Forward-Looking Statements

This report contains some predictive statements about future events, including statements related to conditions in the steel and recycled metals marketplaces, our revenue, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements are intended to be made as "forward-looking," subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Such predictive statements are not guarantees of future performance, and actual results could differ materially from our current expectations. Factors that could cause such predictive statements to turn out other than as anticipated or predicted include, among others: the effects of prolonged or deepening recession on industrial demand; general or specific sector (i.e., automotive, consumer appliance or construction) economic conditions affecting steel consumption; the impact of price competition, whether domestic or the result of foreign imports; difficulties in integrating acquired businesses; risks and uncertainties involving new products or new technologies; changes in the availability or cost of steel scrap or substitute materials; increases in energy costs; occurrence of unanticipated equipment failures and plant outages; labor unrest; and the effect of the elements on production or consumption.

More specifically, we refer you to the sections titled Special Note Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the year ended December 31, 2008, as well as in other reports which we file with the Securities and Exchange Commission, for a more detailed discussion of some of the many factors, variable risks and uncertainties that could cause actual results to differ materially from those we may have expected or anticipated. These reports are available publicly on the SEC web site, www.sec.gov, and on our web site, www.steeldynamics.com. Forward-looking or predictive statements we make are based upon information and assumptions, concerning our businesses and the environments in which they operate, which we consider reasonable as of the date on which these statements are made. Due to the foregoing risks and uncertainties however, as well as, matters beyond our control which can affect forward-looking statements, you are cautioned not to place undue reliance on these predictive statements, which speak only as of the date of this report. We undertake no duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Operating Statement Classifications

Net Sales. Net sales from our operations are a factor of net tons shipped, product mix and related pricing. We charge premium prices for certain grades of steel, product dimensions, certain smaller volumes, and for value-added processing or coating of the steel products. Except for our steel fabrication operations segment, we recognize revenue from sales and the allowance for estimated costs associated with returns from these sales at the time the title of the product is transferred to the customer. Provision is made for estimated product returns and customer claims based on estimates and actual historical experience. Net sales from steel fabrication operations are recognized from construction contracts utilizing a percentage-of-completion method, which is based on the percentage of steel consumed to date as compared to the estimated total steel required for each contract.

Costs of Goods Sold. Our costs of goods sold represent all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs for our steel operations are steel scrap and scrap substitutes (which represent the most significant single component of our consolidated cogs), alloys, zinc, natural gas, argon, direct and indirect labor and related benefits, electricity, oxygen, electrodes, depreciation, materials and freight. The principal elements of these costs for our metals recycling and ferrous resources operations are the costs of procuring the unprocessed scrap materials, material transportation costs, and processing expenses. The principal elements of these costs for our fabrication operations include purchased steel and direct and indirect labor and related benefit expenses.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist of all costs associated with our sales, finance and accounting, and administrative departments. These costs include, among other items, labor and related benefits, professional services, insurance coverage, property taxes, profit-sharing, and amortization of intangible assets.

Interest Expense, net Capitalized Interest. Interest expense consists of interest associated with our senior credit facilities and other debt (described in the notes to our financial statements included in our 2008 Annual Report on Form 10-K and in note 5 of this report) net of capitalized interest costs that are related to capital projects during the related construction period.

Other (Income) Expense, net. 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 and income from equity investments. Other expense consists of any non-operating costs, including the expense from the termination of an interest rate swap contract related to the term A loan in the second quarter of 2009.

Acquisition

On June 9, 2008, we completed our acquisition of Recycle South, one of the nation's largest, privately-held, regional scrap metal recycling companies, headquartered in Spartanburg, South Carolina. OmniSource (which already owned 25% of Recycle South), acquired the remaining 75% equity interest for a purchase price of approximately $376.3 million. We paid approximately $236.6 million in cash, including transaction costs, and issued 3,938,000 shares of Steel Dynamics, Inc. common stock valued at $139.8 million. In addition, we assumed $144.9 million of net debt, of which approximately $142.8 million was repaid upon the closing of the acquisition.

We purchased Recycle South to expand our metals recycling business. Recycle South operates as a division of OmniSource and provides a significant presence in the southeastern United States through its 22 locations within North Carolina, South Carolina, and Georgia. Recycle South's consolidated operating results have been reflected in our financial statements since June 9, 2008, in the metals recycling and ferrous resources reporting segment.

Second Quarter Operating Results 2009 vs. 2008

Outlook. Net loss was $16.0 million, or $.08 per diluted share, during the second quarter of 2009, compared with net income of $210.5 million, or $1.05 per diluted share, during the second quarter of 2008. As is the case throughout the global steel industry, we have been adversely impacted in recent quarters by the overall economic recession. We have, however, begun to see positive trends in volumes and order entry activity during the past two months at some of our operations, specifically in our flat-rolled steel and metals recycling operations. Given the high-variability of our cost structure and additional measures we have taken in recent quarters to further reduce costs, we believe that we are well positioned in the near term to capitalize on increasing demand for our products.

Gross Profit. When comparing the second quarter of 2009 with the second quarter of 2008, our net sales decreased $1.6 billion, or 67%, to $792.2 million. Our gross profit percentage was 9% during the second quarter of 2009 as compared to 20% for the second quarter of 2008, and as compared to a negative 5% on a linked-quarter basis (and positive 5% excluding the first quarter's inventory write down). Our improved gross profit percentage on a linked-quarter basis is primarily the result of increasing volumes coupled with lower cost raw material inputs and production costs.

                                Steel Operations



                             Three Months Ended         Six Months Ended         First
                                  June 30,                  June 30,            Quarter
                             2009         2008         2009         2008         2009
Shipments (net tons)
Flat Roll Division           454,745      706,281      758,683    1,391,601      303,938
Structural and Rail
Division                      96,476      286,150      226,031      585,837      129,555
Engineered Bar Products
Division                      63,124      145,085      134,664      293,033       71,540
Roanoke Bar Division          89,112      136,582      165,722      287,950       76,610
Steel of West Virginia        54,959       80,334       98,083      156,058       43,124
The Techs                    127,290      262,908      245,649      524,919      118,359
Total shipments              885,706    1,617,340    1,628,832    3,239,398      743,126
Intra-company                (47,590 )   (124,128 )    (99,602 )   (254,813 )    (52,012 )
External shipments           838,116    1,493,212    1,529,230    2,984,585      691,114

Steel operations accounted for 60% and 56% of our net sales during the second quarter of 2009 and 2008, respectively. Second quarter 2009 shipments were down dramatically compared to the same period in 2008 at all our steel operations divisions due to the current depressed economic climate compared to the historically high operating levels of a year ago. We did, however, experience increased linked-quarter shipments at all our steel operations divisions, with the exception of the Structural and Rail and Engineered Bar Products divisions. The market for these products remain weaker due to the continued weakness in the non-residential construction and heavy equipment industries.

Our second quarter 2009 average steel operations' selling price per ton shipped decreased $417 compared with the second quarter of 2008 and $126 compared with the first quarter of 2009. While weak global demand for steel products continued to put downward pressure on selling prices during the second quarter, we have recently experienced increased order entry, sales activity, and pricing for our flat rolled products. Steel service center customers, which are the largest customer base of our flat roll shipments, have resumed purchasing of steel products after an extended destocking effort. We anticipate continued strong order entry and capacity utilization in our flat rolled steel divisions into the next quarter (including The Techs), while long products will likely continue to lag somewhat due to on-going destocking efforts within their customer base. Stagnant non-residential construction activity, driven by the weak economy and lack of available financing for construction projects, has resulted in continued low volumes and product pricing within our long products divisions, particularly our Structural and Rail and Engineered Bar Products divisions.

Metallic raw materials used in our electric arc furnaces represent our single most significant manufacturing cost. Our metallic raw material cost per net ton consumed in our steel operations decreased $279 compared with the second quarter of 2008, and $79 on a linked-quarter basis. During the second quarter of 2009 and 2008, respectively, our metallic raw material costs represented 45% and 57% of our steel operations' manufacturing costs, excluding the operations of The Techs, which purchases, rather than produces, the steel it further processes. We anticipate steel scrap prices to remain relatively stable during the remainder of 2009.

               Metals Recycling and Ferrous Resources Operations



                                  Three Months Ended         Six Months Ended         First
                                       June 30,                  June 30,            Quarter
                                   2009        2008         2009          2008         2009
Ferrous metals shipments (net
tons)
Total                             840,199    1,506,902    1,570,068     2,898,284     729,869
Intra-company                    (313,023 )   (654,117 )   (527,776 )  (1,118,010 )  (214,753 )
External                          527,176      852,785    1,042,292     1,780,274     515,116

Non-ferrous metals shipments
(thousands of pounds)             169,784      254,147      360,178       492,935     190,394

Iron Dynamics shipments (net
tons)
Liquid pig iron                    44,392       52,342       85,618        97,785      41,226
Hot briquetted iron                 1,483       10,947       21,809        30,689      20,326
Other                                  29        3,438          703         6,247         674
                                   45,904       66,727      108,130       134,721      62,226

Metals recycling and ferrous resources operations accounted for 35% and 40% of our net sales during the second quarters of 2009 and 2008, respectively. Our metals recycling operations primarily engage in the brokerage, collection and processing of ferrous and non-ferrous metals for resale to steel companies, brokers and other metals processors. During the second quarter of 2009, this segment recorded external shipments of 527,000 tons of ferrous metals and 169.8 million pounds of non-ferrous materials, compared with 853,000 tons and 254.1 million pounds during the same period in 2008. On a linked-quarter basis, external shipments of ferrous metals increased by 12,000 tons while shipments of non-ferrous metals decreased by 20.6 million pounds. External shipments for the quarter fell substantially compared to the same period in 2008, in spite of the acquisition in June 2008 of Recycle South. Due to the global economic recession, electric arc furnace utilization has been running at levels below 50% utilization, thus contributing to the weakened demand for ferrous metals. Conversely, the market for non-ferrous materials, particularly copper, has shown modest signs of strengthening, with demand from China appearing to be the primary driver. The market for aluminum products, however, has remained more stagnant, thus driving our linked-quarter decrease in non-ferrous shipments.

We anticipate ferrous material costs to remain relatively stable during the remainder of 2009, as suppressed demand is being offset by limited supply due to low levels of manufacturing activity, which generates most of our supply of industrial scrap. While flows of scrap have increased modestly in recent months, it is anticipated that increasing steel mill utilization will likely work to sustain current price levels.

Steel fabrication operations accounted for 4% and 3% of our net sales during the second quarters of 2009 and 2008, respectively. Our average steel fabrication operations' selling price per ton shipped decreased $180, or 15%, during the second quarter of 2009 when compared with 2008, and decreased $296, or 22%, on a linked-quarter basis. The purchase of various steel products is the largest single cost of production for our steel fabrication operations. During the second quarters of 2009 and 2008, respectively, the cost of steel products purchased represented 71% and 77% of the total cost of manufacturing for our steel fabrication operations. In spite of the weak economy and decreased activity in non-residential construction, our steel fabrication segment was able to operate at an approximately break-even operating level in the second quarter of 2009. We anticipate non-residential construction activity to remain slow during the remainder of 2009, resulting in decreased shipping volumes and selling prices for this segment of our operations, and putting downward pressure on operating income levels.

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Selling, General and Administrative Expenses. Selling, general and administrative expenses (including profit sharing and amortization of intangible assets) were $62.6 million during the second quarter of 2009, as compared to $120.8 million during the second quarter of 2008, a decrease of $58.2 million, or 48%. Our selling, general and administrative expenses represented 8% and 5% of our total net sales during the second quarters of 2009 and 2008, respectively. The percentage increase is primarily a result of the significant decline in nets sales in the second quarter of 2009 compared with the prior year.

The decrease in our selling, general and administrative expenses was significantly due to reduced levels of performance-based compensation and not incurring profit sharing expense during the second quarter of 2009 as a result of the quarter's net loss. During the second quarter of 2008, we recorded expense of $23.8 million related to our Steel Dynamics performance-based profit sharing plan. During 2008 our board of directors modified the contribution percentage for this plan to consist of 2% of consolidated pretax earnings plus a unique percentage of each of our operating segments' pretax earnings. The resulting total contribution percentage was 8% of consolidated pretax earnings during the second quarter of 2008. During the second quarter of 2008, we recorded additional profit sharing expense of $3.1 million related to certain subsidiaries whose employees did not participate in the aforementioned plan.

Amortization of intangible assets increased $5.9 million during the second quarter of 2009 compared to the same period in 2008. This increase includes $2.1 million of additional amortization of intangible assets required to be recorded due to the adjustment of the purchase price allocation and intangible asset valuations related to the acquisition of Recycle South in June 2008. The Recycle South valuation of finite-lived intangibles is now final, which will result in slightly lower quarterly amortization expense on a prospective basis than what was recorded during the first half of 2009.

Interest Expense, net Capitalized Interest. During the second quarter of 2009, gross interest expense increased $671,000, or 2%, to $41.7 million, and capitalized interest decreased $896,000 to $4.6 million, when compared to the same period in 2008. During the second quarter we prepaid the term A loan, which resulted in the recording of an additional $2.2 million of interest expense due to the write off of the related capitalized financing costs. The interest capitalization that occurred during these periods resulted from the interest required to be capitalized with respect to construction activities at our various operating segments. Our weighted-average interest rate on our outstanding borrowings was 6.0% and 5.8% at June 30, 2009 and March 31, 2009, respectively. We currently anticipate gross interest expense to decrease during the remainder of 2009 due, in part, to the repayment of certain debt obligations in June 2009.

Other (Income) Expense, net. Other expense was $786,000 during the second quarter of 2009, as compared to other income of $16.9 million during the same period in 2008. During the second quarter of 2009, the company recorded an expense of $1.3 million from the termination of an interest rate swap contract related to the term A loan. During the second quarter of 2008, other income of $14.9 million was attributable to earnings from investments in scrap procurement and processing entities which were accounted for under the equity method of accounting. As of the date of its acquisition, Recycle South, which was $14.0 million of other income during the second quarter of 2008, is no longer included in other income, as its results are consolidated in our financial statements after acquisition.

Income Taxes (Benefit). During the second quarter of 2009, our income tax provision was a benefit of $15.0 million, as compared to expense of $129.0 million during the same period in 2008. Our effective income tax rate was 48.4% and 37.9% during the second quarters of 2009 and 2008, respectively. Our second quarter 2009 effective income tax rate was impacted by an increase to the FIN 48 reserve. We estimate that our effective income tax rate will be 41.3% for the remainder of 2009. However, this could change if our actual earnings in the second half of 2009 are materially different than currently anticipated. We account for income taxes and the related accounts under the liability method. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the basis differences reverse.

Included in the amount of unrecognized tax benefits at June 30, 2009, are potential benefits of $38.2 million that, if recognized, would affect our effective tax rate. We recognize interest and penalties related to our tax contingencies on a net-of-tax basis in income tax expense. During the six-month period ended June 30, 2009, we recognized interest of $549,000, net of tax, and benefits from the reduction of penalties of $56,000. At June 30, 2009, we had $7.9 million accrued for the payment of interest and penalties.

We file income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. The state of Indiana completed its examination of the calendar years 2000 through 2005 in the third quarter of 2008. We paid additional taxes of $20.7 million as a result of the examinations. This amount was recorded as an unrecognized tax benefit when we adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48) on January 1, 2007. It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of state income tax audits. Based on current audits in process, the payment of additional taxes could be in an amount from zero to $2.0 million during 2009, primarily related to state nexus issues. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years ended before 2005.

First Six Months Operating Results 2009 vs. 2008

Net loss was $103.9 million or $.56 per diluted share during the first six months of 2009, compared with net income of $353.1 million or $1.77 per diluted share during the first six months of 2008.

Gross Profit. When comparing the first six months of 2009 with the same period in 2008, our net sales decreased $2.7 billion, or 63%, to $1.6 billion. Our gross margin percentage was 2% during the first six months of 2009 as compared to 19% during the first six months of 2008. First six months 2009 financial results include the operations of Recycle South. The primary driver of the decrease in our year-to-year gross margin percentage was the global economic recession which has had an adverse impact on our shipping volumes and average selling prices.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $135.5 million during the first six months of 2009, as compared to $215.7 million during the same period in 2008, a decrease of $80.2 million, or 37%. During the first six months of 2009 and 2008, selling, general and administrative expenses represented approximately 8% and 5% of net sales, respectively. The decrease in selling, general and administrative expenses in the first six months of 2009 compared to the first six months of 2008 primarily relates to not recording profit sharing expense during 2009, an expense of $40.1 million during the first six months of 2008, as well as cost-cutting measures we have taken during the first half of this year.

Interest Expense, net Capitalized Interest. During the first six months of 2009, gross interest expense increased $5.1 million, or 7%, to $81.0 million, and capitalized interest decreased $2.9 million, or 27%, to $7.7 million as compared to the same period in 2008. The increase in gross interest expense for the first six months of 2009 compared to the first six months of 2008 is a result of increased borrowings for, among other things, capital outlays for our expansion projects. The increase is also due to the prepayment the term A loan, which resulted in the recording of an additional $2.2 million of interest expense due to the write off of the related capitalized financing costs. The interest capitalization that occurred during these periods primarily resulted from the interest required to be capitalized with respect to construction activities at our Structural and Rail division and our Mesabi Nugget operations.

Other (Income) Expense, net. Other expense was $38,000 during the first six months of 2009, as compared to other income of $24.7 million during the same period in 2008. During the second quarter of 2009, the company recorded an expense of $1.3 million from the termination of an interest rate swap contract related to the term A loan. During 2008, other income of $21.6 million was attributable to earnings from investments in scrap procurement and processing entities which were accounted for under the equity method of accounting. As of the date of its acquisition, Recycle South, which was $20.4 million of other income during the first six months of 2008, is no longer included in other income, as its results are consolidated in our financial statements after acquisition.

Income Taxes. During the first six months of 2009, our income tax provision was a benefit of $74.4 million, as compared to expense of $216.4 million during the same period in 2008. During the first six months of 2009 and 2008, our effective income tax rates were 41.7% and 37.9%, respectively. Our first half 2009 effective income tax rate was impacted by an increase to the FIN 48 reserve. We estimate that our effective income tax rate will be 41.3% for the remainder of 2009. However, this could change if our actual earnings in the second half of 2009 are materially different than currently anticipated.

Liquidity and Capital Resources

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

Working Capital. During the first half of 2009, our operational working capital position, representing our cash invested in trade receivables and inventories less trade payables and accruals decreased $256.5 million to $729.9 million compared to December 31, 2008. Trade receivables decreased $138.2 million, or 27%, during the first half of 2009 to $364.7 million, of which 92% were current or less than 60 days past due. Our largest customer is an affiliated company, Heidtman Steel, which represented 6% and 10% of our outstanding trade receivables at June 30, 2009 and December 31, 2008, respectively. Trade receivables declined substantially during the first half of 2009 due to decreased shipping volumes and product prices as compared to the latter half of 2008. The dollar value of our raw materials, primarily steel scrap inventories, decreased by approximately $220.6 million during the first half of 2009. Approximately $78.9 million of this decrease related to the $83.3 million . . .