,268			625,031		96,596			(721,627		)	1,988,268
Noncontrolling interests	—			—		14,997			—			14,997
Total stockholders’ equity	1,988,268			625,031		111,593			(721,627		)	2,003,265
Total liabilities and stockholders’ equity	$	4,702,215		$	3,189,338	$	440,589		$	(3,202,270	)	$	5,129,872

(1) The December 31, 2009 Parent Balance Sheet was adjusted to increase Retained Earnings to $1,745,511 (from $1,495,771) and Other Assets, including Investments in Subsidiaries, to $2,726,175 (from $2,476,435) to reflect undistributed earnings (losses) of certain guarantor and non-guarantor subsidiaries. This adjustment had no impact on previously reported combined non-guarantors or consolidated amounts.

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Condensed Consolidating Information (continued)

Condensed Consolidating Statements of Operations (in thousands)

For the three months ended,							Combined			Consolidating			Total
September 30, 2010	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	707,009		$	1,784,299		$	25,347		$	(932,491	)	$	1,584,164
Costs of goods sold	628,785			1,696,687			39,466			(920,306		)	1,444,632
Gross profit (loss)	78,224			87,612			(14,119		)	(12,185		)	139,532
Selling, general and administrative	21,294			49,906			2,000			(2,668		)	70,532
Operating income (loss)	56,930			37,706			(16,119		)	(9,517		)	69,000
Interest expense, net of capitalized interest	26,197			17,302			3,494			(2,707		)	44,286
Other (income) expense, net	(3,419		)	(5,619		)	37			2,786			(6,215		)
Income (loss) before income taxes and equity in net income of subsidiaries	34,152			26,023			(19,650		)	(9,596		)	30,929
Income taxes (benefit)	17,246			9,743			(7,587		)	(3,828		)	15,574
	16,906			16,280			(12,063		)	(5,768		)	15,355
Equity in net income of subsidiaries	1,835			—			—			(1,835		)	—
Net loss attributable to noncontrolling interests	—			—			3,386			—			3,386
Net income (loss) attributable to Steel Dynamics, Inc.	$	18,741		$	16,280		$	(8,677	)	$	(7,603	)	$	18,741

For the three months ended,							Combined			Consolidating			Total
September 30, 2009	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	532,431		$	1,323,768		$	12,505		$	(696,508	)	$	1,172,196
Costs of goods sold	427,132			1,203,069			11,123			(685,821		)	955,503
Gross profit	105,299			120,699			1,382			(10,687		)	216,693
Selling, general and administrative	16,611			53,360			3,580			(5,306		)	68,245
Operating income (loss)	88,688			67,339			(2,198		)	(5,381		)	148,448
Interest expense, net of capitalized interest	18,298			14,002			1,201			1,019			34,520
Other (income) expense, net	(88		)	(3,004		)	(17		)	942			(2,167		)
Income (loss) before income taxes and equity in net income of subsidiaries	70,478			56,341			(3,382		)	(7,342		)	116,095
Income taxes (benefit)	27,518			24,983			(1,470		)	(3,666		)	47,365
	42,960			31,358			(1,912		)	(3,676		)	68,730
Equity in net income of subsidiaries	26,058		(2)	—			—			(26,058		)(2)	—
Net loss attributable to noncontrolling interests	—			—			288			—			288
Net income (loss) attributable to Steel Dynamics, Inc.	$	69,018		$	31,358		$	(1,624	)	$	(29,734	)	$	69,018

Table of Contents

STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Condensed Consolidating Information (continued)

For the nine months ended,							Combined			Consolidating			Total
September 30, 2010	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	2,160,162		$	5,348,572		$	92,116		$	(2,828,097	)	$	4,772,753
Costs of goods sold	1,844,035			5,060,220			123,213			(2,796,713		)	4,230,755
Gross profit (loss)	316,127			288,352			(31,097		)	(31,384		)	541,998
Selling, general and administrative	74,675			150,432			6,594			(7,635		)	224,066
Operating income (loss)	241,452			137,920			(37,691		)	(23,749		)	317,932
Interest expense, net of capitalized interest	73,082			50,160			9,029			(7,022		)	125,249
Other (income) expense, net	(10,685		)	(10,526		)	575			7,819			(12,817		)
Income (loss) before income taxes and equity in net income of subsidiaries	179,055			98,286			(47,295		)	(24,546		)	205,500
Income taxes (benefit)	69,098			36,781			(17,935		)	(7,985		)	79,959
	109,957			61,505			(29,360		)	(16,561		)	125,541
Equity in net income of subsidiaries	22,960			—			—			(22,960		)	—
Net loss attributable to noncontrolling interests	—			—			7,376			—			7,376
Net income (loss) attributable to Steel Dynamics, Inc.	$	132,917		$	61,505		$	(21,984	)	$	(39,521	)	$	132,917

For the nine months ended,							Combined			Consolidating			Total
September 30, 2009	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	1,229,082		$	3,034,599		$	34,238		$	(1,518,915	)	$	2,779,004
Costs of goods sold	1,163,834			2,813,517			34,643			(1,477,893		)	2,534,101
Gross profit (loss)	65,248			221,082			(405		)	(41,022		)	244,903
Selling, general and administrative	52,602			158,257			9,599			(16,684		)	203,774
Operating income (loss)	12,646			62,825			(10,004		)	(24,338		)	41,129
Interest expense, net of capitalized interest	59,292			41,281			1,996			5,245			107,814
Other (income) expense, net	51,038			(54,741		)	5			1,569			(2,129		)
Income (loss) before income taxes and equity in net income of subsidiaries	(97,684		)	76,285			(12,005		)	(31,152		)	(64,556		)
Income taxes (benefit)	(42,645		)	33,303			(4,049		)	(13,600		)	(26,991		)
	(55,039		)	42,982			(7,956		)	(17,552		)	(37,565		)
Equity in net income of subsidiaries	20,204		(2)	—			—			(20,204		)(2)	—
Net loss attributable to noncontrolling interests	—			—			2,730			—			2,730
Net income (loss) attributable to Steel Dynamics, Inc.	$	(34,835	)	$	42,982		$	(5,226	)	$	(37,756	)	$	(34,835	)

(2) The Parent Statement of Operations for the three and nine-month periods ended September 30, 2009 was adjusted to change Equity in Net Income of Subsidiaries to $26,058, from $29,446; and to $20,204, from $35,026, respectively, to reflect in net income (loss) attributable to Steel Dynamics, Inc. the net loss attributable to the noncontrolling interests, and the net income (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 10. Condensed Consolidating Information (continued)

Condensed Consolidating Statements of Cash Flows (in thousands)

For the nine months ended,							Combined			Consolidating			Total
September 30, 2010	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	259,377		$	2,914		$	(80,139	)	$	(639	)	$	181,513
Net cash used in investing activities	(124,699		)	(23,104		)	(40,305		)	94,657			(93,451		)
Net cash provided by financing activities	123,921			23,606			119,539			(94,018		)	173,048
Increase (decrease) in cash and equivalents	258,599			3,416			(905		)	—			261,110
Cash and equivalents at beginning of period	430			6,363			2,215			—			9,008
Cash and equivalents at end of period	$	259,029		$	9,779		$	1,310		$	—		$	270,118

For the nine months ended,							Combined			Consolidating			Total
September 30, 2009	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	95,162		$	170,207		$	(27,478	)	$	185,152		$	423,043
Net cash used in investing activities	(71,030		)	(55,211		)	(158,262		)	—			(284,503		)
Net cash provided by (used in) financing activities	(24,818		)	(120,159		)	183,450			(185,152		)	(146,679		)
Increase (decrease) in cash and equivalents	(686		)	(5,163		)	(2,290		)	—			(8,139		)
Cash and equivalents at beginning of period	1,389			11,514			3,330			—			16,233
Cash and equivalents at end of period	$	703		$	6,351		$	1,040		$	—		$	8,094

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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 or deepening recession on industrial demand; general or specific sector (i.e., automotive, consumer appliance or construction) economic conditions affecting steel or recycled metals consumption; the impact of price competition, whether domestic or the result of foreign imports; difficulties in integrating acquired businesses; 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/A for the year ended December 31, 2009, 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 $18.7 million, or $.09 per diluted share, during the third quarter of 2010, compared with net income of $69.0 million, or $.30 per diluted share, during the third quarter of 2009, and compared with net income of $49.2 million, or $0.22 per diluted share, during the second quarter of 2010. Our net sales increased $412.0 million , or 35%, to $1.6 billion in the third quarter of 2010 versus the third quarter of 2009, and our third quarter 2010 net sales decreased $48.6 million , or 3% versus the second quarter of 2010. Our gross profit percentage was 9% during the third quarter of 2010 as compared to 18% for the third quarter of 2009, and 12% for the second quarter of 2010.

Net income was $132.9 million, or $.60 per diluted share during the first nine months of 2010, compared with net loss of $34.8 million, or $.18 per diluted share during the first nine months of 2009. Our net sales increased $2.0 billion, or 72%, to $4.8 billion in the first nine months of 2010 versus the first nine months of 2009. Our gross profit percentage was 11% during the first nine months of 2010 as compared to 9% for the first nine months of 2009.

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During the first nine months of 2010, we have continued to experience the return to profitably we saw in the latter half of 2009, in the wake of the global economic recession of late 2008 and early 2009. Since the second quarter of 2009, improved net sales have been driven by the general improvement of the domestic economy, resulting in increasing customer demand for our products.

Throughout 2010 we have experienced consistent to moderately improving customer order volume within our steel operations, and product pricing has also generally improved; although, there are periods of peaks and troughs within this time frame as end market volatility continues to exist. Within our steel operations, the most impactful demand improvement has been in our sheet and special bar-quality steel products. However, pricing volatility continues to impact our sheet products and order entry activity for our sheet steel declined in the third quarter of 2010 and has continued with tepid order backlogs into October. Operating income in our steel operations for the third quarter of 2010 was down $45.9 million, or 35%, compared with that of the second quarter of 2010 due to compressed margins. As we head into the fourth quarter of 2010, we anticipate continued steady demand in special bar-quality products, with steady performance in our other long products categories. Structural steel and steel fabrication demand continues to lag but has shown improvement in recent months.

Additionally, throughout 2010 our metals recycling operations experienced improving net sales and shipping volumes of ferrous and nonferrous metals, as demand improved due in large part to domestic and international steel production utilization rates increasing as compared to 2009. While sales volumes continued to show improvement in the third quarter of 2010, operating income retreated slightly as compared to the second quarter due to declining metal margins primarily in ferrous operations.

Segment Operating Results 2010 vs. 2009 (dollars in thousands)

	Three Months Ended								Nine Months Ended								Second			Linked
	September 30,								September 30,								Quarter			Quarter
	2010			% Change		2009			2010			% Change		2009			2010			% Change

Net sales
Steel	$	1,000,386		30	%	$	771,186		$	3,032,811		67	%	$	1,821,004		$	1,019,929		-2	%
Metals recycling and ferrous resources	804,680			45	%	555,233			2,409,350			108	%	1,160,579			848,367			-5	%
Steel fabrication	53,920			64	%	32,930			120,185			-8	%	130,763			42,267			28	%
Other	14,363			—	%	14,431			70,252			94	%	36,164			26,472			-46	%
	1,873,349					1,373,780			5,632,598					3,148,510			1,937,035
Intra-company	(289,185		)			(201,584		)	(859,845		)			(369,506		)	(304,236		)
Consolidated	$	1,584,164		35	%	$	1,172,196		$	4,772,753		72	%	$	2,779,004		$	1,632,799		-3	%

Operating income (loss)
Steel	$	85,201				$	126,140		$	351,085				$	91,399		$	131,146
Metals recycling and ferrous resources	1,077					37,405			32,150					6,701			6,939
Steel fabrication	(494		)			(3,228		)	(11,787		)			(152		)	(4,713		)
Other	(14,781		)			(7,793		)	(50,476		)			(30,601		)	(16,820		)
	71,003					152,524			320,972					67,347			116,552
Eliminations	(2,003		)			(4,076		)	(3,040		)			(26,218		)	83
Consolidated	$	69,000				$	148,448		$	317,932				$	41,129		$	116,635

Steel Operations

Steel Operations. Steel operations consist of our five electric-arc furnace mini-mills, producing steel from steel scrap, utilizing continuous casting, automated rolling mills, and various downstream finishing facilities, including The Techs operations. Collectively, our 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. In the third quarters of 2010 and 2009, our steel operations accounted for 61% and 63%, respectively, of our external net sales, and accounted for 60% in the second quarter of 2010. Operating income for steel operations decreased $40.9 million or 32%, to $85.2 million in the third quarter of 2010 compared to the third quarter of 2009, and decreased $45.9 million, or 35%, on a linked-quarter basis. This decrease in the third quarter 2010 versus the third quarter 2009 and second quarter 2010 was due primarily to compressed margins, as the decrease in steel selling prices, particularly in sheet steel products, was greater than the decrease in the cost of steel scrap consumed during the quarter. Operating income for steel operations increased $259.7 million to $351.1 million in the first nine months of 2010 versus the first nine months of 2009 due to significant increases in sales volumes of 38% across all product types as well as increased selling prices of $128 per ton.

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	Three Months Ended								Nine Months Ended								Second
	September 30,								September 30,								Quarter
	2010				2009				2010				2009				2010
Shipments (net tons)
Flat Roll Division	621,543				656,512				1,993,662				1,415,195				622,861
The Techs	166,858				220,383				569,363				466,032				191,960
Sheet products	788,401		64	%	876,895		75	%	2,563,025		69	%	1,881,227		70	%	814,821		69	%

Structural and Rail Division	156,940				134,390				471,541				360,421				159,252
Engineered Bar Products Division	153,279				80,428				407,140				215,092				128,802
Roanoke Bar Division	145,168				97,895				363,747				263,617				109,393
Steel of West Virginia	66,610				57,539				172,735				155,622				52,720
Long products	521,997		43	%	370,252		32	%	1,415,163		38	%	994,752		37	%	450,167		38	%

Total shipments	1,310,398				1,247,147				3,978,188				2,875,979				1,264,988
Intra-company and segment	(82,859	)	(7	)%	(84,396	)	(7	)%	(251,678	)	(7	)%	(183,998	)	(7	)%	(86,866	)	(7	)%
External shipments	1,227,539				1,162,751				3,726,510				2,691,981				1,178,122

Sheet Products. Our Flat Roll Division sells a broad range of sheet steel products, such as hot rolled, cold rolled and coated steel products, including a large variety of specialty products such as light gauge hot rolled, galvanized, Galvalume® and painted products. The Techs operations, comprised of three galvanizing lines, also sells specialized galvanized sheet steels used in non-automotive applications. During the third quarter of 2010, our sheet operations represented 57% of our steel segment’s operating income, as compared to 69% in the third quarter of 2009. The decrease in the percentage in 2010 from 2009 is due primarily to the improved profitability of the Engineered Bar Products and Roanoke Bar divisions during the third quarter of 2010 relative to the segment as a whole.

Long Products. Our Structural and Rail Division sells structural steel beams and pilings and is also designed to produce and sell a variety of standard and premium-grade rail for the railroad industry. Our Engineered Bar Products Division primarily sells special bar quality and merchant bar quality rounds and round-cornered squares. Our Roanoke Bar Division sells billets and merchant steel products, including angles, plain rounds, flats and channels. Steel of West Virginia primarily sells merchant beams, channels and specialty structural steel sections.

Net sales for the segment increased by $229.2 million, or 30%, compared to the third quarter of 2009, but decreased $19.5 million, or 2%, on a linked-quarter basis. Third quarter 2010 total shipments were up 5% compared to the same period in 2009 due to the generally improved economic climate during the first nine months of 2010 as steel mill utilization improved with more automotive and heavy machinery demand, and service center inventories have continued to remain at low levels. Linked-quarter total shipments increased 4%, driven by long products which increased 16%. Sheet products shipments decreased 3% on a linked-quarter basis. While recent order entry for sheet products has slowed, long products continue to show modest improvement. We anticipate sheet product demand may remain slow in the fourth quarter, while special bar quality products should continue to show strong demand. Demand for our rail products could also be bolstered by our continued refinement of rail products and development of rail customer relationships. Our third quarter 2010 average steel operations’ selling price per ton shipped, including intra-company shipments, increased $143 compared with the third quarter of 2009, but decreased $47 compared with the second quarter of 2010. In sheet products, our third quarter 2010 average selling price per ton shipped increased $155 per ton compared with the third quarter of 2009, but decreased $58 on a linked-quarter basis. Long products average selling prices increased $107 per ton compared with the third quarter of 2009, but decreased $25 on a linked-quarter basis.

Net sales for the segment increased by $1.2 billion, or 67%, in the first nine months of 2010 compared to the same period in 2009. Stronger demand for our steel products in conjunction with the improving economic climate to date in 2010 have driven increases in both volumes and product pricing as compared to the first nine months of 2009. Total shipments for the first nine months of 2010 were up 38% overall compared to the same period in 2009, with sheet products increasing 36% and long products increasing 42%. Our first nine months 2010 average steel operations’ selling price per ton shipped, including intra-company shipments, increased $128 compared with the first nine months of 2009. In sheet products, our first nine months of 2010 average selling price per ton shipped increased $161 per ton compared with the first nine months of 2009. Long products average selling prices increased $67 per ton compared with the first nine months of 2009.

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Metallic raw materials used in our electric arc furnaces represent our single most significant manufacturing cost. Our metallic raw material cost per net ton consumed in our steel operations increased $111 in the third quarter 2010 compared with the third quarter of 2009, but decreased $23 on a linked-quarter basis. During the third quarter of 2010 and 2009, respectively, our metallic raw material costs represented 61% and 54% of our steel operations’ manufacturing costs, excluding the operations of The Techs, which purchases, rather than produces, the steel it further processes.

Our metallic raw material cost per net ton consumed in our steel operations increased $117 for the first nine months of 2010 compared with the first nine months of 2009, and represented 61% and 50% of our steel operations’ manufacturing costs during the first nine months of 2010 and 2009, respectively, excluding the operations of The Techs.

Metals Recycling and Ferrous Resources Operations

Metals Recycling and Ferrous Resources Operations. This operating segment includes our metals recycling operations, liquid pig iron manufacturing facility and iron nugget manufacturing start-up facility. In the third quarter of 2010 and 2009, our metals recycling and ferrous resources operations accounted for 35% and 33%, respectively, of our external net sales, and accounted for 36% in the second quarter of 2010. Operating income for the segment decreased $36.3 million, to $1.1 million, compared to the third quarter of 2009, as decreased margins more than offset increased volumes in our Metals Recycling operations, and start-up iron nugget operations resulted in additional operating losses in the third quarter 2010 versus the third quarter of 2009.

Metals Recycling. Our metals recycling operations represent our metals sourcing and processing operations and are the most significant source of income in this segment. These operations sell ferrous metals to steel mills and foundries, and nonferrous metals, such as copper, brass, aluminum and stainless steel to, among others, ingot manufacturers, copper refineries and mills, smelters, and specialty mills. During the third quarter of 2010, our metals recycling operations represented 95% of this segment’s net sales as compared to 96% during the third quarter of 2009 and second quarter of 2010.

Ferrous Resources. Our ferrous resource operations consist of the revenues and expenses associated with our scrap substitute manufacturing facility, Iron Dynamics (IDI); our iron-nugget manufacturing facility, Mesabi Nugget; and our potential future mining operations, Mesabi Mining. IDI primarily produces liquid pig iron, which is used as a scrap substitute raw material input exclusively at our Flat Roll Division. Mesabi Nugget began initial, limited production of iron nuggets in January 2010. During the fourth quarter 2010, we anticipate reaching sustainable production rates of approximately 60% of the facility’s anticipated annual production capacity of 500,000 metric tons, with interim periods approaching 85%.

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	Three Months Ended				Nine Months Ended				Second
	September 30,				September 30,				Quarter
	2010		2009		2010		2009		2010
Ferrous metal shipments (gross tons)
Combined	1,361,696		1,155,196		3,942,135		2,557,043		1,350,364
Intra-company	(556,222	)	(514,143	)	(1,638,878	)	(985,372	)	(563,350	)
External	805,474		641,053		2,303,257		1,571,671		787,014

Non-ferrous metals shipments (thousands of pounds)
Combined	256,514		217,068		731,407		577,246		236,648
Intra-company	(1,784	)	—		(5,924	)	—		(1,946	)
External	254,730		217,068		725,483		577,246		234,702

Mesabi Nugget shipments (metric tons)	24,553		—		49,210		—		17,478

Iron Dynamics shipments (metric tons)
Liquid pig iron	45,046		49,901		130,667		127,573		39,193
Hot briquetted iron	11,774		4,080		38,503		23,865		15,357
Other	248		33		1,514		670		568
Intra-company	57,068		54,014		170,684		152,108		55,118

During the third quarter of 2010, this segment recorded combined shipments of 1.4 million gross tons of ferrous metals and 256.5 million pounds of non-ferrous materials, compared with 1.2 million gross tons and 217.1 million pounds during the same period in 2009. On a linked-quarter basis, combined shipments of ferrous metals increased by 11,000 gross tons while shipments of non-ferrous metals increased by 19.9 million pounds, or 8%. During the third quarter of 2010, the metals recycling operations provided approximately 50% of the steel scrap purchased by our steel mills. This represented 27% of the metals recycling operations’ net sales for the quarter as compared to 28% during the second quarter of 2010 and the third quarter of 2009. Domestic steel mill utilization has increased from 61% to 68% during 2010, and as a major consumer of ferrous scrap, this has increased demand.

Net sales for the segment in the third quarter of 2010 increased by $249.4 million, or 45%, compared to the third quarter of 2009, but decreased $43.7 million, or 5%, on a linked-quarter basis. The third quarter 2010 increase over 2009 was due to both the increased scrap volumes and improved selling prices as the markets in 2010 were much healthier than in 2009. Ferrous metals prices fell 11% over the quarter as compared to those achieved in the second quarter 2010. However, non-ferrous pricing increased in the third quarter 2010 versus the second quarter 2010 overall, with copper showing the most improvement. Net sales for the segment for the first nine months of 2010 increased by $1.2 billion to $2.4 billion compared to the first nine months of 2009.

Operating income for the segment decreased $36.3 million, to $1.1 million in the third quarter 2010, compared to the third quarter of 2009 due primarily to decreased margins in ferrous metals, and decreased $5.9 million, or 84%, on a linked-quarter basis. The majority of the sequential quarter over quarter decline in segment operating income was attributable to margin compression primarily in our ferrous metals operations as noted above, whereas non-ferrous metals experienced an increase in operating income. The operating loss attributable to our Mesabi Nugget start-up operations of $14.3 million (including noncontrolling interest) in the third quarter of 2010 was $2.8 million higher than the second quarter of 2010, and the third quarter 2009 operating loss of $2.3 million, when the location was still being constructed.

Operating income for the segment increased $25.4 million to $32.2 million for the first nine months of 2010 compared to the first nine months of 2009 due to both the increased scrap volumes and pricing as the markets in 2010 were much healthier than in 2009. This was despite the operating loss attributable to our Mesabi Nugget start-up operations increasing to $37.6 million (including noncontrolling interest) in the first nine months of 2010 from $5.8 million in the first nine months of 2009, when the location was still being constructed.

Steel Fabrication Operations

Our steel fabrication operations include three operating and two idled New Millennium Building Systems’ plants located in the Midwest and Southeastern part of 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 3% of our external net sales during the third quarter of 2010 and 2009, and during the second quarter of 2010. Operating loss for the segment was $494,000 compared to operating loss of $3.2 million in the third quarter of 2009, and an operating loss of $4.7 million, or 90% lower, on a linked-quarter basis. Operating loss for the segment was $11.8 million for the first nine months of 2010 compared to operating loss of $152,000 for the first nine months of 2009.

Net sales for the segment increased by $21.0 million, or 64%, in the third quarter 2010 compared to the third quarter of 2009, and $11.7 million, or 28%, on a linked-quarter basis. Both volumes and pricing increased in the third quarter 2010, with our average steel fabrication operations’ selling price per ton shipped increasing $187, or 20%, during the third quarter of 2010 when compared with the same period in 2009, and increasing $131, or 13%, on a linked-quarter basis. Net sales for the segment decreased $10.6 million to $120.2 million for the first nine months of 2010 as compared to the first nine months of 2009. Our average steel fabrication operations’ selling price per ton shipped decreased $89, or 8%, in the first nine months of 2010 as compared to the same period in 2009.

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The purchase of various steel products is the largest single cost of production for our steel fabrication operations. During the third quarter of 2010 and 2009, the cost of steel products purchased represented 71% and 65%, respectively, of the total cost of manufacturing for our steel fabrication operations; while the cost of steel increased in the third quarter of 2010 as compared to the same period in 2009 by $154 per ton. As the increase in selling prices outpaced input costs, gross margin for the segment increased 128%. During the first nine months of 2010 and 2009, the cost of steel products consumed represented 69% of the total cost of manufacturing for our steel fabrication operations. The cost of steel increased in the first nine months of 2010 as compared to the same period in 2009 by $19 per ton. This increase, coupled with an 8% decrease in average selling values, resulted in decreased gross margins during the first nine months of 2010 compared to 2009.

In spite of the slowly recovering economy and depressed activity in non-residential construction, we are seeing some encouraging signs emerging for our steel fabrication segment. Our October purchase of certain Commercial Metals Company joist-manufacturing facilities in Arkansas, Nevada, and northern Mexico and other assets for $17.0 million will give us a broader geographic presence in the joist market moving forward, providing us the opportunity to better serve our customers that have a nationwide footprint and gain further market share. However, we anticipate the non-residential construction recovery to continue to develop slowly into 2011. We have continued to experience slightly positive trends in order entry activity and product pricing, though gross margins are still tight with input costs cutting into pricing increases.

Third Quarter Consolidated Results 2010 vs. 2009

Selling, General and Administrative Expenses. Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) were $70.5 million during the third quarter of 2010, as compared to $68.2 million during the third quarter of 2009, an increase of $2.3 million, or 3%. Our selling, general and administrative expenses represented 4% and 6% of our total net sales during the third quarter of 2010 and 2009, respectively. The percentage decrease is primarily a result of improved net sales in the third quarter of 2010 compared with the prior year as measured against certain fixed cost components in selling, general and administrative expenses.

The most significant increase in our selling, general and administrative expenses was due to the accrual of profit sharing expense during the third quarter of 2010 as a result of our positive financial results compared to 2009. During the third quarter of 2010, we recorded expense of $3.5 million related to our Steel Dynamics performance-based profit sharing plan (and $1.1 million of other profit sharing), while only $451,000 of expense was recorded in the third quarter of 2009. The contribution percentage for this plan consists of 2% of consolidated pretax earnings plus a unique percentage of each of our operating segments’ pretax earnings. The resulting total contribution percentage was 10% of consolidated pretax earnings (before profit sharing) during the third quarter of 2010.

Interest Expense, net of Capitalized Interest. During the third quarter of 2010, gross interest expense increased $4.8 million, or 12%, to $45.3 million, and capitalized interest decreased $4.9 million to $1.0 million, when compared to the same period in 2009. The increase in gross interest expense for the third quarter of 2010 compared to the third quarter of 2009 is primarily a result of our issuance in March 2010 of $350.0 million of 7 5/8% senior notes due 2020. The interest capitalization that occurred during these periods resulted from the interest required to be capitalized with respect to construction activities at our various operating segments, which with the completion of several of our construction projects, is not as significant in the third quarter 2010. Our weighted-average interest rate on our outstanding borrowings was 7.3% and 7.2% at September 30, 2010 and 2009, respectively. We currently anticipate gross interest expense to remain consistent through the remainder of the year.

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Other (Income) Expense, net. Other income was $6.2 million during the third quarter of 2010, as compared to $2.2 million during the same period in 2009. During the third quarter of 2010, we recorded interest income of $1.2 million versus $258,000 in the same period in 2009.

Income Taxes (Benefit). During the third quarter of 2010, our income tax expense was $15.6 million, as compared to $47.4 million during the same period in 2009. Our effective income tax rate before noncontrolling interests was 50.4% and 40.8% during the third quarter of 2010 and 2009, respectively. The higher rate in the third quarter of 2010 was due to a change in the estimated annual effective tax rate to 38.9% from 36.9% the previous quarter, resulting in an additional income tax expense of $3.5 million being recorded in the three months ended September 30, 2010.

First Nine Months Consolidated Results 2010 vs. 2009

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $224.1 million during the first nine months of 2010, as compared to $203.8 million during the same period in 2009, an increase of $20.3 million, or 10%. During the first nine months of 2010 and 2009, selling, general and administrative expenses represented approximately 5% and 7% of net sales, respectively. The increase in selling, general and administrative expenses in the first nine months of 2010 compared to the first nine months of 2009 primarily relates to recording profit sharing expense of $18.8 million related to our Steel Dynamics performance-based profit sharing plan (and $3.0 million of other profit sharing) during the first nine months of 2010 and expense of only $409,000 during the same period in 2009.

Interest Expense, net of Capitalized Interest. During the first nine months of 2010, gross interest expense increased $10.2 million, or 8%, to $131.7 million, and capitalized interest decreased $7.2 million, or 53%, to $6.4 million as compared to the same period in 2009. The increase in gross interest expense for the first nine months of 2010 compared to the first nine months of 2009 is primarily a result of our issuance of $350.0 million of 7 5/8% senior notes due 2020, in March 2010. The interest capitalization that occurred during these periods resulted from the interest required to be capitalized with respect to construction activities at our various operating segments, which with the completion of several of our construction projects, is not as significant in 2010.

Other (Income) Expense, net. Other income was $12.8 million during the first nine months of 2010, as compared to $2.1 million during the same period in 2009. We have recorded interest income of $3.0 million for the first nine months of 2010 versus $527,000 in 2009. During the second quarter of 2009, the company recorded an expense of $1.3 million from the termination of an interest rate swap contract related to a senior secured term loan, which was paid off in the second quarter of 2009.

Income Taxes. During the first nine months of 2010, our income tax provision was $80.0 million, as compared to a benefit of $27.0 million during the same period in 2009. During the first nine months of 2010 and 2009, our effective income tax rates before noncontrolling interests were 38.9% and 41.8%, respectively.

Liquidity and Capital Resources

Our business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of equipment used in our steelmaking and finishing operations and to remain in compliance with environmental laws. Our short-term and long-term liquidity needs arise primarily from capital expenditures, working capital requirements and principal and interest payments related to our outstanding indebtedness. We have met these liquidity requirements with cash provided by operations, issuances of common stock, long-term borrowings and state and local grants.

Working Capital. During the first nine months of 2010, our operational working capital position, representing our cash invested in trade receivables, inventories and income taxes receivable, less current liabilities other than debt, increased $117.6 million to $1.1 billion compared to December 31, 2009. Trade receivables increased $228.5 million, or 54%, during the first nine months of 2010 to $654.9 million, of which over 98% were current or less than 60 days past due. Our largest customer is an affiliated company, Heidtman Steel, which represented 7% and 6% of our outstanding trade receivables at September 30, 2010 and December 31, 2009, respectively. Trade receivables increased during the first nine months of 2010 due to increased sales from higher product prices and volumes compared to the fourth quarter of 2009. Total inventories increased $155.4 million, or 18%, to $1.0 billion during the first nine months of 2010. Our raw materials, primarily steel scrap inventories, increased by approximately $108.1 million during the first nine months of 2010, with scrap volumes increasing by 43,000 gross tons. Likewise our work-in-process and finished goods inventories increased $42.7 million, with volumes increasing by 25,000 net tons. Our trade payables and general accruals increased $159.6 million, or 37%, during the first nine months of 2010. The increase in trade payables is a reflection of the increased production activities and commodity raw material purchasing prior to September 30, 2010, compared to that at December 31, 2009, and the increase in profit sharing is due to the increase in pretax income during 2010 when compared to 2009, as our profit sharing is directly tied to earnings. We also received $90.4 million of 2009 income tax overpayment refunds in the second quarter 2010.

Capital Investments. During the first nine months of 2010, we invested $95.9 million in property, plant and equipment, of which $39.7 million was within our steel operations, $13.8 million related to our metals recycling operations and $29.6 million related to our Mesabi Nugget and Mesabi Mining facilities. We believe these capital investments will benefit our net sales and related cash flows as each project reaches completion and attains appropriate operational metrics. We continue to estimate capital expenditures for the year 2010 to be less than $150 million.

Capital Resources and Long-term Debt. During the first nine months of 2010, our total outstanding debt increased $195.1 million to $2.4 billion, due to our issuance of $350.0 million of 7 5/8% senior notes due 2020 in March 2010. The net proceeds were used to repay the then outstanding borrowings on our senior secured revolving credit facility. The remaining net proceeds were used for general corporate purposes, with a portion held as cash and equivalents as of September 30, 2010. Our total long-term debt to capitalization ratio, representing our long-term

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debt, including current maturities, divided by the sum of our long-term debt and our total stockholders’ equity, was 53.5% at September 30, 2010, and 52.6% at December 31, 2009. At September 30, 2010, there were no outstanding borrowings under our senior secured revolver, which is subject to a monthly borrowing base.

Our senior secured credit agreement contains financial covenants and other covenants that limit or restrict our ability 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 and 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 our financial covenants, and other covenants contained in the senior secured credit agreement.

We amended our senior secured credit agreement on June 12, 2009, allowing for, among other things, greater flexibility within our financial covenants during 2009 and throughout 2010. The current financial covenants state that we must maintain an interest coverage ratio of not less than 2.50:1.00 for September 30, 2010 through maturity. Our interest coverage ratio is calculated by dividing our last-twelve trailing months (LTM) consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain other non-cash transactions as allowed in our senior secured credit agreement) by our LTM gross interest expense. We must also maintain a first lien debt to LTM EBITDA ratio of not more than 2.50:1.00 to September 30, 2010; and 3.00:1.00 for December 31, 2010 through maturity. Beginning with the twelve month period ending December 31, 2010, and at all times thereafter, a total debt to consolidated LTM adjusted EBITDA ratio of not more than 5.00:1.00 must be maintained. In addition, if the total debt to EBITDA ratio exceeds 3.50:1:00 at any time, then the ability of the company to make restricted payments as defined in the credit agreement (which includes cash dividends to stockholders and share purchases, among other things), is limited to $25.0 million per quarter.

At September 30, 2010, our interest coverage ratio and first lien ratio were 3.94:1:00 and 0.04:1.00, respectively. We were in compliance with these covenants at September 30, 2010, and we expect to remain in compliance during the remainder of 2010.

The amendment also activated a monthly borrowing base requirement regarding the maximum availability for the revolver. At the end of each month, our revolver must be the lesser of:

1. $924.0 million less other applicable commitments, such as letters of credit and other secured debt, as defined within the credit agreement; or

2. The sum of 85% of our eligible accounts receivable and 65% of our eligible inventories, less other applicable commitments, such as letters of credit and other secured debt, as defined within the credit agreement.

On April 26, 2010, we entered into another amendment to our senior secured revolving credit agreement which provided for the addition of a lender who extended an additional commitment of $50.0 million, which increased the total revolving credit facility commitment from $874.0 million to $924.0 million. At September 30, 2010, we had $907.8 million of funding availability pursuant to our senior secured revolving credit agreement

Cash Dividends. We declared cash dividends of $48.8 million, or $.225 per common share ($0.075 per common share each quarter), during the first nine months of 2010 and $50.5 million, or $.25 per common share ($0.10 per common share in the first quarter of 2009 and $0.075 per common share in the second and third quarters of 2009), during the first nine months of 2009. We paid cash dividends of $48.7 million and $52.5 million during the first nine months of 2010 and 2009, respectively. Our board of directors, along with executive management, approves the payment of dividends on a quarterly basis. During the remainder of 2010, we anticipate maintaining our current level of quarterly dividends; however, the determination to pay cash dividends in the future will be 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 senior secured revolving credit agreement and the indenture relating to our senior notes restrict the amount of cash dividends we can pay.

Other. 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 you that our operating results, cash flow, 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 flow from operations, together with other available sources of funds, including additional borrowings under our senior secured credit agreement, 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.

Other Matters

Inflation. We believe that inflation has not had a material effect on our results of operations.

Environmental and Other Contingencies. We have incurred, and in the future will continue to incur, capital expenditures and operating expenses for matters relating to environmental control, remediation, monitoring, and compliance. We believe, apart from our dependence on environmental construction and operating permits for our existing and proposed manufacturing facilities, that compliance with current environmental laws and regulations is not likely to have a materially adverse effect on our financial condition, results of operations or liquidity; however, environmental laws and regulations have changed rapidly in recent years, and we may become subject to more stringent environmental laws and regulations in the future, such as the impact of United States government or various governmental agencies introducing regulatory changes in response to the potential of climate change.

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Critical Accounting Policies and Estimates

No material changes have occurred to the indicated critical accounting policies and estimates as disclosed in our 2009 Annual Report on Form 10-K/A.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

In the normal course of business, we are exposed to interest rate changes. Our objectives in managing exposure to interest rate changes are to limit the impact of these rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to our portfolio of borrowings.

Commodity Risk

In the normal course of business we are exposed to the market risk and price fluctuations related to the sale of steel products and to the purchase of commodities used in our production process, such as metallic raw materials, electricity, natural gas and alloys. Our risk strategy associated with product sales has generally been to obtain competitive prices for our products and to allow operating results to reflect market price movements dictated by supply and demand.

Our risk strategy associated with the purchase of commodities utilized within our production process has generally been to make certain commitments with suppliers relating to future expected requirements for such commodities. Certain commitments contain provisions which require us to “take or pay” for specified quantities without regard to actual usage for periods of up to 36 months for physical commodity requirements and for up to 10 years for commodity transportation requirements. We fully utilized all such “take or pay” requirements during the past three years under these contracts. We believe that production requirements will be such that consumption of the products or services purchased under these commitments will occur in the normal production process. We also purchase electricity consumed at our Flat Roll Division pursuant to a contract which extends through December 2012. The contract designates 160 hours annually as “interruptible service” and establishes an agreed fixed-rate energy charge per Mill/kWh consumed for each year through the expiration of the agreement. At September 30, 2010, no material changes had occurred related to these commodity risks from the information disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2009.

In our metals recycling operations we have certain fixed price contracts with various customers and suppliers for future delivery of nonferrous metals. Our risk strategy has generally been to enter into base metal financial contracts with the goal to protect the profit margin, within certain parameters, that was contemplated when we entered into the transaction with the customer. At September 30, 2010, we had a cumulative unrealized gain associated with these financial contracts of $1.9 million, all of which have a settlement date within the next twelve months. We expect the customer contracts associated with the financial contracts to be fully consummated.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

(b) Changes in Internal Controls Over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The company as well as its various subsidiaries, is from time to time involved in various lawsuits and/or governmental claims in the ordinary course of business. None of these lawsuits or claims at the present time, singly or in the aggregate, except as disclosed below, is material.

ITEM 1A. RISK FACTORS

No material changes have occurred to the indicated risk factors as disclosed in our 2009 Annual Report on Form 10-K/A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Executive Officer Certifications

31.1*		Certification of Chief Executive Officer required by Item 307 of Regulation S-K as promulgated by the Securities and Exchange Commission and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer required by Item 307 of Regulation S-K as promulgated by the Securities and Exchange Commission and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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XBRL Documents

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Document

101.LAB*		XBRL Taxonomy Extension Label Document

101.PRE*		XBRL Taxonomy Presentation Document

101.DEF*		XBRL Taxonomy Definition Document

* Filed concurrently herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

November 5, 2010

		STEEL DYNAMICS, INC.

	By:	/s/ Theresa E. Wagler
		Theresa E. Wagler
		Chief Financial Officer