UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q/A10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 For the period ended June 30, 2004March 31, 2005

OR

 
OR
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)

Steel Dynamics, Inc.
(Exact name of registrant as specified in its charter)
 
Indiana
35-1929476
(State or other jurisdiction of incorporation or organization)
35-1929476
(I.R.S. Employer Identification No.)
  
6714 Pointe Inverness Way, Suite 200, Fort Wayne, IN
46804
(Address of principal executive offices)
46804
(Zip Code)

Registrant’s telephone number, including area code: (260) 459-3553

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 No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.

Yes No

As of August 4, 2004,April 26, 2005, Registrant had 49,615,15945,337,304 outstanding shares of Common Stock.

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STEEL DYNAMICS, INC.


Table of Contents

Explanatory Note

The purpose of this amendment on Form 10-Q/A to the Quarterly Report on Form 10-Q of Steel Dynamics, Inc. for the quarter ended June 30, 2004, is to provide revised forms of certification on Exhibits 31.1 and 31.2, to conform to the format prescribed by Item 601(b)(31) of Regulation S-K, as well as to revise the form of Item 4, subsection (b) regarding “Changes in Internal Controls” (no changes). These changes constitute only format revisions.

No attempt has been made in this Form 10-Q/A to modify or update any financial information or other disclosures presented in the original report on Form 10-Q, nor does this Form 10-Q/A reflect events occurring after the filing of the original Form 10-Q or modify or update those disclosures, including exhibits to the Form 10-Q. Information described herein reflects the disclosures made at the time of the original filing of the Form 10-Q on August 9, 2004. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-Q, including any amendments to those filings.

PART I.     Financial Information

Item 1Consolidated Financial Information:
  PART I. Financial InformationPage 
     
 
Page
Item 1.Consolidated Financial Information:
Consolidated Balance Sheets as of June 30, 2004March 31, 2005 (unaudited) and December 31, 20032004 1
Consolidated Statements of Income for the three-month periods ended March 31, 2005 and 2004 (unaudited)2
Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2005 and 2004 (unaudited)3
Notes to Consolidated Financial Statements4
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations9
Item 3.Quantitative and Qualitative Disclosures about Market Risk12
Item 4.Controls and Procedures12
 
     
 
Consolidated Statements of Income for the three and six month periods ended June 30, 2004 and 2003 (unaudited)
 2
PART II. Other Information 
    
Consolidated Statements of Cash Flows for the three and six month periods ended June 30, 2004 and 2003 (unaudited)
3
Notes to Consolidated Financial Statements
4 
     
Item 2.
Management’s DiscussionChanges in Securities, Use of Proceeds and AnalysisIssuer Purchases of Financial Condition and Results of OperationsEquity Securities 1013
    
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
12
Item 4.
Controls and Procedures
13
PART II.     Other Information
Item 1.
Legal Proceedings
13
Item 4.
Submission of Matters to a Vote of Security Holders
13 
     
Item 6.
Exhibits and Reports on Form 8-K 1413
 
     
 
Signature 1513
     

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STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

  June 30,
2004		 December 31,
2003		 
  
 
 
  (unaudited)    
ASSETS       
Current assets:       
Cash and equivalents $38,441 $65,430 
Accounts receivable, net  171,034  100,933 
Accounts receivable-related parties  28,120  25,090 
Inventories  280,170  184,496 
Deferred taxes  12,563  23,217 
Other current assets  18,105  8,769 
  
 
 
Total current assets  548,433  407,935 
        
Property, plant and equipment, net  1,018,005  1,001,116 
        
Restricted cash  4,215  2,636 
        
Other assets  33,301  36,752 
  
 
 
Total assets $1,603,594 $1,448,439 
  
 
 
        
LIABILITIES AND STOCKHOLDERS’ EQUITY       
Current liabilities:       
Accounts payable $120,961 $42,698 
Accounts payable-related parties  –  36,628 
Accrued interest  14,862  11,312 
Other accrued expenses  57,722  46,678 
Current maturities of long-term debt  5,000  15,988 
  
 
 
Total current liabilities  198,545  153,304 
        
Long-term debt including unamortized bond premium of $7,991 and
$8,834 as of June 30 2004 and December 31 2003 respectively		  563,287  591,586 
        
Deferred taxes  137,647  115,703 
        
Minority interest  1,823  613 
        
Commitments and contingencies       
        
Stockholders’ equity:       
Common stock voting, $.01 par value; 100,000,000 shares authorized;
51,824,065 and 51,011,839 shares issued; and 49,446,939 and 48,645,246 shares
outstanding as of June 30 2004 and December 31 2003 respectively		  517  509 
Treasury stock at cost; 2,377 126 and 2,366,593 shares at June 30 2004 and December 31 2003 respectively  (28,908) (28,670)
Additional paid-in capital  376,945  362,328 
Retained earnings  356,508  257,254 
Other accumulated comprehensive loss  (2,410) (4,188)
  
 
 
Total stockholders’ equity  702,652  587,233 
  
 
 
Total liabilities and stockholders’ equity $1,603,954 $1,448,439 
  
 
 

See notes to consolidated financial statements


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STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

  Three Months Ended
June 30,
 Six Months Ended
June 30,
 
  2004 2003 2004 2003 
  
 
 
 
 
Net sales:             
Unrelated parties $474,317 $187,342 $809,983 $389,488 
Related parties  51,340  31,290  99,819  64,648 
  
 
 
 
 
Total net sales  525,657  218,632  909,802  454,136 
              
Cost of goods sold  382,459  186,724  685,014  372,693 
  
 
 
 
 
Gross profit  143,198  31,908  224,788  81,443 
              
Selling, general and administrative expenses  28,082  14,682  51,132  29,657 
  
 
 
 
 
Operating income  115,116  17,226  173,656  51,786 
              
Interest expense  10,592  8,938  20,096  18,104 
Other income  (3,143) (399) (5,246) (250)
  
 
 
 
 
Income before income taxes  107,667  8,687  158,806  33,932 
              
Income taxes  40,375  3,257  59,552  12,724 
  
 
 
 
 
Net income $67,292 $5,430 $99,254 $21,208 
  
 
 
 
 
              
              
Basic earnings per share $1.36 $.11 $2.02 $.45 
  
 
 
 
 
              
Weighted average common shares outstanding  49,340  47,650  49,143  47,625 
  
 
 
 
 
              
Diluted earnings per share, including effect of assumed conversions $1.20 $11 $1.78 $.44 
  
 
 
 
 
              
Weighted average common shares and share equivalents outstanding  56,545  47,853  56,379  47,820 
  
 
 
 
 
  March 31,
2005		 December 31,
2004		 
  
 
 
  (unaudited)    
ASSETS       
Current assets:       
Cash and equivalents $3,747 $16,334 
Accounts receivable, net  220,254  214,880 
Accounts receivable-related parties  47,539  38,981 
Inventories  395,635  381,488 
Deferred taxes  7,400  6,856 
Other current assets  7,726  18,980 
Total current assets  682,301  677,519 
        
Property, plant and equipment, net  1,022,198  1,024,044 
        
Restricted cash  1,589  989 
        
Other assets  30,359  31,067 
Total assets $1,736,447 $1,733,619 
        
        
LIABILITIES AND STOCKHOLDERS’ EQUITY       
Current liabilities:       
Accounts payable $151,647 $136,517 
Accounts payable-related parties  883  5,371 
Accrued interest  3,157  8,796 
Other accrued expenses  47,322  75,750 
Current maturities of long-term debt  8,846  6,774 
Total current liabilities  211,855  233,208 
        
Long-term debt, including unamortized bond premium of $6,725 and $7,147, as of March 31, 2005 and December 31, 2004, respectively  460,330  441,605 
        
Deferred taxes  222,792  209,215 
        
Minority interest  2,588  2,469 
        
Commitments and contingencies       
        
Stockholders’ equity:       
Common stock voting, $.01 par value; 100,000,000 shares authorized; 52,902,637 and 52,435,059 shares issued; and 46,806,673 and 48,485,671 shares outstanding, as of March 31, 2005 and December 31, 2004, respectively  527  523 
Treasury stock, at cost; 6,095,964 and 3,949,388 shares, at March 31, 2005 and December 31, 2004, respectively  (160,841) (84,141)
Additional paid-in capital  402,865  390,505 
Retained earnings  596,331  540,235 
Total stockholders’ equity  838,882  847,122 
Total liabilities and stockholders’ equity $1,736,447 $1,733,619 

See notes to consolidated financial statements.


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STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSINCOME
(in thousands)thousands, except per share data)

  Three Months Ended June 30,
 Six Months ended June 30,
 
  2004 2003 2004 2003 
  
 
 
 
 
Operating activities:             
Net income $67,292 $5,430 $99,254 $21,208 
Adjustments to reconcile net income to net cash             
provided by operating activities:             
Depreciation and amortization  23,629  16,643  42,408  32,919 
Deferred income taxes  20,930  6,186  32,598  11,430 
Loss on disposal of property, plant and equipment  31  —  175  59 
Minority interest  562  24  1,211  (627)
Changes in certain assets and liabilities:             
Accounts receivable  (34,558) 9,706  (73,131) 6,240 
Inventories  (44,181) (5,740) (95,674) (20,220)
Other assets  (2,360) (2,549) (10,764) (1,855) 
Accounts payable  (7,628) (450) 41,635  15,680 
Accrued expenses  19,700  4,427  16,370  (6,490)
  
 
 
 
 
Net cash provided by operating activities  43,417  33,677  54,082  58,344 
  
 
 
 
 
Investing activities:             
Purchases of property, plant and equipment  (30,755) (23,670) (54,660) (61,105)
Other investing activities  —  8  —  (8,283) 
  
 
 
 
 
Net cash used in investing activities  (30,755) (23,662) (54,660) (69,388)
  
 
 
 
 
Financing activities:             
Issuance of long-term debt  134,182  26,768  164,121  48,480 
Repayments of long-term debt  (169,749) (28,482) (203,408) (49,900)
Issuance of common stock, net of expenses and proceeds             
and tax benefits from exercise of stock options  4,539  663  14,625  1,670 
Purchase of treasury stock  —  —  (238) (176) 
Debt issuance costs  (1,487) (277) (1,511) (1,320)
  
 
 
 
 
Net cash used in financing activities  (32,515) (1,328) (26,411) (1,246)
  
 
 
 
 
Increase (decrease) in cash and equivalents  (19,853) 8,687  (26,989) (12,290)
Cash and equivalents at beginning of period  58,294  3,241  65,430  24,218 
Cash and equivalents at end of period $38,441 $11,928 $38,441 $11,928 
  
 
 
 
 
              
Supplemental disclosure of cash flow information:             
Cash paid for interest $5,420 $7,052 $20,345 $22,684 
  
 
 
 
 
              
Cash paid for federal and state income taxes $11,850 $6,860 $11,927 $7,474 
  
 
 
 
 
  Three Months Ended
March 31,		 
  
 
  2005 2004 
        
Net sales:       
Unrelated parties $500,846 $334,379 
Related parties  69,860  49,766 
Total net sales  570,706  384,145 
Costs of goods sold  441,929  307,670 
Gross profit  128,777  76,475 
Selling, general and administrative expenses  22,454  17,935 
Operating income  106,323  58,540 
Interest expense  8,077  9,504 
Other income, net  (578) (2,103)
Income before income taxes  98,824  51,139 
Income taxes  38,047  19,177 
Net income $60,777 $31,962 
        
        
        
        
        
Basic earnings per share $1.27 $.65 
        
Weighted average common shares outstanding  47,703  48,947 
        
        
Diluted earnings per share, including effect of assumed conversions $1.12 $.58 
        
Weighted average common shares and share equivalents outstanding  54,828  56,212 
        
Dividends declared per share $.10 $— 
        

See notes to consolidated financial statements.


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STEEL DYNAMICS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

  Three Months Ended
March 31,		 
  
 
  2005 2004 
Operating activities:       
Net income $60,777 $31,962 
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization  21,830  18,779 
Deferred income taxes  13,033  11,668 
Loss on disposal of property, plant and equipment  —  145 
Minority interest  119  649 
Changes in certain assets and liabilities:       
Accounts receivable  (13,932) (38,573)
Inventories  (14,147) (51,493)
Other assets  10,519  (8,405)
Accounts payable  10,843  49,263 
Accrued expenses  (34,067) (3,330)
Net cash provided by operating activities  54,975  10,665 
        
Investing activities:       
Purchases of property, plant and equipment  (19,141) (23,905)
        
Financing activities:       
Issuance of long-term debt  61,308  29,939 
Repayments of long-term debt  (40,511) (33,659)
Issuance of common stock (net of expenses) and proceeds and tax benefits from exercise of stock options  12,364  10,086 
Purchase of treasury stock  (76,700) (238)
Dividends paid  (4,882) — 
Debt issuance costs  —  (24)
Net cash provided by (used in) financing activities  (48,421) 6,104 
        
Decrease in cash and equivalents  (12,587) (7,136)
Cash and equivalents at beginning of period  16,334  65,430 
        
Cash and equivalents at end of period $3,747 $58,294 
        
        
        
Supplemental disclosure of cash flow information:       
Cash paid for interest $14,057 $14,925 
Cash paid for federal and state income taxes $170 $77 

See notes to consolidated financial statements.


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STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.     Summary of Accounting Policies

Note 1. Summary of Accounting Policies
Principles of Consolidation.Consolidation. The consolidated financial statements include the accounts of Steel Dynamics, Inc. (SDI), together with its subsidiaries after elimination of significant intercompany accounts and transactions. Minority interest represents the minority shareholders’ proportionate share in the equity or income of the company’s 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; valuation allowances for trade receivables, inventories and deferred income tax assets; potential environmental liabilities, 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 included in the company’s Annual Report on Form 10-K for the year ended December 31, 2003.2004.

Reclassifications. Certain prior year amounts have been reclassified to conform to the fiscal 2004 presentation. The company reclassified certain costs related to the receipt of materials, internal transportation of inventories and related employee salaries and benefits from selling, general and administrative expenses to costs of goods sold for the three months ended March 31, 2004. Generally, the company’s gross margin was reduced by approximately 1% due to this reclassification; however, total operating income was not affected.

Stock-Based Compensation. At June 30,March 31, 2005 and 2004, the company had three incentive stock option plans and accounted for these plans under the recognition and measurement principles of Accounting Standards Board APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB 25, no stock-based employee compensation cost related to the incentive stock option plans is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.stock.

The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of FASthe Financial Accounting Standards Board (FASB) Statement No. 123 to its stock-based employee compensation for the three and six-monththree-month periods ended June 30March 31 (in thousands, except per share data):

  Three Months Ended
 Six Months Ended
 
  2004 2003 2004 2003 
  
 
 
 
 
Net income, as reported $67,292 $5,430 $99,254 $21,208 
Stock-based employee compensation expense, using
     the fair value based method, net of related
     tax effect		  (714) (544) (1,430) (1,127)
  
 
 
 
 
Net income, pro forma $66,578 $4,886 $97,824 $20,081 
  
 
 
 
 
Basic earnings per share:             
As reported $1.36 $.11 $2.02 $.45 
Pro forma  1.35  .10  1.99  .42 
Diluted earnings per share:             
As reported $1.20 $.11 $1.78 $.44 
Pro forma  1.19  .10  1.76  .42 
Note 2.     Earnings Per Share
   2005 2004 
 Net income, as reported $60,777 $31,962 
 Stock-based employee compensation expense, using the fair value based method, net of related tax effect  (1,042) (716)
 Pro forma net income  59,735  31,246 
 Effect of assumed conversions, net of tax effect  664  645 
 Pro forma net income, diluted earnings per share $60,439 $31,891 
         
 Basic earnings per share:       
 As reported $1.27 $.65 
 Pro forma  1.25  .64 
 Diluted earnings per share:       
 As reported $1.12 $.58 
 Pro forma  1.10  .57 

In December 2004, the FASB issued FAS No. 123R (FAS 123R), “Share-Based Payments”, which among other things, eliminates the use of APB 25 and the intrinsic value method of accounting that the company uses to account for its stock option plans. FAS 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. On April 14, 2005, the Securities and Exchange Commission announced that it would provide for a phased-in implementation process for FAS 123R and that registrants that are not small business issuers must adopt FAS 123R no later than the beginning of the first fiscal year beginning after June 15, 2005, which is January 1, 2006 for the company.

Note 2. Earnings Per Share
The company computes and presents earnings per common share in accordance with FASB Statement No. 128, “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, in addition to the above, the weighted average dilutive effect of common share equivalents outstanding during the period. Common share equivalents represent dilutive stock options 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.


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STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation of the numerators and the denominators of the company’s basic and diluted earnings per share computations for net income for the three and six-monththree-month periods ended June 30March 31 (in thousands, except per share data):

  Three Months Ended
 
  2004
 2003
 
  Net Income Shares Per Share Net Income Shares Per Share 
  (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount 
  
 
 
 
 
 
 
Basic earnings per share $67,292 $49,340 $1.36 $5,430 $47,650 $0.11 
Dilutive stock option effect  —  442     —   203    
Convertible subordinated
     debt effect		  683  6,763     —  —    
  
 
    
 
    
Diluted earnings per share $67,975 $56,545 $1.20 $5,430 $47,853 $0.11 
  
 
    
 
    


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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 Six Months Ended 
 
 
 2004 2003 
 
 
  2005  2004   
 Net Income Shares Per Share Net Income Shares Per Share 
 (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount  Net Income
(Numerator)		 Shares
(Denominator)		 Per Share
Amount		 Net Income
(Numerator)		 Shares
(Denominator)		 Per Share
Amount		 
 
 
 
 
 
 
 
Basic earnings per share $99,254 $49,143 $2.02 $21,208 $47,625 $.45  $60,777  47,703 $1.27 $31,962  48,947 $.65 
Dilutive stock option effect — 473   — 195   —  362     —  502    
Convertible subordinated debt effect 1,328 6,763   — —   664  6,763     645  6,763    
 
 
   
 
 
  
Diluted earnings per share $100,582 $56,379 $1.78 $21,208 $47,820 $.44  $61,441  54,828 $1.12 $32,607  56,212 $.58 
 
 
   
 
 

The following table presents the common share equivalents that were excluded from the company’s diluted earnings per share calculation because they were anti-dilutive or not convertible at June 30March 31 (in thousands):

   2004 2003 
   
 
 
 Stock options  39  1,158 
 Convertible subordinated debt  —  6,763 
   
 
 
 Excluded common share equivalents  39  7,921 
   
 
 
Note 3.     Comprehensive Income
   2005 2004 
 
 Stock options  —  56 
 Convertible subordinated debt  —  — 
 Excluded common share equivalents  —  56 

Note 3. Comprehensive Income
The following table presents the company’s components of comprehensive income, net of related tax, for the three and six-monthsthree-month periods ended June 30March 31 (in thousands):

  Three Months Ended Six Months Ended 
  
 
 
  2004 2003 2004 2003 
  
 
 
 
 
Net income available to common shareholders $67,292 $5,430 $99,254 $21,208 
Unrealized gain on derivative instruments  1,176  590  1,823  975 
Unrealized gain (loss) on available-for-sale securities  (345) 114  (45) 57 
  
 
 
 
 
Comprehensive income $68,123 $6,134 $101,032 $22,240 
  
 
 
 
 
Hedge ineffectiveness gain $— $257 $275 $— 
  
 
 
 
 
Note 4.     Inventories
   2005 2004 
  
 Net income available to common shareholders $60,777 $31,962 
 Unrealized loss related to interest rate swaps  —  (284)
 Reclassification adjustment related to interest rate swaps  —  931 
 Unrealized gain on available-for-sale securities  —  300 
 Comprehensive income $60,777 $32,909 
         
 Hedge ineffectiveness gain $— $275 

Note 4. Inventories
Inventories are stated at lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. Inventory consisted of the following (in thousands):

   June 30, December 31, 
   2004 2003 
   
 
 
 Raw materials $110,419 $46,347 
 Supplies  69,797  60,420 
 Work-in-progress  30,061  15,996 
 Finished goods  69,893  61,733 
   
 
 
 Total inventories $280,170 $184,496 
   
 
 
Note 5.     Segment Information
   March 31,
2005		 December 31,
2004		 
 Raw materials $175,736 $174,254 
 Supplies  83,072  74,057 
 Work-in-progress  44,871  33,864 
 Finished goods  91,956  99,313 
 Total inventories $395,635 $381,488 

Note 5. Segment Information
The company has two reportable segments: steel operations and steel scrap substitute operations. The steel operations segment includes the company’s Flat Roll Division, Structural and Rail Division, and Bar Products Division. The Flat Roll Division sells a broad range of hot-rolled, cold-rolledThese divisions operate mini-mills, producing steel from steel scrap, using electric arc melting furnaces, continuous casting and coated steel products, including a large variety of specialty products such as thinner gauge hot-rolled products, galvanized products, and painted products.automated rolling mills. The Flat Roll Division sells directly to end-users and service centers located primarily in the Midwestern United States and these products are used in numerous industry sectors, including the automotive, construction and commercial industries.

The Structural and Rail Division produces and sells structural steel beams, pilings, and other steel components directly to end-users and steel service centers to be used primarily in the construction, transportation and industrial machinery markets. This facility is also designed to produce and sell a variety of standard and premium-grade rail for the railroad industry. The company completed standard rail production trials in the second quarter and anticipates beginning rail shipments during the second half of 2004.

On December 29, 2003, the company’s Bar Products Division began commissioning and successfully produced certain SBQ and MBQ rounds.operations during January 2004. The company continues to increase its SBQ and MBQ product offerings and anticipates the addition of angles, flats and channels during the third quarter. The facility’s anticipated annual production capacity is between 500,000 and 600,000 tons. The Bar Products Division markets its products directly to end-users and to service centers for the construction, transportation and industrial machinery markets.


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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Steel Scrap Substitute Operations. Steelsteel scrap substitute operations include the revenues and expenses associated with the company’s wholly owned subsidiary,steel scrap substitute facility, Iron Dynamics. From the time operations were halted in 2001 through the fourth quarter of 2002, the costs incurred at IDI were composed of those expenses required to maintain the facility and further evaluate the project and its related benefits. During the fourth quarter of 2002, IDI successfully completed certain operating trials utilizing a modified production process. This process may significantly reduce the eventual per-unit cost of liquid pig iron production. Throughout 2003, the company invested $13.3 million for capital expenditures required to implement this modified production process, and Iron Dynamics restarted operations mid-November 2003. Since restart, the Flat Roll Division has successfully used these iron briquettes as a part of its metallic raw material inputs. During the first half of 2004, IDI produced 83,700 tonnes of hot briquetted iron and after restarting the submerged arc furnace in the second quarter produced 6,400 tonnes of liquid pig iron.

Revenues included in the category “All Other” are from two subsidiary operations that are below the quantitative thresholds required for reportable segments. These revenues are from the fabrication of trusses, girders, steel joists and steel decking for the non-residential construction industry;and from the further processing, or slitting, and sale of certain steel products; and from the resale of certain secondary and excess steel products. In addition, “All Other” also includes certain unallocated corporate accounts, such as the company’s senior secured credit facilities, senior unsecured notes, convertible subordinatedsubordinate notes, and certain other investments.investments and profit sharing expenses.


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STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The company’s operations are primarily organized and managed byas operating segment.segments. Operating segment performance and resource allocations are primarily based on operating results before income taxes. The accounting policies of the reportable segments are consistent with those described in Note 1 to the financial statements. Refer to the company’s Annual Report on Form10-K for the year ended December 31, 2004, for more information related to the company’s segment reporting.

Intersegment sales and any related profits are eliminated in consolidation. The external net sales of the company’s steel operations include sales to non-U.S. companies of $10.5$25.0 million and $12.4$2.8 million for the three months ended June 30,March 31, 2005 and 2004, and 2003, respectively, and $21.4 million and $52.7 million for the six months ended June 30, 2004 and 2003, respectively. The company’s segment results for the three monthsthree-month periods ended March 31 are as follows (in thousands):

  Three Months Ended Six Months Ended 
  
 
 
  2004 2003 2004 2003 
  
 
 
 
 
Steel Operations
             
Net sales             
External $489,853 $199,264 $842,636 $415,838 
Other segments  22,980  10,375  43,265  22,804 
Operating income  127,434  22,262  192,351  63,303 
Assets  1,338,748  1,100,426  1,338,748  1,100,426 
              
Steel Scrap Substitute Operations
             
Net sales             
External $— $— $— $— 
Other segments  9,656  —  16,549  2 
Operating loss  (3,357) (2,294) (6,041) (4,388) 
Assets  161,102  152,114  161,102  152,114 
              
All Other
             
Net sales             
External $35,804 $19,368 $67,166 $38,298 
Other segments  292  139  645  256 
Operating loss  (8,092) (3,372) (10,954) (8,113) 
Assets  195,364  161,038  195,364  161,038 
              
Eliminations
             
Net sales             
External $— $— $— $— 
Other segments  (32,928) (10,514) (60,459) (23,062) 
Operating income (loss)  (869) 630  (1,700) 984 
Assets  (91,260) (102,448) (91,260) (102,448) 
              
Consolidated
             
Net sales $525,657 $218,632 $909,802 $454,136 
Operating income  115,116  17,226  173,656  51,786 
Assets  1,603,954  1,311,130  1,603,954  1,311,130 
Note 6.     Short-Term Bond Transaction

During the first quarter of 2004, the company entered into a transaction relating to the short-sale of $66.0 million of U.S. Treasury Securities. The transaction was intended to address interest rate exposure and generate capital gains. As a result of this transaction, the company recorded short-term capital gains of $3.2 million, interest income of $175,000 and interest expense of $3.5 million during the six-months ended June 30, 2004. The company has an obligation to repurchase, on or before November 12, 2004, $66.0 million of U.S. Treasury Securities that had a market value of $68.4 million at June 30, 2004. The company has placed the proceeds of $73.0 million from the short sale into an interest-bearing collateral account to provide for this repurchase. At June 30, 2004, the net obligation of this transaction was $202,000, which included net accrued interest payable of $4.8 million.

  2005 2004 
Steel Operations
       
Net sales       
External $534,561 $352,783 
Other segments  19,469  20,285 
Operating income  116,782  64,917 
Assets  1,470,132  1,258,039 
Steel Scrap Substitute Operations
       
Net sales       
External $— $— 
Other segments  14,576  6,893 
Operating income (loss)  162  (2,684)
Assets  139,002  158,912 
All Other
       
Net sales       
External $36,145 $31,362 
Other segments  150  353 
Operating loss  (9,615) (2,862)
Assets  1,691,896  230,449 
Eliminations
       
Net sales       
External $— $— 
Other segments  (34,195) (27,531)
Operating loss  (1,006) (831)
Assets  (1,564,583) (112,614)
Consolidated
       
Net sales $570,706 $384,145 
Operating income  106,323  58,540 
Assets  1,736,447  1,534,786 

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Condensed Consolidating Information

Note 7.     Condensed Consolidating Information

Certain 100%-owned subsidiaries of SDI have fully and unconditionally guaranteed all of the indebtedness relating to the issuance of $300.0 million of senior notes due March 2009. Following are condensed consolidating financial statements of the company, including the guarantors. The following condensed consolidating financial statements present the financial position, results of operations and cash flows of (i) SDI (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries of SDI, (iii) the non-guarantor subsidiaries of SDI, and (iv) the eliminations necessary to arrive at the information for the company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of the company and the company’s Annual Report on Form 10-K for the year ended December 31, 2003.2004.

Condensed Consolidating Balance Sheets (in thousands)
As of June 30, 2004
  Parent Guarantors Combined
non-guarantors		 Consolidating
adjustments		 Total
consolidated		 
  
 
 
 
 
 
Cash $32,514 $577 $5,350 $— $38,441 
Accounts receivable  166,006  158,768  23,233  (148,853) 199,154 
Inventories  222,819  36,417  21,203  (269) 280,170 
Other current assets  28,876  864  1,117  (189) 30,668 
  
 
 
 
 
 
Total current assets  450,215  196,626  50,903  (149,311) 548,433 
Property, plant and equipment, net  735,678  131,887  150,558  (118) 1,018,005 
Other assets  360,975  90,531  143  (414,133) 37,516 
  
 
 
 
 
 
Total assets $1,546,868 $419,044 $201,604 $(563,562)$1,603,954 
  
 
 
 
 
 
Accounts payable $102,749 $21,534 $18,043 $(21,365)$120,961 
Accrued expenses  61,433  5,034  6,816  (699) 72,584 
Current maturities of long-term debt  2,924  —  2,097  (21) 5,000 
  
 
 
 
 
 
Total current liabilities  167,106  26,568  26,956  (22,085) 198,545 
Other liabilities  104,845  142,206  10,949  (120,353) 137,647 
Long-term debt  562,417  —  1,032  (162) 563,287 
Minority interest  —  —  —  1,823  1,823 
Common stock  517  89,426  202,184  (291,610) 517 
Treasury stock  (28,908) —  —  —  (28,908) 
Additional paid in capital  376,945  116,868  —  (116,868) 376,945 
Retained earnings  366,373  43,976  (39,534) (14,307) 356,508 
Other accumulated comprehensive loss  (2,427) —  17  —  (2,410) 
  
 
 
 
 
 
   Total stockholders’ equity  712,500  250,270  162,667  (422,785) 702,652 
  
 
 
 
 
 
   Total liabilities and stockholders’ equity $1,546,868 $419,044 $201,604 $(563,562)$1,603,954 
  
 
 
 
 
 
As of December 31, 2003
  Parent Guarantors Combined
non-guarantors		 Consolidating
adjustments		 Total
consolidated		 
  
 
 
 
 
 
Cash $64,008 $496 $926 $— $65,430 
Accounts receivable  123,315  119,785  13,037  (130,114) 126,023 
Inventories  164,024  2,579  18,397  (504) 184,496 
Other current assets  32,938  68  168  (1,188) 31,986 
  
 
 
 
 
 
Total current assets  384,285  122,928  32,528  (131,806) 407,935 
Property, plant and equipment, net  755,707  96,757  148,769  (117) 1,001,116 
Other assets  260,538  36,855  262  (258,267) 39,388 
  
 
 
 
 
 
Total assets $1,400,530 $256,540 $181,559 $(390,190)$1,448,439 
  
 
 
 
 
 
Accounts payable $64,069 $15,618 $11,025 $(11,386)$79,326 
Accrued expenses  52,365  1,699  5,046  (1,120) 57,990 
Current maturities of long-term debt  11,765  —  4,243  (20) 15,988 
  
 
 
 
 
 
Total current liabilities  128,199  17,317  20,314  (12,526) 153,304 
Other liabilities  108,680  73,310  (13,587) (52,700) 115,703 
Long-term debt  575,608  —  24,826  (8,848) 591,586 
Minority interest  28  —  —  585  613 
Common stock  509  46,482  189,735  (236,217) 509 
Treasury stock  (28,670) —  —  —  (28,670) 
Additional paid in capital  362,328  116,868  —  (116,868) 362,328 
Retained earnings  257,919  2,563  (39,612) 36,384  257,254 
Other accumulated comprehensive loss  (4,071) —  (117) —  (4,188) 
  
 
 
 
 
 
   Total stockholders’ equity  588,015  165,913  150,006  (316,701) 587,233 
  
 
 
 
 
 
   Total liabilities and stockholders’ equity $1,400,530 $256,540 $181,559 $(390,190)$1,448,439 
  
 
 
 
 
 

Condensed Consolidating Balance Sheets (in thousands)

As of March 31, 2005 Parent Guarantors Combined
Non-Guarantors		 Consolidating
Adjustments		 Total
Consolidated		 
  
 
 
 
 
 
Cash $3,184 $305 $258 $— $3,747 
Accounts receivable  253,583  138,678  24,203  (148,671) 267,793 
Inventories  370,650  —  27,837  (2,852) 395,635 
Other current assets  14,879  —  247  —  15,126 
Total current assets  642,296  138,983  52,545  (151,523) 682,301 
Property, plant and equipment, net  968,005  —  54,311  (118) 1,022,198 
Other assets  11,950  74,568  223  (54,793) 31,948 
Total assets $1,622,251 $213,551 $107,079 $(206,434)$1,736,447 
                 
Accounts payable $155,341 $(11,805)$7,181 $1,813 $152,530 
Accrued expenses  47,904  746  2,575  (746) 50,479 
Current maturities of long-term debt  2,100  —  6,746  —  8,846 
Total current liabilities  205,345  (11,059) 16,502  (1,067) 211,855 
Other liabilities  151,875  66,350  68,852  (64,285) 222,792 
Long-term debt  460,330  —  —  —  460,330 
Minority interest  —  —  —  2,588  2,588 
                 
Common stock  527  2  17,210  (17,212) 527 
Treasury stock  (160,841) —  —  —  (160,841)
Additional paid in capital  402,865  116,868  —  (116,868) 402,865 
Retained earnings  562,150  41,390  4,515  (11,724) 596,331 
Total stockholders’ equity  804,701  158,260  21,725  (145,804) 838,882 
Total liabilities and stockholders’ equity $1,622,251 $213,551 $107,079 $(206,434)$1,736,447 
                 
                 
As of December 31, 2004 Parent Guarantors Combined
Non-Guarantors		 Consolidating
Adjustments		 Total
Consolidated		 
  
 
 
 
 
 
Cash $15,202 $323 $809 $— $16,334 
Accounts receivable  188,675  130,903  29,636  (95,353) 253,861 
Inventories  281,594  65,691  36,212  (2,009) 381,488 
Other current assets  25,309  261  287  (21) 25,836 
Total current assets  510,780  197,178  66,944  (97,383) 677,519 
Property, plant and equipment, net  713,641  142,542  167,979  (118) 1,024,044 
Other assets  364,636  59,679  95  (392,354) 32,056 
Total assets $1,589,057 $399,399 $235,018 $(489,855)$1,733,619 
                 
Accounts payable $115,458 $9,800 $14,674 $1,956 $141,888 
Accrued expenses  70,752  8,319  6,990  (1,515) 84,546 
Current maturities of long-term debt  2,095  —  4,702  (23) 6,774 
Total current liabilities  188,305  18,119  26,366  418  233,208 
Other liabilities  131,508  188,139  40,955  (151,387) 209,215 
Long-term debt  440,519  —  786  —  441,605 
Minority interest  —  —  —  2,469  2,469 
                 
Common stock  523  89,426  202,184  (291,610) 523 
Treasury stock  (84,141) —  —  —  (84,141)
Additional paid in capital  390,505  116,868  —  (116,868) 390,505 
Retained earnings  521,538  (13,153) (35,273) 67,123  540,235 
Total stockholders’ equity  828,425  193,141  166,911  (341,355) 847,122 
Total liabilities and stockholders’ equity $1,589,057 $399,399 $235,018 $(489,855)$1,733,619 

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statements of Income (in thousands)
For the Three Months Ended, June 30, 2004
  Parent Guarantors Combined
non-guarantors		 Consolidating
adjustments		 Total
consolidated		 
  
 
 
 
 
 
Net sales $471,903 $512,833 $45,752 $(504,831)$525,657 
Cost of goods sold  337,053  500,539  42,413  (497,546) 382,459 
  
 
 
 
 
 
   Gross profit (loss)  134,850  12,294  3,339  (7,285) 143,198 
Selling, general and administrative  21,547  3,806  2,840  (111) 28,082 
  
 
 
 
 
 
Operating income (loss)  113,303  8,488  499  (7,174) 115,116 
Interest expense  9,989  4  427  —  10,592 
Other (income) expense  27,862  (30,865) —  (140) (3,143) 
  
 
 
 
 
 
Income (loss) before income taxes and equity in net loss of subsidiaries  75,452  39,349  72  (7,206) 107,667 
Income taxes  29,062  14,004  27  (2,718) 40,375 
  
 
 
 
 
 
   46,390  25,345  45  (4,488) 67,292 
Equity in net income of subsidiaries  25,390  —  —  (25,390) — 
  
 
 
 
 
 
Net income (loss) $71,780 $25,345 $45 $(29,878)$67,292 
  
 
 
 
 
 
For the Three Months Ended, June 30, 2003
  Parent Guarantors Combined
non-guarantors		 Consolidating
adjustments		 Total
consolidated		 
  
 
 
 
 
 
Net sales $209,640 $— $19,506 $(10,514)$218,632 
Cost of goods sold  177,905  —  19,911  (11,092) 186,724 
  
 
 
 
 
 
   Gross profit (loss)  31,735  —  (405) 578  31,908 
Selling, general and administrative  11,480  949  2,305  (52) 14,682 
  
 
 
 
 
 
Operating income (loss)  20,255  (949) (2,710) 630  17,226 
Interest expense  8,981  (287) 430  (186) 8,938 
Other (income) expense  12,353  (12,967) (1) 216  (399) 
  
 
 
 
 
 
Income (loss) before income taxes and equity in net loss of subsidiaries  (1,079) 12,305  (3,139) 600  8,687 
Income taxes  130  4,304  (1,177) —  3,257 
  
 
 
 
 
 
   (1,209) 8,001  (1,962) 600  5,430 
Equity in net income of subsidiaries  6,040  —  —  (6,040) — 
  
 
 
 
 
 
Net income (loss) $4,831 $8,001 $(1,962)$(5,440)$5,430 
  
 
 
 
 
 

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STEEL DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statements of Income (in thousands)

For the Six Months Ended,
June 30, 2004

      Combined Consolidating Total 
  Parent Guarantor non-guarantors adjustments consolidated 
  
 
 
 
 
 
Net sales $836,004 $885,901 $84,360 $(896,463)$909,802 
Cost of goods sold  620,233  868,514  77,663  (881,396) 685,014 
  
 
 
 
 
 
Gross profit  215,771  17,387  6,697  (15,067) 224,788 
Selling, general and administrative  38,430  7,268  5,702  (268) 51,132 
  
 
 
 
 
 
Operating income (loss)  177,341  10,119  995  (14,799) 173,656 
Interest expense  19,872  (629) 843  10  20,096 
Other (income) expense  48,147  (53,444) (2) 53  (5,246)
  
 
 
 
 
 
Income (loss) before income taxes and Equity in net loss of subsidiaries  109,322  64,192  154  (14,862) 158,806 
Income taxes  42,377  22,779  58  (5,662) 59,552 
  
 
 
 
 
 
   66,945  41,413  96  (9,200) 99,254 
Equity in net income of subsidiaries  41,509  —  —  (41,509) — 
  
 
 
 
 
 
Net income (loss) $108,454 $41,413 $96 $(50,709)$99,254 
  
 
 
 
 
 

For the Six Months Ended,
June 30, 2003

For the Three Months Ended,                
March 31, 2005           
           
     Combined Consolidating Total  Parent Guarantors Combined
Non-Guarantors		 Consolidating
Adjustments		 Total
Consolidated		 
 Parent Guarantor non-guarantors adjustments consolidated 
 
 
 
 
 
            
Net sales $438,643 $— $38,555 $(23,062)$454,136  $568,605 $521,727 $36,295 $(555,921)$570,706 
Cost of goods sold 356,745 — 39,565 (23,617) 372,693 
Costs of goods sold 443,399 516,644 31,879 (549,993) 441,929 
 
 
 
 
 
 
Gross profit 81,898 — (1,010) 555 81,443  125,206 5,083 4,416 (5,928) 128,777 
Selling, general and administrative 24,215 1,455 4,416 (429) 29,657  18,587 1,905 3,687 (1,725) 22,454 
 
 
 
 
 
 
Operating income (loss) 57,683 (1,455) (5,426) 984 51,786 
Interest expense 18,068 (520) 885 (329) 18,104 
Operating income 106,619 3,178 729 (4,203) 106,323 
Other (income) expense 26,352 (26,989) (2) 389 (250) (40,888) 33,891 (472) (30) (7,499)
 
 
 
 
 
 
Income (loss) before income taxes and Equity in net loss of subsidiaries 13,263 26,054 (6,309) 924 33,932 
Income before income taxes and equity in net loss of subsidiaries 65,731 37,069 257 (4,233) 98,824 
Income taxes 5,966 9,124 (2,366) — 12,724  25,964 13,289 99 (1,305) 38,047 
 
 
 
 
 
 
 7,297 16,930 (3,943) 924 21,208  39,767 23,780 158 (2,928) 60,777 
Equity in net income of subsidiaries 12,988 — — (12,988) —  23,938 — — (23,938) — 
 
 
 
 
 
 
Net income (loss) $20,285 $16,930 $(3,943)$(12,064)$21,208  $63,705 $23,780 $158 $(26,866)$60,777 
 
 
 
 
 
 
           
           
For the Three Months Ended,           
March 31, 2004           
 Parent Guarantors Combined
Non-Guarantors		 Consolidating
Adjustments		 Total
Consolidated		 
           
Net sales $364,101 $373,068 $38,608 $(391,632)$384,145 
Costs of good sold 287,695 368,575 35,250 (383,850) 307,670 
Gross profit (loss) 76,406 4,493 3,358 (7,782) 76,475 
Selling, general and administration 12,368 2,862 2,862 (157) 17,935 
Operating income (loss) 64,038 1,631 496 (7,625) 58,540 
Interest expense 9,883 (633) 416 (162) 9,504 
Other (income) expense 20,285 (22,579) (2) 193 (2,103)
Income (loss) before income taxes and equity in net loss of subsidiaries 33,870 24,843 82 (7,656) 51,139 
Income taxes 13,315 8,775 31 (2,944) 19,177 
 20,555 16,068 51 (4,712) 31,962 
Equity in net income of subsidiaries 16,119 — — (16,119) — 
Net income (loss) $36,674 $16,068 $51 $(20,831)$31,962 

Condensed Consolidating Statements of Cash Flows (in thousands)

For the Six Months Ended,
June 30, 2004

      Combined Total 
  Parent Guarantors non-guarantors consolidated 
  
 
 
 
 
Net cash provided by (used in) operations $112,333 $(57,245)$(1,006)$54,082 
Net cash used in investing activities  (12,677) (36,511) (5,472) (54,660)
Net cash provided by (used in) in financing activities  (131,150) 93,837  10,902  (26,411)
  
 
 
 
 
Increase (decrease) in cash and equivalents  (31,495) 82  4,424  (26,989)
Cash and equivalents at beginning of year  64,008  496  926  65,430 
  
 
 
 
 
Cash and equivalents at end of year $32,514 $577 $5,350 $38,441 
  
 
 
 
 

For the Six Months Ended
June 30, 2003

For the Three Months Ended,             
March 31, 2005          
     Combined Total  Parent Guarantors Combined
Non-Guarantors		 Total
Consolidated		 
          
Net cash provided by (used in) operations $77,623 $(14,748)$(7,900)$54,975 
Net cash used in investing activities  (7,107) — (12,034) (19,141)
Net cash provided by (used in) in financing activities  (68,304) — 19,883 (48,421)
Increase (decrease) in cash and equivalents  2,212 (14,748) (51) (12,587)
Cash and equivalents at beginning of year  4,157 11,869 308 16,334 
Cash and equivalents at end of period $6,369 $(2,879)$257 $3,747 
          
          
For the Three Months Ended          
March 31, 2004 Parent Guarantors Combined
Non-Guarantors		 Total
Consolidated		 
 Parent Guarantors non-guarantors consolidated 
 
 
 
 
           
Net cash provided by (used in) operations $61,420 $(720)$(2,356)$58,344  $37,145 $(26,961)$481 $10,665 
Net cash used in investing activities (55,626) (8,463) (5,299) (69,388)  (5,891) (16,192) (1,822) (23,905)
Net cash provided by (used in) financing activities (17,789) 9,162 7,381 (1,246)  (39,469) 43,281 2,292 6,104 
 
 
 
 
 
Decrease in cash and equivalents (11,995) (21) (274) (12,290)
Cash and equivalents at beginning of year 22,530 282 1,406 24,218 
Increase (decrease) in cash and cash equivalents  (8,215) 128 951 (7,136)
Cash and cash equivalents at beginning of year  64,008 496 926 65,430 
 
 
 
 
 
Cash and equivalents at end of year $10,535 $261 $1,132 $11,928 
Cash and cash equivalents at end of period $55,793 $624 $1,877 $58,294 
 
 
 
 
 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements made in this report that are not statements of historical fact are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, without limitation, any statements that may project, indicate or imply future results, events, performance or achievements. We refer you, however, to the section denominated “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2003, which we incorporate

Statements made in this report that are not statements of historical fact are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, without limitation, any statements that may project, indicate or imply future results, events, performance or achievements. We refer you to the section denominated “Special Note Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2004, incorporated herein by reference, for a more detailed discussion of some of the many factors, variables, risks and uncertainties that could cause actual results to differ materially from those we may have expected or anticipated. We caution that any forward-looking statement reflects only our reasonable belief at the time the statement is made.

Income Statement Classifications

Net Sales. Our total net sales are a factor of net tons shipped, product mix and related pricing. Our net sales are determined by subtracting product returns, sales discounts, return allowances and claims from total sales. We charge premium prices for certain grades of steel, dimensions of product, or certain smaller volumes, based on our cost of production. We also charge marginally higher prices for our value-added products from our cold mill. These products include hot-rolled and cold-rolled galvanized products, cold-rolled products, and painted products.

Cost of Goods Sold. Our cost of goods sold represents all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are steel scrap and scrap substitutes, alloys, natural gas, argon, direct and indirect labor and related benefits, electricity, oxygen, electrodes, depreciation and freight. Our metallic raw materials, steel scrap and scrap substitutes, represent the most significant component of our cost of goods sold.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist of all costs associated with our sales, finance and accounting, materials and transportation, and administrative departments. These costs include labor and benefits, professional services, financing cost amortization, property taxes, profit-sharing expense and start-up costs associated with new projects.

Interest Expense. Interest expense consists of interest associated with our senior credit facilities and other debt agreements as described in the notes to our financial statements set forth in our most recent Annual Report on Form 10-K, net of capitalized interest costs that are related to construction expenditures during the construction period of capital projects.

Other (Income) Expense.

Net Sales.    Our total net sales are a factor of net tons shipped, product mix and related pricing. Our net sales are determined by subtracting product returns, sales discounts, return allowances and claims from total sales. We charge premium prices for certain grades of steel, dimensions of product, or certain smaller volumes, based on our cost of production. We also charge marginally higher prices for our value-added products. These products include hot-rolled and cold-rolled galvanized products, cold-rolled products, and painted products from our Flat Roll Division and certain special bar quality products from our Bar Products Division.

Cost of Goods Sold.    Our cost of goods sold represents all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are steel scrap and scrap substitutes, alloys, natural gas, argon, direct and indirect labor and related benefits, electricity, oxygen, electrodes, depreciation, materials and transportation, and freight. Our metallic raw materials, steel scrap and scrap substitutes, represent the most significant component of our cost of goods sold.

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 labor and benefits, professional services, financing cost amortization, property taxes, profit-sharing expense and start-up costs associated with new projects.

Interest Expense.    Interest expense consists of interest associated with our senior credit facilities and other debt agreements as described in the notes to our financial statements set forth in our most recent Annual Report on Form 10-K, net of capitalized interest costs that are related to construction expenditures during the construction period of capital projects.

Other (Income) Expense.    Other income consists of interest income earned on our cash balances and any other non-operating income activity, including gains on certain short-term investments. Other expense consists of any non-operating costs.

SecondFirst Quarter 2004 vs. Second Quarter 2003 Operating Results 2005 vs. 2004

Net income was $67.3 million or $1.20 per diluted share during the second quarter of 2004, compared with $5.4 million or $.11 per diluted share during the second quarter of 2003. This increase in our net income during 2004 was due to increased selling values and increased shipping volumes.

Gross Profit. During the second quarter of 2004, our net sales increased $307.0 million, or 140%, to $525.7 million and our consolidated shipments increased 236,000 tons, or 36%, to 889,000 tons, compared with the second quarter of 2003. The increase in shipments was primarily due to increased shipments of 101,000 tons from our Structural and Rail Division, which started commercial operations mid-2002 and shipments of 82,000

Net income was $60.8 million or $1.12 per diluted share during the first quarter of 2005, compared with $32.0 million or $.58 per diluted share during the first quarter of 2004. This increase in our net income during 2005 was due to increased selling values and increased shipping volumes.

Gross Profit.    During the first quarter of 2005, our net sales increased $186.6 million, or 49%, to $570.7 million and our consolidated shipments increased 55,000 tons, or 7%, to 853,000 tons, compared with the first quarter of 2004. The increase in shipments was primarily due to increased shipments of 70,000 tons from our Bar Products Division, which started commercial operations during the first quarter of 2004. As depicted by the following graph, our first quarter 2005 average consolidated selling price increased $188 per ton compared with the first quarter of 2004, but decreased $41 per ton from the fourth quarter of 2004. Our second quarter 2004 average consolidated selling price increased $256 per ton compared with the second quarter of 2003 and increased $110 per ton compared with the first quarter of 2004. We continue to see signs of a strengthening US economy and we are experiencing a related increase in demand and product base-pricing; however, our increase in selling values during the first half of 2004 was also due in part to the steel industry’s initiation of a surcharge mechanism, derived from an indexed scrap number, designed to pass some of the increased costs associated with rising metallic prices through to its customers.

Our metallic raw material cost per net ton charged increased $82 during the first half of 2004, of which $16 per ton occurred during the second quarter. When compared to the first half of 2003, our metallic raw material cost per net ton charged increased $98, or 81%. Our metallic raw material costs as a percentage of total cost of goods sold increased to 62%, a 12% increase from the first half of 2003. This increase in the cost of our primary raw material as a percentage of our total manufacturing costs necessitated the surcharge. We anticipate a further increase in our metallic raw material costs, specifically steel scrap, during the remainder of 2004. If these costs fall from historical highs, the surcharge will also decline and may eventually cease to be utilized in our product price determination.

We also expect to realize an increase in our product base-prices during the third quarter of 2004 as the US economy continues to strengthen and demand of steel products continues to increase. We believe this will result in a corresponding increase in our margins and, combined with an anticipated increase in our shipments due to the continued ramp-up of our Structural and Rail Division and the continued start-up of our Bar Products Division, would result in increased operating income.


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Selling, General and Administrative Expenses. Selling, general and administrative expenses were $28.1 million during the second quarter of 2004, as compared to $14.7 million during the same period in 2003, an increase of $13.4 million, or 91%. This increase was attributed to increased profit sharing expense of $5.3 million, due to our increased income before taxes and to our June 2004 refinancing which resulted in a write-off of previously capitalized financing costs in the amount of $3.1 million. During the second quarter of 2004 and 2003, selling, general and administrative expenses represented approximately 5% and 7% of net sales, respectively.

Interest Expense. During the second quarter of 2004, gross interest expense increased 13% to $12.0 million and capitalized interest decreased $254,000 to $1.4 million, as compared to the same period in 2003. Gross interest expense remained relatively flat during the first half of 2004. The interest capitalization that occurred during 2004 resulted from the interest required to be capitalized with respect to construction activities at our Bar Products Division and Structural and Rail Division. We anticipate gross interest expense and capitalized interest to continue to decrease slightly through the end of the year.

Other (Income) Expense. Other income was $3.1 million during the second quarter of 2004, as compared to $400,000 during 2003. During the first quarter of 2004 we entered into a short-term U.S. Treasury Bond transaction which is intended to address interest rate exposure and generate capital gains. During the second quarter of 2004, we recorded a $1.9 million gain as a result of this transaction. We also recorded a $1.0 million gain from the early extinguishment of certain debt associated with our Structural and Rail Division.

Income Taxes. During the second quarter of 2004, our income tax provision was $40.4 million, as compared to $3.3 million during the same period in 2003. Our effective income tax rate was 37.5% for both periods; however, if our profitability is sustained or increases during the second half of 2004, we may increase our effective income tax rate to 38%. This increase would be necessary due to an increase in state income taxes created by higher profitability.

First Half

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Our product mix for the first quarter of 2005 remained relatively consistent with that of the fourth quarter of 2004; however, our mix was more diversified when compared to the first quarter of 2004 vs. First Halfand 2003 Operating Resultsdue to the start-up operations at our Bar Products Division in January 2004 and due to the continued ramp-up of our Structural and Rail Division. We anticipate a further diversification of our product mix during 2005 as we continue to develop, market and ship new bar products and expand our rail product offerings to include prime products later this year. The following table depicts our product mix by major product category based on tons shipped within our steel operations segment for the three months ended March 31:

      Net income was $99.3 million or $1.78 per diluted share during the first half of 2004, compared with $21.2 million or $.44 per diluted share during the first half of 2003. This increase in our net income during 2004 was due to increased selling values and increased shipping volumes.

Gross Profit. During the first half of 2004, our net sales increased $455.7 million, or 100%, to $909.8 million and our consolidated shipments increased 387,000 tons, or 30%, to 1.7 million tons, compared with the first half of 2003. The increase in shipments was primarily due to increased shipments of 232,000 tons from our Structural and Rail Division, which started commercial operations mid-2002 and shipments of 102,000 tons from our Bar Products Division, which started commercial operations during the first quarter of 2004. Our first half 2004 average consolidated selling price increased $190 per ton, or 54%, compared with the first half of 2003. This is due in part to the previously discussed increase in base-prices resulting from strong demand, the surcharge mechanism and our shipping product mix becoming higher-value added with the addition of the Flat Roll Division’s painted products and the continued ramp-up of our Bar Products Division.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $51.1 million during the first half of 2004, as compared to $29.7 million during the same period in 2003, an increase of $21.5 million, or 72%. This increase was attributed to increased profit sharing expense of $6.4 million, due to our increased income before taxes and to our June 2004 refinancing which resulted in a write-off of previously capitalized financing costs in the amount of $3.1 million. During the first half of 2004 and 2003, selling, general and administrative expenses represented approximately 6% and 7%
      2003 2004 2005 
 Flat Roll  Hot Band  43% 29% 32%
    Pickled & Oiled  10  4  4 
    Cold Rolled  8  5  5 
    Cold Rolled Galvanized  10  17  9 
    Hot Rolled Galvanized  15  12  10 
    Post Anneal  4  2  — 
    Painted  —  4  7 
 Structural  Wide Flange Beams & H-Piling  10  25  22 
 Bar  Special Bar Quality & Merchant Shapes  —  2  11 

Metallic raw materials used in our electric arc furnaces represent our single-most significant manufacturing cost. Our metallic raw material cost per net ton consumed in our furnaces decreased $16 during the first quarter of 2005 and increased $63 when compared to the same period of 2004. Historically our metallic raw material costs represented between 45% and 50% of our total manufacturing costs; however, for the year 2004 this percentage increased to 67% during the third quarter due to the elevated cost of our metallic raw materials, specifically steel scrap. This increase in the cost of our primary raw material as a percentage of our total manufacturing costs necessitated the initiation of a surcharge mechanism which was adopted by the steel industry during the first quarter of 2004. The surcharge is derived from an indexed scrap number and designed to pass some of the increased costs associated with rising metallic prices through to our customers. As these costs fall from historical highs, the surcharge will also decline and may eventually cease to be utilized in determining prices for our products.

We are currently experiencing continued softening in base prices for our products, specifically within the flat-rolled and structural steel markets. Our customers’ inventories remained higher than expected during the first quarter of 2005 and are being depleted more slowly than anticipated which we believe will result in a somewhat lower average selling price for our second quarter. The cost of our metallic raw materials also continues to decline.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses were $22.5 million during the first quarter of 2005, as compared to $17.9 million during the same period in 2004, an increase of $4.5 million, or 25%. This increase was attributed to increased profit sharing expense of $3.6 million, which resulted from increased pretax earnings and an increase in the amount of pretax earnings allocated to our profit sharing pool from 5% to 6% in 2005 compared to the first half of 2004. Selling, general and administrative expenses represented 4% and 5% of net sales during the first quarter of 2005 and 2004, respectively.

Interest Expense. Interest expense remained relatively flat at $20.1 million during the first half of 2004, as compared to $18.1 million during the first half of 2003. During the first half of 2004, gross interest expense increased 12% to $23.9 million and capitalized interest increased $636,000 to $3.8 million, as compared to the same period in 2003. The interest capitalization that occurred during the first half of 2004 resulted from the interest required to be capitalized with respect to construction activities at our Bar Products Division and Structural and Rail Division.

Other (Income) Expense. Other income was $5.2 million during the first half of 2004, as compared to $250,000 during the first half of 2003. During the first quarter of 2004 we entered into a short-term U.S. Treasury Bond transaction which is intended to address interest rate exposure and generate capital gains. During the first half of 2004, we recorded a $3.3 million gain as a result of this transaction. We also recorded a $1.0 million gain from the early extinguishment of certain debt associated with our Structural and Rail Division during the second quarter.

Income Taxes. During the first half of 2004, our income tax provision was $59.6 million, as compared to $12.7 million during the same period in 2003. Our effective tax rate was 37.5% for both periods.


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Interest Expense.    During the first quarter of 2005, gross interest expense decreased $3.4 million, or 29%, to $8.4 million and capitalized interest decreased $2.0 million to $343,000, as compared to the same period in 2004. This decrease in gross interest expense was the result of the repayment of certain debt instruments during the second half of 2004 and due to interest expense of $1.6 million that was recorded during the first quarter of 2004 in conjunction with a one-time short-term U.S. Treasury bond transaction. The interest capitalization that occurred during these periods resulted from the interest required to be capitalized with respect to construction activities at our Bar Products Division and Structural and Rail Division. We currently anticipate gross interest expense to remain consistent with the first quarter throughout the remainder of the year.

Other (Income) Expense.    Other income was $578,000 during the first quarter of 2005, as compared to $2.1 million during 2004. During the first quarter of 2004 we entered into a one-time short-term U.S. Treasury Bond transaction to generate net interest income in an increasing interest rate environment and to generate capital gains. This transaction was completed during the fourth quarter of 2004 and we recorded associated gains of $1.5 million during the first quarter of 2004.

Income Taxes.    During the first quarter of 2005, our income tax provision was $38.0 million, as compared to $19.2 million during the same period in 2004. Our effective income tax rate was 37.5% for the first half of 2004. We increased our effective income tax rate to 38.5% beginning January 1, 2005 in anticipation of the year’s expected profitability levels and the resulting impact to our state income taxes.

Liquidity and Capital Resources

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

Working Capital.    During the first quarter of 2005, our operational working capital position, representing our cash invested in trade receivables and inventories less trade payables and accruals increased $51.5 million to $460.4 million compared to December 31, 2004. Due to slightly increased sales volume, trade receivables increased $13.9 million during the first quarter to $267.8 million, of which 97%, were current or less than 60 days past due. Our largest customer is an affiliated company, Heidtman Steel, which represented 18% and 15% of our outstanding trade receivables at March 31, 2005 and December 31, 2004, respectively. During the first quarter of 2005 our inventories increased $14.1 million to $395.6 million, due in part to additional supplies and spare rolls purchased at our Bar Products Division. Our trade payables and accruals decreased $23.4 million, or 10%, during the first quarter due primarily to the funding of our 2004 401(k) retirement savings and profit sharing plan contribution in March 2005.

Capital Expenditures.    During the first quarter of 2005 we invested $19.1 million in property, plant and equipment related to the expansion of our joist and deck operations and to improvement projects in our existing facilities. Approximately 62% of our capital investments during the first quarter were related to the expansion of our New Millennium joist and deck operations with the addition of a plant in Lake City, Florida. We believe these capital investments will increase our net sales and related cash flows as each project develops.

Capital Resources.During the first quarter of 2005 our total outstanding debt, including unamortized bond premium, increased $20.8 million to $469.2 million. Our long-term debt to capitalization ratio, representing our long-term debt divided by the sum of our long-term debt and our total stockholders’ equity, was 35% and 34% at March 31, 2005 and December 31, 2004, respectively.

At March 31, 2005, we had $20.0 million in outstanding borrowings related to our $230.0 million senior secured revolving credit facility. Our senior secured credit agreement is secured by liens and mortgages on substantially all of our personal and real property assets, by liens and mortgages on substantially all of the personal and real property assets of our wholly-owned subsidiaries, and by pledges of all shares of capital stock and inter-company debt held by us and each wholly-owned subsidiary. The senior secured credit agreement contains financial covenants and other covenants that limit or restrict our ability to make capital expenditures; incur indebtedness; permit liens on our property; enter into transaction 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 draw down the revolver is dependent upon our continued compliance with the financial covenants and other covenants contained in our senior secured credit agreement. We were in compliance with these covenants at March 31, 2005, and expect to remain in compliance during the next twelve months.

During the first quarter of 2005, our board of directors declared a cash dividend of $.10 (ten cents) per common share for shareholders of record at close of business on March 31, 2005. The cash dividend of $4.8 million was paid on April 14, 2005. On April 20, 2005, we announced the approval of our board of directors to increase the shares available for the company to repurchase from 5 million shares to 7.5 million shares pursuant to the 2004 share repurchase program. At March 31, 2005, we had repurchased 3.7 million shares pursuant to the program in the open market at an average price of $35 per share. We repurchased an additional 1.9 million shares during April 2005 at an average price of $31 per share and at April 29, 2005, we had approximately 1.9 million shares still authorized for repurchase.

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


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Working Capital. During the first half of 2004, our operational working capital position, representing our cash invested in trade receivables and inventories less trade payables and accruals increased $112.6 million to $285.8 million compared to December 31, 2003. Due to higher selling prices and increased sales volume, trade receivables increased $73.1 million during the first half to $199.2 million, of which $197.1 million, or 99%, were less than 60 days past due. Our largest customer is an affiliated company, Heidtman Steel, which represented 14% and 20% of our outstanding trade receivables at June 30, 2004 and December 31, 2003, respectively. During the first half our inventories increased $95.7 million to $280.2 million, due primarily to the increased cost and volume of our metallic raw materials on-hand and to the start-up production of our Bar Products Division. Our trade payables increased $41.6 million during the first half, a significant portion of which was associated with the amount we owed various vendors for metallic raw material purchases.

Capital Expenditures. We invested $54.7 million in property, plant and equipment during the first half of 2004 related to our new divisions and improvement projects in our existing facilities. Approximately 67% of our capital investments were related to the continued conversion of our Bar Products Division. We believe these capital investments will increase our net sales and related cash flows as each project continues to develop.

Capital Resources. On June 30, 2004, we completed a refinancing of our senior secured credit facilities and entered into a new 4-year $230 million senior secured revolving credit facility. A portion of the proceeds from the new revolver and cash on hand were used to prepay certain existing senior secured debt, including our term loan B facility of $108 million. At June 30, 2004, with the completion of the refinancing, we increased our credit facility liquidity from approximately $75 million to $130 million. The proceeds from the revolver will be available for working capital and other general corporate purposes. As a result of this refinancing we wrote-off $3.1 million of previously capitalized financing costs associated with the refinanced debt. Our ability to draw down the revolver is dependent upon our continued compliance with the financial covenants and other covenants contained in our senior secured credit agreement. We were in compliance with these covenants at June 30, 2004, and expect to remain in compliance during the next twelve months.

Our new senior secured credit agreement allows us to pay cash dividends dependent upon our continued compliance with the financial covenants and other covenants within the agreement. On July 14, 2004, our Board of Directors declared our first cash dividend. The dividend of $0.075 (seven and one-half cents) per common share is payable August 13, 2004 to shareholders of record at the close of business on July 26, 2004. We estimate the aggregate dividend payment will be $3.7 million.

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 regulation factors that are largely beyond our control. In addition, we cannot assure you that our operating results, cash flow and capital resources will be sufficient for repayment of our indebtedness in the future. We believe that based upon current levels of operations and anticipated growth, cash flow from operations, together with other available sources of funds, including additional borrowings under our senior secured credit agreement, will be adequate for the next twelve months


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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 regulation factors that are largely beyond our control. In addition, we cannot assure you that our operating results, cash flow and capital resources will be sufficient for repayment of our indebtedness in the future. We believe that based upon current levels of operations and anticipated growth, cash flow from operations, together with other available sources of funds, including additional borrowings under our senior secured credit agreement, will be adequate for the next two years for making required payments of principal and interest on our indebtedness and for funding anticipated capital expenditures and working capital requirements.

Other Matters

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

Environmental and Other Contingencies. We have incurred, and in the future will continue to incur, capital expenditures and operating expenses for matters relating to environmental control, remediation, monitoring and compliance. We believe, apart from our dependence on environmental construction and operating permits for our existing and proposed manufacturing facilities, that compliance with current environmental laws and regulations is not likely to have a material adverse effect on our financial condition, results of operations or liquidity; however, environmental laws and regulations have changed rapidly in recent years

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

Environmental and Other Contingencies.    We have incurred, and in the future will continue to incur, capital expenditures and operating expenses for matters relating to environmental control, remediation, monitoring and compliance. We believe, apart from our dependence on environmental construction and operating permits for our existing and proposed manufacturing facilities, that compliance with current environmental laws and regulations is not likely to have a material adverse effect on our financial condition, results of operations or liquidity; however, environmental laws and regulations are subject to change and we may become subject to more stringent environmental laws and regulations in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk.    In the normal course of business we are exposed to interest rate changes. Our objectives in managing exposure to interest rate changes are to limit the impact of these rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to our portfolio of borrowings. We generally maintain fixed rate debt as a percentage of our net debt between a minimum and maximum percentage. A portion of our debt has an interest component that resets on a periodic basis to reflect current market conditions. At March 31, 2005, no material changes had occurred related to our interest rate risk from the information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004.

Market Risk. In the normal course of business we are exposed to interest rate changes. Our objectives in managing exposure to interest rate changes are to limit the impact of these rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to our portfolio of borrowings. We generally maintain fixed rate debt as a percentage of our net debt between a minimum and maximum percentage. A portion of our debt has an interest component that resets on a periodic basis to reflect current market conditions. At June 30, 2004, no material changes had occurred related to our interest rate risk from the information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003.

Commodity Risk.    In the normal course of business we are exposed to the market risk and price fluctuations related to the sale of steel products and to the purchase of commodities used in our production process, such as metallic raw materials, electricity, natural gas and alloys. Our risk strategy associated with product sales has generally been to obtain competitive prices for our products and to allow operating results to reflect market price movements dictated by supply and demand. Generally, our risk strategy associated with the purchase of commodities utilized within our production process is to make certain commitments with suppliers relating to future expected requirements for such commodities. 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 two years. We believe that our production requirements will be such that consumption of the products or services purchased under these commitments will occur in the normal production process. At March 31, 2005, no material changes had occurred related to these commodity risks from the information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004.

Commodity Risk. In the normal course of business we are exposed to the market risk and price fluctuations related to the sale of steel products and to the purchase of commodities used in our production process, such as metallic raw materials, electricity, natural gas and alloys. Our risk strategy associated with product sales has generally been to obtain competitive prices for our products and to allow operating results to reflect market price movements dictated by supply and demand. Our risk strategy associated with the purchase of commodities utilized within our production process has generally been to make certain commitments with suppliers relating to future expected requirements for such commodities. Certain 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 3 years. We believe that our production requirements will be such that consumption of the products or services purchased under these commitments will occur in the normal production process. At March 31, 2004, no material changes had occurred related to these commodity risks from the information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003.


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ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

(a)    Evaluation of Disclosure Controls and Procedures.    An evaluation was performed under the supervision and with the participation of registrant’s management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of registrant’s disclosure controls and procedures, as of the end of the period covered by this report. Based upon their evaluation, registrant’s principal executive officer and principal financial officer have concluded that registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective to ensure that information required to be disclosed by registrant in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Control Over Financial Reporting. During our most recent fiscal quarter, there was no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

On August 4, 2004 the Oakland County (Michigan) Circuit Court granted Steel Dynamics’ motion to dismiss General Motors Corporation’s complaint for breach of an alleged steel supply contract, which GM had filed on March 18, 2004 and which Steel Dynamics described in its March 25, 2004 press release and Form 8-K filed on the same date. The Court dismissed the complaint, with prejudice, for failure to state any legally sufficient claim, finding that a January 22, 2003 GM drafted letter to Steel Dynamics, upon which GM had relied in asserting the existence of a multi-year supply contract, lacked mutuality of obligation and did not constitute an enforceable agreement.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Shareholders was held May 20, 2004. Proxies were solicited for the Annual Meeting in accordance with the requirements of The Securities Exchange Act 1935. At the Annual Meeting, the following occurred:

•With respect to Item 1 in our Proxy Statement (Election of Directors):
Director
 Shares Voted For Shares Voted
Against or Withheld		 
 
Keith E. Busse 45,252,340 2,102,563 
Mark D. Millett 43,908,275 3,446,628 
Richard P. Teets, Jr. 43,907,264 3,447,639 
John C. Bates 44,362,433 2,992,470 
Paul B. Edgerley 45,093,684 2,261,219 
Richard J. Freeland 30,518,867 16,836,036 
Naoki Hidaka 45,380,465 1,974,438 
James E. Kelley 45,248,975 2,105,928 
Dr. Jürgen Kolb 45,252,340 2,102,563 
Joseph D. Ruffolo 45,250,537 2,104,366 
•With respect to Item 2 in our Proxy Statement (Ratification of the Appointmenteffectiveness of Independent Auditors), Ernst & Young LLP wasthe design and operation of registrant’s disclosure controls and procedures, as of the end of the period covered by this report. Based upon their evaluation, registrant’s principal executive officer and principal financial officer have concluded that registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective to ensure that information required to be disclosed by registrant in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b)    Changes in Internal Controls.    There have been no significant changes in registrant’s internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation. There were no significant deficiencies or material weaknesses, and, therefore, there were no corrective actions taken.


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PART II
OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

On April 20, 2005, our board of directors approved as our independent auditorsan increase in the shares authorized for repurchase pursuant to the year 2004:

Shares Voted For 44,804,733
Shares Voted Against2,471,584
Abstentions78,585
•With respect2004 share repurchase program from 5 million shares to Item 3 in our Proxy Statement (Approval of Employee Stock Purchase Plan),7.5 million shares. The following table indicates shares repurchased during the Employee Stock Purchase Plan was approved:
Shares Voted For 36,633,960
Shares Voted Against5,624,672
Abstentions13,798

three months ended March 31, 2005.

 Period Total Shares
Purchased		 Average Price
Paid Per Share		 Total Program
Shares Purchased		 Total Shares Still
Available For Purchase
Under the Program		 
 2005          
            
 January 1 to 26 1,037,100 $35.46 1,037,100 4,875,167 
 February 1 10,076  37.80 — 4,875,167 
 March 16 to 30 1,099,400  35.97 1,099,400 3,775,767 

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 10.01b*Second Amendment to Credit Agreement dated April 19, 2005, relating to the Credit Agreement described at Exhibit 10.01.
(a)Exhibits:
31.1Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Principal Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1Chief Executive Officer Certification pursuant to 18 U.S.C. §
32.1Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350
32.2Principal Financial Officer Certification pursuant to 18 U.S.C. §
32.2Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350
  
(b)Reports
Items 1 and 3 through 5 of Part II are not applicable for this reporting period and have been omitted.
* Filed concurrently herewith.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, Steel Dynamics, Inc. has duly caused this report to be signed on Form 8-K:undersigned, thereunto duly authorized.

May 6, 2005

We filedits behalf by the following reports on Form 8-K during the three months ended June 30, 2004.
 STEEL DYNAMICS, INC.
   
By:/s/ Gary E. Heasley
 Date of FilingDescriptionReported 
Gary E. Heasley
Vice President of Finance and CFO
April 15, 2004Item 12” Disclosure of Results of
Operations and Financial Condition”		Earnings press release for the quarter
ended March 31, 2004
April 6, 2004Item 9 “Regulation FD Disclosure”Press release titled “Steel Dynamics
Forecasts Strong 2004 Performance”
May 7, 2004Item 9 “Regulation FD Disclosure”Press release titled “Steel Dynamics’ Bar
Bar Products Mill Achieves Profitability in April”
May 10, 2004

Item 5 “Other events and
Regulation FD Disclosure”

Press release to disclose the limitation of
share issuances for the Employee Stock
Purchase PlanMay 20, 2004Item 9 “Regulation FD Disclosure”Press release titled “Steel Dynamics Updates 2004 Outlook”

Items 2, 3 and 5 of Part II are not applicable for this reporting period and have been omitted.


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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, Steel Dynamics, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 9, 2005

STEEL DYNAMICS, INC.
By:/s/       GARY E. HEASLEY               
Gary E. Heasley
Chief Financial Officer
(Principal Financial and Accounting Officer and Duly Authorized Officer)

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