STEEL DYNAMICS INC - Quarter Report: 2015 September (Form 10-Q)

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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, 2015

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 website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

(Check one):

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 30, 2015, Registrant had 242,123,707 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, 2015 (unaudited) and December 31, 2014	1

	Consolidated Statements of Income for the three- and nine- month periods ended September 30, 2015 and 2014 (unaudited)	2

	Consolidated Statements of Cash Flows for the three- and nine-month periods ended September 30, 2015 and 2014 (unaudited)	3

	Notes to Consolidated Financial Statements (unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

	PART II. Other Information

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

	Signatures	30

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STEEL DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30,			December 31,
	2015			2014
	(unaudited)
Assets
Current assets
Cash and equivalents	$	473,790		$	361,363
Accounts receivable, net	757,110			859,835
Accounts receivable-related parties	41,915			42,990
Inventories	1,321,397			1,618,419
Deferred income taxes	28,839			35,503
Other current assets	28,744			55,655
Total current assets	2,651,795			2,973,765

Property, plant and equipment, net	3,013,659			3,123,906

Restricted cash	19,621			19,312
Intangible assets, net	353,561			370,669
Goodwill	740,243			745,158
Other assets	63,662			78,217
Total assets	$	6,842,541		$	7,311,027

Liabilities and Equity
Current liabilities
Accounts payable	$	378,594		$	489,791
Accounts payable-related parties	7,776			21,265
Income taxes payable	14,246			6,086
Accrued payroll and benefits	95,150			128,968
Accrued interest	47,998			50,405
Accrued expenses	102,510			107,607
Current maturities of long-term debt	31,584			46,460
Total current liabilities	677,858			850,582

Long-term debt
Senior term loan	228,125			237,500
Senior notes	2,350,000			2,700,000
Other long-term debt	37,694			40,206
Total long-term debt	2,615,819			2,977,706

Deferred income taxes	576,674			542,033
Other liabilities	16,405			18,839

Commitments and contingencies

Redeemable noncontrolling interests	126,340			126,340

Equity
Common stock voting, $.0025 par value; 900,000,000 shares authorized; 261,938,768, and 261,420,126 shares issued; and 242,090,224, and 241,449,423 shares outstanding, as of September 30, 2015 and December 31, 2014, respectively	636			635
Treasury stock, at cost; 19,848,544, and 19,970,703 shares, as of September 30, 2015 and December 31, 2014, respectively	(396,473		)	(398,898		)
Additional paid-in capital	1,104,832			1,083,435
Retained earnings	2,250,901			2,227,843
Total Steel Dynamics, Inc. equity	2,959,896			2,913,015
Noncontrolling interests	(130,451		)	(117,488		)
Total equity	2,829,445			2,795,527
Total liabilities and equity	$	6,842,541		$	7,311,027

See notes to consolidated financial statements.

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STEEL DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014

Net sales
Unrelated parties	$	1,901,415	$	2,276,747	$	5,851,371	$	6,030,408
Related parties	49,508		62,269		151,994		208,451
Total net sales	1,950,923		2,339,016		6,003,365		6,238,859

Costs of goods sold	1,722,197		2,050,504		5,415,854		5,564,272
Gross profit	228,726		288,512		587,511		674,587

Selling, general and administrative expenses	82,371		80,240		241,381		223,745
Profit sharing	9,008		12,865		18,637		28,729
Amortization of intangible assets	6,318		6,764		19,134		20,633
Operating income	131,029		188,643		308,359		401,480

Interest expense, net of capitalized interest	37,084		31,904		117,334		92,523
Other expense, net	239		22,072		15,219		19,687
Income before income taxes	93,706		134,667		175,806		289,270

Income taxes	34,839		47,010		64,660		101,574

Net income	58,867		87,657		111,146		187,696

Net loss attributable to noncontrolling interests	1,750		3,516		11,782		14,359

Net income attributable to Steel Dynamics, Inc.	$	60,617	$	91,173	$	122,928	$	202,055

Basic earnings per share attributable to Steel Dynamics, Inc. stockholders	$	0.25	$	0.38	$	0.51	$	0.88

Weighted average common shares outstanding	242,074		240,087		241,836		229,772

Diluted earnings per share attributable to Steel Dynamics, Inc. stockholders, including the effect of assumed conversions when dilutive	$	0.25	0.38		$	0.51	$	0.85

Weighted average common shares and share equivalents outstanding	243,822		242,244		243,393		241,895

Dividends declared per share	$	0.1375	$	0.1150	$	0.4125	$	0.3450

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,
	2015			2014			2015			2014

Operating activities:
Net income	$	58,867		$	87,657		$	111,146		$	187,696

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	74,211			65,957			221,306			181,966
Equity-based compensation	5,332			5,104			20,232			15,572
Deferred income taxes	13,130			(3,417		)	46,214			(7,788		)
(Gain) loss on disposal of property, plant and equipment	655			(662		)	6,638			5,435
Changes in certain assets and liabilities:
Accounts receivable	36,361			30,955			122,296			(157,691		)
Inventories	(8,763		)	27,212			317,410			21,088
Other assets	(3,100		)	(4,928		)	8,794			2,776
Accounts payable	(62,757		)	9,690			(127,075		)	28,116
Income taxes receivable/payable	19,888			8,062			29,309			22,491
Accrued expenses and liabilities	30,554			23,594			(47,973		)	(1,670		)
Net cash provided by operating activities	164,378			249,224			708,297			297,991

Investing activities:
Purchases of property, plant and equipment	(30,286		)	(24,531		)	(86,458		)	(82,906		)
Acquisition of business, net of cash acquired	(45,000		)	(1,647,463		)	(45,000		)	(1,647,463		)
Other investing activities	3,715			2,959			6,184			34,157
Net cash used in investing activities	(71,571		)	(1,669,035		)	(125,274		)	(1,696,212		)

Financing activities:
Issuance of current and long-term debt	67,999			1,394,497			179,033			1,501,895
Repayment of current and long-term debt	(73,420		)	(138,533		)	(561,428		)	(271,191		)
Debt issuance costs	—			(18,020		)	—			(18,020		)
Exercise of stock options proceeds, including related tax effect	302			11,576			7,261			22,997
Contributions from noncontrolling investors, net	(17		)	(52		)	(1,181		)	4,712
Dividends paid	(33,282		)	(27,556		)	(94,281		)	(77,737		)
Net cash provided by (used in) financing activities	(38,418		)	1,221,912			(470,596		)	1,162,656

Increase (decrease) in cash and equivalents	54,389			(197,899		)	112,427			(235,565		)
Cash and equivalents at beginning of period	419,401			357,490			361,363			395,156

Cash and equivalents at end of period	$	473,790		$	159,591		$	473,790		$	159,591

Supplemental disclosure information:
Cash paid for interest	$	26,701		$	40,022		$	115,345		$	100,523
Cash paid (received) for federal and state income taxes, net	$	1,172		$	41,267		$	(10,321	)	$	86,418

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. Effective the third quarter 2015, the company changed its reportable segments, consistent with how it currently manages the business, representing three reporting segments: steel operations, metals recycling operations, and steel fabrication operations. Segment information provided within this Form 10-Q, including that within Note 10: Segment Information, has been adjusted for all prior periods consistent with the current reportable segment presentation.

Steel Segment Operations. Steel Segment Operations include the company’s Butler Flat Roll Division, Columbus Flat Roll Division (acquired September 16, 2014), The Techs galvanizing lines, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, Steel of West Virginia, and now, Iron Dynamics (IDI), a liquid pig iron (scrap substitute) production facility that supplies solely the Butler Flat Roll Division. These operations include electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, and eight downstream coating facilities. Steel operations accounted for 69% and 62% of the company’s consolidated external net sales during the three-month periods ended September 30, 2015 and 2014, and 69% and 61% of the company’s consolidated external net sales during the nine-month periods ended September 30, 2015 and 2014, respectively.

Metals Recycling Segment Operations. Metals recycling operations consist solely of OmniSource Corporation (OmniSource), the company’s metals recycling and processing locations, and ferrous scrap procurement operations. Metals recycling operations accounted for 18% and 26% of the company’s consolidated external net sales during the three-month periods ended September 30, 2015, and 2014, and 19% and 27% of the company’s consolidated external net sales during the nine-month periods ended September 30, 2015 and 2014, respectively.

Steel Fabrication Segment Operations. Steel fabrication operations include the company’s eight New Millennium Building Systems’ joist and deck plants located throughout the United States and Northern Mexico. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel decking used within the non-residential construction industry. Steel fabrication operations accounted for approximately 9% and 8% of the company’s consolidated external net sales during the three-month periods ended September 30, 2015, and 2014, and 8% and 7% of the company’s consolidated external net sales during the nine-month periods ended September 30, 2015 and 2014, respectively.

Other. The “Other” category consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our Minnesota ironmaking operations that were indefinitely idled in May 2015, and several smaller joint ventures. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior secured credit facility, senior notes, certain other investments and certain profit sharing expenses.

Significant Accounting Policies

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

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

In the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the interim period results. These financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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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, 2015, and December 31, 2014, (in thousands):

		September 30,		December 31,
		2015		2014
Metals Recycling Segment:	OmniSource	$	451,812	$	456,727
	Butler Flat Roll Division, Structural and Rail Division, and Engineered Bar Division	95,000		95,000
Steel Segment:	The Techs	142,783		142,783
	Roanoke Bar Division	29,041		29,041
	Columbus Flat Roll Division	19,682		19,682
Fabrication Segment:	New Millennium Building Systems	1,925		1,925
		$	740,243	$	745,158

OmniSource goodwill decreased $4.9 million from December 31, 2014 to September 30, 2015, in recognition of the 2015 tax benefit related to the amortization of the component of OmniSource tax-deductible goodwill in excess of book goodwill.

Recently Issued Accounting Standards.

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Because the guidance in ASC 606 is principles-based, it can be applied to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Additionally, ASC 606 requires additional disclosures to help users of financial statements better understand the nature, amount, timing, and potential uncertainty of revenue that is recognized. This guidance is effective for annual and interim periods beginning after December 15, 2017, but can be early adopted for annual and interim periods ending after December 15, 2016. The company is currently evaluating the impact of the provisions of ASC 606, including the timing of adoption.

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

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented as a deduction from the corresponding debt liability, rather than as a separate asset, which is the current accounting method of the company. This guidance is effective for annual and interim periods beginning after December 15, 2015, but can be early adopted. Upon adoption, the company must apply the new guidance retrospectively to all prior periods presented in the financial statements. The company is currently evaluating when, and the manner in which to adopt the presentation and disclosure requirements of the new guidance, however we do not expect it to have any impact on our overall results of operations, equity or cash flows as previously reported.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires an entity to measure inventory at the lower of cost and net realizable value, rather than at the lower of cost or market. This new guidance is effective for interim and annual periods beginning after December 15, 2016, but can be early adopted. The company is currently evaluating the impact of this ASU’s adoption.

Note 2. Acquisitions

Consolidated Systems, Inc.

On September 14, 2015, the company purchased from Consolidated Systems, Inc. (“CSi”) certain of its steel decking facilities (including associated assets) and net working capital of approximately $30 million, for a purchase price of $45 million in cash. Operating results of these facilities have been reflected in the company’s financial statements since the September 14, 2015, purchase date, in the fabrication operations reporting segment. The purchased assets include three decking facilities located in Memphis, Tennessee; Phoenix, Arizona; and Terrell, Texas. Producing both standard and premium specialty deck profiles, the new locations will allow for enhanced geographic reach into the southwestern and western markets, and further diversify New Millennium Building Systems’ product offerings.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. Acquisitions (Continued)

Severstal Columbus, LLC.

The company completed its acquisition of 100% of Severstal Columbus, LLC (Columbus) on September 16, 2014, for a purchase price of $1.625 billion, with additional working capital adjustments of $44.4 million. The acquisition was funded through the issuance of $1.2 billion in Senior Notes, borrowings under the company’s senior secured credit facility, and available cash. The company purchased Columbus to significantly expand and diversify its steel operating base with the addition of 3.4 million tons of hot roll steel production capacity. The product offerings are diversified with respect to width, gauge, and strength when compared to the capabilities of our Butler Flat Roll Division. Located in northeast Mississippi, Columbus is one of the newest and most technologically advanced sheet steel electric arc furnace mills in North America. Additionally, Columbus is advantageously located to serve the growing markets in the southern U.S. and Mexico, providing the company with geographic diversification and growth opportunities.

Unaudited Pro forma Information. Columbus’ operating results have been reflected in the company’s financial statements since the effective date of the acquisition, September 16, 2014, in the steel operations reporting segment. The following unaudited pro forma information is presented below for comparison purposes as if the Columbus acquisition was completed as of January 1, 2013, (in thousands):

	Nine Months Ended
	September 30, 2014
Net sales	$	7,838,681
Net income attributable to Steel Dynamics, Inc.	298,731

The information presented is for information purposes only and is not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at January 1, 2013, nor is it necessarily indicative of future operating results of the combined companies under the ownership and management of the company. The pro forma results reflect the pre-acquisition operations of Columbus for the nine-month period ended September 30, 2014.

Note 3. Earnings Per Share

Basic earnings per share is based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share assumes the weighted average dilutive effect of common share equivalents outstanding during the period applied to the company’s basic earnings per share. Common share equivalents represent potentially dilutive stock options, restricted stock units, deferred stock units, and dilutive shares related to the company’s convertible subordinated debt; and are excluded from the computation in periods in which they have an anti-dilutive effect. There were no anti-dilutive options at September 30, 2015, and 2014.

The following table presents a reconciliation of the numerators and the denominators of the company’s basic and diluted earnings per share computations for the three- and nine-month periods ended September 30, 2015 and 2014 (in thousands, except per share data):

	Three Months Ended September 30,
	2015					2014
	Net Income (Numerator)		Shares (Denominator)	Per Share Amount		Net Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per share	$	60,617	242,074	$	0.25	$	91,173	240,087	$	0.38
Dilutive common share equivalents	—		1,748			—		2,157
Diluted earnings per share	$	60,617	243,822	$	0.25	$	91,173	242,244	$	0.38

	Nine Months Ended September 30,
	2015					2014
	Net Income (Numerator)		Shares (Denominator)	Per Share Amount		Net Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per share	$	122,928	241,836	$	0.51	$	202,055	229,772	$	0.88
Dilutive common share equivalents	—		1,557			—		1,852
5.125% convertible senior notes, net of tax	—		—			4,327		10,271
Diluted earnings per share	$	122,928	243,393	$	0.51	$	206,382	241,895	$	0.85

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Inventories

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

	September 30,		December 31,
	2015		2014
Raw materials	$	559,996	$	764,883
Supplies	385,347		374,599
Work in progress	114,718		128,882
Finished goods	261,336		350,055
Total inventories	$	1,321,397	$	1,618,419

During the second quarter 2015, the company recorded an inventory lower-of-cost or market charge of $21.0 million (inclusive of noncontrolling interests of $3.6 million), related to the idling of its Minnesota ironmaking operations. The expense is recorded within cost of goods sold during the nine-months ended September 30, 2015.

Note 5. Debt

On March 16, 2015, the company called and repaid all $350.0 million of its outstanding 7 5/8% Senior Notes due 2020 (the “Notes”) at a redemption price of 103.813% of the principal amount of the Notes, plus accrued interest and unpaid interest to, but not including, the date of redemption. Associated premiums and the write off of deferred financing costs of approximately $16.7 million were recorded in other expense in conjunction with the redemption.

Note 6. Changes in Equity

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

	Stockholders of Steel Dynamics, Inc.
	Common		Additional Paid-In		Retained			Treasury			Noncontrolling			Total			Redeemable Noncontrolling
	Stock		Capital		Earnings			Stock			Interests			Equity			Interests
Balances at January 1, 2015	$	635	$	1,083,435	$	2,227,843		$	(398,898	)	$	(117,488	)	$	2,795,527		$	126,340
Exercise of stock options proceeds, including related tax effect	1		7,454		—			—			—			7,455			—
Dividends declared	—		—		(99,802		)	—			—			(99,802		)	—
Distributions to noncontrolling investors, net	—		—		—			—			(1,181		)	(1,181		)	—
Equity-based compensation	—		13,943		(68		)	2,425			—			16,300			—
Comprehensive and net income (loss)	—		—		122,928			—			(11,782		)	111,146			—
Balances at September 30, 2015	$	636	$	1,104,832	$	2,250,901		$	(396,473	)	$	(130,451	)	$	2,829,445		$	126,340

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7. Derivative Financial Instruments

The company is exposed to certain risks relating to its ongoing business operations. The company utilizes derivative instruments to mitigate interest rate risk, foreign currency exchange rate risk, and commodity margin risk. The company routinely enters into forward exchange traded futures and option contracts to manage the price risk associated with nonferrous metals inventory as well as purchases and sales of nonferrous metals (specifically aluminum, copper, and silver). The company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under master netting agreements.

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 a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s futures contract commitments as of September 30, 2015 (MT represents metric tons and Lbs represents pounds):

Commodity Futures	Long/Short	Total
Aluminum	Long	2,350	MT
Aluminum	Short	2,275	MT
Copper	Long	7,602	MT
Copper	Short	13,860	MT
Silver	Short	343	Lbs

The following summarizes the location and amounts of the fair values reported on the company’s balance sheets as of September 30, 2015, and December 31, 2014, and gains and losses related to derivatives included in the company’s statement of income for the three- and nine-month periods ended September 30, 2015, and 2014 (in thousands):

	Asset Derivatives					Liability Derivatives
		Fair Value				Fair Value
	Balance sheet location	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Derivative instruments designated as fair value hedges -
Commodity futures	Other current assets	$	614	$	3,180	$	2,410	$	913

Derivative instruments not designated as hedges -
Commodity futures	Other current assets	1,635		2,132		1,019		626

Total derivative instruments		$	2,249	$	5,312	$	3,429	$	1,539

The fair value of the above derivative instruments, along with required margin deposit amounts with the same counterparty under master netting arrangements, which totaled $1.8 million at September 30, 2015, and $7.6 million at December 31, 2014, are reflected in other current assets in the consolidated balance sheet.

	Location of gain (loss) recognized	Amount of gain (loss) recognized in income on derivatives for the three months ended					Hedged items in	Location of gain (loss) recognized in income on	Amount of gain (loss) recognized in income on related hedged items for the three months ended
	in income on derivatives	September 30, 2015			September 30, 2014		fair value hedge relationships	related hedged items	September 30, 2015		September 30, 2014
Derivatives in fair value hedging relationships -
Commodity futures	Costs of goods sold	$	(2,825	)	$	4,371	Firm commitments	Costs of goods sold	$	662	$	784
							Inventory	Costs of goods sold	800		(4,163		)
									$	1,462	$	(3,379	)

Derivatives not designated as hedging instruments -
Commodity futures	Costs of goods sold	$	6,707		$	2,672

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7. Derivative Financial Instruments (Continued)

	Location of gain (loss) recognized	Amount of gain (loss) recognized in income on derivatives for the nine months ended					Hedged items in	Location of gain recognized in	Amount of gain recognized in income on related hedged items for the nine months ended
	in income on derivatives	September 30, 2015			September 30, 2014		fair value hedge relationships	income on related hedged items	September 30, 2015		September 30, 2014
Derivatives in fair value hedging relationships -
Commodity futures	Costs of goods sold	$	(4,063	)	$	3,356	Firm commitments	Costs of goods sold	$	1,518	$	1,115
							Inventory	Costs of goods sold	1,291		(3,805		)
									$	2,809	$	(2,690	)

Derivatives not designated as hedging instruments -
Commodity futures	Costs of goods sold	$	13,377		$	8,598

Derivatives accounted for as fair value hedges had ineffectiveness resulting in losses of $191,000 and $229,000 during the three-month periods ended September 30, 2015, and 2014, respectively; and a loss of $64,000 and gain of $227,000 during the nine-month periods ended September 30, 2015 and 2014, respectively. A loss excluded from hedge effectiveness testing of $1.2 million increased costs of goods sold and a gain of $1.2 million reduced cost of goods sold during the three-month periods ended September 30, 2015, and 2014, respectively. A loss excluded from hedge effectiveness testing of $1.2 million increased costs of goods sold and a gain of $439,000 reduced cost of goods sold during the nine-month periods ended September 30, 2015 and 2014, respectively.

Note 8. 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 on a recurring basis in the consolidated balance sheet and the respective levels to which the fair value measurements are classified within the fair value hierarchy as of September 30, 2015, and December 31, 2014 (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2015
Commodity futures — financial assets	$	2,249	$	—	$	2,249	$	—
Commodity futures — financial liabilities	3,429		—		3,429		—

December 31, 2014
Commodity futures — financial assets	$	5,312	$	—	$	5,312	$	—
Commodity futures — financial liabilities	1,539		—		1,539		—

The carrying amounts of financial instruments including cash and equivalents approximate fair value. The fair values of commodity futures contracts are estimated by the use of quoted market prices, estimates obtained from brokers, and other appropriate valuation techniques based on references available. The fair value of long-term debt, including current maturities, as determined by quoted market prices (Level 2), was approximately $2.6 billion and $3.1 billion (with a corresponding carrying amount in the consolidated balance sheets of $2.6 billion and $3.0 billion) at September 30, 2015, and December 31, 2014, respectively.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Commitments and Contingencies

The company is involved in various routine litigation matters, including administrative proceedings, regulatory proceedings, governmental investigations, environmental matters, and commercial and construction contract disputes, none of which are expected to have a material impact on our financial condition, results of operations, or liquidity.

The company is involved, along with two other remaining steel manufacturing company defendants, in a class action antitrust complaint filed in federal court in Chicago, Illinois in September 2008, originally against eight companies. The Complaint alleges a conspiracy on the part of the original defendants to fix, raise, maintain and stabilize the price at which steel products were sold in the United States during a specified period between 2005 and 2007, by artificially restricting the supply of such steel products. All but one of the Complaints were brought on behalf of a purported class consisting of all direct purchasers of steel products. The other Complaint was brought on behalf of a purported class consisting of all indirect purchasers of steel products within the same time period. In addition, another similar complaint was filed in December 2010 purporting to be on behalf of indirect purchasers of steel products in Tennessee. All Complaints have been consolidated in the Chicago action and seek treble damages and costs, including reasonable attorney fees, pre- and post-judgment interest and injunctive relief.

Following a period of discovery relating to class certification matters, Plaintiffs filed a Motion for Class Certification in May 2012, and on February 28, 2013, Defendants filed their Joint Memorandum in Opposition to Plaintiffs’ Motion for Class Certification. Following a three-day hearing on the pending motion during March and April of 2014, the Court took the motion under advisement. On September 9, 2015, the Court certified the class, limited, however, to the issue of the alleged conspiracy, and denied class certification on the issue of antitrust impact. There will be additional merits discovery, but the extent thereof is currently being discussed. In the meantime, the defendants have appealed the court’s class certification ruling on the conspiracy issue, and Plaintiff has cross-appealed on the impact issue. Steel Dynamics has also filed a motion for summary judgment, as has co-defendant SSAB. Due to the uncertain nature of litigation, we cannot presently determine the ultimate outcome of this litigation. However, we have determined, based on the information available at this time, that there is not presently a “reasonable possibility” (as that term is defined in ASC 450-20-20), that the outcome of these legal proceedings would have a material impact on the Company’s financial condition, results of operations, or liquidity

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Segment Information

The company’s operations are primarily organized and managed by operating segment. Operating segment performance and resource allocations are primarily based on operating results before income taxes. The accounting policies of the reportable segments are consistent with those described in Note 1 to the financial statements. Intra-segment sales and any related profits are eliminated in consolidation. Effective the third quarter 2015, the company changed its reportable segments, consistent with how it currently manages the business, in three reporting segments: steel operations (includes Columbus since its September 16, 2014 acquisition), metals recycling operations, and steel fabrication operations. The segment operations are described in Note 1 to the financial statements. Amounts included in the category “Other” are from subsidiary operations that are below the quantitative thresholds required for reportable segments. In addition, “Other” also includes certain unallocated corporate accounts, such as the company’s senior secured credit facility, senior notes, certain other investments and certain profit sharing expenses.

The company’s segment results for the three- and nine-month periods ended September 30, 2015, and 2014, each adjusted consistent with our current reportable segments presentation, are as follows (in thousands):

For the three months ended September 30, 2015	Steel Operations		Metals Recycling Operations			Steel Fabrication Operations		Other			Eliminations			Consolidated

Net Sales
External	$	1,285,459	$	294,357		$	173,047	$	78,802		$	—		$	1,831,665
External Non-U.S.	65,928		51,215			1,907		208			—			119,258
Other segments	56,146		270,888			2		4,209			(331,245		)	—
	1,407,533		616,460			174,956		83,219			(331,245		)	1,950,923
Operating income (loss)	124,712		(3,555		)	36,733		(28,401		)(1)	1,540		(2)	131,029
Income (loss) before income taxes	102,566		(6,967		)	35,108		(38,541		)	1,540			93,706
Depreciation and amortization	52,404		15,913			2,300		3,645			(51		)	74,211
Capital expenditures	21,975		6,286			935		1,090			—			30,286

As of September 30, 2015
Assets	4,096,188		1,588,821			372,673		898,772		(3)	(113,913		)(4)	6,842,541
Liabilities	676,097		309,191			84,379		2,923,253		(5)	(106,164		)(6)	3,886,756

Footnotes related to the three months ended September 30, 2015 segment results (in millions):

(1) Corporate SG&A	$	(9.5	)
Company-wide equity-based compensation	(5.3		)
Profit sharing	(7.5		)
Minnesota operations	(4.1		)
Other, net	(2.0		)
	$	(28.4	)

(2) Gross profit increase from intra-company sales

1.5

(3) Cash and equivalents	$	415.7
Accounts receivable	30.0
Inventories	36.8
Deferred income taxes	28.8
Property, plant and equipment, net	309.6
Debt issuance costs	34.4
Intra-company debt	6.5
Other	37.0
	$	898.8

(4) Elimination of intra-company receivables	$	(100.8	)
Elimination of intra-company debt	(6.5		)
Other	(6.6		)
	$	(113.9	)

(5) Accounts payable	$	109.8
Income taxes payable	14.7
Accrued interest	47.8
Accrued profit sharing	14.5
Debt	2,641.3
Deferred income taxes	68.0
Other	27.2
	$	2,923.3

(6) Elimination of intra-company payables	$	(100.0	)
Elimination of intra-company debt	(6.5		)
Other	0.3
	$	(106.2	)

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Segment Information (Continued)

For the three months ended September 30, 2014	Steel Operations		Metals Recycling		Steel Fabrication Operations		Other			Eliminations			Consolidated

Net Sales
External	$	1,400,370	$	534,348	$	189,993	$	99,834		$	—		$	2,224,545
External Non-U.S.	50,841		63,300		—		330			—			114,471
Other segments	75,321		355,835		43		36,544			(467,743		)	—
	1,526,532		953,483		190,036		136,708			(467,743		)	2,339,016
Operating income (loss)	202,600		8,489		19,474		(42,960		)(1)	1,040		(2)	188,643
Income (loss) before income taxes	187,072		3,863		17,877		(75,185		)(7)	1,040			134,667
Depreciation and amortization	35,265		18,769		2,974		9,000			(51		)	65,957
Capital expenditures	12,506		7,769		477		3,779			—			24,531

As of September 30, 2014
Assets	4,663,142		1,842,485		315,381		929,041		(3)	(171,766		)(4)	7,578,283
Liabilities	830,172		401,111		34,386		3,436,135		(5)	(161,510		)(6)	4,540,294

Footnotes related to the three months ended September 30, 2014 segment results (in millions):

(1) Corporate SG&A	$	(12.4	)
Company-wide equity-based compensation	(5.1		)
Profit sharing	(11.6		)
Minnesota operations	(10.7		)
Other, net	(3.2		)
	$	(43.0	)

(2) Gross profit increase from intra-company sales

1.0

(3) Cash and equivalents	$	82.9
Accounts receivable	51.3
Inventories	114.6
Deferred income taxes	18.3
Property, plant and equipment, net	572.9
Debt issuance costs	39.9
Intra-company debt	7.4
Other	41.7
	$	929.0

(4) Elimination of intra-company receivables	$	(155.6	)
Elimination of intra-company debt	(7.4		)
Other	(8.8		)
	$	(171.8	)

(5) Accounts payable	$	165.0
Income taxes payable	26.9
Accrued interest	21.1
Accrued profit sharing	25.2
Debt	3,054.9
Deferred income taxes	100.6
Other	42.4
	$	3,436.1

(6) Elimination of intra-company payables	$	(155.6	)
Elimination of intra-company debt	(7.4		)
Other	1.5
	$	(161.5	)

(7) Includes $25.0 million of acquisition and bridge financing costs associated with the acquisition of Columbus.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10. Segment Information (Continued)

For the nine months ended			Metals Recycling			Steel Fabrication
September 30, 2015	Steel Operations		Operations			Operations		Other			Eliminations			Consolidated

Net Sales
External	$	3,902,162	$	1,014,753		$	488,584	$	237,501		$	—		$	5,643,000
External Non-U.S.	210,320		147,626			1,907		512			—			360,365
Other segments	158,609		751,542			18		29,114			(939,283		)	—
	4,271,091		1,913,921			490,509		267,127			(939,283		)	6,003,365
Operating income (loss)	338,690		229			85,754		(117,273		)(1)	959		(2)	308,359
Income (loss) before income taxes	269,187		(12,780		)	80,581		(162,141		)	959			175,806
Depreciation and amortization	154,616		50,207			6,688		9,948			(153		)	221,306
Capital expenditures	52,324		17,332			2,506		14,296			—			86,458

Footnotes related to the nine months ended September 30, 2015 segment results (in millions):

(1) Corporate SG&A	$	(27.1	)
Company-wide equity-based compensation	(17.5		)
Profit sharing	(14.4		)
Minnesota operations	(50.3		)
Other, net	(8.0		)
Total	$	(117.3	)

(2) Gross profit increase from intra-company sales

1.0

For the nine months ended					Steel Fabrication
September 30, 2014	Steel Operations		Metals Recycling		Operations		Other			Eliminations			Consolidated

Net Sales
External	$	3,675,696	$	1,522,334	$	440,706	$	261,992		$	—		$	5,900,728
External Non-U.S.	158,218		178,947		—		966			—			338,131
Other segments	188,854		1,024,447		43		70,798			(1,284,142		)	—
	4,022,768		2,725,728		440,749		333,756			(1,284,142		)	6,238,859
Operating income (loss)	469,204		27,362		30,190		(129,260		)(1)	3,984		(2)	401,480
Income (loss) before income taxes	426,676		12,394		25,628		(179,412		)(3)	3,984			289,270
Depreciation and amortization	96,010		56,898		7,597		21,615			(154		)	181,966
Capital expenditures	48,209		16,242		1,324		17,131			—			82,906

Footnotes related to the nine months ended September 30, 2014 segment results (in millions):

(1) Corporate SG&A	$	(31.7	)
Company-wide equity-based compensation	(14.4		)
Profit sharing	(25.2		)
Minnesota operations	(49.8		)
Other, net	(8.2		)
Total	$	(129.3	)

(2) Gross profit increase from intra-company sales

4.0

(3) Includes $25.0 million of acquisition and bridge financing costs associated with the acquisition of Columbus.

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. 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 unsecured notes due 2019, 2021, 2022, 2023 and 2024. 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, which includes Columbus since acquired on September 16, 2014, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information on a consolidated basis. The following statements should be read in conjunction with the accompanying consolidated financial statements and the company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Condensed Consolidating Balance Sheets (in thousands)

						Combined			Consolidating			Total
As of September 30, 2015	Parent			Guarantors		Non-Guarantors			Adjustments			Consolidated
Cash and equivalents	$	410,170		$	52,752	$	10,868		$	—		$	473,790
Accounts receivable, net	235,529			1,199,733		40,496			(676,733		)	799,025
Inventories	613,697			673,646		36,150			(2,096		)	1,321,397
Other current assets	61,961			11,830		1,150			(17,358		)	57,583
Total current assets	1,321,357			1,937,961		88,664			(696,187		)	2,651,795
Property, plant and equipment, net	966,388			1,754,945		294,388			(2,062		)	3,013,659
Intangible assets, net	—			353,561		—			—			353,561
Goodwill	—			740,243		—			—			740,243
Other assets, including investments in subs	3,570,277			22,075		6,454			(3,515,523		)	83,283
Total assets	$	5,858,022		$	4,808,785	$	389,506		$	(4,213,772	)	$	6,842,541

Accounts payable	$	122,112		$	273,957	$	79,370		$	(89,069	)	$	386,370
Accrued expenses	156,735			186,923		5,681			(89,435		)	259,904
Current maturities of long-term debt	13,109			700		57,253			(39,478		)	31,584
Total current liabilities	291,956			461,580		142,304			(217,982		)	677,858
Long-term debt	2,582,524			347		163,728			(130,780		)	2,615,819
Other liabilities	23,645			1,505,018		34,545			(970,129		)	593,079

Redeemable noncontrolling interests	—			—		126,340			—			126,340

Common stock	636			1,727,859		18,121			(1,745,980		)	636
Treasury stock	(396,473		)	—		—			—			(396,473		)
Additional paid-in-capital	1,104,833			117,737		650,858			(768,596		)	1,104,832
Retained earnings (deficit)	2,250,901			996,244		(615,939		)	(380,305		)	2,250,901
Total Steel Dynamics, Inc. equity	2,959,897			2,841,840		53,040			(2,894,881		)	2,959,896
Noncontrolling interests	—			—		(130,451		)	—			(130,451		)
Total equity	2,959,897			2,841,840		(77,411		)	(2,894,881		)	2,829,445
Total liabilities and equity	$	5,858,022		$	4,808,785	$	389,506		$	(4,213,772	)	$	6,842,541

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)

						Combined			Consolidating			Total
As of December 31, 2014	Parent			Guarantors		Non-Guarantors			Adjustments			Consolidated
Cash and equivalents	$	265,313		$	81,690	$	14,360		$	—		$	361,363
Accounts receivable, net	321,493			1,176,849		44,696			(640,213		)	902,825
Inventories	662,970			862,796		94,916			(2,263		)	1,618,419
Other current assets	94,634			8,416		6,577			(18,469		)	91,158
Total current assets	1,344,410			2,129,751		160,549			(660,945		)	2,973,765
Property, plant and equipment, net	1,002,407			1,826,208		297,505			(2,214		)	3,123,906
Intangible assets, net	—			370,669		—			—			370,669
Goodwill	—			745,158		—			—			745,158
Other assets, including investments in subs	3,900,691			24,810		6,635			(3,834,607		)	97,529
Total assets	$	6,247,508		$	5,096,596	$	464,689		$	(4,497,766	)	$	7,311,027

Accounts payable	$	151,517		$	371,037	$	98,886		$	(110,384	)	$	511,056
Accrued expenses	191,433			166,101		11,695			(76,163		)	293,066
Current maturities of long-term debt	13,073			777		73,767			(41,157		)	46,460
Total current liabilities	356,023			537,915		184,348			(227,704		)	850,582
Long-term debt	2,942,360			624		158,665			(123,943		)	2,977,706
Other liabilities	36,110			1,807,989		28,719			(1,311,946		)	560,872

Redeemable noncontrolling interests	—			—		126,340			—			126,340

Common stock	635			1,727,859		18,121			(1,745,980		)	635
Treasury stock	(398,898		)	—		—			—			(398,898		)
Additional paid-in-capital	1,083,435			117,737		635,156			(752,893		)	1,083,435
Retained earnings (deficit)	2,227,843			904,472		(569,172		)	(335,300		)	2,227,843
Total Steel Dynamics, Inc. equity	2,913,015			2,750,068		84,105			(2,834,173		)	2,913,015
Noncontrolling interests	—			—		(117,488		)	—			(117,488		)
Total equity	2,913,015			2,750,068		(33,383		)	(2,834,173		)	2,795,527
Total liabilities and equity	$	6,247,508		$	5,096,596	$	464,689		$	(4,497,766	)	$	7,311,027

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)

Condensed Consolidating Statements of Operations (in thousands)

For the three months ended,						Combined			Consolidating			Total
September 30, 2015	Parent		Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	735,250	$	2,103,824		$	96,204		$	(984,355	)	$	1,950,923
Costs of goods sold	619,833		1,965,364			99,864			(962,864		)	1,722,197
Gross profit (loss)	115,417		138,460			(3,660		)	(21,491		)	228,726
Selling, general and administrative	35,235		64,259			2,845			(4,642		)	97,697
Operating income (loss)	80,182		74,201			(6,505		)	(16,849		)	131,029
Interest expense, net of capitalized interest	18,312		18,138			1,692			(1,058		)	37,084
Other (income) expense, net	252		(631		)	(440		)	1,058			239
Income (loss) before income taxes and equity in net loss of subsidiaries	61,618		56,694			(7,757		)	(16,849		)	93,706
Income taxes (benefit)	20,169		21,697			(421		)	(6,606		)	34,839
	41,449		34,997			(7,336		)	(10,243		)	58,867
Equity in net loss of subsidiaries	19,168		—			—			(19,168		)	—
Net loss attributable to noncontrolling interests	—		—			1,750			—			1,750
Net income (loss) attributable to Steel Dynamics, Inc.	$	60,617	$	34,997		$	(5,586	)	$	(29,411	)	$	60,617

For the three months ended,						Combined			Consolidating			Total
September 30, 2014	Parent		Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	1,044,207	$	2,609,731		$	150,551		$	(1,465,473	)	$	2,339,016
Costs of goods sold	856,372		2,469,396			162,094			(1,437,358		)	2,050,504
Gross profit (loss)	187,835		140,335			(11,543		)	(28,115		)	288,512
Selling, general and administrative	40,932		59,878			3,601			(4,542		)	99,869
Operating income (loss)	146,903		80,457			(15,144		)	(23,573		)	188,643
Interest expense, net of capitalized interest	18,965		12,238			1,958			(1,257		)	31,904
Other (income) expense, net	22,548		(202		)	(1,530		)	1,256			22,072
Income (loss) before income taxes and equity in net income of subsidiaries	105,390		68,421			(15,572		)	(23,572		)	134,667
Income taxes (benefit)	30,605		24,754			(561		)	(7,788		)	47,010
	74,785		43,667			(15,011		)	(15,784		)	87,657
Equity in net loss of subsidiaries	16,388		—			—			(16,388		)	—
Net loss attributable to noncontrolling interests	—		—			3,516			—			3,516
Net income (loss) attributable to Steel Dynamics, Inc.	$	91,173	$	43,667		$	(11,495	)	$	(32,172	)	$	91,173

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)

For the nine months ended,						Combined			Consolidating			Total
September 30, 2015	Parent		Guarantors			Non-Guarantors			Adjustments			Consolidated
Net sales	$	2,300,024	$	6,447,974		$	302,657		$	(3,047,290	)	$	6,003,365
Costs of goods sold	1,982,667		6,056,514			352,980			(2,976,307		)	5,415,854
Gross profit (loss)	317,357		391,460			(50,323		)	(70,983		)	587,511
Selling, general and administrative	95,883		188,028			8,878			(13,637		)	279,152
Operating income (loss)	221,474		203,432			(59,201		)	(57,346		)	308,359
Interest expense, net of capitalized interest	57,015		58,354			5,084			(3,119		)	117,334
Other (income) expense, net	15,131		(597		)	(2,434		)	3,119			15,219
Income (loss) before income taxes and equity in net loss of subsidiaries	149,328		145,675			(61,851		)	(57,346		)	175,806
Income taxes (benefit)	35,207		53,903			(4,047		)	(20,403		)	64,660
	114,121		91,772			(57,804		)	(36,943		)	111,146
Equity in net loss of subsidiaries	8,807		—			—			(8,807		)	—
Net loss attributable to noncontrolling interests	—		—			11,782			—			11,782
Net income (loss) attributable to Steel Dynamics, Inc.	$	122,928	$	91,772		$	(46,022	)	$	(45,750	)	$	122,928

For the nine months ended,					Combined			Consolidating			Total
September 30, 2014	Parent		Guarantors		Non-Guarantors			Adjustments			Consolidated
Net sales	$	2,915,339	$	7,035,579	$	377,639		$	(4,089,698	)	$	6,238,859
Costs of goods sold	2,477,791		6,668,153		427,029			(4,008,701		)	5,564,272
Gross profit (loss)	437,548		367,426		(49,390		)	(80,997		)	674,587
Selling, general and administrative	105,185		170,578		10,415			(13,071		)	273,107
Operating income (loss)	332,363		196,848		(59,805		)	(67,926		)	401,480
Interest expense, net of capitalized interest	57,357		33,093		5,824			(3,751		)	92,523
Other (income) expense, net	20,016		147		(4,226		)	3,750			19,687
Income (loss) before income taxes and equity in net loss of subsidiaries	254,990		163,608		(61,403		)	(67,925		)	289,270
Income taxes (benefit)	64,480		58,772		949			(22,627		)	101,574
	190,510		104,836		(62,352		)	(45,298		)	187,696
Equity in net loss of subsidiaries	11,545		—		—			(11,545		)	—
Net loss attributable to noncontrolling interests	—		—		14,359			—			14,359
Net income (loss) attributable to Steel Dynamics, Inc.	$	202,055	$	104,836	$	(47,993	)	$	(56,843	)	$	202,055

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Condensed Consolidating Information (Continued)

Condensed Consolidating Statements of Cash Flows (in thousands)

For the nine months ended,							Combined			Consolidating			Total
September 30, 2015	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated

Net cash provided by (used in) operating activities	$	306,941		$	400,910		$	(4,302	)	$	4,748		$	708,297
Net cash used in investing activities	(35,100		)	(82,737		)	(12,796		)	5,359			(125,274		)
Net cash provided by (used in) financing activities	(126,984		)	(347,111		)	13,606			(10,107		)	(470,596		)
Increase (decrease) in cash and equivalents	144,857			(28,938		)	(3,492		)	—			112,427
Cash and equivalents at beginning of period	265,313			81,690			14,360			—			361,363
Cash and equivalents at end of period	$	410,170		$	52,752		$	10,868		$	—		$	473,790

For the nine months ended,							Combined			Consolidating			Total
September 30, 2014	Parent			Guarantors			Non-Guarantors			Adjustments			Consolidated

Net cash provided by (used in) operating activities	$	258,952		$	80,298		$	(41,245	)	$	(14	)	$	297,991
Net cash provided by (used in) investing activities	(1,692,967		)	15,023			(16,740		)	(1,528		)	(1,696,212		)
Net cash provided by (used in) financing activities	1,188,074			(85,774		)	58,814			1,542			1,162,656
Increase (decrease) in cash and equivalents	(245,941		)	9,547			829			—			(235,565		)
Cash and equivalents at beginning of period	320,866			61,148			13,142			—			395,156
Cash and equivalents at end of period	$	74,925		$	70,695		$	13,971		$	—		$	159,591

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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 the steel and metallic scrap markets, our revenues, 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, incorporated in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve both known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of uncertain economic conditions; (2) cyclical and changing industrial demand; (3) changes in conditions in any of the steel or scrap-consuming sectors of the economy which affect demand for our products, including the strength of the non-residential and residential construction, automotive, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials (including ferrous scrap, iron units, and energy costs) and our ability to pass-on any cost increases; (5) the impact of domestic and foreign import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired businesses; (7) risks and uncertainties involving product and/or technology development; and (8) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to our more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form 10-K for the year ended December 31, 2014, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These reports are available publicly on the Securities and Exchange Commission website, www.sec.gov, and on our website, www.steeldynamics.com.

Description of the Business

We are a domestic manufacturer of steel products and metals recycler. We have three reporting segments: steel operations, metals recycling and ferrous resources operations, and steel fabrication operations.

Segment Operations. Effective the third quarter 2015, the company changed its reportable segments, consistent with how we currently manage our business, representing three reporting segments: steel operations, metals recycling operations, and steel fabrication operations. Segment information provided within this Form 10-Q has been adjusted for all prior periods consistent with the current reportable segment presentation.

Steel Segment Operations include the company’s Butler Flat Roll Division, Columbus Flat Roll Division (acquired September 16, 2014), The Techs galvanizing lines, Structural and Rail Division, Engineered Bar Products Division, Roanoke Bar Division, Steel of West Virginia, and now, Iron Dynamics (IDI), a liquid pig iron production (scrap substitute) facility that supplies solely the Butler Flat Roll Division. These operations include electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, and eight downstream coating facilities. Metals Recycling Segment Operations consist solely of OmniSource Corporation (OmniSource), the company’s metals recycling and processing locations, and ferrous scrap procurement operations. Steel Fabrication Segment Operations include the company’s eight New Millennium Building Systems’ joist and deck plants located throughout the United States and Northern Mexico. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel decking used within the non-residential construction industry. The “Other” category consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our Minnesota ironmaking operations that were indefinitely idled in May 2015, and several joint ventures. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior secured credit facility, senior notes, certain other investments and certain profit sharing expenses.

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 methodology based on steel tons used on completed units to date as a percentage of estimated total steel tons required for each contract.

Costs of Goods Sold. Our costs of goods sold represent all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are scrap and scrap substitutes (which represent the most significant single component of our consolidated costs of goods sold), steel, direct and indirect labor and related benefits, alloys, zinc, transportation and freight, repairs and maintenance, utilities (most notably electricity and natural gas), and depreciation.

Table of Contents

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist of all costs associated with our sales, finance and accounting, and administrative departments. These costs include, among other items, labor and related benefits, professional services, insurance premiums, property taxes, company-wide profit sharing, and amortization of intangible 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 Expense (Income), net. Other income consists of interest income earned on our temporary cash deposits and investments; any other non-operating income activity, including income from non-consolidated investments accounted for under the equity method. Other expense consists of any non-operating costs, such as acquisition and certain financing expenses.

Results Overview

Consolidated operating income decreased $57.6 million, or 31%, to $131.0 million for the third quarter of 2015, compared to $188.6 million for the third quarter of 2014. Third quarter of 2015 net income decreased $30.6 million, or 34%, to $60.6 million, from $91.2 million for the third quarter of 2014.

For the first nine months of 2015, operating income decreased $93.1 million, or 23%, to $308.4 million compared to the same period of 2014, while net income decreased $79.1 million, or 39%, to $122.9 million.

Our third quarter 2015 and first nine months 2015 operational and financial performance was negatively impacted by decreased steel shipments (excluding the impact of Columbus for the 2015 periods) and average realized steel product pricing, driven primarily by continuing excessive and historically high levels of steel imports. While scrap costs also decreased significantly in the first quarter of 2015 and remained at lower levels during the second and third quarters of 2015, steel metal margins contracted as the drop in steel selling prices was more severe than the decline of scrap costs. Underlying domestic steel consumption remains steady, as we continue to see improvements in non-residential construction, as well as, steady consumption in automotive and other manufacturing segments. However, a larger portion of the domestic steel demand is being served by imports in 2015 than in 2014. As a result, domestic steel mill utilization rates have decreased throughout 2015, as compared to 2014, resulting in decreased ferrous scrap shipments in our metals recycling operations. These decreased ferrous, as well as nonferrous shipments, along with compressed metal margins due to price volatility, resulted in significantly reduced profitability in our metals recycling operations in 2015, as compared to 2014. During 2015, our steel fabrication operations continue to benefit from the improving non-residential construction market, our market share and expanding geographic footprint, and lower steel raw material costs, resulting in significant increases in both sales and operating income, compared to the same periods in 2014.

Segment Operating Results 2015 vs. 2014 (dollars in thousands)

	Three Months Ended								Second					Nine Months Ended
	September 30,								Quarter			Sequential		September 30,
	2015			% Change		2014			2015			Quarter % Change		2015			% Change		2014
Net sales:
Steel Segment	$	1,407,533		(8	)%	$	1,526,532		$	1,429,237		(2	)%	$	4,271,091		6	%	$	4,022,768
Metals Recycling Segment	616,460			(35	)%	953,483			645,449			(4	)%	1,913,921			(30	)%	2,725,728
Steel Fabrication Segment	174,956			(8	)%	190,036			154,525			13	%	490,509			11	%	440,749
Other	83,219			(39	)%	136,708			90,308			(8	)%	267,127			(20	)%	333,756
	2,282,168					2,806,759			2,319,519					6,942,648					7,523,001
Intra-company	(331,245		)			(467,743		)	(314,512		)			(939,283		)			(1,284,142		)
Consolidated	$	1,950,923		(17	)%	$	2,339,016		$	2,005,007		(3	)%	$	6,003,365		(4	)%	$	6,238,859

Operating income (loss):
Steel Segment	$	124,712		(38	)%	$	202,600		$	99,012		26	%	$	338,690		(28	)%	$	469,204
Metals Recycling Segment	(3,555		)	(142	)%	8,489			8,282			(143	)%	229			(99	)%	27,362
Steel Fabrication Segment	36,733			89	%	19,474			27,660			33	%	85,754			184	%	30,190
Other	(28,401		)	34	%	(42,960		)	(52,969		)	46	%	(117,273		)	9	%	(129,260		)
	129,489					187,603			81,985					307,400					397,496
Intra-company	1,540					1,040			(4,426		)			959					3,984
Consolidated	$	131,029		(31	)%	$	188,643		$	77,559		69	%	$	308,359		(23	)%	$	401,480

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Steel Segment Operations

Steel Segment Operations. Steel Operations consist of our six electric arc furnace steel mills, producing steel from ferrous scrap and scrap substitutes, utilizing continuous casting, automated rolling mills, and eight downstream coating facilities, and IDI, our liquid pig production facility that supplies solely our Butler Flat Roll Division. 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, agriculture, industrial machinery, pipe and tube and energy markets. Steel operations accounted for 69% and 62% of our consolidated external net sales during the third quarter of 2015 and 2014, and 69% and 61% of our consolidated external net sales during the first nine months of 2015 and 2014, respectively.

Sheet Products. Our sheet operations consist of our Butler Flat Roll Division (Butler), Columbus Flat Roll Division — acquired September 16, 2014 (Columbus), and our downstream coating facilities, including The Techs. These operations sell a broad range of sheet steel products, such as hot roll, cold roll and coated steel products, including a wide variety of specialty products, such as light gauge hot roll and galvanized. Butler sells other products such as Galvalume® and painted products, while Columbus sells other products used to produce high strength OCTG and non-energy line pipe. The Techs is comprised of three galvanizing lines which sell specialized galvanized sheet steels used in non-automotive applications.

Long Products. Our Structural and Rail Division sells structural steel beams and pilings to the construction market, as well as standard-grade and premium rail to the railroad industry. Our Engineered Bar Products Division primarily sells engineered, special-bar-quality and merchant-bar-quality rounds, round-cornered squares, and smaller-diameter round engineered bars. Our Roanoke Bar Division primarily sells merchant steel products, including angles, merchant rounds, flats and channels, and reinforcing bar. Steel of West Virginia primarily sells beams, channels and specialty steel sections.

Steel Operations Shipments (tons):

	Three Months Ended						Second				Nine Months Ended
	September 30,						Quarter		Sequential		September 30,
	2015		% Change		2014		2015		Quarter % Change		2015		% Change		2014
Shipments:
Butler Flat Roll Division	637,289		(14	)%	738,460		721,115		(12	)%	1,937,897		(10	)%	2,158,200
Columbus Flat Roll Division	712,992		308	%	174,754		693,772		3	%	1,971,005		1,028	%	174,754
The Techs	190,130		(7	)%	205,417		182,239		4	%	518,303		(6	)%	550,588
Sheet products	1,540,411		38	%	1,118,631		1,597,126		(4	)%	4,427,205		54	%	2,883,542

Structural and Rail Division	306,073		(16	)%	365,900		302,250		1	%	912,675		(8	)%	994,596
Engineered Bar Products Division	132,901		(25	)%	176,891		120,559		10	%	409,826		(14	)%	473,962
Roanoke Bar Division	130,314		(15	)%	153,395		140,795		(7	)%	396,232		(10	)%	440,760
Steel of West Virginia	81,505		(4	)%	85,226		81,678		—	%	236,694		—	%	235,681
Long products	650,793		(17	)%	781,412		645,282		1	%	1,955,427		(9	)%	2,144,999

Total shipments	2,191,204		15	%	1,900,043		2,242,408		(2	)%	6,382,632		27	%	5,028,541
Intra-segment shipments	(56,836	)			(62,201	)	(62,417	)			(175,347	)			(165,639	)
Segment shipments	2,134,368		16	%	1,837,842		2,179,991		(2	)%	6,207,285		28	%	4,862,902

External shipments	2,031,096		18	%	1,728,023		2,078,685		(2	)%	5,926,152		29	%	4,585,478

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Steel Operations

Shipments and Average Selling Price

The 16% increase in steel segment shipments in the third quarter 2015 over those in the same 2014 period was due to Columbus having a full quarter of sales in the third quarter of 2015 versus only a half month in the third quarter of 2014 from the acquisition date of September 14, 2014. Though overall domestic steel demand remains solid, the continued elevated level of steel imports has been a significant negative impact to our sales volumes, product pricing, and steel mill utilization rates. Our average steel mill utilization rate was 82% for the third quarter of 2015, as compared to 90% in the third quarter of 2014. Steel shipments, excluding Columbus, decreased 14% in the third quarter 2015 compared to the third quarter 2014, due primarily to the continued historically high levels of steel being imported into the United States, with commodity-grade hot roll steel products being the most severely impacted. The elevated level of steel imports has continued to also compress steel selling prices. This along with significant reductions in the cost of scrap resulted in our third quarter 2015 average steel product selling prices decreasing $172 per ton, or 21%, compared to the same quarter in 2014. Despite the overall increase in steel segment shipments with Columbus, net sales decreased 8% in the third quarter of 2015, when compared to the third quarter of 2014 due to the significant drop in selling prices.

Net sales for the steel segment increased 6% in the first nine months of 2015, when compared to the first nine months of 2014, as a 28% increase in segment shipments more than offset a decrease of $139 per ton, or16%, in average selling prices. The decrease in average selling prices is due to the elevated level of imported steel into the United States and the significant reductions in the cost of scrap, which has also caused uncertainty for steel consumers. The increase in steel segment shipments is due to the inclusion of Columbus in the first nine months of 2015 results, as sales volumes in 2015, excluding Columbus, are down 9% compared to the first nine months of 2014, due primarily to elevated steel imports to date during 2015.

Metallic raw materials used in our electric arc furnaces represent our single most significant steel manufacturing cost. During the third quarter 2015 and 2014, our metallic raw material costs represented 55% and 65%, respectively, 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 decreased $104, or 29%, in the third quarter of 2015, compared with the third quarter of 2014, consistent with overall declines in scrap market pricing. In the first nine months of 2015, our metallic raw material cost per net ton consumed decreased $95, or 26%, compared to the same period in 2014.

In spite of decreased raw material cost per ton, third quarter 2015 metal spread (which we define as the difference between average selling prices and the cost of ferrous scrap consumed) contracted significantly compared to the third quarter of 2014, as decreases in product selling prices outpaced decreased raw material costs. Thus, despite increases in shipments from the inclusion of Columbus for the full third quarter 2015 versus only a half month in the third quarter 2014, operating income for the steel segment decreased 38%, to $124.7 million, compared to the same period of 2014. Likewise, first nine months 2015 operating income decreased 28%, to $338.7 million, compared to the first nine months of 2014.

Metals Recycling Segment Operations

Metals Recycling Segment Operations. The Metals Recycling segment consists solely of OmniSource, our metals recycling, processing, and ferrous scrap procurement operations. OmniSource sells 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. Our metals recycling segment operations accounted for 18% and 26% of our consolidated net sales in the third quarter of 2015 and 2014, respectively, and 19% and 27% of our net sales in the first nine months of 2015 and 2014, respectively.

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Metals Recycling Operations Shipments:

	Three Months Ended						Second		Sequential		Nine Months Ended
	September 30,						Quarter		Quarter		September 30,
	2015		% Change		2014		2015		% Change		2015		% Change		2014
Ferrous metal (gross tons)
Total	1,354,339		(7	)%	1,453,671		1,357,755		—	%	3,945,095		(7	)%	4,240,901
Inter-company	(803,263	)			(673,640	)	(731,491	)			(2,125,675	)			(2,042,272	)
External shipments	551,076		(29	)%	780,031		626,264		(12	)%	1,819,420		(17	)%	2,198,629

Nonferrous metals (thousands of pounds)
Total	287,898		(12	)%	325,436		275,439		5	%	823,240		(7	)%	884,647
Inter-company	(26,826	)			(31,478	)	(22,166	)			(67,315	)			(68,830	)
External shipments	261,072		(11	)%	293,958		253,273		3	%	755,925		(7	)%	815,817

Metals recycling operations net sales decreased 35% in the third quarter of 2015 as compared to the third quarter of 2014. Ferrous shipments decreased 7% in the third quarter of 2015, due primarily to reduced domestic steel mill utilization, caused by elevated steel imports in 2015. Nonferrous shipments also decreased 12%. Both ferrous and nonferrous selling prices decreased significantly during the third quarter of 2015, as compared to the same period in 2014, consistent with the overall decline in scrap commodity market and index prices. Ferrous selling prices declined 35%, while nonferrous declined 24% overall. As a result of these decreased selling prices which outpaced decreases in procurement costs, ferrous metal spreads in the third quarter 2015 decreased 14% compared to third quarter 2014, while nonferrous metal spreads decreased 23%. The declines in shipments and metal spreads resulted in third quarter 2015 operating loss of $3.6 million, as compared to operating income of $8.5 million for the same period in 2014.

Metals recycling operations net sales decreased 30% in the first nine months of 2015 as compared to the first nine months of 2014. Ferrous shipments decreased 7% in the first nine months of 2015, compared to the same period in 2014, due to reduced domestic steel mill utilization, caused by elevated steel imports in 2015. Nonferrous shipments decreased 7%. Similarly, both ferrous and nonferrous selling prices decreased significantly during the first nine months of 2015, as compared to the same 2014 period, consistent with overall decline in market selling prices. Ferrous selling prices declined by 32% while nonferrous declined 14% overall. As a result of reduced selling prices, metal spreads for ferrous and nonferrous materials contracted 9% and 20%, respectively, during the first nine months of 2015, when compared to the same period in 2014. These declines in shipments and metal spreads resulted in operating income in the first nine months of 2015 decreasing $27.1 million, or 99%, to $229,000, compared to the first nine months of 2014.

Steel Fabrication Segment Operations

Steel Fabrication Segment Operations consist of our eight New Millennium Building Systems plants located throughout the United States and Northern Mexico. Revenues from these plants are generated from the fabrication of trusses, girders, steel joists and steel decking used within the non-residential construction industry. Steel fabrication operations accounted for 9% and 8% of our consolidated net sales during the third quarter of 2015 and 2014, and 8% and 7% of the company’s consolidated net sales during the first nine months of 2015 and 2014, respectively.

On September 14, 2015, the company purchased from Consolidated Systems, Inc. (“CSi”) certain of its steel decking facilities (including associated assets) and net working capital of approximately $30 million, for a purchase price of $45 million in cash. Operating results of these facilities have been reflected in the Steel Fabrication Operations financial statements since the September 14, 2015, purchase date. The purchased assets include three decking facilities located in Memphis, Tennessee; Phoenix, Arizona; and Terrell, Texas. Producing both standard and premium specialty deck profiles, the new locations will allow for enhanced geographic reach into the southwestern and western markets, and further diversify Steel Fabrication Operation’s product offerings.

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Steel Fabrication Operations

Sales Volumes and Average Selling Price

Net sales for the steel fabrication segment operations decreased $15.1 million, or 8%, in the third quarter of 2015, compared to the third quarter of 2014. Shipments decreased 10% while average selling prices increased 3% in the third quarter of 2015, as compared to the same period in 2014. While there continues to be a positive trend in the non-residential construction market, and order entry remains strong, our sales volumes in the third quarter 2015 were below those of the same 2014 period as we were able to maintain relatively stable selling prices. Net sales for the segment increased $49.8 million, or 11%, in the first nine months of 2015, compared to the first nine months of 2014, as volumes increased 2% and selling prices increased 9%. Our steel fabrication operations continue to realize strength in order activity and resulting shipments and selling prices, as we leverage our national operating footprint and market demand continues to improve.

The purchase of various steel products is the largest single cost of production for our steel fabrication operations generally representing more than two-thirds of the total cost of manufacturing for our steel fabrication operations. The average cost of steel consumed decreased by 20% in the third quarter of 2015, as compared to the same period in 2014, and coupled with 3% higher selling prices resulted in significantly expanded metal spreads. Likewise, during the first nine months of 2015 the average cost of steel consumed decreased by 11%, as compared to the same period in 2014, coupled with a 9% increase in average selling prices.

As a result of the increased selling prices and metal spread expansion, operating income of $36.7 million in the third quarter 2015 was 89% higher than the same period in 2014 of $19.5 million. Similarly, segment operating income of $85.8 million in the first nine months of 2015 increased 184%, from $30.2 million in the first nine months of 2014.

Other Operations

Other operations consists of subsidiary operations that are below the quantitative thresholds required for reportable segments and primarily consist of our Minnesota ironmaking operations, which were indefinitely idled in May 2015, and several joint ventures. Also included in “Other” are certain unallocated corporate accounts, such as the company’s senior secured credit facility, senior notes, certain other investments and certain profit sharing expenses. Prior to being indefinitely idled, our Minnesota ironmaking operations experienced operating losses. In addition, upon deciding to idle the Minnesota ironmaking operations and to monetize existing raw material inventory, we recorded an inventory lower-of-cost or market charge of $21.0 million (inclusive of noncontrolling interests of $3.6 million), in cost of goods sold in the second quarter 2015. Operating losses associated with our Minnesota ironmaking operations have been significantly curtailed post-idling.

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Third Quarter Consolidated Results 2015 vs. 2014

Selling, General and Administrative Expenses. Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $97.7 million during the third quarter of 2015, are comparable to $99.9 million during the third quarter of 2014, representing approximately 5.0% and 4.3% of net sales, respectively.

Interest Expense, net of Capitalized Interest. During the third quarter of 2015, interest expense increased $5.2 million to $37.1 million, when compared to the same period in 2014. The increase in interest expense is due primarily to the addition of the $1.2 billion senior notes in September 2014, in conjunction with our acquisition of Columbus, partially offset by the call of our $350.0 million 7 5/8% Senior Notes due 2020 in March 2015.

Other Expense, net. During the third quarter of 2015, net other expense of $239,000 was $21.8 million less than net other expense of $22.1 million in the same period in 2014, which included $25.0 million of acquisition and financing costs associated with the September 2014, acquisition of Columbus.

Income Taxes. During the third quarter of 2015, our income tax expense was $34.8 million at an effective income tax rate of 37.2%, as compared to $47.0 million resulting in an effective income tax rate of 34.9% during the third quarter of 2014. The effective tax rate in the third quarter of 2014 is lower due primarily to certain favorable discrete tax adjustments recorded during the quarter.

First Nine Months Consolidated Results 2015 vs. 2014

Selling, General and Administrative Expenses. Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) of $279.2 million during the first nine months of 2015, are comparable to $273.1 million during the first nine months of 2014, representing approximately 4.6% and 4.4% of net sales, respectively.

Interest Expense, net of Capitalized Interest. During the first nine months of 2015, interest expense increased $24.8 million to $117.3 million, when compared to the same period in 2014. The increase in interest expense is due primarily to the addition of the $1.2 billion senior notes in September 2014, in conjunction with our acquisition of Columbus, partially offset by the conversion or payoff at maturity of $287.5 million of 5.125% convertible notes in June 2014, and the call of our $350.0 million 7 5/8% Senior Notes due 2020 in March 2015.

Other Expense, net. During the first nine months of 2015, net other expense of $15.2 million included $16.7 million of call premium and other financing costs associated with the March 2015 senior notes call and prepayment. Net other expense of $19.7 million in the first nine months of 2014 included $25.0 million of acquisition and financing costs associated with our September 2014 Columbus acquisition.

Income Taxes. During the first nine months of 2015, our income tax expense was $64.7 million at an effective income tax rate of 36.8%, as compared to $101.6 million resulting in an effective income tax rate of 35.1% during the first nine months of 2014. The higher effective tax rate in the first nine months of 2015 is due primarily to the impact on the effective tax rate of higher proportional (to pretax income) noncontrolling interest losses in the first nine months of 2015 as compared to the same period in 2014, as well as certain more significant favorable discrete tax adjustments in the first nine months of 2014.

Liquidity and Capital Resources

Capital Resources and Long-term Debt. Our business is capital intensive and requires substantial expenditures for, among other things, the purchase and maintenance of equipment used in our steelmaking and finishing operations and to remain in compliance with environmental laws. Our short-term and long-term liquidity needs arise primarily from working capital requirements, capital expenditures, principal and interest payments related to our outstanding indebtedness, dividends to our shareholders, and acquisitions. We have met these liquidity requirements primarily with cash provided by operations, long-term borrowings and availability under our Revolver. Our liquidity at September 30, 2015 is as follows (in thousands):

Cash and equivalents	$	473,790
Revolver availability	1,187,165
Total liquidity	$	1,660,955

Our total outstanding debt decreased $376.8 million during the first nine months of 2015, to $2.6 billion, due primarily to our March 2015 call and prepayment of $350.0 million in 75/8 % senior notes due 2020. As a result, our total long-term debt to capitalization ratio (representing our long-term debt, including current maturities, divided by the sum of our long-term debt, redeemable noncontrolling interests, and our total stockholders’ equity) decreased to 47.2% at September 30, 2015, from 50.9% at December 31, 2014.

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We have a senior secured credit facility (Facility) that matures in November 2019 which provides for a $1.2 billion Revolver along with a term loan facility. Subject to certain conditions, we also have the ability to increase the combined facility size by a minimum of $750 million. The Facility contains financial and other covenants pertaining to our ability (which may under certain circumstances be limited) to make capital expenditures; incur indebtedness; permit liens on property; enter into transactions with affiliates; make restricted payments or investments; enter into mergers, acquisitions or consolidations; conduct asset sales; pay dividends or distributions 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 the financial and other covenants. At September 30, 2015, we had $1.2 billion of availability on the Revolver, $12.8 million of outstanding letters of credit and other obligations which reduce availability, and there were no borrowings outstanding.

The financial covenants under our Facility state that we must maintain an interest coverage ratio of not less than 2.50:1.00. Our interest coverage ratio is calculated by dividing our last-twelve trailing months (LTM) consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and certain other non-cash transactions as allowed in our Facility) by our LTM gross interest expense, less amortization of financing fees. In addition, a net debt (as defined in the Facility) to consolidated LTM adjusted EBITDA (net debt leverage ratio) of not more than 5.00:1.00 must be maintained. If the net debt leverage ratio exceeds 3.50:1:00 at any time, our ability to make certain payments as defined in the Facility (which includes cash dividends to stockholders and share purchases, among other things), is limited. At September 30, 2015, our interest coverage ratio and net debt leverage ratio were 5.45:1.00 and 2.58:1.00, respectively. We, were therefore, in compliance with these covenants at September 30, 2015, and we anticipate we will continue to be in compliance during 2015.

Working Capital. We generated cash flow from operations of $708.3 million in the first nine months of 2015. Operational working capital (representing amounts invested in trade receivables and inventories, less current liabilities other than income taxes payable and debt) decreased $234.8 million, after considering the September 2015 decking asset acquisition which included $30.0 million of working capital, during the first nine months of 2015, to $1.5 billion. Amounts invested in accounts receivable and inventories, net of accounts payable, decreased $276.1 million in conjunction with a decrease in sales and production volume and a significant decrease in the cost of scrap and steel when compared to the fourth quarter of 2014.

Capital Investments. During the first nine months of 2015, we invested $86.5 million in property, plant and equipment, as compared to $82.9 million during the same period in 2014. Our current estimated 2015 annual cash allocation plan includes the investment of approximately $120 million in capital expenditures in our existing and announced operations.

Cash Dividends. As a reflection of confidence in our current and future cash flow generation ability and financial position, we increased our quarterly cash dividend by 20% to $0.1375 per share in the first quarter 2015 (from $0.115 per share previously), resulting in declared cash dividends of $99.8 million during the first nine months of 2015, compared to $80.9 million during the first nine months of 2014. We paid cash dividends of $94.3 million and $77.7 million during the first nine months of 2015 and 2014, respectively. Our board of directors, along with executive management, approves the payment of dividends on a quarterly basis. The determination to pay cash dividends in the future is at the discretion of our board of directors, after taking into account various factors, including our financial condition, results of operations, outstanding indebtedness, current and anticipated cash needs and growth plans. In addition, the terms of our senior secured credit facility and the indenture relating to our senior notes may 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 that our operating results, cash flows, access to credit markets and capital resources will be sufficient for repayment of our indebtedness in the future. We believe that based upon current levels of operations and anticipated growth, cash flows from operations, together with other available sources of funds, including additional borrowings under our Revolver through its term, which expires in November 2019, 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 any future 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 evolve and change, and we may become subject to more stringent environmental laws and regulations in the future, such as the impact of U.S. government or various governmental agencies introducing regulatory changes in response to the potential of climate change.

Critical Accounting Policies and Estimates

No material changes have occurred to the indicated critical accounting policies and estimates as disclosed in our 2014 Annual Report on Form 10-K.

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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 occasionally use interest rate swaps to manage net exposure to interest rate changes related to our portfolio of borrowings. We did not have any interest rate swaps during the periods ended September 30, 2015 or 2014.

Commodity Risk

In the normal course of business we are exposed to the market risk and price fluctuations related to the sale of our products and to the purchase of raw materials used in our operations, such as metallic raw materials, electricity, natural gas and its transportation services, fuel, air products, and zinc. 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 raw materials utilized within our operations has generally been to make some commitments with suppliers relating to future expected requirements for some commodities such as electricity, natural gas and its transportation services, fuel, air products, and zinc. Certain of these commitments contain provisions which require us to “take or pay” for specified quantities without regard to actual usage for periods of up to 25 months for physical commodity requirements, for up to 5 years for commodity transportation requirements, and for up to 13 years for air products. We utilized 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 Butler Flat Roll Division pursuant to a contract which extends through December 2015. 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.

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 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 or vendor. At September 30, 2015, we had a cumulative unrealized loss associated with these financial contracts of $1.2 million, substantially all of which have a settlement date within the next twelve months. We believe the customer contracts associated with the financial contracts will be fully consummated.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2015. 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 Commission’s 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, 2015, our principal executive officer and principal 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, 2015, 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

We are involved in various routine litigation matters, including administrative proceedings, regulatory proceedings, governmental investigations, environmental matters, and commercial and construction contract disputes, none of which are expected to have a material impact on our financial condition, results of operations, or liquidity.

We are involved, along with two other remaining steel manufacturing company defendants, in a class action antitrust complaint filed in federal court in Chicago, Illinois in September 2008, originally against eight companies. The Complaint alleges a conspiracy on the part of the original defendants to fix, raise, maintain and stabilize the price at which steel products were sold in the United States during a specified period between 2005 and 2007, by artificially restricting the supply of such steel products. All but one of the Complaints were brought on behalf of a purported class consisting of all direct purchasers of steel products. The other Complaint was brought on behalf of a purported class consisting of all indirect purchasers of steel products within the same time period. In addition, another similar complaint was filed in December 2010 purporting to be on behalf of indirect purchasers of steel products in Tennessee. All Complaints have been consolidated in the Chicago action and seek treble damages and costs, including reasonable attorney fees, pre- and post-judgment interest and injunctive relief.

ITEM 1A. RISK FACTORS

No material changes have occurred to the indicated risk factors as disclosed in our 2014 Annual Report on Form 10-K.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

The information required to be furnished pursuant to Item 4 concerning mine safety disclosure matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this Quarterly Report.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Executive Officer Certifications

31.1*		Certification of Principal 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 Principal 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.

Other

95*		Mine Safety Disclosures.

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 6, 2015

	STEEL DYNAMICS, INC.

	By:	/s/ Theresa E. Wagler
		Theresa E. Wagler
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)