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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-K/A

(Amendment No. 2)



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ANNUAL REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the transition period from
                     to

Commission File
Number 1-33212



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CLAYMONT STEEL HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|                                                               | 
|Delaware                                                       |  | 20-2928495                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

4001 Philadelphia Pike

Claymont, Delaware 19703

(302) 792-5400

(Address, including zip code, and telephone number, including area code,

of registrants principal executive offices)



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Securities registered pursuant to Section 12(b) of the Act:



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of Each Class                     |  | Name of Each Exchange on Which Registered
|Common Stock par value $0.001 per share |  | The NASDAQ Stock Market LLC              

Securities registered pursuant to Section 12(g) of the Act: None.



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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ̈Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ̈Yes x No

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. x Yes ̈No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ̈Yes x No

The
aggregate market value of the registrants voting and non-voting shares of common stock held by non-affiliates of the registrant on the last day of the registrants most recently completed second fiscal quarter, June 29, 2007, was
$213,991,228 based on $21.39 per share, the last reported sale price on the NASDAQ Global Market on that date.

As of July 23, 2007,
there were 17,566,754 shares of the registrants common stock par value $0.001 per share outstanding.



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##### Table of Contents

TABLE OF CONTENTS



|                 |  |          |  |                                                                                       |  |   
|---------------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | --
|Item             |  |          |  | Page                                                                                 
|                 | 
|EXPLANATORY NOTE |  | 1       
|                 |  |          | 
|PART II          |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 2 
|                 |  |          | 
|                 |  | Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 18
|                 |  |          | 
|PART IV          |  | Item 15. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 42
|                 | 
|SIGNATURES       |  | 43      
|                 | 
|EXHIBIT INDEX    |  | 44      



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##### Table of Contents

EXPLANATORY NOTE

We are filing this Amendment No. 2 to our Form 10-K for the fiscal year ended
December 31, 2006 (the Form 10-K), originally filed with the Securities and Exchange Commission on April 2, 2007, for the purpose of restating our long-term and short-term debt. We previously classified our $75.0 million Senior
Secured Pay-in-Kind Notes as long-term debt. However, in connection with our initial public offering of common stock in December 2006, we called the pay-in-kind notes for redemption and used proceeds from our initial public offering to redeem the
pay-in-kind notes in February 2007. Therefore, we are amending our Form 10-K to reclassify the $75.0 million pay-in-kind notes from long-term debt to short-term debt.

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of each of Items 7 and 8 of Part II is set forth below and Item 15 of Part IV is amended to contain updated
certifications from our Chief Executive Officer and Chief Financial Officer. This Amendment No. 2 speaks as of the original filing date of the Form 10-K and reflects only the changes to Part II and Part IV discussed above. No other information
included in the Form 10-K, including the information set forth in Part I and Part III, has been modified or updated in any way.

The terms
we, us, our and the Company refer to Claymont Steel Holdings, Inc. and its subsidiaries.





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##### Table of Contents

PART II

Item 7. Managements Discussion And Analysis Of Financial Condition And Results Of Operations

Cautionary Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking
statements include statements preceded by, followed by or that include, the words may, could, would, should, believe, expect, anticipate, plan,
estimate, target, project, intend, or similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our
business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our managements
beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product
offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve
risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to,
the following:



| |  |  | the cyclical nature of the steel industry and the industries we serve;
| | - |  | ----------------------------------------------------------------------



| |  |  | the availability and cost of scrap, other raw materials and energy;
| | - |  | -------------------------------------------------------------------



| |  |  | the level of global demand for steel;
| | - |  | -------------------------------------



| |  |  | the level of imports of steel into the United States;
| | - |  | -----------------------------------------------------



| |  |  | excess global steel capacity and the availability of competitive substitute materials;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | intense competition in the steel industry;
| | - |  | ------------------------------------------



| |  |  | currency fluctuations;
| | - |  | ----------------------



| |  |  | environmental regulations;
| | - |  | --------------------------



| |  |  | unionization of our workforce, related work stoppages, and equipment failures;
| | - |  | ------------------------------------------------------------------------------



| |  |  | loss of key personnel; and
| | - |  | --------------------------



| |  |  | other factors described in this annual report on Form 10-K. See Item 1ARisk Factors.
| | - |  | ---------------------------------------------------------------------------------------

We believe the forward-looking statements in this annual report on Form 10-K are reasonable; however, you should not place undue reliance on any
forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future
events.

Overview

The consolidated
financial statements include the results of the Companys wholly-owned subsidiary, Claymont Steel, Inc. All significant inter-company balances and transactions have been eliminated.

The Company has one division which manufactures and sells custom discrete steel plate in North America. The Company operates a steel mini-mill in
Claymont, Delaware.

On June 10, 2005, the Companys wholly-owned subsidiary was acquired from its former owner, CITIC USA
Holdings, Inc., for $74.4 million plus working capital and other adjustments by H.I.G. SteelCo, Inc., an affiliate of H.I.G. Capital LLC, a private equity firm focused on management buyouts and recapitalizations of leading middle market companies as
well as growth capital investments. We refer to this transaction throughout this annual report as the Acquisition.

For
purposes of this Managements Discussion and Analysis, the results for the year ended December 31, 2006 are compared to a pro forma presentation for the year ended December 31, 2005 and 2004 which assume that the Acquisition occurred
at the beginning of those pro forma periods.



2



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##### Table of Contents

The Companys operating results in 2006 were positively impacted by a 17.4% increase in tons shipped
from 2005, prior to toll processing, and a 1.2% increase in average selling price. Results were negatively impacted by an 11.6% increase in cost of goods sold per ton shipped from 2005 which was largely driven by higher costs for scrap, higher fixed
costs per ton due to reduced melt shop productivity, increased usage of purchased slabs and higher maintenance expenses. Selling, general and administrative costs increased $10.6 million from 2005 mostly as a result of $7.6 million of non-recurring
charges.

The Company expects to spend approximately $12 million on capital improvements in 2007 mainly focused on improving performance
and capacity in the melt shop, including completing a new scarfing facility, a reheat station and replacement of old, less efficient, transformers. These capital expenditures are expected to enhance melt shop capacity and efficiency.

Operations

The following table sets forth, for the
periods indicated, the percentage of sales represented by selected income statement items and information regarding selected balance sheet data. Results for the year ended December 31, 2004 and 2005 are shown on a pro forma basis, as if the
Acquisition occurred at the beginning of those periods.



|                                             |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|-------------------------------------------- |  | --------- | - |  | ----- | -- |  | ------- | - |  | ----- | -- |  | ------- | - |  | ----- | --
|                                             |  | Pro Forma |   |  |       |    |  |         |  
|                                             |  | 2004      |   |  | 2005  |    |  | 2006    |  
|                                             |  | $         |   |  | %     |    |  | $       |   |  | %     |    |  | $       |   |  | %     |   
|Sales                                        |  | 239,556   |   |  | 100.0 | %  |  | 278,370 |   |  | 100.0 | %  |  | 333,408 |   |  | 100.0 | % 
|Cost of Goods Sold                           |  | 163,835   |   |  | 68.4  | %  |  | 177,706 |   |  | 63.8  | %  |  | 233,170 |   |  | 69.9  | % 
|                                             |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|Gross Profit                                 |  | 75,721    |   |  | 31.6  | %  |  | 100,664 |   |  | 36.2  | %  |  | 100,238 |   |  | 30.1  | % 
|Selling, General and Administrative Expenses |  | 10,371    |   |  | 4.3   | %  |  | 9,950   |   |  | 3.6   | %  |  | 20,572  |   |  | 6.2   | % 
|                                             |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|Income From Operations                       |  | 65,350    |   |  | 27.3  | %  |  | 90,714  |   |  | 32.6  | %  |  | 79,666  |   |  | 23.9  | % 
|Other Income (Expense):                      |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|Interest Income                              |  | 47        |   |  | 0.0   | %  |  | 243     |   |  | 0.1   | %  |  | 2,222   |   |  | 0.7   | % 
|Interest Expense                             |  | (22,726   | ) |  | (9.5  | )% |  | (25,430 | ) |  | (9.1  | )% |  | (29,272 | ) |  | (8.8  | )%
|Other Non-Operating Income                   |  | 147       |   |  | 0.1   | %  |  | 101     |   |  | 0.0   | %  |  | 138     |   |  | 0.0   | % 
|                                             |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|Total Other Income (Expense)                 |  | (22,532   | ) |  | (9.4  | )% |  | (25,086 | ) |  | (9.0  | )% |  | (26,912 | ) |  | (8.1  | )%
|                                             |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|Income Before Income Taxes                   |  | 42,818    |   |  | 17.9  | %  |  | 65,629  |   |  | 23.6  | %  |  | 52,754  |   |  | 15.8  | % 
|Income Tax Expense                           |  | (13,678   | ) |  | (5.7  | )% |  | (24,025 | ) |  | (8.6  | )% |  | (20,758 | ) |  | (6.2  | )%
|                                             |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|Net Income                                   |  | 29,139    |   |  | 12.2  | %  |  | 41,603  |   |  | 14.9  | %  |  | 31,996  |   |  | 9.6   | % 
|Interest (Income) Expense, net               |  | 22,679    |   |  | 9.5   | %  |  | 25,187  |   |  | 9.0   | %  |  | 27,050  |   |  | 8.1   | % 
|Income Tax Expense                           |  | 13,678    |   |  | 5.7   | %  |  | 24,025  |   |  | 8.6   | %  |  | 20,758  |   |  | 6.2   | % 
|Depreciation and Amortization                |  | 2,936     |   |  | 1.2   | %  |  | 2,936   |   |  | 1.1   | %  |  | 4,279   |   |  | 1.3   | % 
|                                             |  |           |   |  |       |    |  |         |   |  |       |    |  |         |   |  |       |   
|EBITDA                                       |  | 68,433    |   |  | 28.6  | %  |  | 93,751  |   |  | 33.7  | %  |  | 84,083  |   |  | 25.2  | % 

EBITDA, which we define as earnings before interest (income) expense, net income tax expense,
depreciation and amortization, is not a measure of financial performance under GAAP. EBITDA does not represent and should not be considered as an alternative to net income, income from operations or any other performance measures derived in
accordance with GAAP or as an alternative to net cash provided by operating activities as a measure of our profitability or liquidity. We believe, however, that EBITDA is a valuable measure of the operating performance of our business and can assist
in comparing our performances on a consistent basis without regard to depreciation and amortization.

2006 Compared to 2005

Discussion and Analysis of Income



|                |  |      |         |      |   |         |  |   |        |  |      |  
|--------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------ |  | ---- | -
|                |  |      |         |      |   | Change  | 
|                |  | 2006 |         | 2005 |   | Amount  |  | % |       
|Sales           |  |      |         |      |   |         |  |   |        |  |      |  
|Custom          |  | $    | 227,459 |      | $ | 204,341 |  | $ | 23,118 |  | 11.3 | %
|Standard        |  |      | 103,109 |      |   | 74,029  |  |   | 29,080 |  | 39.3 | %
|Toll Processing |  |      | 2,840   |      |   |        |  |   | 2,840  |  |      |  
|                |  |      |         |      |   |         |  |   |        |  |      |  
|Total           |  | $    | 333,408 |      | $ | 278,370 |  | $ | 55,038 |  | 19.8 | %



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##### Table of Contents

|                      |  |      |         |      |   |         |  |   |        |  |      |  
|--------------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------ |  | ---- | -
|                      |  |      |         |      |   | Change  | 
|                      |  | 2006 |         | 2005 |   | Amount  |  | % |       
|Tons                  |  |      |         |      |   |         |  |   |        |  |      |  
|Custom                |  |      | 265,916 |      |   | 240,570 |  |   | 25,346 |  | 10.5 | %
|Standard              |  |      | 129,108 |      |   | 96,041  |  |   | 33,067 |  | 34.4 | %
|Toll Processing       |  |      | 12,158  |      |   |        |  |   | 12,158 |  |      |  
|                      |  |      |         |      |   |         |  |   |        |  |      |  
|Total                 |  |      | 407,182 |      |   | 336,611 |  |   | 70,571 |  | 21.0 | %
|Average Selling Price |  |      |         |      |   |         |  |   |        |  |      |  
|Custom                |  | $    | 855     |      | $ | 849     |  | $ | 6      |  | 0.7  | %
|Standard              |  |      | 799     |      |   | 771     |  |   | 28     |  | 3.6  | %
|Total                 |  | $    | 837     |      | $ | 827     |  | $ | 10     |  | 1.2  | %

Note: Total average selling price excludes toll processing.

Sales

Sales increased 19.8% in 2006 as a result of a
17.4% increase in tons shipped (excluding toll processing) coupled with a 1.2% increase in average selling price. Increased customer demand led by growth in domestic construction and manufacturing, continued economic expansion, and a decline in
steel plate imports drove higher shipments. The Companys capital expenditure program, including the installation of a new electrical drive system, increased plate mill and shipping capacity, which provided for the significant increase in plate
tons rolled and shipped in 2006. However, melt shop production did not keep pace with the plate mill and the Company consumed 62% more purchased slabs in 2006. Capital expenditures in 2007 are expected to be primarily directed at expanding melt shop
capacity and efficiency in order to reduce reliance on purchased slabs.

Average selling price increased 1.2% driven by increased prices
for custom and standard sizes. Custom sizes continue to command a price premium, averaging 7.0% in 2006, over standard sizes.

Average
selling price declined modestly in the first quarter of 2007 and should increase in the second quarter as the Company is implementing a $25 per ton price increase and an additional $35 per ton in raw material surcharge.

Cost of Goods Sold and Gross Profit



|                                   |  |      |         |   |      |   |         |        |  |   |        |   |  |       |   
|---------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | ------ | - |  | ----- | --
|                                   |  |      |         |   |      |   |         | Change | 
|                                   |  | 2006 |         |   | 2005 |   |         | $      |  |   | %      |  
|Cost of Goods Sold                 |  |      | 233,170 |   |      |   | 177,706 |        |  |   | 55,464 |   |  | 31.2  | % 
|Gross Profit                       |  |      | 100,238 |   |      |   | 100,664 |        |  |   | (426   | ) |  | (0.4  | )%
|Gross Profit Margin                |  |      | 30.1    | % |      |   | 36.2    | %      |  |   |        |   |  | (6.1  | )%
|Cost of Goods Sold per Ton Shipped |  | $    | 589     |   |      | $ | 528     |        |  | $ | 61     |   |  | 11.6  | % 
|Raw Materials per Ton Shipped      |  | $    | 337     |   |      | $ | 284     |        |  | $ | 53     |   |  | 18.7  | % 
|Energy per Ton Shipped             |  | $    | 77      |   |      | $ | 88      |        |  | $ | (11    | ) |  | (12.5 | )%
|Labor                              |  | $    | 72      |   |      | $ | 70      |        |  | $ | 2      |   |  | 2.9   | % 
|Parts                              |  | $    | 42      |   |      | $ | 40      |        |  | $ | 2      |   |  | 5.0   | % 
|Service                            |  | $    | 31      |   |      | $ | 17      |        |  | $ | 14     |   |  | 82.4  | % 

Note: 2006 Cost of Goods Sold per Ton Shipped excludes toll processing of 12,158 tons and cost of goods sold of
$500,000.

Cost of Goods Sold increased 31.2% in 2006 as a result of a 17.4% increase in tons shipped coupled with an 11.6% increase in
cost of goods sold per ton shipped. Cost of goods sold per ton shipped increased to $589 largely because of a $53 per shipped ton increase in raw material costs and a $14 per shipped ton increase in service costs, partially offset by an $11 per
shipped ton drop in energy costs.

Raw material costs are comprised of scrap steel, purchased slabs and alloy and flux. In 2006, scrap
steel accounted for 64% of raw material costs, a decrease from 67% in 2005 as more purchased slabs were used by the plate mill, and averaged $201 per ton of scrap purchased, an increase of $31 per ton purchased from 2005. Scrap prices began to rise
in April 2006 as domestic demand for steel plate grew and higher levels of scrap were being exported from the United States. Scrap reached $216 per purchased ton in the second quarter of 2006 and then dropped to $204 in the fourth quarter. Scrap
prices increased to $233 per purchased ton in the first quarter of 2007 and are expected to continue to rise until mid-second quarter when scrap exports should tail-off leading to a modest decline in prices.



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##### Table of Contents

Purchased slabs accounted for 20% of raw material costs in 2006, an increase from 17% in 2005 as 62% more
purchased slab tons were used by the plate mill, and averaged $490 per purchased ton, an increase of $37 per purchased ton from 2005. Purchased slab prices rose from $370 per purchased ton in the fourth quarter of 2005 to $550 per purchased ton in
the fourth quarter of 2006 as world-wide demand increased. In 2006, the Company used 55,000 tons of purchased slabs in the plate mill which increased cost of goods sold $4.2 million above what it would have cost to internally produce those slabs. In
2005, the Company used 34,000 tons of purchased slabs which added an incremental $3.5 million to cost of goods sold. 2007 capital improvements in the melt shop are expected to increase capacity and lower costs and lower the Companys reliance
on purchased slabs. The Company estimates that increased third party slab consumption and higher fixed costs per ton resulting from lower production cost as much as $7.2 million in 2006.

Alloy and flux accounted for 16% of raw material costs in 2006, the same percentage in 2005.

Energy costs declined $11 per shipped ton in 2006 largely as a result of lower electricity rates.

Labor, parts and service costs increased a total of $18 per shipped ton in 2006 partially as a result of the planned two week plate mill shut down in
March 2006 for maintenance which added $2.3 million in maintenance-related costs. Costs increased as a result of the implementation of an ongoing scheduled maintenance program in the melt shop and plate mill, designed to increase capacity and
improve productivity.

Additionally, in 2006 cost of goods sold was negatively impacted by lower production levels in the melt shop caused
by problems with the electrical system supporting the electric arc furnace which forced a reduction in power levels. This significantly decreased productivity, decreasing gross profit by approximately $5.0 million. Capital improvements in the fourth
quarter of 2006 and first quarter of 2007 enabled the melt shop to return to normal operations.

Gross profit declined $0.4 million, or
0.4%, in 2006 as a result of the 31.2% increase in cost of goods sold, offset by a 19.8% increase in revenues. Gross profit in 2006 declined to 30.1% from 36.2% in 2005 as cost of goods sold per shipped ton increased $61 while average selling prices
increased $10. As costs rose in 2006 from internal operational difficulties, including the electrical field problem and the increase in purchased slabs, the Company was unable to significantly increase selling prices due to overall market
constraints.

Selling, General and Administrative Expenses



|                                            |  |      |        |      |   |        |  |   |        |  |       |  
|------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | ----- | -
|                                            |  |      |        |      |   | Change | 
|                                            |  | 2006 |        | 2005 |   | $      |  | % |       
|Selling, general and administrative expense |  | $    | 20,572 |      | $ | 9,950  |  | $ | 10,622 |  | 106.8 | %

Selling, general and administrative expenses increased $10.6 million, or 106.8%, in 2006 largely
as a result of non-recurring transaction-related and litigation-related expenses and partially from increased costs associated with expanded capacity. Total non-recurring costs in 2006 were $7.6 million and included $2.0 million for the settlement
of litigation with CITIC Holdings USA, Inc., our former owner, $4.1 million paid to H.I.G. Capital, a major stockholder, to terminate a management agreement and for a transaction fee, $0.7 million paid in management fees- prior to cancellation of
the agreement- to H.I.G., and $0.7 million to write-off the Companys prior trade name.

To support continued growth, the Company
added 5 salespeople and 3 administrative people in 2006, bringing total selling, general and administrative headcount to 47. In total, compensation expense increased $1.8 million in 2006 as a result of increased headcount, normal salary increases
and a full-year of our CEOs salary and bonus. In addition, legal, accounting and tax services increased by $0.7 million as the Company issued and registered its notes and effected an initial public offering of its common stock.

Interest Income and Expense



|                 |  |      |         |   |      |   |         |        |  |   |       |  |       |  
|---------------- |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | ----- |  | ----- | -
|                 |  |      |         |   |      |   |         | Change | 
|                 |  | 2006 |         |   | 2005 |   |         | $      |  | % |      
|Interest Income  |  | $    | 2,222   |   |      | $ | 243     |        |  | $ | 1,979 |  | 814.4 | %
|Interest Expense |  |      | (29,272 | ) |      |   | (25,430 | )      |  |   | 3,842 |  | 15.1  | %

Interest income is earned on short-term investment securities and overnight deposits of available
cash balances and increased in 2006 as earnings accumulated and the Company held a portion of dividends paid by its wholly-owned subsidiary in August 2005 prior to paying dividends to its stockholders in June 2006. The Company ended 2006 with $26.4
million of available cash balances and $94.8 million of short term investments.



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##### Table of Contents

Interest expense is comprised of interest, amortization of original issue discount and amortization of
deferred financing fees on the Companys pay-in-kind notes and Claymont Steels floating rate notes. Interest expense increased by $3.8 million in 2006 primarily as a result of the issuance of the pay-in-kind 15% fixed rate notes in July
2006, which led to $6.0 million of interest expense in 2006, partially offset by the fact that 2005 included $2.9 million of interest expense from the write-off of deferred financing fees related to the original acquisition debt which was refinanced
by the floating rate notes in August 2005. The interest rate on the floating rate notes averaged 11.6% in 2005 and 12.6% in 2006.

The
Company used the proceeds from its initial public offering to redeem the pay-in-kind notes in February 2007. On February 15, 2007, the Company completed a refinancing of the floating rate notes. As part of the refinancing, the Company entered
into an $80 million senior secured credit facility consisting of a $20 million term loan and a $60 million revolving credit facility. The Company also completed the sale of $105 million of 8.875% senior notes due 2015. As a result, the floating rate
notes were redeemed in full on March 19, 2007. Interest expense for 2007 is expected to total $15 million.

Income Tax Expense



|                   |  |      |         |   |      |   |         |        |  |   |        |   |  |       |   
|------------------ |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | ------ | - |  | ----- | --
|                   |  |      |         |   |      |   |         | Change | 
|                   |  | 2006 |         |   | 2005 |   |         | $      |  |   | %      |  
|Income Tax Expense |  | $    | (20,758 | ) |      | $ | (24,025 | )      |  | $ | (3,267 | ) |  | (13.6 | )%

Income tax expense declined by $3.3 million in 2006 as a result of a $12.9 million decline in
pre-tax income. The Company had an effective tax rate of 39.3% in 2006 and 36.6% in 2005. The effective tax rate increased in 2006 as a result of the recognition of certain state tax liabilities.

Net Income



|           |  |      |        |      |   |        |  |   |        |   |  |       |   
|---------- |  | ---- | ------ | ---- | - | ------ |  | - | ------ | - |  | ----- | --
|           |  |      |        |      |   | Change | 
|           |  | 2006 |        | 2005 |   | $      |  |   | %      |  
|Net Income |  | $    | 31,996 |      | $ | 41,603 |  | $ | (9,607 | ) |  | (23.1 | )%

Net income declined $9.6 million in 2006 as a result of a decline of $11.0 million in income from
operations, principally as a result of $7.6 million in non-recurring selling, general and administrative expenses.

EBITDA

EBITDA, which we define as earnings before interest (income) expense, net income tax expense, depreciation and amortization, is not a measure of financial
performance under GAAP. EBITDA does not represent and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP or as an alternative to net cash provided by
operating activities as a measure of our profitability or liquidity. We believe, however, that EBITDA is a valuable measure of the operating performance of our business and can assist in comparing our performances on a consistent basis without
regard to depreciation and amortization. The following table sets forth a reconciliation of EBITDA from net income, which management believes is the most nearly equivalent measure under GAAP for the reporting periods indicated:



|                               |  |      |        |      |   |        |  |   |        |   |  |       |   
|------------------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ | - |  | ----- | --
|                               |  |      |        |      |   | Change | 
|                               |  | 2006 |        | 2005 |   | $      |  |   | %      |  
|Net Income                     |  | $    | 31,996 |      | $ | 41,603 |  | $ | (9,607 | ) |  | (23.1 | )%
|Interest (Income) Expense, net |  |      | 27,050 |      |   | 25,187 |  |   | 1,863  |   |  | 7.4   | % 
|Income Tax Expense             |  |      | 20,758 |      |   | 24,025 |  |   | (3,267 | ) |  | (13.6 | )%
|Depreciation and Amortization  |  |      | 4,279  |      |   | 2,936  |  |   | 1,343  |   |  | 45.7  | % 
|                               |  |      |        |      |   |        |  |   |        |   |  |       |   
|EBITDA                         |  | $    | 84,083 |      | $ | 93,751 |  | $ | (9,668 | ) |  | (10.3 | )%

EBITDA declined by $9.7 million in 2006 largely as a result of $7.6 million of non-recurring
selling, general and administrative expenses coupled with expenses incurred to support sales growth. Adjusted EBITDA includes the add back of non-cash compensation as a result of vesting of stock options and restricted stock awards under the
Companys equity compensation programs. These amounts totaled $0.3 million in 2006 and are expected to increase significantly in 2007.



6



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##### Table of Contents

2005 Compared to 2004

Discussion and Analysis of Income



|                      |  |      |         |      |   |         |  |   |         |   |  |      |   
|--------------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------- | - |  | ---- | --
|                      |  |      |         |      |   | Change  | 
|                      |  | 2005 |         | 2004 |   | $       |  |   | %       |  
|Sales                 |  |      |         |      |   |         |  |   |         |   |  |      |   
|Custom                |  | $    | 204,341 |      | $ | 177,068 |  | $ | 27,273  |   |  | 15.4 | % 
|Standard              |  |      | 74,029  |      |   | 62,488  |  |   | 11,541  |   |  | 18.5 | % 
|                      |  |      |         |      |   |         |  |   |         |   |  |      |   
|Total                 |  | $    | 278,370 |      | $ | 239,556 |  | $ | 38,814  |   |  | 16.2 | % 
|                      |  |      |         |     
|Tons                  |  |      |         |      |   |         |  |   |         |   |  |      |   
|Custom                |  |      | 240,570 |      |   | 253,615 |  |   | (13,045 | ) |  | (5.1 | )%
|Standard              |  |      | 96,041  |      |   | 90,143  |  |   | 5,898   |   |  | 6.5  | % 
|                      |  |      |         |      |   |         |  |   |         |   |  |      |   
|Total                 |  |      | 336,611 |      |   | 343,758 |  |   | (7,147  | ) |  | (2.1 | )%
|                      |  |      |         |     
|Average Selling Price |  |      |         |      |   |         |  |   |         |   |  |      |   
|Custom                |  | $    | 849     |      | $ | 698     |  |   | 151     |   |  | 21.7 | % 
|Standard              |  | $    | 771     |      | $ | 693     |  |   | 78      |   |  | 11.2 | % 
|Total                 |  | $    | 827     |      | $ | 697     |  |   | 130     |   |  | 18.7 | % 

Sales

Sales increased 16.2% in 2005 as a result of an 18.7% increase in average selling price partially offset by a 2.1% decline in tons shipped. Selling prices increased significantly through 2004, from an average of $481 per ton in the first
quarter to $809 per ton in the fourth quarter, as customer demand increased and scrap and energy costs rose. Selling prices remained relatively stable from the fourth quarter of 2004 through the second quarter of 2005 and then declined to $773 per
ton in the third quarter. Then, prices began to rise again, averaging $806 in the fourth quarter of 2005.

Cost of Goods Sold and Gross Profit



|                                   |  |      |         |   |      |   |         |        |  |   |        |  |      |  
|---------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | ------ |  | ---- | -
|                                   |  |      |         |   |      |   |         | Change | 
|                                   |  | 2005 |         |   | 2004 |   |         | $      |  | % |       
|Cost of Goods Sold                 |  |      | 177,706 |   |      |   | 163,835 |        |  |   | 13,871 |  | 8.5  | %
|Gross Profit                       |  |      | 100,664 |   |      |   | 75,721  |        |  |   | 24,943 |  | 32.9 | %
|Gross Profit Margin                |  |      | 36.2    | % |      |   | 31.6    | %      |  |   |        |  | 4.6  | %
|Cost of Goods Sold per Ton Shipped |  | $    | 528     |   |      | $ | 477     |        |  | $ | 51     |  | 10.7 | %
|Raw Materials per Ton Shipped      |  | $    | 284     |   |      | $ | 280     |        |  | $ | 4      |  | 1.4  | %
|Energy per Ton Shipped             |  | $    | 88      |   |      | $ | 59      |        |  | $ | 29     |  | 49.2 | %
|Labor                              |  | $    | 70      |   |      | $ | 59      |        |  | $ | 11     |  | 18.6 | %
|Parts                              |  | $    | 40      |   |      | $ | 30      |        |  | $ | 10     |  | 33.3 | %
|Service                            |  | $    | 17      |   |      | $ | 15      |        |  | $ | 2      |  | 13.3 | %

Cost of goods sold increased 8.5% in 2005 as a result of a 10.7% increase in cost of goods sold
per shipped ton partially offset by a 2.1% decline in tons shipped. Cost of goods sold per shipped ton increased to $528 largely because of a $29 per shipped ton increase in energy costs, an $11 per shipped ton increase in labor costs and a $10 per
shipped ton increase in parts.

Energy costs per ton shipped increased 49% in 2005 as a result of significantly higher electricity rates
which increased from $0.037 per KWH in January 2004 to $0.060 in December 2004. Rates declined somewhat at the beginning of 2005, until July when rates rose dramatically, reaching $0.100 in December 2005.

Labor and parts costs per ton shipped increased in 2005 as the Company transitioned from its previous owner and implemented a more rigorous and regular
plant maintenance program.

Gross profit increased $24.9 million, or 32.9%, in 2005 as a result of the 18.7% increase in average selling
price, partially offset by the 10.7% increase in cost of goods sold per shipped ton. As a result, gross margins in 2005 increased to 36.2% from 31.6% in 2004 as average selling price increased by $130 per shipped ton and cost of good sold increased
only $51 per shipped ton.



7



---

##### Table of Contents

Selling, General and Administrative Expense



|                                            |  |      |       |      |   |        |  |   |      |   |  |      |   
|------------------------------------------- |  | ---- | ----- | ---- | - | ------ |  | - | ---- | - |  | ---- | --
|                                            |  |      |       |      |   | Change | 
|                                            |  | 2005 |       | 2004 |   | $      |  |   | %    |  
|Selling, General and Administrative Expense |  | $    | 9,950 |      | $ | 10,371 |  | $ | (421 | ) |  | (4.1 | )%

Selling, general and administrative expenses declined 4.1% in 2005 primarily as a result of 2004
including $0.6 million of litigation-related legal fees and $0.5 million for asset retirements. These expenses did not recur in 2005 and were partially offset by normal raises and cost increases.

Interest Income and Expense



|                 |  |      |         |   |      |   |         |        |  |   |       |  |       |  
|---------------- |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | ----- |  | ----- | -
|                 |  |      |         |   |      |   |         | Change | 
|                 |  | 2005 |         |   | 2004 |   |         | $      |  | % |      
|Interest Income  |  | $    | 242     |   |      | $ | 47      |        |  | $ | 195   |  | 414.9 | %
|Interest Expense |  |      | (25,430 | ) |      |   | (22,726 | )      |  |   | 2,703 |  | 11.9  | %

Interest expense increased by $2.7 million in 2005 primarily as a result of $3.3 million of
deferred financing costs written-off in 2005 related to the refinancing of the original acquisition debt with the notes.

Income Tax Expense



|                   |  |      |         |   |      |   |         |        |  |   |        |  |      |  
|------------------ |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | ------ |  | ---- | -
|                   |  |      |         |   |      |   |         | Change | 
|                   |  | 2005 |         |   | 2004 |   |         | $      |  | % |       
|Income Tax Expense |  | $    | (24,025 | ) |      | $ | (13,678 | )      |  | $ | 10,347 |  | 75.6 | %

Income tax expense increased by $10.3 million in 2005 as a result of pre-tax income growing $22.8
million from 2004 and due to the effective tax rate increasing to 36.6%, from 31.9% in 2004. The effective tax rate increased in 2005 as a result of the Companys prior net operating loss carry forward being fully utilized in 2004.

Net Income



|           |  |      |        |      |   |        |  |   |        |  |      |  
|---------- |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | ---- | -
|           |  |      |        |      |   | Change | 
|           |  | 2005 |        | 2004 |   | $      |  | % |       
|Net Income |  | $    | 41,603 |      | $ | 29,139 |  | $ | 12,464 |  | 42.8 | %

Net income increased $12.5 million in 2005 as a result of a $25.4 million increase in income from
operations partially offset by higher interest and income tax expenses.

EBITDA

EBITDA, which we define as earnings before interest (income) expense, net income tax expense, depreciation and amortization, is not a measure of financial
performance under GAAP. EBITDA does not represent and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP or as an alternative to net cash provided by
operating activities as a measure of our profitability or liquidity. We believe, however, that EBITDA is a valuable measure of the operating performance of our business and can assist in comparing our performances on a consistent basis without
regard to depreciation and amortization. The following table sets forth a reconciliation of EBITDA from net income, which management believes is the most nearly equivalent measure under GAAP for the reporting periods indicated:



|                               |  |      |        |      |   |        |  |   |        |  |      |  
|------------------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | ---- | -
|                               |  |      |        |      |   | Change | 
|                               |  | 2005 |        | 2004 |   | $      |  | % |       
|Net Income                     |  | $    | 41,631 |      | $ | 29,139 |  | $ | 12,492 |  | 42.9 | %
|Interest (Income) Expense, net |  |      | 25,188 |      |   | 22,679 |  |   | 2,508  |  | 11.1 | %
|Income Tax Expense             |  |      | 23,996 |      |   | 13,678 |  |   | 10,318 |  | 75.4 | %
|Depreciation and Amortization  |  |      | 2,936  |      |   | 2,936  |  |   |       |  | 0.0  | %
|                               |  |      |        |      |   |        |  |   |        |  |      |  
|EBITDA                         |  | $    | 93,751 |      | $ | 68,433 |  | $ | 25,318 |  | 37.0 | %

EBITDA increased by $25.3 million in 2005 largely as a result of the 10.7% increase in average
selling price offset by a 10.5% increase in cost of goods sold per ton shipped.



8



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##### Table of Contents

Liquidity and Capital Resources

Holdings is a holding company and conducts all of its operations through its subsidiaries. Accordingly, Holdings depends on its subsidiaries for dividends and other payments to generate the funds necessary to meet its
financial obligations. The earnings from, or other available assets of, Holdings subsidiaries may not be sufficient to pay dividends or make distributions or loans to enable Holdings to repay its indebtedness or to pay any dividends on its
common stock.

Our ongoing working capital requirements are largely driven by our level of accounts receivable and inventory and our
capital expenditures. Ongoing accounts receivable balances will be determined by future sales and customer payment terms. Customer payment terms are expected to remain at the current level of 30 to 45 days with certain customers given a small
discount for more rapid payment. Inventory balances will largely be determined by levels of scrap and purchased slab inventory. We carefully control our scrap purchases in order to match inventory levels to production requirements and may, from time
to time, take advantage of opportunities to purchase excess scrap at advantageous pricing. Likewise, we attempt to match slab purchases to production requirements. Slab purchases typically require long lead times, and we may also purchase excess
slab inventory at advantageous pricing.

At December 31, 2006, Claymont Steels liquidity consisted of cash and funds available
under the $20.0 million Claymont Steel credit agreement totaling approximately $39.6 million. Net working capital at December 31, 2006 decreased $21.2 million to $90.3 million from $111.5 million at December 31, 2005 primarily due to the
classification of the $75.0 million Holdings pay-in-kind notes as short-term debt since the notes were redeemed in February 2007 with proceeds from our initial public offering of common stock. The redemption of $68.3 million of investment securities
used to pay the $69.6 million cash dividend paid to stockholders in June 2006 was partially offset by receipt of net proceeds of $97.6 million from our initial public offering of common stock. In addition, a $71.2 million cash dividend was paid to
stockholders in July 2006 from the proceeds of the issuance of the Holdings Notes. The percentage of long-term debt to total capital was 120% at December 31, 2006 and 122% at December 31, 2005. We believe the funds provided by operations,
together with borrowings under the Claymont Steel credit agreement will be adequate to meet future capital expenditure and working capital requirements for existing operations for at least the next twelve months.

Cash Flows

Operating Activities. Net cash
flows provided by operating activities were $29.8 million for the year ended December 31, 2006, $29.3 million for the period of June 10, 2005 to December 31, 2005, $36.5 million for the period from January 1 to June 9, 2005,
and $24.9 million for fiscal 2004.

During the year ended December 31, 2006 net income adjusted for non-cash items provided $40.0
million in cash from operating activities, and growth in inventory to support accelerating sales used $4.7 million of cash. This increase was partially offset by $5.7 million increase in interest payable. Also, a decrease in accounts receivable used
$2.3 million of cash as sales increased 20% and the Company maintained days-sales outstanding at 48 days through the period. Further, the Company used $6.2 million in cash to settle the CITIC litigation regarding the working capital adjustment in
connection with the Acquisition. $4.3 million of the CITIC settlement was applied to the due to seller liability and $1.9 million was charged to operating expense.

During the period from June 10 to December 31, 2005, net income adjusted for non-cash items provided $11.3 million in cash from operating activities and growth in accounts receivable used $8.8 million of
cash. The growth in accounts receivable was caused by an increase in days-sales-outstanding, from 36 days at the beginning of the period to 48 days at the end of the period, as certain large customers were granted longer payment terms. Inventories
declined $9.9 million as the non-cash purchase accounting inventory write-up of $14.0 million, made at the time of the Acquisition, was expensed. Accounts payable grew $8.4 million as a result of negotiating extended terms with our vendors.

During the period from January 1 to June 9, 2005, net income adjusted for non-cash items provided $32.0 million in cash from
operating activities. Inventories declined $5.3 million as a result of a decline in average scrap price from $204 per ton at the beginning of the period to $150 per ton at the end of the period.

Net cash provided by operations increased by $25.3 million from fiscal 2003 to fiscal 2004 as a result of an increase of $53.1 million in net income
adjusted for non-cash items. Accounts receivable and inventories increased $18.5 million and $14.6 million in fiscal 2004, respectively, as a result of a 121% increase in net sales which was the result of an 18% increase in shipped tons and a $324
per ton increase in average selling price (including a $90 per ton average raw material surcharge).

Investing Activities. Cash
flows used by investing activities were $38.3 million for the year ended December 31, 2006. Cash flows used in investing activities were $175.1 million for the period of June 10, 2005 to December 31, 2005, $0.4 million for the period
from January 1 to June 9, 2005 and $1.4 million in fiscal 2004.



9



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##### Table of Contents

During the year ended December 31, 2006, we purchased investment securities for $94.8 million from
the net initial public offering proceeds and redeemed investment securities, net of purchases, of $68.3 million, which was used to pay a dividend to our stockholders. We spent $11.9 million on capital expenditures during this period. Major capital
projects in this period included completing the upgrade to the plate mill electrical drive system, enhancing the plate mill reheat furnace, replacing the 2 hi motor in the plate mill and renovating office space.

During the period from June 10 to December 31, 2005, we used $100.8 million of cash to acquire Claymont Steel, purchased $68.3 million of
investment securities, net of redemptions, from the proceeds of the Claymont Steel floating rate notes issuance and spent $5.9 million on capital expenditures. Major capital projects in this period included upgrading the plate mill electrical drive
system, purchasing a second ladle for the melt shop, enhancing the cooling tower and adding a bag room. These projects enhanced the efficiency and reliability of the plate mill and the melt shop.

During the period from January 1 to June 9, 2005, we spent $0.4 million on capital expenditures, essentially deferring all major projects until
after the Acquisition.

During fiscal 2004, we spent $1.6 million on capital expenditures, which amount was sufficient to maintain the
facilities, but it did not provide expansion capacity.

Financing Activities. Cash flows provided by financing activities were $26.0
million for the year ended December 31, 2006. Cash flows provided by financing activities were $117.4 million for the period from June 10, 2005 to December 31, 2005. Cash flows used in financing activities were $9.3 million for the
period from January 1 to June 9, 2005 and $19.9 million in fiscal 2004.

During the year ended December 31, 2006, we issued
$75.0 million of Holdings pay-in-kind notes and received net proceeds of $97.6 million from the initial public offering, intended to be used to redeem the Holdings pay-in-kind notes. We also paid cash dividends to our stockholders of $140.7 million
from the proceeds of the Claymont Steel floating rate notes offering and the Holdings Notes offering, and incurred $4.3 million of deferred financing fees related to the issuance of the Holdings Notes.

During the period of June 10 to December 31, 2005, the floating rate notes were issued for cash proceeds of $170.5 million, and we paid a
dividend of $41.1 million to our stockholders and incurred deferred financing costs related to the notes and the original Acquisition debt of $12.0 million.

During the period of January 1 to June 9, 2005, we paid a $9.3 million dividend on the preferred stock.

During fiscal 2004, we repaid our line of credit of $16.5 million and the note payable of $3.4 million to our former parent from cash provided by operating activities.

Capital Expenditures

Capital expenditures were $11.8 million in the year ended December 31,
2006, compared to $5.9 million in the period of June 10 to December 31, 2005. We are undertaking a number of deferred capital projects including capacity enhancement and efficiency improvement projects. Capital expenditures are projected
to be at least $12.0 million in 2007 and 2008. The planned capital expenditures for 2007 and 2008 are a result of our initiatives to increase plant capacity and to reduce operating costs.

Indebtedness

15% Senior Secured Pay-In-Kind Notes
due 2010.On July 6, 2006, we issued $75.0 million aggregate principal amount of Senior Secured Pay-In-Kind Notes due 2010. In February 2007, we redeemed all of the outstanding Holdings Notes for approximately $88.9 million using proceeds
from our initial public offering of common stock.

Senior Secured Floating Rate Notes due 2010.In August 2005, Claymont Steel
issued $172.0 million of the Claymont Steel floating rate notes. In March 2007, Claymont Steel redeemed all of its outstanding floating rate notes for approximately $176.4 million with the proceeds from Claymont Steels new senior notes in
aggregate principal amount of $102.4 million, a term loan in the amount of $20.0 million, borrowings of $43.7 million under a senior secured revolving credit facility and existing cash.

Senior Notes due 2015.In February 2007, Claymont Steel issued $105.0 million of its senior notes. The Claymont Steel senior notes are senior
unsecured obligations of Claymont Steel and rank senior in right of payment to all of Claymont Steels subordinated indebtedness and pari passu in right of payment with all of Claymont Steels existing and future senior indebtedness.
Interest on the Claymont Steel senior notes accrues at 8.875% per annum. Interest is payable semiannually in arrears on February 15 and August 15. The Claymont Steel senior notes will mature on February 15, 2015.



10



---

##### Table of Contents

Claymont Steel may, at its option, redeem all or some of the Claymont Steel senior notes at the following
redemption prices:



|                              |  |            |  
|----------------------------- |  | ---------- | -
|For the period below:         |  | Percentage |  
|On or after February 15, 2011 |  | 104.438    | %
|On or after February 15, 2012 |  | 102.219    | %
|On or after February 15, 2013 |  | 100.000    | %

Upon a change in control, each holder has the right to require Claymont Steel to repurchase such
holders Claymont Steel senior notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase.

The indenture governing the Claymont Steel senior notes imposes certain restrictions that limit the ability of Claymont Steel and its restricted
subsidiaries to, among other things: incur debt; restrict dividend or other payments from its subsidiaries; issue and sell capital stock of its subsidiaries; engage in transactions with affiliates; create liens on its assets to secure indebtedness;
transfer or sell assets; and consolidate, merge, or transfer all or substantially all of its assets and the assets of its subsidiaries.

The indenture governing the Claymont Steel senior notes also contains certain events of default, including, but not limited to:



| |  |  | non-payment of interest and additional interest;
| | - |  | ------------------------------------------------



| |  |  | non-payment of principal or premium;
| | - |  | ------------------------------------



| |  |  | violations of certain covenants;
| | - |  | --------------------------------



| |  |  | non-payment of certain judgments
| | - |  | --------------------------------



| |  |  | certain bankruptcy-related events; and
| | - |  | --------------------------------------



| |  |  | invalidity of any guarantee.
| | - |  | ----------------------------

The
foregoing summary of certain terms of the Claymont Steel senior notes is qualified in its entirety by reference to the complete terms contained in the indenture governing the Claymont Steel senior notes.

Credit Agreement. In August 2005, Claymont Steel entered into a $20 million senior secured revolving credit facility. In February 2007, Claymont
Steel amended its credit agreement and increased the facility into an $80 million senior secured revolving credit facility, including a $60 million revolving credit facility, with a $10 million letter of credit subfacility, and a $20 million term
loan. The Claymont Steel credit agreement is secured by a first priority perfected security interest in existing and future tangible and intangible assets, real and personal. The Claymont Steel credit agreement matures on February 15, 2012.

Under the revolving credit facility, Claymont Steel will be able to make borrowings based on a percentage of its eligible accounts
receivable and inventory. Interest accrues on amounts outstanding under the revolving credit facility at floating rates equal to either the prime rate of interest in effect from time to time (plus .25% in certain circumstances) or LIBOR plus 1.00%
to 1.75% based on the amount of availability under the Claymont Steel credit agreement. The Claymont Steel credit agreement contains certain customary fees, including servicing fees, unused facility fees and pre-payment fees.

Under the term loan, payments of principal will amortize in equal monthly installments over 36 months. In addition, the term loan will require quarterly
mandatory prepayments in an amount equal to 50% of our excess cash flow, based on financial statements. Final payment will be due on the third anniversary of the senior secured revolving credit facility. Interest accrues on amounts outstanding under
our term loan at floating rates equal to either the prime rate of interest in effect from time to time or LIBOR plus 2.50%.

The Claymont
Steel credit agreement contains customary covenants that restrict its ability to, among other things:



| |  |  | declare dividends;
| | - |  | ------------------



| |  |  | prepay, redeem or purchase debt;
| | - |  | --------------------------------



| |  |  | incur liens;
| | - |  | ------------



| |  |  | make loans and investments;
| | - |  | ---------------------------



| |  |  | make capital expenditures;
| | - |  | --------------------------



| |  |  | incur additional indebtedness;
| | - |  | ------------------------------



11



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##### Table of Contents

| |  |  | engage in mergers, acquisitions and asset sales;
| | - |  | ------------------------------------------------



| |  |  | enter into transactions with affiliates; and
| | - |  | --------------------------------------------



| |  |  | engage in businesses that are not related to our business.
| | - |  | ----------------------------------------------------------

The Claymont Steel credit agreement also includes financial covenants that, among others, require us to maintain minimum availability under the revolving credit facility and maintain fixed charge coverage ratios.

The Claymont Steel credit agreement contains customary events of default, including, but not limited to:



| |  |  | non-payment of principal, interest or fees;
| | - |  | -------------------------------------------



| |  |  | violations of certain covenants;
| | - |  | --------------------------------



| |  |  | certain bankruptcy-related events;
| | - |  | ----------------------------------



| |  |  | inaccuracy of representations and warranties in any material respect; and
| | - |  | -------------------------------------------------------------------------



| |  |  | cross defaults with certain other indebtedness and agreements.
| | - |  | --------------------------------------------------------------

Contractual Obligations

The following is a summary of our significant contractual obligations by
year as of December 31, 2006.



|                                                           |  |                        |         |                  |   |           |  |           |        |                   |   |         |  |   |    
|---------------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | --------- |  | --------- | ------ | ----------------- | - | ------- |  | - | ---
|                                                           |  | Payments Due by Period
|Contractual Obligations                                    |  | Total                  |         | Less Than 1 Year |   | 1-3 Years |  | 3-5 Years |        | More Than 5 Years
|                                                           |  | (in thousands)        
|Pension obligations(1)                                     |  |                        | N/A     |                  | $ |          |  |           | N/A    |                   |   | N/A     |  |   | N/A
|Operating lease obligations                                |  | $                      | 1,193   |                  |   | 395       |  | $         | 594    |                   | $ | 204     |  | $ |   
|Service agreement(2)                                       |  |                        | 2,418   |                  |   | 322       |  |           | 645    |                   |   | 645     |  |   | 806
|Letters of credit                                          |  |                        | 550     |                  |   | 550       |  |           |       |                   |   |        |  |   |   
|Management agreement(3)                                    |  |                        |        |                  |   |          |  |           |       |                   |   |        |  |   |   
|Claymont Steel credit agreement and related interest(4)    |  |                        | 167     |                  |   | 100       |  |           | 67     |                   |   |        |  |   |   
|Claymont Steel floating rate notes and related interest(5) |  |                        | 251,184 |                  |   | 22,114    |  |           | 44,228 |                   |   | 184,842 |  |   |   
|Claymont Steel Holdings pay-in-kind notes(6)               |  |                        | 88,906  |                  |   | 88,906    |  |           |       |                   |   |        |  |   |   
|                                                           |  |                        |         |                  |   |           |  |           |        |                   |   |         |  |   |    
|                                                           |  | $                      | 344,418 |                  | $ | 112,387   |  | $         | 45,534 |                   | $ | 185,691 |  | $ | 806
|                                                           |  |                        |         |                  |   |           |  |           |        |                   |   |         |  |   |    



---

|(1) | With the exception of 2006, which is $ 0, we are not able to reasonably estimate future obligations.
|--- | ----------------------------------------------------------------------------------------------------

|(2) | Service agreement relates to a contract with a third party for the scarfing of slabs.
|--- | -------------------------------------------------------------------------------------

|(3) | The management agreement was canceled in connection with our IPO by a $3.0 million payment to an
affiliate of our principal stockholder.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(4) | Unused commitment fee on the Claymont Steel credit agreement, calculated at 0.5% multiplied by the $20.0
million commitment. The credit agreement was amended in February 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | All of the outstanding Claymont Steel floating rate notes were redeemed in March 2007 for approximately
$176.4 million with the proceeds of new senior notes in aggregate principal amount of $102.4 million, a term loan in the amount of $20.0 million, borrowings of $43.7 million under a senior secured revolving credit facility and existing cash.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | All of the outstanding Holdings notes were redeemed in February 2007, with proceeds from the Holdings
initial public offering of common stock, for approximately $88.9 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pension Plan

The Company maintains a noncontributory defined benefit pension plan which covers substantially all full-time employees. The plan is over-funded at
December 31, 2006 as the fair value of the plan assets exceeds the present value of the benefit obligation. The over-funded amount, net of tax, is recorded in other comprehensive income.

We use the following assumptions and estimates, which are determined by our pension committee in consultation with our external actuary, in determining
our pension liability:



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|                                                                                   |  |                  |   |  |                  |   |  |             |   |  |                  |  
|---------------------------------------------------------------------------------- |  | ---------------- | - |  | ---------------- | - |  | ----------- | - |  | ---------------- | -
|                                                                                   |  | Successor        |   |  | Predecessor      |  
|                                                                                   |  | December 31,2006 |   |  | December 31,2005 |   |  | June 9,2005 |   |  | December 31,2004 |  
|Weighted-average assumptions used to determine benefit obligations at December 31: |  |                  |   |  |                  |   |  |             |   |  |                  |  
|Discount rate                                                                      |  | 6.05             | % |  | 5.70             | % |  | 5.75        | % |  | 6.00             | %
|Rate of compensation increase                                                      |  | 3.0              | % |  | 3.0              | % |  | 3.0         | % |  | 3.0              | %



|                                                                                                           |  |                   |      |   |                   |   |      |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ---- | - | ----------------- | - | ---- | -
|                                                                                                           |  | December 31, 2006 |      |   | December 31, 2005 |  
|Weighted-average assumptions used to determine net periodic benefit costs for the years ended December 31: |  |                   |      |   |                   |   |      |  
|Discount rate                                                                                              |  |                   | 5.70 | % |                   |   | 5.70 | %
|Expected return on plan assets                                                                             |  |                   | 8.0  |   |                   |   | 8.0  |  
|Rate of compensation increase                                                                              |  |                   | 3.0  |   |                   |   | 3.0  |  
|Minimum required contribution                                                                              |  | $                 | 0    |   |                   | $ | 0    |  

Our pension plan had the following effect on results of operations for the year ended
December 31, 2006 and for the period of June 10 to December 31, 2005, January 1 to June 9, 2005 and for the year ended December 31, 2004 (amounts in thousands):



|                                                   |  |      |      |   |                            |   |      |                          |  |   |      |   |  |   |      |  
|-------------------------------------------------- |  | ---- | ---- | - | -------------------------- | - | ---- | ------------------------ |  | - | ---- | - |  | - | ---- | -
|                                                   |  |      |      |   | Successor                  |   |      | Predecessor              |  |   |      |  
|                                                   |  | 2006 |      |   | June 10 toDecember 31,2005 |   |      | January 1 toJune 9, 2005 |  |   | 2004 |  
|Service cost                                       |  | $    | 651  |   |                            | $ | 409  |                          |  | $ | 194  |   |  | $ | 548  |  
|Interest cost                                      |  |      | 576  |   |                            |   | 366  |                          |  |   | 176  |   |  |   | 473  |  
|Expected return on plan assets                     |  |      | (809 | ) |                            |   | (392 | )                        |  |   | (219 | ) |  |   | (532 | )
|Amortization of transition obligation              |  |      |      |   |                            |   |      |                          |  |   |      |   |  |   | 6    |  
|Amortization of gain and loss and prior year costs |  |      |      |   |                            |   |      |                          |  |   | 25   |   |  |   | 63   |  
|                                                   |  |      |      |   |                            |   |      |                          |  |   |      |   |  |   |      |  
|Net periodic pension cost                          |  | $    | 418  |   |                            | $ | 383  |                          |  | $ | 176  |   |  | $ | 558  |  
|                                                   |  |      |      |   |                            |   |      |                          |  |   |      |   |  |   |      |  

The Companys pension plan had no effect on cash flow or liquidity for the year ended
December 31, 2006 and for the period of June 10 to December 31, 2005 since we made no payments to the plan nor did we take any distributions from the plan during those periods. The Company made a $2,456,000 contribution to the pension
plan in the period of January 1 to June 9, 2005 and an $821,000 contribution in the year ended December 31, 2004.

For the
year ended December 31, 2006, the Company recognized a $715,000 gain, net of income tax, in other comprehensive income representing the excess of fair value of the plan assets over the projected benefit obligation.

There have been no material variations between the Companys actual experience with the pension plan and the expected results based on the
assumptions. There are no expected changes in trends or assumptions.

The Company does not anticipate making a contribution to the pension
plan in the year ended December 31, 2007 and can not reasonable project required contributions in future years. At December 31, 2006 the Company had no unrecognized losses on pension assets.

Intangible Assets

Intangible assets are comprised of
our customer relationships, which are being amortized over a five-year life, and the Companys prior trade name, which was written-off in the third quarter of 2006 when we changed our name to Claymont Steel. Intangible assets were valued at the
Acquisition date. Customer relationships were valued at $7.0 million based on the estimated discounted after-tax cash flow derived from the customers we had at the acquisition date, assuming an average five-year customer life. Annual amortization of
$1.4 million is charged to selling, general and administrative expense for the customer relationships. Our prior trade name (CitiSteel USA, Inc.) was valued at $0.6 million based on the estimated discounted after-tax cost we would have had to incur
if we paid a royalty to a third-party for use of a comparable name.

Environmental Matters

In October 2006, the Delaware Department of Natural Resources and Environmental Control (DNREC) issued a Notice of Conciliation and Secretarys Order
requiring the Claymont Steel to fund an independent study to determine engineering and operational options to control dust and other particulate emissions. The DNREC plans to make a determination on further



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dust control requirements upon review of the study in May 2007. Accordingly, the outcome cannot be determined at this time.

In 2006, Claymont Steel performed an emissions test that indicated that mercury emissions were higher than previously calculated by it using information
supplied by the United States Environmental Protection Agency. In November 2006, DNREC issued a Secretarys Order, which requires Claymont Steel to monitor and reduce mercury emissions. The Order requires Claymont Steel to implement a quarterly
testing program and to develop a plan to reduce the mercury contained in the feed to the electric arc furnace. Mercury-containing scrap is an industry-wide problem. Automobile scrap may contain mercury switches that have not been removed during the
recycling process, and thus mercury can be emitted when Claymont Steel smelts recycled scrap steel products, including used automobiles, to produce custom steel plate products. Claymont Steel has already taken steps to reduce mercury levels in the
feedit is no longer using municipal solid waste scrap, is partially funding a rational mercury switch removal program through an industry trade association and is increasing its purchases of automobile-free scrap. The Order also requires
Claymont Steel to elect one of the alternatives set forth in the Order for reducing mercury emissions and notify DNREC of the alternative selected by January 31, 2007. The alternatives include source reduction of mercury in the scrap,
installation of a carbon injection system or alternative emission control system, some combination of source reduction and emission controls, or ceasing operation of the electric arc furnace. On January 30, 2007, Claymont Steel notified DRNEC
that it elected to implement a combination of source reduction and emission controls. The Order requires Claymont Steel to have the selected alternative operational by December 31, 2008. At this time, Claymont Steel cannot estimate the cost of
any corrective measures. If Claymont Steel were ultimately required to install and operate a carbon injection system, it does not believe the associated costs would have a material effect on its results of operations or financial condition.

Claymont Steel is also working with DNREC to investigate potential PCB and PAH contamination in the active scrap yard area. An
investigative work plan was submitted in late October for some additional sampling, and Claymont Steel is awaiting review comments from DNREC. Claymont Steel believes any requirements for remediation will not have a material effect on the
Companys financial statements.

The Company recorded a $550,000 asset retirement reserve on the December 31, 2005 balance sheet
to cover replacement and remediation of certain assets.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. This evaluation provides a basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material. We believe that our
significant accounting policies, as discussed in the Notes to Consolidated Financial Statements involve a higher degree of judgment and complexity.

Investment Securities. Investment securities represented 39% and 39% of our total assets at December 31, 2006 and December 31, 2005, respectively. Investment securities are carried at fair value and
have maturities of less than three months at December 31, 2005. Fair value is approximated based on market value of the securities at the balance sheet date.

Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable represented 17% and 22% of our total assets at December 31, 2006 and December 31, 2005, respectively. Accounts receivable,
net of a reserve for doubtful accounts, are carried at net realizable value, which is estimated based on the expected collectibility of each individual customer account. We establish reserves for doubtful accounts on a case-by-case basis when we
believe the payment of amounts owed to us is unlikely to occur. In establishing these reserves, we consider our historical experience, changes in our customers financial position, and any disputes with customers. We derive a significant
portion of our revenues from steel service centers and fabricators and construction-related industries and our receivables are concentrated in those industries. If the financial condition of our clients were to deteriorate, additional allowances may
be required. During the year ended December 31, 2006, we decreased the allowance for doubtful accounts through expense of $0.9 million. For the period from June 10 to December 31, 2005, we increased the reserve by $0.3 million. In
fiscal 2004, we increased the reserve by $0.8 million. The allowance was decreased for write-offs and recoveries of specifically identified uncollectible accounts by $0.7 million, $0.0 million and $0.6 million, respectively.

The reserve for doubtful accounts totaled $0.4 million at December 31, 2006, $1.3 million at December 31, 2005 and $1.0 million at each of
June 9, 2005 and December 31, 2004.



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Inventories. Inventories represented 17% and 20% of our total assets at December 31, 2006 and
December 31, 2005, respectively. Inventories include raw materials consisting of scrap steel, alloys and flux and work-in-process consisting of steel slabs, finished plate, manufacturing supplies and spare parts. Inventories also include labor
and overhead and are recorded at the lower of cost (first-in, first-out method) or market. We review whether the realizable value of this inventory is lower than its book value. If our valuation is lower than its book value, we take a charge to
expense and directly reduce the value of the inventory. We do not maintain a separate inventory reserve account.

Property, Plant and
Equipment. Property, plant and equipment represented 10% and 8% of our total assets at December 31, 2006 and December 31, 2005, respectively. We determine the carrying value of these assets based on our property and equipment
accounting policies, which incorporate our estimates, assumptions and judgments relative to capitalized costs and useful lives of our assets.

Our property and equipment accounting policies are designed to depreciate our assets over their estimated useful lives. The assumptions and judgments we use in determining the estimated useful lives reflect both historical experience and
expectation regarding future operations. The use of different estimates, assumptions and judgments in the establishment of the property and equipment accounting policies would likely result in different net book values of our assets and results from
operations. We review our property and equipment for impairment when events or circumstances change indicating the carrying value of the assets may be impaired.

Revenue Recognition. We recognize revenue when the steel plate is shipped to our customers. We ship plate after we determine that it meets customer specifications. We establish reserves for sales returns and
allowances based on our historical experience and future expectations. During the year ended December 31, 2006, we increased the allowance for sales returns and allowances through charges to expense of $1.3 million, and for the period from
June 10 to December 31, 2005, we increased the reserve by $0.2 million. For the period of January 1 to June 9, 2005, we increased the reserve by $0.1 million, and in fiscal 2004, we increased the reserve by $1.4 million. The
allowance was decreased for actual returns and allowances by $0.7 million, $0.2 million, $0.7 million and $0.6 million, respectively.

The
reserve for sales returns and allowances totaled $0.3 million at December 31, 2006, $0.2 million at December 31, 2005, $0.2 million at June 9, 2005 and $0.9 million at December 31, 2004.

Long-Lived AssetsThe Companys long-lived assets are comprised of intangible assets, which represented 2% and 4% of our total assets at
December 31, 2006 and December 31, 2005, respectively. Intangible assets are comprised of our customer relationships, which are being amortized over a five-year life, and the Companys prior trade name, which was written-off in the
third quarter of 2006 when we changed our name to Claymont Steel. Intangible assets were valued at the Acquisition date. Customer relationships were valued based on the estimated discounted after-tax cash flow derived from the customers we had at
the acquisition date, assuming an average five-year customer life. Our prior trade name (CitiSteel USA, Inc.) was valued based on the estimated discounted after-tax cost we would have had to incur if we paid a royalty to a third-party for use of a
comparable name.

The Company evaluates the carrying value of long-lived assets for impairment whenever events or circumstances indicate
that the carrying amount of the asset may not be recoverable. Such evaluation relies on a number of factors, including operating results, future anticipated cash flows, business plans and certain economic projections. In addition, the Companys
evaluation considers non-financial data such as changes in operating environment, competitive information, market trends and business relationships. If the sum of the undiscounted cash flows is less than the carrying value of the asset, an
impairment loss is recognized. Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Income TaxesThe Companys income tax receivable represents 1% of our total assets at December 31, 2006 and our income tax payable
represents 1% of our total liabilities at December 31, 2005. Our income tax receivable will be realized as the Company earns taxable income in 2007.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Valuation
allowances, if any, are provided when a portion or all of a deferred tax asset may not be realized. The Companys deferred tax assets and liabilities represented less than 1% of our total assets and total liabilities at December 31, 2006
and December 31, 2005. The Company expects to realize our deferred tax assets as we earn table income in 2007 and future years.

PensionsThe Company has a noncontributory defined benefit pension plan which covers substantially all full-time employees. The plan is over-funded at December 31, 2006 as the fair value of the plan assets exceeds the
present value of the benefit obligation. The over-funded amount, net of tax, is recorded in other comprehensive income.



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Recently Issued Accounting Pronouncements

The Company adopted SFAS No. 151, Inventory Costs, on January 1, 2006. SFAS No. 151 amends the guidance in ARB No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of so abnormal. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facility. In
accordance with SFAS No. 151, the Company recorded a $2.3 million charge in the thirteen weeks ended April 1, 2006 for maintenance related costs from a planned shut down of the plate mill in March 2006. The adoption did not change the
manner in which the Company previously recorded these expenses and did not have a significant impact on its consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. This Statement amends Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. This Statement is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company adopted SFAS No. 153 effective January 1, 2006
and its adoption did not have a significant impact on its consolidated financial position or results of operations.

In December 2004, the
FASB issued SFAS No. 123 (revised 2004), Share-Based Payment(SFAS No. 123R). This Statement requires companies to record compensation expense for all share-based awards granted subsequent to the adoption of SFAS
No. 123R. In addition, SFAS No. 123R requires the recording of compensation expense for the unvested portion of previously granted awards that remain outstanding at the date of adoption. The Company adopted SFAS No. 123R on
January 1, 2006 and the adoption did not have a significant impact on its consolidated financial position or results of operations.

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for Conditional Asset Retirement Obligations (FIN No. 47), which is effective no later than the end of fiscal years ending
after December 15, 2005. FIN No. 47 clarifies that the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). Conditional asset
retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. At the adoption
of FIN No. 47, the Company recorded a $550,000 asset retirement liability on the December 31, 2005 balance sheet to cover replacement and remediation of certain assets, including removal and replacement of transformers containing
PCBs and removal of certain contaminated smoke stacks.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections (SFAS No. 154). This Statement requires retrospective application to prior periods financial statements of voluntary changes in accounting principles unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS No. 154 makes a distinction between retrospective application of an accounting principle and the restatement of financial statements to reflect the
correction of an error. SFAS No. 154 replaces Accounting Principles Bulletin (APB) No. 20, Accounting Changes (APB No. 20), and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle in the net income of the period of the change. SFAS
No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In
February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 (Accounting for Derivative Instruments and Hedging Activities) and No. 140
(Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities), which permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require
bifurcation. In addition, SFAS No. 155 established a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation under the requirements of Statement No. 133. This Statement will be effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after
September 15, 2006. We will adopt this Statement effective January 1, 2007. Based on our current evaluation of this Statement, we do not expect this adoption of SFAS No. 155 to have a material effect on our financial statements.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement
No. 140. This Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing
liabilities. This Statement clarifies when servicing rights should be separately accounted for, requires companies to account for separately recognized servicing rights initially at fair value, and gives companies the option of



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##### Table of Contents

subsequently accounting for these servicing rights at either fair value or under the amortization method. This Statement will be effective as of the
beginning of an entitys first fiscal year that begins after September 15, 2006. We will adopt this Statement effective January 1, 2007. Based on our current evaluation of this Statement, we do not expect the adoption of SFAS
No. 156 to have a material effect on our financial statements.

In June 2006, the FASB issued FASB Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48), which is effective in fiscal years beginning after December 15, 2006. FIN No. 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. The Company will adopt FIN No. 48 on January 1, 2007 and does not anticipate the adoption to have a material impact on its consolidated financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value measurements. This statement is effective for the financial statements for fiscal years beginning after November 15, 2007. We have not yet evaluated the impact of this
statement.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan)
as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. We adopted SFAS No. 158 in December 2006 and
its adoption resulted in a $715,000 increase in other comprehensive income.

In September 2006, the Securities and Exchange Commission
(SEC) issued SAB 108, in which the SEC staff established an approach that requires quantification of financial statement errors based on the effects of the error on each of our financial statements and the related financial statement disclosures.
The interpretations in this Staff Accounting Bulletin are being issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build-up of improper amounts on the balance
sheet. SAB 108 is effective on or before November 15, 2006. We have completed our evaluation of SAB 108 and have determined that this interpretation does not have a material effect on our consolidated results of operations or consolidated
financial position.

Off-Balance Sheet Arrangements

We have no off-balance sheet financing arrangements.



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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

To the Board of Directors

Claymont Steel Holdings,
Inc. (formerly CitiSteel USA Holdings, Inc.)

Claymont, Delaware

We have audited the accompanying consolidated balance sheets of Claymont Steel Holdings, Inc. (formerly CitiSteel USA Holdings, Inc.) (the Company) as of December 31, 2006 and 2005, and the related
consolidated statements of operations, changes in stockholders equity (deficit), and cash flows for the year ended December 31, 2006, for the periods from June 10, 2005 to December 31, 2005 and January 1, 2005 to
June 9, 2005 and the year ended December 31, 2004. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and cash flows for the year ended December 31, 2006, the periods of June 10, 2005 to December 31, 2005
and January 1, 2005 to June 9, 2005 and the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

In 2006, the Company adopted Statement of Financial Accounting Standards No. 158Employers Accounting for Defined Benefit Pension and other Post Retirement Benefit Plans.

As discussed in Note 21, the Company restated its long-term and short-term debt disclosed in the accompanying consolidated financial statements.

CROWE CHIZEK AND COMPANY LLC

Lexington, Kentucky

April 2, 2007, except for Notes 10 and 21 as to which the date is July 23, 2007



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CLAYMONT STEEL HOLDINGS, INC.

(FORMERLY CITISTEEL USA HOLDINGS, INC.) AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2005 AND 2006

(Amounts in thousands, except per share data)



|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------- | -------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                       |  | December 31,2006(As Restated,See Note 21) |          |   | December 31,2005 |  
|ASSETS                                                                                                                                                                                                 |  |                                           |          |   |                  |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                        |  |                                           |          |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                              |  | $                                         | 20,120   |   |                  | $ | 2,619   |  
|Investment securities                                                                                                                                                                                  |  |                                           | 94,774   |   |                  |   | 68,317  |  
|Accounts receivable, less allowance for doubtful accounts of $420 and $1,335 for December 31, 2006 and 2005, respectively                                                                              |  |                                           | 41,081   |   |                  |   | 38,745  |  
|Inventories                                                                                                                                                                                            |  |                                           | 40,698   |   |                  |   | 35,952  |  
|Prepaid expenses                                                                                                                                                                                       |  |                                           | 515      |   |                  |   | 805     |  
|Income taxes receivable                                                                                                                                                                                |  |                                           | 2,949    |   |                  |   |         |  
|Deferred income taxes                                                                                                                                                                                  |  |                                           | 795      |   |                  |   | 1,144   |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|Total current assets                                                                                                                                                                                   |  |                                           | 200,932  |   |                  |   | 147,582 |  
|Property, plant, and equipmentnet                                                                                                                                                                     |  |                                           | 24,103   |   |                  |   | 14,615  |  
|Deferred financing costs                                                                                                                                                                               |  |                                           | 9,583    |   |                  |   | 7,912   |  
|Intangible assets                                                                                                                                                                                      |  |                                           | 4,975    |   |                  |   | 6,862   |  
|Other assets                                                                                                                                                                                           |  |                                           | 472      |   |                  |   |         |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|TOTAL ASSETS                                                                                                                                                                                           |  | $                                         | 240,065  |   |                  | $ | 176,971 |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                                  |  |                                           |          |   |                  |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                   |  |                                           |          |   |                  |   |         |  
|Current portion of long-term debt                                                                                                                                                                      |  | $                                         | 75,000   |   |                  | $ |         |  
|Accounts payable                                                                                                                                                                                       |  |                                           | 17,117   |   |                  |   | 16,517  |  
|Accrued expenses                                                                                                                                                                                       |  |                                           | 2,425    |   |                  |   | 3,941   |  
|Accrued profit sharing                                                                                                                                                                                 |  |                                           | 3,115    |   |                  |   | 2,205   |  
|Accrued interest payable                                                                                                                                                                               |  |                                           | 12,958   |   |                  |   | 7,167   |  
|Due to seller                                                                                                                                                                                          |  |                                           |          |   |                  |   | 4,814   |  
|Income taxes payable                                                                                                                                                                                   |  |                                           |          |   |                  |   | 1,394   |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                              |  |                                           | 110,615  |   |                  |   | 36,038  |  
|Long-term debt                                                                                                                                                                                         |  |                                           | 168,848  |   |                  |   | 170,452 |  
|Other long-term liabilities                                                                                                                                                                            |  |                                           |          |   |                  |   | 285     |  
|Deferred income taxes                                                                                                                                                                                  |  |                                           | 916      |   |                  |   | 410     |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                      |  |                                           | 280,379  |   |                  |   | 207,185 |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|COMMITMENTS AND CONTINGENCIES (Note 17)                                                                                                                                                                |  |                                           |          |   |                  |   |         |  
|STOCKHOLDERS DEFICIT:                                                                                                                                                                                 |  |                                           |          |   |                  |   |         |  
|Common stock, $0.001 par value, in December 31, 2006 and 2005 and $1 par value, in June 9, 2005authorized 20,000,000 and
issued and outstanding, 17,566,754 shares in 2006, 11,316,754 shares in 2005 |  |                                           | 6        |   |                  |   |         |  
|Additional paid-in capital                                                                                                                                                                             |  |                                           | 97,602   |   |                  |   |         |  
|(Accumulated deficit) retained earnings                                                                                                                                                                |  |                                           | (138,637 | ) |                  |   | (30,214 | )
|Accumulated other comprehensive loss                                                                                                                                                                   |  |                                           | 715      |   |                  |   |         |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|Total stockholders deficit                                                                                                                                                                            |  |                                           | (40,314  | ) |                  |   | (30,214 | )
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                            |  | $                                         | 240,065  |   |                  | $ | 176,971 |  
|                                                                                                                                                                                                       |  |                                           |          |   |                  |   |         |  

See notes to consolidated financial statements.



19



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##### Table of Contents

CLAYMONT STEEL HOLDINGS, INC.

(FORMERLY CITISTEEL USA HOLDINGS, INC.) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIODS OF JUNE 10, 2005 TO
DECEMBER 31, 2005 AND

JANUARY 1, 2005 TO JUNE 9, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004

(Amounts in thousands, except per share data)



|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|------------------------------------------------------ |  | --------- | ---------- | - | -------------------------- | - | ---------- | ------------------------ |  | - | ------- | - |  | - | ------- | -
|                                                       |  | Successor |            |   |                            |   |            | Predecessor              |  |   |         |  
|                                                       |  | 2006      |            |   | June 10 toDecember 31,2005 |   |            | January 1 toJune 9, 2005 |  |   | 2004    |  
|SALES                                                  |  | $         | 333,408    |   |                            | $ | 149,683    |                          |  | $ | 128,687 |   |  | $ | 239,556 |  
|COST OF SALES                                          |  |           | 233,170    |   |                            |   | 114,136    |                          |  |   | 78,762  |   |  |   | 167,029 |  
|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|GROSS PROFIT                                           |  |           | 100,238    |   |                            |   | 35,547     |                          |  |   | 49,925  |   |  |   | 72,527  |  
|OPERATING EXPENSESSelling, general and administrative |  |           | 20,572     |   |                            |   | 8,041      |                          |  |   | 2,535   |   |  |   | 8,303   |  
|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|INCOME FROM OPERATIONS                                 |  |           | 79,666     |   |                            |   | 27,506     |                          |  |   | 47,390  |   |  |   | 64,224  |  
|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|OTHER INCOME (EXPENSE):                                |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|Interest income                                        |  |           | 2,222      |   |                            |   | 968        |                          |  |   | 228     |   |  |   | 47      |  
|Interest expense                                       |  |           | (29,272    | ) |                            |   | (11,632    | )                        |  |   |        |   |  |   | (568    | )
|Other non-operating income                             |  |           | 138        |   |                            |   | 101        |                          |  |   |        |   |  |   | 147     |  
|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|Total other income (expense)                           |  |           | (26,912    | ) |                            |   | (10,563    | )                        |  |   | 228     |   |  |   | (374    | )
|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|INCOME BEFORE INCOME TAXES                             |  |           | 52,754     |   |                            |   | 16,943     |                          |  |   | 47,618  |   |  |   | 63,850  |  
|INCOME TAX EXPENSE                                     |  |           | (20,758    | ) |                            |   | (6,058     | )                        |  |   | (17,583 | ) |  |   | (21,881 | )
|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|NET INCOME                                             |  | $         | 31,996     |   |                            | $ | 10,885     |                          |  | $ | 30,035  |   |  | $ | 41,969  |  
|                                                       |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|NET EARNINGS PER COMMON SHAREbasic                    |  | $         | 2.80       |   |                            | $ | 0.97       |                          |  | $ | 30,035  |   |  | $ | 41,081  |  
|NET EARNINGS PER COMMON SHAREdiluted                  |  | $         | 2.79       |   |                            | $ | 0.96       |                          |  | $ | 30,035  |   |  | $ | 41,081  |  
|WEIGHTED AVERAGE SHARES OUTSTANDING:                   |  |           |            |   |                            |   |            |                          |  |   |         |   |  |   |         |  
|Basic                                                  |  |           | 11,407,770 |   |                            |   | 11,241,303 |                          |  |   | 1,000   |   |  |   | 1,000   |  
|Diluted                                                |  |           | 11,476,067 |   |                            |   | 11,316,754 |                          |  |   | 1,000   |   |  |   | 1,000   |  

See notes to consolidated financial statements.



20



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##### Table of Contents

CLAYMONT STEEL HOLDINGS, INC.

(FORMERLY CITISTEEL USA HOLDINGS, INC.) AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIODS OF
JUNE 10, 2005 TO DECEMBER 31, 2005 AND JANUARY 1, 2005

TO JUNE 9, 2005 AND FOR THE YEAR ENDED
DECEMBER 31, 2004

(Dollar amounts in thousands)



|                                                                      |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  
|--------------------------------------------------------------------- |  | ------------ |  | ----------------------------------- | - | ------------------------- | --- | -------------------------------------- | - | ------ | ------------------------------------ | - | ------ | ------------------------------------ | - | ------- | - |  | - | ---- | - |  | - | ------ | -
|                                                                      |  | Common Stock |  | Series B Cumulative Preferred
Stock |   | Additional Paid-InCapital |     | Retained Earnings (AccumulatedDeficit) |   |        | Accumulated Other Comprehensive Loss |   |        | Total Stockholders Equity (Deficit) |  
|                                                                      |  | Shares       |  | Amount                              |   | Shares                    |     | Amount                                 |   |        |                                      |  
|Predecessor                                                           |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  
|BALANCEJanuary 1, 2004                                               |  | 1,000        |  | $                                   | 1 |                           | 166 |                                        | $ | 33,200 |                                      | $ | 16,999 |                                      | $ | (15,229 | ) |  | $ | (663 | ) |  | $ | 34,308 |  
|Comprehensive income:                                                 |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  
|Net income                                                            |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   | 41,969  |   |  |   |      |   |  |   | 41,969 |  
|Other comprehensive income:                                           |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  
|Adjustment to unrealized gains on short-term investments              |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   | (138 | ) |  |   | (138   | )
|Minimum pension liability adjustment net of income tax benefit of $78 |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   | 101  |   |  |   | 101    |  
|                                                                      |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  
|Total comprehensive income                                            |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   | 41,932 |  
|                                                                      |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  
|Predecessor                                                           |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  
|BALANCEDecember 31, 2004                                             |  | 1,000        |  | $                                   | 1 |                           | 166 |                                        | $ | 33,200 |                                      | $ | 16,999 |                                      | $ | 26,740  |   |  | $ | (700 | ) |  | $ | 76,240 |  
|                                                                      |  |              |  |                                     |   |                           |     |                                        |   |        |                                      |   |        |                                      |   |         |   |  |   |      |   |  |   |        |  

See notes to consolidated financial statements.



21



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##### Table of Contents

CLAYMONT STEEL HOLDINGS, INC.

(FORMERLY CITISTEEL USA HOLDINGS, INC.) AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIOD OF JUNE 10, 2005
TO DECEMBER 31, 2005 AND JANUARY 1, 2005

TO JUNE 9, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004

(Dollar amounts in thousands)



|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|----------------------------------------------------- |  | ------------ |  | --------------------------------- | - | ------------------------ | - | --------------------------------------- |  | - | ------------------------------------ |  | - | ------------------------------------ |  | - | -------- | - |  | - | ------ | - |  | - | -------- | -
|                                                      |  | Common Stock |  | Series BCumulativePreferred Stock |   | AdditionalPaid-InCapital |   | Retained Earnings (Accumulated
Deficit) |  |   | Accumulated Other Comprehensive Loss |  |   | Total Stockholders Equity (Deficit) | 
|                                                      |  | Shares       |  | Amount                            |   | Shares                   |   | Amount                                  |  |   |                                      | 
|Predecessor                                           |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|BALANCEJanuary 1, 2005                               |  | 1,000        |  | $                                 | 1 |                          |   | 166                                     |  | $ | 33,200                               |  | $ | 16,999                               |  | $ | 26,740   |   |  | $ | (700   | ) |  | $ | 76,240   |  
|Dividends                                             |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   | (9,267   | ) |  |   |        |   |  |   | (9,267   | )
|Comprehensive income:                                 |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|Net income                                            |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   | 30,035   |   |  |   |        |   |  |   | 30,035   |  
|Other comprehensive income (loss):                    |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|Minimumpension liabilityadjustment net ofincome taxes |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   | (517   | ) |  |   | (517     | )
|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|Total Comprehensive Income                            |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   | 29,518   |  
|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|Predecessor                                           |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|BALANCEJune 9, 2005                                  |  | 1,000        |  | $                                 | 1 |                          |   | 166                                     |  | $ | 33,200                               |  | $ | 16,999                               |  | $ | 47,508   |   |  | $ | (1,217 | ) |  | $ | 96,491   |  
|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|Successor                                             |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|BALANCEJune 10, 2005                                 |  | 11,316,754   |  |                                   |  |                          |   |                                        |  |   |                                     |  |   |                                     |  |   |         |   |  |   |       |   |  |   |         |  
|Net income                                            |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   | 10,885   |   |  |   |        |   |  |   | 10,885   |  
|Dividends                                             |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   | (41,099  | ) |  |   |        |   |  |   | (41,099  | )
|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|BALANCEDecember 31, 2005                             |  | 11,316,754   |  |                                   |  |                          |   |                                        |  |   |                                     |  |   |                                     |  | $ | (30,214  | ) |  |   |       |   |  | $ | (30,214  | )
|Issuance of Common Stock                              |  | 6,250,000    |  |                                   | 6 |                          |   |                                        |  |   |                                     |  |   | 97,602                               |  | $ |          |   |  |   |       |   |  | $ | 97,608   |  
|Dividends                                             |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   | (140,678 | ) |  |   |        |   |  |   | (140,678 | )
|Charge for vesting of restricted stock                |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   | 259      |   |  |   |        |   |  |   | 259      |  
|Comprehensive income:                                 |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|Net income                                            |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   | 31,996   |   |  |   |        |   |  |   | 31,996   |  
|Adoption of SFAS 158, net of tax                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   | 715    |   |  |   | 715      |  
|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|Total Comprehensive Income                            |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   | 32,711   |  
|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  
|BALANCEDecember 31, 2006                             |  | 17,566,754   |  | $                                 | 6 |                          | $ |                                         |  | $ |                                      |  | $ | 97,602                               |  | $ | (138,637 | ) |  | $ | 715    |   |  | $ | (40,314  | )
|                                                      |  |              |  |                                   |   |                          |   |                                         |  |   |                                      |  |   |                                      |  |   |          |   |  |   |        |   |  |   |          |  

See notes to consolidated financial statements.



22



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##### Table of Contents

CLAYMONT STEEL HOLDINGS, INC.

(FORMERLY CITISTEEL USA HOLDINGS, INC.) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIOD OF JUNE 10, 2005 TO
DECEMBER 31, 2005 AND JANUARY 1, 2005

TO JUNE 9, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004

(Amounts in thousands)



|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | --------- | -------- | - | -------------------------- | - | -------- | ------------------------ |  | - | ------ | - |  | - | ------- | -
|                                                                                  |  | Successor |          |   |                            |   |          | Predecessor              |  |   |        |  
|                                                                                  |  | 2006      |          |   | June 10 toDecember 31,2005 |   |          | January 1 toJune 9, 2005 |  |   | 2004   |  
|OPERATING ACTIVITIES:                                                             |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Net income                                                                        |  | $         | 31,996   |   |                            | $ | 10,885   |                          |  | $ | 30,035 |   |  | $ | 41,969  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Depreciation and amortization                                                     |  |           | 7,170    |   |                            |   | 5,449    |                          |  |   | 1,816  |   |  |   | 4,737   |  
|Loss on disposal of equipment                                                     |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   | 519     |  
|Gain on sale of short-term investments                                            |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   | (144    | )
|Provision for (recoveries of) bad debt                                            |  |           |          |   |                            |   | 300      |                          |  |   |        |   |  |   | 258     |  
|Stock Compensation                                                                |  |           | 259      |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Changes in assets and liabilities which provided (used) cash:                     |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Accounts receivable                                                               |  |           | (2,336   | ) |                            |   | (8,808   | )                        |  |   | 693    |   |  |   | (18,459 | )
|Income taxes receivable                                                           |  |           | (2,949   | ) |                            |   | 573      |                          |  |   | (337   | ) |  |   | (236    | )
|Inventories                                                                       |  |           | (4,746   | ) |                            |   | 9,860    |                          |  |   | 5,278  |   |  |   | (14,604 | )
|Prepaid expenses                                                                  |  |           | 290      |   |                            |   | 51       |                          |  |   | 723    |   |  |   | (934    | )
|Accounts payable                                                                  |  |           | 600      |   |                            |   | 8,429    |                          |  |   | (4,761 | ) |  |   | 2,328   |  
|Accrued expenses and profit sharing                                               |  |           | (606     | ) |                            |   | 1,971    |                          |  |   | (904   | ) |  |   | 3,307   |  
|Accrued interest payable                                                          |  |           | 5,791    |   |                            |   | 7,167    |                          |  |   |        |   |  |   | (68     | )
|Income taxes payable                                                              |  |           | (1,394   | ) |                            |   | 69       |                          |  |   | 4,377  |   |  |   | 3,322   |  
|Due to seller                                                                     |  |           | (4,814   | ) |                            |   | 500      |                          |  |   |        |   |  |   |         |  
|Deferred taxes                                                                    |  |           | 855      |   |                            |   | (5,376   | )                        |  |   | 132    |   |  |   | 3,001   |  
|Other assets and liabilities                                                      |  |           | (42      | ) |                            |   | (1,778   | )                        |  |   | (519   | ) |  |   | (52     | )
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Net cash provided by operating activities                                         |  |           | 29,815   |   |                            |   | 29,292   |                          |  |   | 36,533 |   |  |   | 24,949  |  
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|INVESTING ACTIVITIES:                                                             |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Purchase of investment securities                                                 |  |           | (94,774  | ) |                            |   | (136,065 | )                        |  |   |       |   |  |   |        |  
|Maturities of investment securities                                               |  |           | 68,317   |   |                            |   | 67,748   |                          |  |   |       |   |  |   |        |  
|Acquisition of property, plant, and equipment                                     |  |           | (11,884  | ) |                            |   | (5,926   | )                        |  |   | (416   | ) |  |   | (1,638  | )
|Purchases of short-term investments                                               |  |           |          |   |                            |   |         |                          |  |   |       |   |  |   |         |  
|Proceeds from sale of short-term investments                                      |  |           |          |   |                            |   |         |                          |  |   |       |   |  |   | 259     |  
|Business acquisition                                                              |  |           |         |   |                            |   | (100,825 | )                        |  |   |       |   |  |   |        |  
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Net cash used in investing activities                                             |  |           | (38,341  | ) |                            |   | (175,068 | )                        |  |   | (416   | ) |  |   | (1,379  | )
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|FINANCING ACTIVITIES:                                                             |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Proceeds from initial public offering                                             |  |           | 97,608   |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Proceeds from pay-in-kind note offering                                           |  |           | 75,000   |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Net repayments of line of credit                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   | (16,511 | )
|Proceeds from note payablerelated party                                          |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Repayments of note payablerelated party                                          |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   | (3,400  | )
|Proceeds from senior secured notes                                                |  |           |          |   |                            |   | 25,253   |                          |  |   |        |   |  |   |         |  
|Repayments of senior secured notes                                                |  |           | (1,890   | ) |                            |   | (25,253  | )                        |  |   |        |   |  |   |         |  
|Dividends                                                                         |  |           | (140,678 | ) |                            |   | (41,099  | )                        |  |   | (9,267 | ) |  |   |         |  
|Borrowings under senior secured floating rate notes                               |  |           |          |   |                            |   | 170,453  |                          |  |   |        |   |  |   |         |  
|Deferred financing costs                                                          |  |           | (4,272   | ) |                            |   | (11,986  | )                        |  |   |        |   |  |   |         |  
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Net cash (used in) provided by financing activities                               |  |           | 26,027   |   |                            |   | 117,368  |                          |  |   | (9,267 | ) |  |   | (19,911 | )
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |           | 17,501   |   |                            |   | (28,408  | )                        |  |   | 26,850 |   |  |   | 3,654   |  
|CASH AND CASH EQUIVALENTSBeginning of year                                       |  |           | 2,619    |   |                            |   | 31,027   |                          |  |   | 4,177  |   |  |   | 523     |  
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|CASH AND CASH EQUIVALENTSEnd of year                                             |  | $         | 20,120   |   |                            | $ | 2,619    |                          |  | $ | 31,027 |   |  | $ | 4,177   |  
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Interest                                                                          |  | $         | 20,890   |   |                            | $ | 1,199    |                          |  | $ | 0      |   |  | $ | 637     |  
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  
|Income taxes                                                                      |  | $         | 23,604   |   |                            | $ | 11,411   |                          |  | $ | 13,423 |   |  | $ | 15,794  |  
|                                                                                  |  |           |          |   |                            |   |          |                          |  |   |        |   |  |   |         |  

See notes to consolidated financial statements.



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CLAYMONT STEEL HOLDINGS, INC. (FORMERLY CITISTEEL USA HOLDINGS, INC.) AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006 AND 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE PERIOD OF JUNE 9, 2005 TO

DECEMBER
31, 2005 AND JANUARY 1, 2005 TO JUNE 9, 2005 AND FOR THE YEAR ENDED DECEMBER 31, 2004

1. NATURE OF BUSINESS

Claymont Steel Holdings, Inc. (formerly CitiSteel USA Holdings, Inc.) (Holdings) is a corporation incorporated in the State of Delaware. Holdings
results are consolidated with its wholly owned subsidiary Claymont Steel, Inc. and its wholly owned subsidiary, CitiSteel PA, Inc., (collectively the Company). Holdings is a publicly traded corporation listed on the NASDAQ national
market under the symbol PLTE. Holdings affected an initial public offering on December 22, 2006. Prior to that date Holdings was an affiliate of H.I.G. Capital, LLC, a private equity firm focused on management buyouts and
recapitalizations of leading middle market companies as well as growth capital investments. The Company manufactures and sells carbon steel plates throughout the continental United States and Canada. Holdings was incorporated on May 19, 2005
and had no activity until the acquisition of Claymont Steel, Inc. on June 10, 2005.

2. BASIS OF PRESENTATION

These financial statements contain consolidated financial statements for Claymont Steel, Inc. (formerly CitiSteel USA, Inc.) (the predecessor company) and
for Claymont Steel Holdings, Inc. (formerly CitiSteel USA Holdings, Inc.) (the successor company) for the periods described below. Consolidated financial statements for Claymont Steel, Inc. are shown for periods prior to the acquisition which took
place on June 10, 2005 as of December 31, 2004 and for the year ended December 31, 2004 and for the period from January 1 to June 9, 2005. Consolidated financial statements for Claymont Steel Holdings, Inc. are shown for
periods subsequent to the acquisition. The consolidated financial statements for Claymont Steel Holdings, Inc. are presented as of December 31, 2006 and 2005 and for the period from June 10, 2005 to December 31, 2005. No material
expenses were incurred on the predecessor companys behalf by its parent company.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of ConsolidationThe consolidated financial statements include the results of operations and financial position of the
Company. All significant intercompany balances and transactions have been eliminated.

Cash and Cash EquivalentsThe
Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2005, the Company had three bank accounts with balances in excess of federally insured
limits. Cash and cash equivalents at December 31, 2006 includes $870,000 in a segregated escrow account for the benefit of Jeff Bradley, the Companys CEO, related to dividends declared on restricted stock. The escrow balance was
distributed to Mr. Bradley in January 2007.

Investment SecuritiesThe Company may classify its investment security
portfolio into three categories: trading securities, securities available for sale, and securities held for maturity. Fair value adjustments are made to the securities based on their classification with the exception of the held to maturity
category. The Company has no investments classified as trading or held to maturity. Investment securities available for sale are carried at fair value. Adjustments from amortized cost to fair value are recorded in capital, net of related income tax,
under accumulated other comprehensive income. For debt securities, cost is adjusted for amortization of premiums and accretion of discounts which are recorded as adjustments to interest income using the constant yield method. Purchases and sales of
investment securities are recorded as of the trade date. Gains or losses on dispositions are based on the net proceeds and the adjusted carrying amount of the securities sold, using the specific identification method.

Accounts Receivable and Allowance for Doubtful AccountsThe Company records accounts receivable at amounts billed to customers net of
an allowance for doubtful accounts. The allowance is determined based on historical collection experience and specific customer collection issues. The Company does not charge interest on receivables. Receivables are written off when they are
considered uncollectible. No receivables are sold and all trade receivables are related to customer billings. All trade receivables serve as collateral for borrowings under the Companys credit facility.

InventoriesInventories include material, labor and overhead and are recorded at the lower of cost (first-in, first-out method) or
market.

Property, Plant and EquipmentProperty, plant and equipment are recorded at cost. Maintenance and repairs are
expensed as incurred and costs of improvements are capitalized. Property, plant and equipment are depreciated by the straight-line method over the following estimated useful lives:



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|                                  |  |                |  |                 
|--------------------------------- |  | -------------- |  | ----------------
|                                  |  | SuccessorYears |  | PredecessorYears
|Buildings and improvements        |  | 1530          |  | 311/2           
|Furniture, fixtures and equipment |  | 38            |  | 510            

Income TaxesThe Companys method of accounting for income taxes conforms
to SFAS No. 109, Accounting for Income Taxes. This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and tax
basis of assets and liabilities. Valuation allowances, if any, are provided when a portion or all of a deferred tax asset may not be realized (see Note 14).

Long-Lived AssetsThe Company evaluates the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Such evaluation relies on a number of factors, including operating results, future anticipated cash flows, business plans and certain economic projections. In addition, the Companys evaluation considers non-financial data such
as changes in operating environment, competitive information, market trends and business relationships. If the sum of the undiscounted cash flows is less than the carrying value of the asset, an impairment loss is recognized. Any impairment loss, if
indicated, is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Fair
Value of Financial Instruments The financial instruments of the Company consist mainly of cash and cash equivalents, marketable securities, trade receivables, short-term debt and long-term debt. The fair value of cash and cash
equivalents, trade receivables and short-term debt approximates their carrying values due to the relatively short-term nature of the instruments. The fair value of marketable securities are based on the Companys amortized cost, which
approximates fair value due to the frequent resetting of interest rates resulting in repricing of the investments. The fair value of long-term debt is estimated based on current rates available to the Company for debt with similar characteristics.

Intangible AssetsThe Company records intangible assets at fair value and amortizes the assets over their useful lives.
The carrying values are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Accumulated amortization of intangible assets was $1.9 million and $0.7 million at
December 31, 2006 and 2005, respectively.

Deferred Financing FeesThe Company records deferred financing fees at
fair value and amortizes the asset over the life of the related debt. The carrying value is evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Accumulated
amortization of deferred financing fees was $2.8 million and $0.6 million at December 31, 2006 and 2005.

Revenue
RecognitionRevenue from sales, net of discounts, estimated returns and allowances, is recognized when product title and risk of loss pass to the customer at the time of shipment. Returns, discounts and allowances totaled $2,125,000,
$568,000, $387,000 and $1,879,000 for 2006 and the period of June 10, 2005 to December 31, 2005, January 1, 2005 to June 9, 2005 and in 2004, respectively. Shipping and handling fees billed to customers are recorded as
revenue and the related costs are recorded to cost of sales.

Comprehensive Income (Loss)Other comprehensive income or
loss items are revenues, expenses, gains and losses that under generally accepted accounting principles are excluded from net income and reflected as a component of stockholders equity, including minimum pension liability adjustments and
unrealized gains and losses on investments.

Environmental RemediationEnvironmental expenditures that relate to current
operations are expensed. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably estimated.

Use of EstimatesThe preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates and assumptions.

Earnings per ShareThe computation of basic earnings per share is based on the weighted average number of shares and common stock units that were outstanding during the period. The computation of
diluted earnings per share includes the dilutive effect of common stock equivalents consisting of restricted stock grants.

Stock
Based CompensationThe Company accounts for stock based compensation in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock Based Compensation, as amended by SFAS



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No. 148, Accounting for Stock-Based CompensationTransition and Disclosureand SFAS No. 123R,
Share Based Payment.The Company measures compensation costs in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations. The
Company adopted a stock incentive plan in December 2006 concurrently with its initial public offering and granted 82,352 restricted share units and granted options to purchase 106,465 shares. No awards were outstanding as of December 31, 2005
and 2004. The Company granted Jeff Bradley, the Companys chief executive officer, restricted stock on June 10, 2005. The Company recorded compensation expense of $89,000 and $275,000 for a dividend payment related to the restricted stock
award in the period ended December 31, 2006 and 2005.

New Accounting PronouncementsThe FASB issued SFAS
No. 151, Inventory Costs, which amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. In addition, this statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Companys
adoption of SFAS No. 151 in 2006 did not have a significant impact on the Companys consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Companys adoption of SFAS 153 in 2006 did not have an impact on
the Companys consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R (revised
2004), Share-Based Payment(SFAS No. 123R). This Statement requires companies to record compensation expense for all share based awards granted subsequent to the adoption of SFAS No. 123R. In addition, SFAS No. 123R
requires the recording of compensation expense for the unvested portion of previously granted awards that remain outstanding at the date of adoption. The Companys adoption of SFAS No. 123R in 2006 did not have a significant impact on the
Companys consolidated financial position or results of operations.

In March 2005, the FASB issued FASB Interpretation
(FIN) No. 47, Accounting for Conditional Asset Retirement Obligations (FIN No. 47), which is effective no later than the end of fiscal years ending after December 15, 2005. FIN No. 47 clarifies that
the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). Conditional asset retirement obligation refers to a legal obligation to perform an
asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The Companys adoption of FIN No. 47 did not have a material impact on
its consolidated financial condition or results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections (SFAS No. 154). This Statement requires retrospective application to prior periods financial statements of voluntary changes in accounting principles unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS No. 154 makes a distinction between retrospective application of an accounting principle and the restatement of financial statements to reflect the
correction of an error. SFAS No. 154 replaces Accounting Principles Bulletin (APB) No. 20, Accounting Changes (APB No. 20), and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle in the net income of the period of the change. SFAS
No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In
June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48), which is effective in fiscal years beginning after December 15, 2006. FIN No. 48
clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The Company will adopt FIN No. 48 on January 1, 2007 and does not anticipate the adoption to have a material impact on its consolidated financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and other Postretirement
Plans (SFAS No. 158). This Statement requires an employer to recognize the overfunded or underfunded



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status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income. SFAS No. 158 amends SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Terminated Benefits,SFAS No. 106, Employers Accounting for Postretirement Benefits other than Pensions,and SFAS No. 132R, Employers Disclosures about Pensions and other
Postretirement Benefits. The effect of adoption of SFAS No. 158 on the financial statements is quantified in Note 15, Employee Benefit Plans.

In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
(SAB 108), which is effective for fiscal years ending on or after November 15, 2006. SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year
misstatement. SAB 108 requires public companies to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly
applied its previous approach and all relevant facts and circumstances were considered. Adjustments considered immaterial in prior years under the method previously used, but now considered material under the dual approach required by SAB 108, are
to be recorded upon initial adoption of SAB 108. The adoption of SAB 108 had no effect on the Companys financial statements for the year ending December 31, 2006.

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155, Accounting for Certain Hybrid Financial
Instruments-an amendment to FASB Statements No. 133 and 140.This Statement permits fair value re-measurement for any hybrid financial instruments, clarifies which instruments are subject to the requirements of Statement No. 133, and
establishes a requirement to evaluate interests in securitized financial assets and other items. The new standard is effective for financial assets acquired or issued after the beginning of the entitys first fiscal year that begins after
September 15, 2006. Management does not expect the adoption of this statement to have a material impact on its consolidated financial position or results of operations.

In March 2006, the FASB issued Statement No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140.
This statement provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair
value, if practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial
adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entitys exposure to changes in the fair value of servicing assets or liabilities that a
servicer elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote
disclosures. This standard is effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings.
Management does not expect the adoption of this statement will have a material impact on its consolidated financial position or results of operations.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for
fiscal years beginning after November 15, 2007. The Company has not completed its evaluation of the impact of the adoption of this standard.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This issue
requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants employment or retirement. The required accrued liability will be based on either the post-employment
benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This issue is effective for fiscal years beginning after December 15, 2007. The Company has not
completed its evaluation of the impact of adoption of EITF 06-4.

In September 2006, the FASB Emerging Issues Task Force finalized Issue
No. 06-5, Accounting for Purchases of Life InsuranceDetermining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance). This issue requires that a
policyholder consider contractual terms of a life insurance policy in determining the amount that could be realized under the insurance contract. It also requires that if the contract provides for a greater surrender value if all individual policies
in a group are surrendered at the same time, that the



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surrender value be determined based on the assumption that policies will be surrendered on an individual basis. Lastly, the issue discusses whether the cash
surrender value should be discounted when the policyholder is contractually limited in its ability to surrender a policy. This issue is effective for fiscal years beginning after December 15, 2006. The Company does not believe the adoption of
this issue will have a material impact on the financial statements.

Valuation and Qualifying AccountsValuation account
balances and activity consist of the following (amounts in thousands):



|                                                     |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|---------------------------------------------------- |  | ----------------------------- | ----- | ----------------------------- | - | ------ | ------------------------- |  | ---------- | - |  | ------------------------ | ------ | - |  | - | -----
|                                                     |  | Balance atBeginning of Period |       | Charged to Costs and Expenses |   |        | Charged to Other Accounts |  | Deductions |   |  | Balance at End of Period
|Provision for Sales Returns & Allowances             |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|Predecessor                                          |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|For the year ended December 31, 2004                 |  | $                             | 107   |                               | $ | 1,360  |                           |  | $          |  |  | $                        | (593   | ) |  | $ | 874  
|For the period of January 1, 2005 to June 9, 2005    |  | $                             | 874   |                               | $ | 78     |                           |  | $          |  |  | $                        | (706   | ) |  | $ | 246  
|                                                     |  |                               |       |                               |  
|Successor                                            |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|For the period of June 10, 2005 to December 31, 2005 |  | $                             | 246   |                               | $ | 160    |                           |  | $          |  |  | $                        | (239   | ) |  | $ | 167  
|For the year ended December 31, 2006                 |  | $                             | 167   |                               | $ | 1,251  |                           |  | $          |  |  | $                        | (1,129 | ) |  | $ | 289  
|                                                     |  |                               |       |                               |  
|Provision for Doubtful Accounts                      |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|Predecessor                                          |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|For the year ended December 31, 2004                 |  | $                             | 777   |                               | $ | 849    |                           |  | $          |  |  | $                        | (591   | ) |  | $ | 1,035
|For the period of January 1, 2005 to June 9, 2005    |  | $                             | 1,035 |                               | $ |        |                           |  | $          |   |  | $                        |        |   |  | $ | 1,035
|                                                     |  |                               |       |                               |  
|                                                     |  | Balance atBeginning of Period |       | Charged to Costs and Expenses |   |        | Charged to Other Accounts |  | Deductions |   |  | Balance at End of Period
|Successor                                            |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|For the period of June 10, 2005 to December 31, 2005 |  | $                             | 1,035 |                               | $ | 300    |                           |  | $          |   |  | $                        |        |   |  | $ | 1,335
|For the year ended December 31, 2006                 |  | $                             | 1,335 |                               | $ | (254   | )                         |  | $          |  |  | $                        | (661   | ) |  | $ | 420  
|                                                     |  |                               |       |                               |  
|Valuation Reserve for Deferred Taxes                 |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|Predecessor                                          |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|For the year ended December 31, 2004                 |  | $                             | 2,300 |                               | $ | (2,300 | )                         |  | $          |  |  | $                        |       |   |  | $ |     
|For the period of January 1, 2005 to June 9, 2005    |  | $                             |      |                               |   |        |                           |  |            |   |  |                          |        |   |  | $ |     
|                                                     |  |                               |       |                               |  
|Successor                                            |  |                               |       |                               |   |        |                           |  |            |   |  |                          |        |   |  |   |      
|For the period of June 10, 2005 to December 31, 2005 |  | $                             |      |                               |   |        |                           |  |            |   |  |                          |        |   |  | $ |     
|For the year ended December 31, 2006                 |  | $                             |       |                               | $ |        |                           |  | $          |  |  | $                        |        |   |  | $ |      

4. ACQUISITION

On June 10, 2005, 100% of the outstanding shares of preferred and common stock of Claymont Steel, Inc. (formerly CitiSteel USA, Inc.) and subsidiary (a wholly owned subsidiary of CITIC USA Holding, Inc.) were
acquired for $74,400,000 plus working capital and other adjustments by H.I.G. SteelCo, Inc., an affiliate of H.I.G. Capital, LLC, a private equity firm focused on management buyouts and recapitalizations of leading middle market companies as well as
growth capital investments.

The aggregate purchase price was $105,477,000, which included the $74,400,000 paid to CITIC USA Holding, Inc.,
a working capital adjustment of $19,247,000 and $11,830,000 of acquisition-related costs. The following table summarizes the allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed at the
date of acquisition (amounts in thousands).



|                               |  |   |        
|------------------------------ |  | - | -------
|Current assets                 |  | $ | 108,517
|Property, plant, and equipment |  |   | 9,578  
|Intangible assets              |  |   | 7,563  
|                               |  |   |        
|Total assets acquired          |  |   | 125,658
|                               |  |   |        
|Current liabilities            |  |   | 13,240 
|Deferred taxes                 |  |   | 4,643  
|Accrued pension                |  |   | 2,298  
|                               |  |   |        
|Total liabilities assumed      |  |   | 20,181 
|                               |  |   |        
|Net assets acquired            |  | $ | 105,477
|                               |  |   |        



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Intangible assetsOf the $7,563,000 of acquired intangible assets, $600,000 was
assigned to the trade name which is not subject to amortization. This $600,000 was written-off in the third quarter of 2006 when the Company changed its name to Claymont Steel. The remaining $6,963,000 of acquired intangible assets relates to
customer relationships and has a weighted-average useful life of approximately five years. The difference between the aggregate purchase price and the estimated fair values of the assets acquired and liabilities assumed was approximately
$103,204,000. This negative goodwill was used to reduce the value of property, plant and equipment and intangible assets. Intangible asset amortization is expected to total $1,393,000 per year in 2007 through June 30, 2010. The expected future
amortization charge and accumulated amortization balances for the years ended December 31 are:



|     |  |                     |  |                        
|---- |  | ------------------- |  | -----------------------
|     |  | AmortizationExpense |  | AccumulatedAmortization
|2007 |  | 1,393,000           |  | 3,381,000              
|2008 |  | 1,393,000           |  | 4,774,000              
|2009 |  | 1,393,000           |  | 6,167,000              
|2010 |  | 796,000             |  | 6,963,000              

Unaudited Supplemental Pro Forma Results

The following table presents pro forma unaudited information as if the acquisition had occurred at the beginning of 2005 and 2004. The pro forma
information includes adjustments for interest expense on the notes, amortization of intangible assets arising from the acquisition, depreciation expense on the basis of the acquired assets, transaction fees and management fees related to the
acquisition and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed dates.



|                                      |  |               |         |                |   |        
|------------------------------------- |  | ------------- | ------- | -------------- | - | -------
|                                      |  | Pro Forma2005 |         | Pro Forma 2004
|Sales                                 |  | $             | 278,370 |                | $ | 239,556
|Income from operations                |  | $             | 75,205  |                | $ | 64,978 
|Net income                            |  | $             | 31,677  |                | $ | 29,258 
|Net earnings per common sharebasic   |  | $             | 2.82    |                | $ | 2.60   
|Net earnings per common sharediluted |  | $             | 2.80    |                | $ | 2.59   

5. BUSINESS SEGMENT DATA

The Company operates one business segment, the production and sale of steel plates. As a result, all assets, operating revenues, operating income and net income shown in the Companys consolidated financial
statements relate to this business segment. No one customer accounts for more than 7% of operating revenue.

Net sales by geographical area
are presented below (amounts in thousands):



|              |  |           |         |                              |   |                           |  |      |         |  |   |        
|------------- |  | --------- | ------- | ---------------------------- | - | ------------------------- |  | ---- | ------- |  | - | -------
|              |  | Successor |         |                              |   | Predecessor               |  |     
|              |  | 2006      |         | June 10 to December 31, 2005 |   | January 1 to June 9, 2005 |  | 2004
|United States |  | $         | 314,297 |                              | $ | 137,645                   |  | $    | 115,759 |  | $ | 204,826
|Canada        |  |           | 19,111  |                              |   | 12,038                    |  |      | 12,928  |  |   | 34,730 
|              |  |           |         |                              |   |                           |  |      |         |  |   |        
|              |  | $         | 333,408 |                              | $ | 149,683                   |  | $    | 128,687 |  | $ | 239,556



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6. INVESTMENT SECURITIES

Investment securities available for sale at December 31, 2006 and 2005 are as follows (amounts in thousands):



|                                                   |  |               |        |                 |   |                  |  |           |   |  |   |       
|-------------------------------------------------- |  | ------------- | ------ | --------------- | - | ---------------- |  | --------- | - |  | - | ------
|                                                   |  | AmortizedCost |        | UnrealizedGains |   | UnrealizedLosses |  | FairValue
|December 31, 2006:                                 |  |               |        |                 |   |                  |  |           |   |  |   |       
|Municipal and tax-exempt agencies obligations      |  | $             | 62,616 |                 | $ |                 |  | $         |  |  | $ | 62,616
|Closed end funds                                   |  | $             | 32,158 |                 | $ |                 |  | $         |  |  | $ | 32,158
|                                                   |  |               |        |                 |   |                  |  |           |   |  |   |       
|Total                                              |  | $             | 94,774 |                 | $ |                 |  | $         |  |  | $ | 94,774
|December 31, 2005:                                 |  |               |        |                 |   |                  |  |           |   |  |   |       
|U.S. agency obligations maturing on March 21, 2006 |  | $             | 68,317 |                 | $ |                 |  | $         |  |  | $ | 68,317

Although contractual maturities of the Companys debt securities may be greater than one
year, the investments are classified as current assets in the Consolidated Balance Sheet due to the Companys expected holding period of less than one year. The investments held on December 31, 2006 carry interest rates that are re-set on
a weekly basis. The contractual maturities of the Companys investment securities were as follows:



|                            |  |               |        |                     |   |       
|--------------------------- |  | ------------- | ------ | ------------------- | - | ------
|                            |  | 2006          |        |                    
|                            |  | AmortizedCost |        | Estimated FairValue
|Due in less than one year   |  | $             | 32,158 |                     | $ | 32,158
|Due after 5 years           |  |               | 62,616 |                     |   | 62,616
|                            |  |               |        |                     |   |       
|Total investment securities |  | $             | 94,774 |                     | $ | 94,774
|                            |  |               |        |                     |   |       

7. INVENTORIES

Inventories, net of any reserves, consist of the following (amounts in thousands):



|                |  |                  |        |                  |   |       
|--------------- |  | ---------------- | ------ | ---------------- | - | ------
|                |  | December 31,2006 |        | December 31,2005
|Raw materials   |  | $                | 6,252  |                  | $ | 5,256 
|Work-in-process |  |                  | 9,720  |                  |   | 10,928
|Finished goods  |  |                  | 17,182 |                  |   | 12,635
|Supplies        |  |                  | 6,514  |                  |   | 5,844 
|Parts           |  |                  | 1,030  |                  |   | 1,289 
|                |  |                  |        |                  |   |       
|                |  | $                | 40,698 |                  | $ | 35,952
|                |  |                  |        |                  |   |       

8. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following (amounts in thousands):



|                                   |  |                  |        |   |                   |   |        |  
|---------------------------------- |  | ---------------- | ------ | - | ----------------- | - | ------ | -
|                                   |  | December 31,2006 |        |   | December 31, 2005 |  
|Land and land improvements         |  | $                | 1,603  |   |                   | $ | 1,728  |  
|Buildings                          |  |                  | 2,928  |   |                   |   | 1,892  |  
|Furniture, fixtures, and equipment |  |                  | 22,859 |   |                   |   | 11,885 |  
|                                   |  |                  |        |   |                   |   |        |  
|Total                              |  |                  | 27,390 |   |                   |   | 15,505 |  
|Accumulated depreciation           |  |                  | (3,287 | ) |                   |   | (890   | )
|                                   |  |                  |        |   |                   |   |        |  
|Net property, plant, and equipment |  | $                | 24,103 |   |                   | $ | 14,615 |  
|                                   |  |                  |        |   |                   |   |        |  

Depreciation charged to operating expense amounted to $2,397,000, $890,000, $1,816,000 and
$4,737,000 for the year ended December 31, 2006 and for the period of June 10, 2005 to December 31, 2005, January 1, 2005 to June 9, 2005 and for the year ended December 31, 2004. During 2004, the Company wrote off
equipment with a net book value of $519,000.

9. LINE OF CREDIT

In conjunction with the acquisition transaction in June 2005, described in Note 4, the Company established a $70 million Bank Debt Facility with U.S. Bank National Association (US Bank) comprised of a $15
million Term A Loan and a $55 million maximum available revolver. The Bank Debt Facility was repaid on August 25, 2005 and replaced with a new



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$20 million revolving credit facility with US Bank under which the Company may borrow, repay and reborrow funds, as needed, subject to a total maximum amount
equal to the lesser of (a) a borrowing base determined from eligible accounts receivable and eligible inventory or (b) the respective maximum available revolver amounts shown above. The revolving facility matures on August 25, 2008.
Interest is payable on the first of every month at the Companys option of U.S. Banks prime rate or LIBOR plus 1.75%. The interest rate is subject to increase should the Companys excess revolving credit availability, calculated in
accordance with the loan agreement, decrease below predetermined levels. There was no amount outstanding under the revolving credit facility at December 31, 2006 and 2005 and the interest rate was 8.25% and 7.25% at December 31, 2006 and
2005, respectively. The weighted average interest rate for the period of June 10, 2005 to December 31, 2005 was 6.6%. The average amount outstanding on the revolver during that period was $9,370,000. No amounts were outstanding on the
revolver during 2006.

The Revolving Credit Facility contains certain financial covenants, including minimum borrowing availability and
fixed charge coverage. At December 31, 2006 and 2005 the Company was in compliance with the covenants. CitiSteel PA, Inc. guaranteed payment of the revolving credit facility and letters of credit.

Prior to the acquisition transaction, the Company also maintained a revolving line of credit with a bank. The line of credit bore interest at a prime
rate plus 1% (6.25% at December 31, 2004). The weighted average interest rate was 5.3% in 2004. The average amount outstanding on the line of credit in 2004 was $8,367,000.

10. LONG-TERM DEBT

In conjunction with the acquisition transaction in June 2005, the Company
established a $70,000,000 Bank Debt Facilitycomprised of a $15,000,000 Term A Loan and a $55 million maximum available revolverand issued $25,253,000 of Senior Secured Notes.

On August 25, 2005 Claymont Steel, Inc. issued $172,000,000 of Senior Secured Floating Rate Notes described below. The proceeds of the Notes were
used to repay all of outstanding debt, including the Senior Secured Notes, Term A Loan and the revolver referenced above. The Company also entered into a new credit agreement for a $20 million senior revolving credit described below. The balance of
the proceeds was used to pay a $108,725,000 dividend on August 25, 2005 to Claymont Steel Holdings, Inc. and pay fees and expenses relating to the transaction. The Company paid $5,160,000 to an investment banking firm to underwrite the notes
and charged the amount to deferred financing fees.

The Company expensed $2.9 million of deferred financing fees in August 2005 relating to
the repayment of the Bank Debt Facility and the Senior Secured Notes.

The Senior Secured Floating Rate Notes due 2010The notes
mature on August 25, 2010. Interest is payable at six month LIBOR plus 7.5% semiannually on March 1 and September 1. There are no scheduled principal payments prior to the maturity date. The interest rate for the first interest
payment period on March 1, 2006 is 11.6%. The Notes were issued at a 1% discount to face value. The discount is being amortized over the expected life of the Notes.

The notes contain certain financial covenants, including limitations on additional indebtedness and restricting certain defined payments. In addition, there is an Excess Cash Flow covenant that requires the Company,
after the end of each fiscal year, to offer to repurchase a portion of the senior secured floating rate notes at 102% of principal plus accrued interest up to a maximum of 75% of the excess cash flow, as defined. $1,890,000 of the Notes were
redeemed through the excess cash flow offer in 2006. The Company exchanged the Notes for new Notes registered with the Securities and Exchange Commission in April 2006. The new notes contain substantially the same terms as the existing notes.
CitiSteel PA, Inc. guaranteed payment of the notes.

The senior secured floating rate notes are secured by a lien on substantially all the
assets of the Company.

On July 6, 2006, Claymont Steel Holdings issued $75 million of Senior Secured Pay-in-Kind Notes. The proceeds
were used to pay a $71.2 million dividend ($6.29 per share) to its stockholders. The notes are classified as short-term debt on the December 31, 2006 balance sheet as they were redeemed in February 2007 with proceeds from our initial public
offering of common stock.

The Senior Secured Pay-in-Kind Notes mature on October 1, 2010. Interest is payable at 15% semiannually on
April 1 and October 1. The Company may, at its discretion, for the first two interest payment periods pay interest by the issuance of additional Senior Secured Pay-in-Kind Notes. The Notes were issued at par. The Company paid $2,250,000 to
an investment banking firm to underwrite the notes and charged the amount to deferred financing fees.

The Senior Secured Pay-in-Kind Notes
contain certain covenants, including limitations on additional indebtedness and restricting certain defined payments. In addition, there is an Excess Cash Flow covenant that requires the Company, after the



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end of each fiscal year beginning in 2008, to offer to repurchase a portion of the Senior Secured Pay-in-Kind Notes at 102% of principal plus accrued
interest up to a maximum of 75% of the excess cash flow, as defined. In addition, the Company must offer to purchase the Notes at 110% of principal plus accrued interest upon the completion of an initial public offering. As such, the Notes will be
redeemed in February 2007.

The Senior Secured Pay-in-Kind Notes are secured by a lien on substantially all the assets of Claymont Steel
Holdings, which principally consist of the capital stock of Claymont Steel.

Long-term debt at December 31, 2006 and 2005 consists of
the following (amounts in thousands):



|                                                           |  |      |         |   |      |   |         |  
|---------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                           |  | 2006 |         |   | 2005 |  
|Revolving Credit Facility due August 25, 2008              |  | $    | 0       |   |      | $ | 0       |  
|Secured floating rate notes, due August 25, 2010, net      |  |      | 170,110 |   |      |   | 172,000 |  
|Unamortized original issue discount                        |  |      | (1,262  | ) |      |   | (1,548  | )
|Senior Secured Pay-in-Kind Notes, due October 1, 2010, net |  |      | 75,000  |   |      |   |         |  
|                                                           |  |      |         |   |      |   |         |  
|                                                           |  |      | 243,848 |   |      |   | 170,452 |  
|Less current portion of long-term debt                     |  |      | 75,000  |   |      |   | 0       |  
|                                                           |  |      |         |   |      |   |         |  
|                                                           |  | $    | 168,848 |   |      | $ | 170,452 |  
|                                                           |  |      |         |   |      |   |         |  

Future maturities of long-term debt total $75,000,000 for the year ended December 31, 2007
and $170,110,000 for the year ended December 31, 2010.

The Company incurred fees and expenses in connection with arranging the
Revolving Credit Facility and the Senior Secured Floating rate Notes of $8.7 million in August 2005. This amount has been deferred and included on the statement of financial condition. The Company is amortizing the fees and expenses over the
expected life of the debt. Fees and expenses associated with the exchange offer were charged to operating expense in 2006. The Company incurred fees and expenses in connection with the Senior Secured Pay-in-Kind Notes of $3.5 million in July 2006.
This amount has been deferred and included on the statement of financial condition. The Company is amortizing the fees and expenses over the expected life of the debt.

11. STOCKHOLDERS TRANSACTIONS

Preferred StockThe rights, preferences and
dividend rates of the preferred stock are to be set by the Companys Board of Directors. As of December 31, 2004, these rights, preferences and dividend rates have not been set.

Series B Cumulative Preferred StockThe Companys Board of Directors has authorized the issuance of up to a maximum of 500 shares
of Series B preferred stock with a par value of $200,000 per share. Dividends are payable on a quarterly basis at a rate of 100 basis points above LIBOR (effective rate is 2.7% at December 31, 2004, 2.2% at December 31, 2003, and 2.4% at
December 31, 2002) and are cumulative from the date of issue. The stock is nonvoting and redeemable at any time at the option of the Company at par value plus accumulated dividends.

At June 9, 2005, December 31, 2004 and 2003 all Series B cumulative preferred stock was held by CITIC USA Holding, Inc. and approximately $0,
$9,266,789 ($55,824 per share) and $8,379,000 ($50,476 per share), respectively of cumulative undeclared dividends were in arrears. In February 2005, the Company made a payment of $9,266,789 from outstanding dividends paying all cumulative
undeclared dividends at December 31, 2004. All cumulative undeclared dividends were forgiven by the CITIC USA Holding at June 9, 2005.

On June 10, 2005, in concert with the acquisition, all preferred stock was cancelled.

Common StockThe
Company had 17,566,754 and 11,316,754 shares of common stock, par value $0.01 per share, outstanding at December 31, 2006 and 2005, respectively. On September 23, 2005 a dividend of $41,375,000 ($3.66 per share) was paid by the Company to
its shareholders. $276,000 of this dividend was paid to Jeff Bradley, the Companys Chief Executive Officer, and was charged to compensation expense. On June 14, 2006, the Company paid a $69,970,000 dividend ($6.18 per share) to its
stockholders. $89,000 of this dividend was paid to Jeff Bradley and charged to compensation expense. On July 12, 2006, the Company paid a $71,652,000 dividend ($6.33 per share) to its stockholders. In total for the year ended December 31,
2006, the Company paid common stock dividends of $12.51 per share to its stockholders.

Claymont Steel Inc.s senior secured floating
rate notes generally prohibit Claymont Steel, Inc. from paying dividends in excess of 25% of the cumulative consolidated net income earned during the period beginning on the first day of the first fiscal quarter after September 1, 2007 and
ending on the last day of Claymont Steel Inc.s most recent fiscal quarter ending



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prior to the date of the dividend. These agreements also permit the payment of dividends from the proceeds of equity issuances and up to $2.0 million from
other sources.

Initial Public OfferingThe Company effected an initial public offering of its common stock, issuing
6,250,000 primary shares at $17.00 per share, on December 18, 2006. The Companys shares trade on the NASDAQ national market under the symbol PLTE. The Company received $97.6 million in net proceeds which were used to redeem
the Senior Secured Pay-in-Kind Notes. The offering also included 3,755,000 of secondary shares sold by affiliates of H.I.G. Capital, LLC. Subsequent to the initial public offering the Company had 17,566,754 shares outstanding.



|12. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

On June 10, 2005
the Company entered into a management agreement with H.I.G. Capital, LLC, its 42.6% stockholder. Pursuant to the term of this agreement, H.I.G. Capital, LLC provided management, consulting and financial services to the Company, subject to the
supervision of the Companys board of directors. In exchange for these services we agreed to pay H.I.G. Capital, LLC an annual management fee of $675,000. In addition to the fee, H.I.G. Capital, LLC was also entitled to additional compensation
for the introduction or negotiation of any transaction not in the ordinary course of business or pursuant to which the Company acquired or disposed of any business operations. In connection with Holdings initial public offering in December
2006, the Company made a $3 million payment to H.I.G. in exchange for canceling any further obligations under the management agreement. The Company also made a $1,062,500 payment to H.I.G. in December 2006, as specified in the management agreement,
for a transaction fee related to the initial public offering.

The Company paid $340,000 in directors fees to the former board of
directors in connection with the acquisition.

The Company entered into a 12-month management services agreement with CITIC as part of the
acquisition for the provision of services by a certain executive. The agreement calls for total payments of $551,000 plus a contingent payment of $500,000 if the Company achieves a certain level of earnings. The Company met the earnings threshold
and accrued for the $500,000 payment on the December 31, 2005 balance sheet in due to seller. The Company made the year-end payment in March 2006. During the period from June 10, 2005 to December 31, 2005, the Company paid $230,000 to
CITIC for services under this agreement.

During 2004, the Company paid management fees and rent expense amounting to $600,000 and $60,000
to a related party. During the period of January 1 to June 9, 2005 the Company paid no management fees. During the period of June 10 to December 31, 2005 the Company paid $737,000 to CITIC for services pursuant to a management
agreement with CITIC.



|13. | STOCK BASED COMPENSATION
|--- | ------------------------

The Company accounts for
stock-based compensation in accordance with Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment.The Company adopted SFAS No. 123R on June 10, 2005, the Acquisition date. The Company has
issued no stock-based compensation awards prior to the Acquisition date.

The Company granted Jeff Bradley, the Companys chief
executive officer, 75,451 shares of restricted stock on July 11, 2005. The shares can not be sold or transferred and are subject to forfeiture if Mr. Bradley is terminated from the Company for any reason. The restricted shares vest, and
the restrictions lapse, as follows: One-half of the restricted shares vest according to the following time schedule: 25% on June 23, 2006; 25% on June 23, 2007; 25% on June 23, 2008; and, 25% on June 23, 2009. The other one-half
of the shares vest on the following dates based on achieving certain EBITDA targets for each of the 12-month periods ended on each of the vesting dates: 25% on June 30, 2006; 25% on June 30, 2007; 25% on June 30, 2008; and, 25% on
June 30, 2009. As of December 31, 2006, one quarter of the restricted shares vested. The fair value of the restricted shares on the date of grant was estimated to be $703,000 and was determined based on the aggregate purchase price of the
Acquisition of $105,477,000. The fair value of the restricted shares is being charged to compensation expense over the four year vesting period of the restricted shares. The valuation was made by the Company contemporaneously with the granting of
the restricted stock based on the opening balance sheet values.

Common stock dividend payments on Mr. Bradleys restricted
shares are subject to certain vesting provisions. Mr. Bradley received common stock dividends of $276,000 in the period of June 10, 2005 to December 31, 2005 and $89,000 in the year ended December 31, 2006. These amounts were
charged to compensation expense in the period paid to Mr. Bradley. The Company withheld payment of $377,000 of declared dividends from Mr. Bradley from Holdings June 2006 common stock dividend and $478,000 from the July 2006
dividend. The withheld dividends were distributed to Mr. Bradley in January 2007. The withheld dividends will be charged to compensation expense over the two year vesting period beginning in July 2007.

In December 2006, the Company adopted a stock incentive plan concurrently with its initial public offering in order to encourage employees and
non-employee directors to remain with the Company and to more closely align their interests with those of Holdings shareholders. As of December 31, 2006, awards under the program consisted of stock options and



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restricted stock units (RSUs). The Company currently issues the shares related to its stock incentive plan from the Companys authorized and
unissued shares of common stock. As of December 31, 2006, 450,000 shares of common stock have been authorized for this stock incentive plan.

For the year ended December 31, 2006, the Company incurred stock-based compensation expense under SFAS No. 123R of $259,000 ($158,000 after tax) in the Consolidated Statement of Earnings. The $259,000 expense was recorded in
selling, general and administrative expenses and the tax benefit of $101,000 was recorded in income tax expense. No stock-based compensation expense was recorded in 2005.

Stock Options

Generally, options expire seven years from the date of grant. Options granted in 2006,
vest in equal annual installments over a four-year period based on continued employment or service on the board of directors. For the year ended December 31, 2006 the fair value of options granted was $8.23. The fair value of each option award
on the grant date was estimated using the Black-Scholes option-pricing model with the following assumptions:



|                                         |  |      |  
|---------------------------------------- |  | ---- | -
|                                         |  | 2006 |  
|Expected dividend yield                  |  |     |  
|Expected stock price volatility          |  | 51   | %
|Weighted average risk-free interest rate |  | 4.57 |  
|Expected life of options (years)         |  | 6.25 |  

The expected life of the employee options was calculated using the shortcut method allowed by the
provisions of SFAS No. 123R and interpreted by SAB No. 107. The expected volatility is estimated by the Company utilizing volatility statistics from peer groups and other factors. The risk-free interest rate is based on the continuous
rates provided by the U.S. Treasury with a term approximating the expected life of the option. The expected dividend yield is based on the projected annual dividend payment per share, divided by the stock price at the date of grant.

A summary of the Companys stock option plan as of December 31, 2006, and changes during the year is presented as follows:



|                                 |  |         |  |                                             |       |                                                  |     |                          |   |        
|-------------------------------- |  | ------- |  | ------------------------------------------- | ----- | ------------------------------------------------ | --- | ------------------------ | - | -------
|                                 |  | Options |  | Weighted Average Exercise Price (per
share) |       | Weighted AverageRemainingContractual Life(years) |     | Aggregate IntrinsicValue
|Outstanding at December 31, 2005 |  | 0       |  |                                             |       |                                                  |     |                          |   |        
|Granted                          |  | 106,465 |  | $                                           | 17.00 |                                                  |     |                          |   |        
|Outstanding at December 31, 2006 |  | 106,465 |  | $                                           | 17.00 |                                                  | 7.0 |                          | $ | 147,968
|Exercisable at December 31, 2006 |  | 0       |  |                                             | 0     |                                                  | 0   |                          |   | 0      

As of December 31, 2006 the Company had $868,000 of total unrecognized compensation expense
related to unvested stock options that will be recognized over the weighted average period of 4 years.

Restricted Stock and Restricted Stock Units
(RSUs)

RSUs granted in 2006 vest in equal annual installments over a four-year period based on the continued employment or service on
the board of directors. The cost of the RSUs, generally determined to be the fair market value of the shares at the date of grant, is charged to compensation expense ratably over the vesting period of the award.

A summary of the status of the Companys RSUs, and the restricted stock granted to Mr. Bradley in July 2005, as of December 31, 2006 and
2005, and changes during the years then ended, is presented below:



|                                 |  |              |   |  |                                                   |       |                                                  |     |                          |   |          
|-------------------------------- |  | ------------ | - |  | ------------------------------------------------- | ----- | ------------------------------------------------ | --- | ------------------------ | - | ---------
|                                 |  | Units/Shares |   |  | Weighted Average Grant Date FairValue (per
share) |       | Weighted AverageRemainingContractual Life(years) |     | Aggregate IntrinsicValue
|Outstanding at June 10, 2005     |  | 0            |   |  |                                                   |       |                                                  |     |                          |   |          
|Granted                          |  | 75,451       |   |  | $                                                 | 9.32  |                                                  |     |                          |   |          
|Outstanding at December 31, 2005 |  | 75,451       |   |  | $                                                 | 9.32  |                                                  |     |                          |   |          
|Granted                          |  | 82,352       |   |  | $                                                 | 17.00 |                                                  |     |                          |   |          
|Vested                           |  | (18,863      | ) |  | $                                                 | 9.32  |                                                  |     |                          |   |          
|Outstanding at December 31, 2006 |  | 138,940      |   |  | $                                                 | 13.87 |                                                  | 3.4 |                          | $ | 2,555,107



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For the year ended December 31, 2006, the aggregate grant date fair value of RSUs and restricted
stock that vested was $175,800. As of December 31, 2006, the Company had $1,831,000 of total unrecognized compensation expense related to RSUs and restricted stock that will be recognized over the weighted average period of 3.6 years.

14. INCOME TAXES

Claymont Steel, Inc.
is a wholly-owned subsidiary of Holdings and is included in Holdings consolidated tax returns. The predecessor company participated in a tax sharing agreement with CITIC whereby consolidated income tax expense or benefit was allocated to the
predecessor company based on the proportion of the predecessor companys taxable income or loss to CITICs consolidated total. CITIC was obligated to make payment to the predecessor company with respect to any tax benefit derived by CITIC
from the inclusion of the predecessor company in the consolidated federal income tax return.

The income tax expense consists of the
following (amounts in thousands):



|                           |  |      |        |                            |   |        |                         |  |      |        |  |   |       
|-------------------------- |  | ---- | ------ | -------------------------- | - | ------ | ----------------------- |  | ---- | ------ |  | - | ------
|                           |  |      |        | Successor                  |   |        | Predecessor             |  |     
|                           |  | 2006 |        | June 10 toDecember 31,2005 |   |        | January 1 toJune 9,2005 |  | 2004
|Current:                   |  |      |        |                            |   |        |                         |  |      |        |  |   |       
|Federal                    |  | $    | 15,885 |                            | $ | 9,573  |                         |  | $    | 15,082 |  | $ | 16,291
|State                      |  |      | 4,478  |                            |   | 1,861  |                         |  |      | 2,369  |  |   | 2,589 
|                           |  |      |        |                            |   |        |                         |  |      |        |  |   |       
|Total current              |  |      | 20,363 |                            |   | 11,434 |                         |  |      | 17,451 |  |   | 18,880
|Deferredfederal and state |  |      | 395    |                            |   | (5,376 | )                       |  |      | 132    |  |   | 3,001 
|                           |  |      |        |                            |   |        |                         |  |      |        |  |   |       
|Total                      |  | $    | 20,758 |                            | $ | 6,058  |                         |  | $    | 17,583 |  | $ | 21,881
|                           |  |      |        |                            |   |        |                         |  |      |        |  |   |       

The tax effects of temporary differences are as follows (amounts in thousands):



|                                        |  |                   |        |   |                   |   |        |  
|--------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ------ | -
|                                        |  | December 31, 2006 |        |   | December 31, 2005 |  
|Deferred tax assetcurrent:             |  |                   |        |   |                   |   |        |  
|Accounts receivable                     |  | $                 | 165    |   |                   | $ | 518    |  
|Sales allowances                        |  |                   | 113    |   |                   |   | 65     |  
|Employee-related costs                  |  |                   | 201    |   |                   |   | 160    |  
|Accrued environmental costs             |  |                   | 25     |   |                   |   | 144    |  
|Other                                   |  |                   | 291    |   |                   |   | 257    |  
|                                        |  |                   |        |   |                   |   |        |  
|Total deferred tax assetcurrent        |  |                   | 795    |   |                   |   | 1,144  |  
|Deferred tax liabilitynoncurrent:      |  |                   |        |   |                   |   |        |  
|Property and equipment                  |  |                   | 1,496  |   |                   |   | 2,248  |  
|                                        |  |                   |        |   |                   |   |        |  
|Intangible assets                       |  |                   | (1,951 | ) |                   |   | (2,658 | )
|Minimum pension liability               |  |                   | (461   | ) |                   |   |        |  
|                                        |  |                   |        |   |                   |   |        |  
|Total deferred tax liabilitynoncurrent |  |                   | (916   | ) |                   |   | (410   | )
|                                        |  |                   |        |   |                   |   |        |  

A reconciliation of the federal statutory tax rate to the total provision for income taxes is as
follows (dollar amounts in thousands):



|                                                    |  |        |        |   |                             |       |   |                             |   |       |                           |  |       |        |  |   |             |   |  |        |   |  |   |        |   |  |       |  
|--------------------------------------------------- |  | ------ | ------ | - | --------------------------- | ----- | - | --------------------------- | - | ----- | ------------------------- |  | ----- | ------ |  | - | ----------- | - |  | ------ | - |  | - | ------ | - |  | ----- | -
|                                                    |  |        |        |   |                             |       |   | Successor                   |   |       |                           |  |       |        |  |   | Predecessor |   |  |        |  
|                                                    |  | 2006   |        |   | June 10 toDecember 31, 2005 |       |   | June 10 toDecember 31, 2005 |   |       | January 1 to June 9, 2005 |  |       | 2004   | 
|                                                    |  | Amount |        |   | %                           |       |   | Amount                      |   |       | %                         |  |       | Amount |  |   | %           |   |  | Amount |   |  | % |       
|Taxes computed at statutory rate                    |  | $      | 18,488 |   |                             | 35    |   |                             | $ | 5,930 |                           |  | 35    |        |  | $ | 16,666      |   |  | 35.00  |   |  | $ | 22,348 |   |  | 35.00 |  
|State income taxesnet of federalincome tax benefit |  |        | 2,946  |   |                             | 5.58  |   |                             |   | 613   |                           |  | 3.62  |        |  |   | 1,533       |   |  | 3.22   |   |  |   | 1,871  |   |  | 2.93  |  
|Change in valuation allowance                       |  |        |        |   |                             |       |   |                             |   |       |                           |  |       |        |  |   |             |   |  |        |   |  |   | (2,299 | ) |  | (3.60 | )
|Othernet                                           |  |        | (676   | ) |                             | (1.28 | ) |                             |   | (485  | )                         |  | (2.86 | )      |  |   | (616        | ) |  | (1.29  | ) |  |   | (39    | ) |  | (0.06 | )
|                                                    |  |        |        |   |                             |       |   |                             |   |       |                           |  |       |        |  |   |             |   |  |        |   |  |   |        |   |  |       |  
|Provision for income taxes                          |  | $      | 19,979 |   |                             | 37.83 |   |                             | $ | 6,058 |                           |  | 35.76 |        |  | $ | 17,583      |   |  | 36.93  |   |  | $ | 21,881 |   |  | 34.27 |  
|                                                    |  |        |        |   |                             |       |   |                             |   |       |                           |  |       |        |  |   |             |   |  |        |   |  |   |        |   |  |       |  



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15. EMPLOYEE BENEFIT PLANS

The Company has a noncontributory defined benefit pension plan which covers substantially all full-time employees. Pension benefits are based on years of service and annual earnings. Plan provisions and funding meet
the requirements of the Employee Retirement Income Security Act of 1974.

Effective December 31, 2006, the Company adopted SFAS
No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158)SFAS 158 requires recognition of the funded status of
a benefit plan in the statement of financial position and recognition in other comprehensive earnings of certain gains and losses that arise during the period, but are deferred under pension accounting rules.

The Pension Protection Act of 2006 (the Act) was enacted on August 17, 2006. Most of its provisions will become effective in 2008. The
Act significantly changes the funding requirements for single-employer defined benefit pension plans. The funding requirements will not largely be based on a plans calculated funded status, with faster amortization of any shortfalls or
surpluses. The Act directs the U.S. Treasury Department to develop a new yield to discount pension obligations for determining the funded status of a plan when calculating the funding requirements.

The measurement dates for the following table are December 31 of each year. The change in benefit obligation and the change in plan assets for 2005
show the change for the successor company and cover the period from June 10, 2005 to December 31, 2005. The following table sets forth the plans status and the amounts recognized on the consolidated statement of financial position at
December 31, 2006 and 2005 (amounts in thousands):



|                                                                              |  |                  |        |   |                  |   |        |  
|----------------------------------------------------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------ | -
|                                                                              |  | December 31,2006 |        |   | December 31,2005 |  
|Actuarial present value of benefit obligation, accumulated benefit obligation |  | $                | 9,898  |   |                  | $ | 9,573  |  
|                                                                              |  |                  |        |   |                  |   |        |  
|Change in projected benefit obligation:                                       |  |                  |        |   |                  |   |        |  
|Projected benefit obligation at the beginning of the year                     |  | $                | 10,355 |   |                  | $ | 9,607  |  
|Service cost                                                                  |  |                  | 651    |   |                  |   | 409    |  
|Interest cost                                                                 |  |                  | 575    |   |                  |   | 366    |  
|Actuarial loss (gain)                                                         |  |                  | (777   | ) |                  |   | 81     |  
|Benefits paid                                                                 |  |                  | (182   | ) |                  |   | (108   | )
|                                                                              |  |                  |        |   |                  |   |        |  
|Projected benefit obligation at the end of the year                           |  | $                | 10,622 |   |                  | $ | 10,355 |  
|                                                                              |  |                  |        |   |                  |   |        |  
|Change in plan assets:                                                        |  |                  |        |   |                  |   |        |  
|Fair value of plan assets at the beginning of the year                        |  | $                | 10,215 |   |                  | $ | 7,400  |  
|Employer contributions                                                        |  |                  | 0      |   |                  |   | 2,304  |  
|Actual return on plan assets                                                  |  |                  | 1,061  |   |                  |   | 619    |  
|Benefits paid                                                                 |  |                  | (182   | ) |                  |   | (108   | )
|                                                                              |  |                  |        |   |                  |   |        |  
|Fair value of plan assets at the end of the year                              |  | $                | 11,094 |   |                  | $ | 10,215 |  
|                                                                              |  |                  |        |   |                  |   |        |  
|Net amount recognized:                                                        |  |                  |        |   |                  |   |        |  
|Funded status                                                                 |  | $                | 472    |   |                  | $ | (140   | )
|Unrecognized net (gain), net of tax                                           |  |                  | (1,175 | ) |                  |   | (146   | )
|Unrecognized transition obligation and prior service cost                     |  |                  |        |   |                  |   |        |  
|                                                                              |  |                  |        |   |                  |   |        |  
|Net amount recognized                                                         |  | $                | (703   | ) |                  | $ | (286   | )
|                                                                              |  |                  |        |   |                  |   |        |  
|Amounts recognized in the consolidated statement of financial position:       |  |                  |        |   |                  |   |        |  
|Accrued benefit cost                                                          |  | $                | 0      |   |                  | $ | (286   | )
|Other comprehensive income, net of tax                                        |  |                  | (715   | ) |                  |   |        |  
|Deferred pension asset                                                        |  |                  | 472    |   |                  |   |        |  
|Deferred tax liability                                                        |  |                  | (460   | ) |                  |   |        |  
|                                                                              |  |                  |        |   |                  |   |        |  
|Net amount recognized                                                         |  | $                | (703   | ) |                  | $ | (286   | )
|                                                                              |  |                  |        |   |                  |   |        |  



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The amount recorded in other comprehensive income in 2006 relates entirely to a net gain and does not
include any amounts for prior service cost or transition obligations.

The adoption of SFAS 158 did not have a material impact on the
Companys results of operations and cash flows. The following table illustrates the incremental effect of applying SFAS 158 on individual line items on the Consolidated Statement of Financial Position as of December 31, 2006:



|                                       |  |                                  |         |   |             |   |      |                                  |  |   |         |  
|-------------------------------------- |  | -------------------------------- | ------- | - | ----------- | - | ---- | -------------------------------- |  | - | ------- | -
|                                       |  | BeforeApplication ofSFAS No. 158 |         |   | Adjustments |   |      | After Application ofSFAS No. 158 | 
|Deferred pension asset                 |  | $                                | 0       |   |             | $ | 472  |                                  |  | $ | 472     |  
|Liability for pension benefits         |  | $                                | 703     |   |             | $ | (703 | )                                |  | $ | 0       |  
|Deferred income taxes                  |  | $                                | 274     |   |             | $ | (274 | )                                |  | $ | 0       |  
|Total liabilities                      |  | $                                | 977     |   |             | $ | (977 | )                                |  | $ | 0       |  
|Accumulated other comprehensive income |  | $                                | 0       |   |             | $ | 715  |                                  |  | $ | 715     |  
|Total Stockholders deficit            |  | $                                | (62,341 | ) |             | $ | 715  |                                  |  | $ | (61,626 | )

The components of net periodic pension cost for the year ended December 31, 2006 and the
period of June 10 to December 31, 2005, January 1 to June 9, 2005 and for the year ended December 31, 2004 are as follows (amounts in thousands):



|                                                   |  |      |      |   |                            |   |      |                         |  |   |      |   |  |   |      |  
|-------------------------------------------------- |  | ---- | ---- | - | -------------------------- | - | ---- | ----------------------- |  | - | ---- | - |  | - | ---- | -
|                                                   |  |      |      |   | Successor                  |   |      | Predecessor             |  |   |      |  
|                                                   |  | 2006 |      |   | June 10 toDecember 31,2005 |   |      | January 1 toJune 9,2005 |  |   | 2004 |  
|Service cost                                       |  | $    | 651  |   |                            | $ | 409  |                         |  | $ | 194  |   |  | $ | 548  |  
|Interest cost                                      |  |      | 576  |   |                            |   | 366  |                         |  |   | 176  |   |  |   | 473  |  
|Expected return on plan assets                     |  |      | (809 | ) |                            |   | (392 | )                       |  |   | (219 | ) |  |   | (532 | )
|Amortization of transition obligation              |  |      |      |   |                            |   |      |                         |  |   |      |   |  |   | 6    |  
|Amortization of gain and loss and prior year costs |  |      |      |   |                            |   |      |                         |  |   | 25   |   |  |   | 63   |  
|                                                   |  |      |      |   |                            |   |      |                         |  |   |      |   |  |   |      |  
|Net periodic pension cost                          |  | $    | 418  |   |                            | $ | 383  |                         |  | $ | 176  |   |  | $ | 558  |  
|                                                   |  |      |      |   |                            |   |      |                         |  |   |      |   |  |   |      |  

The estimated net gain that will be amortized from accumulated other comprehensive earnings into
net period benefit cost over the next year is $5,000. No amounts for transition obligations or prior service costs are expected to be amortized.



|                                                                                   |  |                  |   |  |                  |   |  |             |   |  |      |  
|---------------------------------------------------------------------------------- |  | ---------------- | - |  | ---------------- | - |  | ----------- | - |  | ---- | -
|                                                                                   |  | Successor        |   |  |                  |   |  | Predecessor |   |  |      |  
|                                                                                   |  | December 31,2006 |   |  | December 31,2005 |   |  | June 9,2005 |   |  | 2004 |  
|Weighted-average assumptions used to determine benefit obligations at December 31: |  |                  |   |  |                  |   |  |             |   |  |      |  
|Discount rate                                                                      |  | 6.05             | % |  | 5.70             | % |  | 5.75        | % |  | 6.00 | %
|Rate of compensation increase                                                      |  | 3.0              | % |  | 3.0              | % |  | 3.0         | % |  | 3.0  | %



|                                                                                                           |  |                   |      |   |                   |   |      |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ---- | - | ----------------- | - | ---- | -
|                                                                                                           |  | December 31, 2006 |      |   | December 31, 2005 |  
|Weighted-average assumptions used to determine net periodic benefit costs for the years ended December 31: |  |                   |      |   |                   |   |      |  
|Discount rate                                                                                              |  |                   | 5.70 | % |                   |   | 5.70 | %
|Expected return on plan assets                                                                             |  |                   | 8.0  |   |                   |   | 8.0  |  
|Rate of compensation increase                                                                              |  |                   | 3.0  |   |                   |   | 3.0  |  
|Minimum required contribution                                                                              |  | $                 | 0    |   |                   | $ | 0    |  



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Plan assets at December 31, 2006 and December 31, 2005 are as follows:



|                   |  |      |   |  |      |  
|------------------ |  | ---- | - |  | ---- | -
|                   |  | 2006 |   |  | 2005 |  
|Equity securities  |  | 42   | % |  | 45   | %
|Bondsfixed income |  | 40   |   |  | 39   |  
|Money market funds |  | 18   |   |  | 16   |  
|                   |  | 100  | % |  | 100  | %

Investment Policy and StrategyThe policy, as established by the Pension Plan
Committee, is to provide for growth of capital with a moderate level of volatility by investing assets per the allocations stated above. The assets will be reallocated quarterly to meet the above target allocations. The investment policy will be
reviewed on a regular basis, under the advisement of a certified investment advisor, to determine if the policy should be changed.

Determination of Expected Long-term Rate of ReturnThe expected long-term rate of return for the plans total assets is based on the expected return of each of the above categories, weighted based on the median of
the target allocation for each class. Equity securities are expected to return 10% to 12% over the long-term, while cash and fixed income are expected to return between 5% to 7%.



|                                                                          |  |   |          
|------------------------------------------------------------------------- |  | - | ---------
|Expected employer contributions for the year ended December 31, 2007      |  | $ | 0        
|Estimated future benefit payments reflecting expected future service for: |  |   |          
|2007                                                                      |  | $ | 266,000  
|2008                                                                      |  |   | 305,000  
|2009                                                                      |  |   | 335,000  
|2010                                                                      |  |   | 380,000  
|2011                                                                      |  |   | 406,000  
|20122016                                                                 |  |   | 3,141,000

CitiSteel USA, Inc. 401(k) PlanThe Company has a tax-deferred 401(k) savings
plan which covers substantially all full-time employees. The Companys contribution to the plan, which is computed based on a percentage of employee compensation, was approximately $210,000, $118,000, $88,000 and $212,000 for the year ended
December 31, 2006 and for the periods of June 10 to December 31, 2005 and January 1 to June 9, 2005 and for the year ended December 31, 2004, respectively.

Profit Sharing PlansThe Company has executive and employee profit sharing plans. Awards are determined based on meeting certain
performance measures as defined in the plans. As of December 31, 2006 and 2005 and June 9, 2005 the Company has accrued for awards amounting to $3,115,000, $2,203,000 and $1,028,000, respectively. There were no awards made under these
plans in 2004.

16. EARNINGS PER SHARE

The following table represents the calculation of net earnings per common sharebasic and diluted (in thousands, except earnings per share):



|                                                                 |  |      |            |                            |   |                         |  |      |        |  |   |        |  
|---------------------------------------------------------------- |  | ---- | ---------- | -------------------------- | - | ----------------------- |  | ---- | ------ |  | - | ------ | -
|                                                                 |  |      |            | Successor                  |   | Predecessor             |  |      |       
|                                                                 |  | 2006 |            | June 10 toDecember 31,2005 |   | January 1to June 9,2005 |  | 2004 |       
|Weighted average common shares outstanding                       |  |      | 11,407,770 |                            |   | 11,241,303              |  |      | 1,000  |  |   | 1,000  |  
|Dilutive effect of outstanding restricted stock and options      |  |      | 68,297     |                            |   | 75,451                  |  |      |       |  |   |       |  
|                                                                 |  |      |            |                            |   |                         |  |      |        |  |   |        |  
|Weighted average common and common equivalent shares outstanding |  |      | 11,476,067 |                            |   | 11,316,754              |  |      | 1,000  |  |   | 1,000  |  
|                                                                 |  |      |            |                            |   |                         |  |      |        |  |   |        |  
|Net earnings per common sharebasic                              |  | $    | 2.80       |                            | $ | 0.97                    |  | $    | 30,035 |  | $ | 41,081 |  
|                                                                 |  |      |            |                            |   |                         |  |      |        |  |   |        |  
|Net earnings per common and common equivalent sharediluted      |  | $    | 2.79       |                            | $ | 0.96                    |  | $    | 30,035 |  | $ | 41,081 |  
|                                                                 |  |      |            |                            |   |                         |  |      |        |  |   |        |  
|Net income                                                       |  | $    | 31,996     |                            | $ | 10,885                  |  | $    | 30,035 |  | $ | 41,969 |  
|Accrued dividends on cumulative preferred stock                  |  | $    |            |                            |   |                        |  |      |       |  | $ | (888   | )
|                                                                 |  |      |            |                            |   |                         |  |      |        |  |   |        |  
|Net earnings available for common shares                         |  | $    | 31,996     |                            | $ | 10,885                  |  | $    | 30,035 |  | $ | 41,081 |  
|                                                                 |  |      |            |                            |   |                         |  |      |        |  |   |        |  



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17. COMMITMENTS AND CONTINGENCIES

Service AgreementsThe Company maintains an agreement with an independent contractor to perform surface conditioning for slabs produced by the Company. Under the agreement, the Company is required
to make minimum monthly amounts for the availability of the equipment as well as additional monthly payments depending on the actual net tonnage of slabs conditioned. The minimum monthly payments are subject to semi-annual cost adjustments based on
labor and material factors. The initial term of the agreement was five years, commencing February 1991. Since then, the agreement has been renewed in 1996, 2001, 2003 and more recently, in 2004 with an expiration date of July 31, 2007. Monthly
payments made by the Company approximated $323,000, $182,000, $127,000 and $305,000 for the years ended December 31, 2006 and for the periods of June 10 to December 31, 2005, January 1 to June 9, 2005 and the year ended
December 31, 2004, respectively. Additional payments relating to the actual net tonnage of slabs conditioned amounted to approximately $1,268,000, $727,000, $556,000 and $1,434,000 for the year ended December 31, 2006 and for the periods
of June 10 to December 31, 2005, January 1 to June 9, 2005 and the year ended December 31, 2004, respectively. As a part of the service agreement, certain equipment has been committed for use by the Company. The Company
is accounting for this component of the agreement as an operating lease. The estimated future minimum payments under the service agreement are approximately $323,000 and $323,000 in 2007 and 2008, respectively.

The Company also has an agreement with an outside service company to provide vaporized liquid products to the Company for the ten-year period that ended
January 31, 2003. The agreement has been extended through January 31, 2008. Under the terms of the agreement, the Company is required to pay monthly amounts based on the total standard cubic foot of product provided by the service company.
The agreement is subject to price adjustments. Payments made by the Company under the agreement approximated $4,850,000, $1,778,000, $1,398,000 and $3,393,000 for the year ended December 31, 2006 and for the periods of June 10 to
December 31, 2005, January 1 to June 9, 2005 and for the year ended December 31, 2004, respectively.

Employment ContractsThe Company has employment contract with several key executives that specify minimum annual salaries and provide for severance and other benefits upon termination.

Litigation and EnvironmentalIn October 2006, the Delaware Department of Natural Resources and Environmental Control (DNREC) issued a
Notice of Conciliation and Secretarys Order requiring the Claymont Steel to fund an independent study to determine engineering and operational options to control dust and other particulate emissions. The DNREC plans to make a determination on
further dust control requirements upon review of the study in May 2007. Accordingly, the outcome cannot be determined at this time.

In
2006, Claymont Steel performed an emissions test that indicated that mercury emissions were higher than previously calculated by it using information supplied by the United States Environmental Protection Agency. In November 2006, DNREC issued a
Secretarys Order, which requires Claymont Steel to monitor and reduce mercury emissions. The Order requires Claymont Steel to implement a quarterly testing program and to develop a plan to reduce the mercury contained in the feed to the
electric arc furnace. Mercury-containing scrap is an industry-wide problem. Automobile scrap may contain mercury switches that have not been removed during the recycling process, and thus mercury can be emitted when Claymont Steel smelts recycled
scrap steel products, including used automobiles, to produce custom steel plate products. Claymont Steel has already taken steps to reduce mercury levels in the feedit is no longer using municipal solid waste scrap, is partially funding a
rational mercury switch removal program through an industry trade association and is increasing its purchases of automobile-free scrap. The Order also requires Claymont Steel to elect one of the alternatives set forth in the Order for reducing
mercury emissions and notify DNREC of the alternative selected by January 31, 2007. The alternatives include source reduction of mercury in the scrap, installation of a carbon injection system or alternative emission control system, some
combination of source reduction and emission controls, or ceasing operation of the electric arc furnace. On January 30, 2007, Claymont Steel notified DRNEC that it elected to implement a combination of source reduction and emission controls.
The Order requires Claymont Steel to have the selected alternative operational by December 31, 2008. At this time, Claymont Steel cannot estimate the cost of any corrective measures. If Claymont Steel were ultimately required to install and
operate a carbon injection system, it does not believe the associated costs would have a material effect on its results of operations or financial condition.

Claymont Steel is also working with DNREC to investigate potential PCB and PAH contamination in the active scrap yard area. An investigative work plan was submitted in late October for some additional sampling, and
Claymont Steel is awaiting review comments from DNREC. Claymont Steel believes any requirements for remediation will not have a material effect on the Companys financial statements.



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The Company recorded a $550,000 asset retirement reserve on the December 31, 2005 balance sheet to
cover replacement and remediation of certain assets.

As part of the acquisition of the Company from CITIC USA Holding, Inc. (CITIC
Holding) and pursuant to the Purchase Agreement, the Company is required to pay CITIC Holding monies subsequent to the closing date related to a working capital adjustment and the settlement of a specifically calculated tax liability. The
parties agreed to settle the working capital adjustment for $14.9 million. The Company paid CITIC Holding $8 million in June 2005 and $6.9 million in August 2005 to settle the working capital adjustment. The Company estimated the tax liability to be
$4.3 million and has recorded the liability on its balance sheet as of December 31, 2005. On September 6, 2006, the CITIC litigation regarding the working capital adjustment in connection with the acquisition was settled for $6.2
million. The difference between the $6.2 million settlement and the $4.3 million reserve was charged to expense in September 2006.

In
addition, certain claims and suits have been filed or are pending against the Company. In the opinion of management, all matters are adequately covered by insurance or, if not covered, involve such amounts, which would not have a material effect on
the consolidated financial position or results of operations of the Company if disposed of unfavorably.

18. STOCK SPLIT

The Companys board of directors authorized and the Company effected an 11.241303 for 1 stock split (in the form of a 10.241303 for 1 share stock
dividend) on December 5, 2006. All references to shares of common stock for the successor company in these consolidated financial statements and notes to consolidated financial statements have been restated to reflect the effect of this stock
split on a retroactive basis as if it had occurred on June 10, 2005.

19. QUARTERLY FINANCIAL DATA (UNAUDITED)



|                                         |  |               |           |                          |    |        |                            |  |               |           |                |   |        |  |   |       
|---------------------------------------- |  | ------------- | --------- | ------------------------ | -- | ------ | -------------------------- |  | ------------- | --------- | -------------- | - | ------ |  | - | ------
|(in thousands, except per share amounts) |  | First Quarter |           | Second Quarter Successor |    |        | Second Quarter Predecessor |  | Third Quarter |           | Fourth Quarter
|2006:                                    |  |               |           |                          |    |        |                            |  |               |           |                |   |        |  |   |       
|Revenue                                  |  | $             | 81,340    |                          | $  | 82,382 |                            |  |               | NA        |                | $ | 83,984 |  | $ | 85,702
|Gross profit                             |  |               | 25,698    |                          |    | 27,767 |                            |  |               | NA        |                |   | 24,850 |  |   | 21,923
|Operating income                         |  |               | 22,948    |                          |    | 24,324 |                            |  |               | NA        |                |   | 18,113 |  |   | 14,281
|Net earnings                             |  |               | 11,384    |                          |    | 11,841 |                            |  |               | NA        |                |   | 6,387  |  |   | 2,384 
|                                         |  |               |           |                          |   
|Basic EPS                                |  | $             | 1.00      |                          | $  | 1.04   |                            |  |               |           |                | $ | 0.56   |  | $ | 0.20  
|Diluted EPS                              |  | $             | 1.00      |                          | $  | 1.04   |                            |  |               |           |                | $ | 0.55   |  | $ | 0.20  
|                                         |  |               |           |                          |   
|2005:                                    |  |               |           |                          |    |        |                            |  |               |           |                |   |        |  |   |       
|Revenue                                  |  | $             | 72,269    |                          | $  | 14,438 |                            |  | $             | 56,418    |                | $ | 60,878 |  | $ | 74,367
|Gross profit                             |  |               | 25,847    |                          |    | (1,151 | )                          |  |               | 24,078    |                |   | 13,526 |  |   | 23,172
|Operating income                         |  |               | 24,549    |                          |    | (3,217 | )                          |  |               | 22,841    |                |   | 10,921 |  |   | 19,802
|Net earnings                             |  |               | 15,714    |                          |    | (2,191 | )                          |  |               | 14,321    |                |   | 3,497  |  |   | 9,579 
|                                         |  |               |           |                          |   
|Basic EPS                                |  | $             | 15,714.00 |                          | ($ | 0.19   | )                          |  | $             | 14,321.00 |                | $ | 0.31   |  | $ | 0.85  
|Diluted EPS                              |  | $             | 15,714.00 |                          | ($ | 0.19   | )                          |  | $             | 14,321.00 |                | $ | 0.31   |  | $ | 0.84  

Results for the first quarter of 2005 is for the predecessor company, results for the second
quarter 2005 have been separated between the predecessor companyfor the period of April 1 to June 9, 2005and the successor companyfor the period of June 10 to July 1, 2005. Results for the third quarter 2005 and
all subsequent quarters are for the successor company.

Net earnings for the first quarter of 2005 include $2.3 million of pre-tax charges
related to a two-week planned shut down of the plate mill for scheduled maintenance.

Net earnings for the third quarter of 2006 include
$2.0 million of pre-tax charges related to the settlement of litigation with the Companys former owner and $0.7 million of pre-tax charges related to the write-off of the Companys prior trade name.

Net earnings for the fourth quarter of 2006 include $3.0 million of pre-tax charges related to the fee paid to H.I.G. Capital to terminate the management
agreement and $0.8 million of tax expense related to the recognition of a certain state tax liability.



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Net earnings for the successor companys second quarter 2005 include $1.5 million of pre-tax charges
related to a transaction fee paid to H.I.G. Capital and $5.3 million of pre-tax charges related to the write-off of the purchase accounting write-up of inventory on the opening balance sheet to net realizable value.

Net earnings for the third quarter 2005 include $8.7 million of pre-tax charges related to the write-off of the purchase accounting write-up of inventory
on the opening balance sheet to net realizable value.



|20. | SUBSEQUENT EVENTS
|--- | -----------------

In February 2007, Claymont Steel
issued $105 million of new senior notes, due in 2015, bearing interest at 8.875%. The terms of the notes require Claymont Steel to register the notes with the Securities and Exchange Commission through an exchange offer within 180 days of the
issuance date. In addition, Claymont Steel replaced its existing bank debt facility with an $80 million senior secured revolving credit facility, including a $60 million revolving credit facility, with a $10 million letter of credit sub-facility,
and a $20 million term loan. Proceeds of the note issuance and the senior secured revolving credit facility were used to redeem the existing floating rate notes.

In February 2007, Holdings used proceeds from its initial public offering to redeem its pay-in-kind notes.



|21. | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
|--- | ------------------------------------------------

In July 2007, management determined that the classification of debt between short-term and long-term included in the previously filed consolidated financial statements needed to be restated. In the previous consolidated balance sheet, the
Company classified its senior secured pay-in-kind notes as long-term debt. Because these notes were called for redemption in December 2006 and subsequently redeemed in February 2007 with proceeds from our initial public offering of common stock, the
Company is restating the December 31, 2006 consolidated balance sheet to classify the notes as short-term debt. The restatement does not have any effect on net income, cash flows or liquidity. A summary of the effects of the restatement is as
follows:



|                                  |  |                        |         |             |   |        
|--------------------------------- |  | ---------------------- | ------- | ----------- | - | -------
|                                  |  | December 31, 2006     
|                                  |  | As Previously Reported |         | As Restated
|Long-Term Debt                    |  | $                      | 243,848 |             | $ | 243,848
|Current portion of long-term debt |  |                        |         |             |   | 75,000 
|                                  |  |                        |         |             |   |        
|Net long-term debt                |  | $                      | 243,848 |             | $ | 168,848



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PART IV

Item 15. Exhibits, Financial Statements, Financial Statement Schedule, and Reports on Form 8-K

(a) (3) Exhibits.

Reference is made to the Index to Exhibits on Page 44.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 23rd day of July, 2007.



By:

/S/    JEFF
BRADLEYJeff Bradley Chief Executive Officer and Director (Principal Executive Officer)




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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                    
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                             
|3.1         |  | Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.1 to the Annual Report on Form 10-K of Claymont Steel Holdings, Inc. filed with the Commission on April 2,
2007)                                                                                                  
|            | 
|3.2         |  | Amended and Restated By-laws (previously filed as Exhibit 3.2 to the Annual Report on Form 10-K of Claymont Steel Holdings, Inc. filed with the Commission on April 2,
2007)                                                                                                                       
|            | 
|10.1        |  | Employment Agreement between Jeff Bradley and H.I.G. SteelCo Holdings, Inc. (previously filed as Exhibit 10.8 to Amendment No. 1 to Registration Statement on Form S-4 (File
No. 333-131812-01) of Claymont Steel, Inc. filed with the Commission on April 21, 2006)                               
|            | 
|10.2        |  | Restricted Shares Agreement between Jeff Bradley and H.I.G. SteelCo Holdings, Inc. (previously filed as Exhibit 10.9 to Amendment No 1 to Registration Statement on Form S-4 (File
No. 333-131812-01) of Claymont Steel, Inc. filed with the Commission on April 21, 2006)                         
|            | 
|10.3        |  | Tax Sharing Agreement, dated July 6, 2006 among CitiSteel USA Holdings, Inc., CitiSteel USA, Inc. and CitiSteel PA, Inc. (previously filed as Exhibit 4.6 to Registration Statement on
Form S-1 (File No. 333-136352) of Claymont Steel Holdings, Inc. filed with the Commission on August 7, 2006)
|            | 
|10.4        |  | Claymont Steel Holdings, Inc. 2006 Stock Incentive Plan (previously filed as Exhibit 4.6 to Amendment No. 3 to Registration Statement on Form S-1 (File No. 333-136352) of Claymont Steel
Holdings, Inc. filed with the Commission on November 29, 2006)                                           
|            | 
|14.1        |  | Code of Conduct (previously filed as Exhibit 14.1 to the Annual Report on Form 10-K of Claymont Steel Holdings, Inc. filed with the Commission on April 2, 2007)                                                                                                                                   
|            | 
|21.1        |  | List of subsidiaries of the Company (previously filed as Exhibit 21.1 to the Annual Report on Form 10-K of Claymont Steel Holdings, Inc. filed with the Commission on April 2,
2007)                                                                                                               
|            | 
|23.1       |  | Consent of Crowe Chizek and Company LLC                                                                                                                                                                                                                                                            
|            | 
|31.1       |  | Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)                                                                                                                         
|            | 
|31.2       |  | Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer)                                                                                                                         
|            | 
|32.1       |  | Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer and Chief Financial Officer)                                                                                                                                                                                             

---

| | Filed herewith. All other exhibits previously filed
|- | ---------------------------------------------------



44