PLTE Claymont Steel Hlds (MM)

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q 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:

We believe the forward-looking statements in this quarterly report on Form 10-Q 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.

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Sales

Sales decreased 14.9% in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 as a result of a 21.6% decrease in shipments. Sales were hampered by the annual plate mill planned outage in the beginning of the third quarter coupled with unexpected operational issues related to the restart of the reheat furnace.

Average selling price remained flat in the thirteen weeks ended September 29, 2007 compared to the same period in 2006. Average selling prices for custom products increased $20 per ton due to increased prices for customs sizes and record shipments in custom burn products which command a premium price over standard products. Custom sizes continue to generate a price premium over standard sizes, averaging 19% in 2007.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased 4.0% in the thirteen weeks ended September 29, 2007 compared to the same period in 2006, as a result of a 32.7% increase in cost of goods sold per ton shipped. Cost of goods sold per shipped ton increased to $734 largely because of a $52 per shipped ton increase in raw material costs, a $35 increase in energy costs, a $22 increase in services, a $18 increase in supplies, and a $9 increase in parts.

Raw material costs are comprised of scrap steel, purchased slabs and alloy and flux. In the thirteen weeks ended September 29, 2007, scrap steel accounted for 75.8% of raw material costs, an increase from 69.5% in the third quarter of 2006 as the consumption of scrap averaged $230 per ton, an increase of $8 per ton from 2006. Scrap prices began to rise in February 2007 as domestic demand for steel plate grew and higher levels of scrap were being exported from the United States, however they leveled off by the end of the second quarter and remained flat throughout the third quarter.

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Purchased slabs accounted for 6.3% of raw material costs in the thirteen weeks ended September 29, 2007, a decrease from 17.2% in the same period in 2006, as a result of a 74% decrease in purchased slab tons used by the plate mill. However, the average cost of purchased slabs increased significantly to $502 per purchased ton in the thirteen weeks ended September 29, 2007 from $385 per purchased ton in the same period in 2006. During the thirteen weeks ended September 29, 2007, the Company used 3,600 tons of purchased slabs in the plate mill but their cost was roughly equivalent to the internal cost of production. During the thirteen weeks ended September 30, 2006, the Company used 13,800 tons of purchased slabs.

Alloy and flux accounted for 17.9% of raw material costs in the thirteen weeks ended September 29, 2007, with an overall cost of $49 per ship ton compared to $41 per shipped ton in the same period in 2006 as the purchase price of vanadium, siliconmanganese, and ferromanganese increased in price from the second quarter 2006.

Supplies are largely comprised of electrodes and furnace refractories used by the melt shop. These items increased in cost by $18 per shipped ton in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 due to vendor price increases and increased usage as a result of the higher melt shop output coupled with expanded custom production requiring higher volumes of specialized grades.

Energy costs increased $35 per shipped ton in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 largely as a result of higher electricity rates, increased production at the electric arc furnace, and reheat furnace inefficiencies.

Labor, parts and service costs increased a total of $57 per shipped ton in the thirteen weeks ended September 29, 2007 compared to the same period in 2006. Increased operating expenses related to the annual plate mill outage, operating difficulties relating to the reheat furnace immediately after the outage and lower than normal productivity related to increased maintenance delays period over period, impacted production and increased costs during the third quarter.

Depreciation expense increased $3 per shipped ton, in the thirteen weeks ended September 29, 2007 compared to the same period in 2006. The change is due largely to the increased re-investment of plant assets from prior historical periods. The capital plan is estimated to have a run rate of $15 million in 2007.

Gross profit declined $14.9 million, or 59.8%, in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 as a result of a 14.9% decrease in revenues combined with a 4.0% increase in cost of goods sold. Gross profit margins in the thirteen weeks ended September 29, 2007 declined to 14.0% from 29.6% in the same period in 2006 as cost of goods sold per shipped ton increased $181 per ton while average selling prices increased only $1 per ton (total average selling price excludes toll processing in 2006). As costs rose during the thirteen weeks ended September 29, 2007 from scrap prices, internal operational difficulties, including the plate mill curtailment and the increase in the cost of purchased slabs, the Company was unable to recoup the entire amount through increased selling prices due to overall market constraints.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $2.0 million, or 29.2%, in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 primarily due to a number of additional costs in 2006 and one-time items: $2.0 million charge for the settlement of the acquisition-related CITIC litigation; $0.6 million from the write-off of the trade name related to the name change; $0.4 million compensation expense related to the vesting of a portion of our Chief Executive Officer’s restricted stock and a bonus; and $0.5 million of transaction-related legal fees. In 2007 we incurred additional expenses to support growth and our public company reporting requirements, which include costs for increased headcount, for Sarbanes Oxley compliance, and for filing reports required by the Securities and Exchange Commission coupled with legal and related expenses.

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Interest Income and Expense

Interest income is earned on short-term investment securities and overnight deposits of any available cash balances. The balance in these investment securities declined during the thirteen weeks ended September 29, 2007 compared to the same period in 2006 therefore the corresponding income from these accounts decreased as well. The Company is committed to paying down the debt associated with the revolving credit facility and term loans. Going forward the company will use its excess cash to reduce these encumbrances as opposed to investing.

Interest expense is comprised of interest and the amortization of deferred financing fees on the Company’s revolving credit facility, term loan, and senior notes. Interest expense has decreased by $4.5 million in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 as a result of the first quarter 2007 debt restructuring. We expect interest expense to continue to decrease as the Company executes its financial strategy of debt reduction.

Income Tax Expense

Income tax expense declined by $3.2 million in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 as a result of a $8.6 million decline in pre-tax income. The Company had an effective tax rate of 37.3% in the thirteen weeks ended September 29, 2007 and 37.6% in the same period in 2006. The effective tax rate decreased in the thirteen weeks ended September 29, 2007 as a result of investments in tax exempt securities and other permanent differences recognized in the period.

Net Income

Net income declined $5.4 million in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 as a result of a $12.9 million decrease in income from operations. Selling, general and administrative expenses declined by 29.2% and interest expense declined by 54.9% however this was more than offset by the 4% increase in cost of goods sold and the 14.9% decline in sales revenue.

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 (and adjusted EBITDA) do 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:

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EBITDA declined $13.4 million in the thirteen weeks ended September 29, 2007 compared to the same period in 2006 largely as a result of the $14.9 million decline in gross profit partially offset by the $2.0 million decline in selling, general and administrative expenses. 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 and vacation expense accruals. These amounts totaled $0.6 million in the thirteen weeks ended September 29, 2007 and $0.2 million in the same period in 2006 and are expected to increase significantly in the balance of 2007.

Thirty-nine Weeks Ended September 29, 2007 Compared to Thirty-nine Weeks Ended September 30, 2006

Discussion and Analysis of Income

Sales

Sales decreased 0.3% in thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 as a result of a 5.8% decrease in tons shipped offset by a 2.9% increase in average selling price. Operational set backs impeded production and shipments throughout 2007.

Average selling price increased 2.9% in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 due to increased prices for custom and standard sizes. Custom sizes continue to command a price premium over standard sizes, averaging 15.2% in 2007, over standard sizes and the custom share of shipments continues to grow, reaching 69% of tons shipped in the thirty-nine weeks ended September 29, 2007, compared to 63% in the same period in 2006.

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Cost of goods sold increased 15.2% in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 as a result of a 5.8% decrease in tons shipped coupled with a 22.2% increase in cost of goods sold per ton shipped. Cost of goods sold per shipped ton increased to $676 largely because of a $65 per shipped ton increase in raw material costs, a $14 increase in energy, a $12 increase in supplies, a $10 increase in service costs and a $9 increase in labor costs.

Raw material costs are comprised of scrap steel, purchased slabs and alloy and flux. In the thirty-nine weeks ended September 29, 2007, scrap steel accounted for 70.4% of raw material costs, an increase from 65.6% in the same period in 2006, and the consumption of scrap averaged $232 per ton, an increase of $35 per ton from 2006. Scrap prices began to rise in the beginning of 2007 as domestic demand for steel plate grew and higher levels of scrap were being exported from the United States. Scrap reached a high of $278 per purchased ton at the end of the first quarter 2007 and eventually leveled off to $230 by the end of the second quarter and throughout the third quarter.

Purchased slabs accounted for 13.8% of raw material costs in the thirty-nine weeks ended September 29, 2007, a decrease from 19.8% in same period in 2006, as 39.7% less purchased slab tons were used by the plate mill. The lower purchase slab usage is the result of improved and consistent production from the melt shop. The average cost of purchased slabs increased significantly to $507 per purchased ton in the thirty-nine weeks ended September 29, 2007 from $409 per purchased ton in the same period in 2006. During the thirty-nine weeks ended September 29, 2007, the Company used 25,300 tons of purchased slabs in the plate mill which increased cost of goods sold $890,000 above what it would have cost to internally produce those slabs. During the thirty-nine weeks ended September 30, 2006, the Company used 42,000 tons of purchased slabs, but their cost was roughly equivalent to the internal cost of production.

Alloy and flux accounted for 15.8% of raw material costs in the thirty-nine weeks ended September 29, 1007, with an overall cost of $55 per shipped ton compared to $42 per shipped ton in the thirty-nine weeks ended September 30, 2006 as the purchase price of vanadium, siliconmanganese, and ferromanganese increased in price from 2006.

Supplies are largely comprised of electrodes and furnace refractories used by the melt shop. These items increased in cost by $12 per shipped ton in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 due to vendor price increases and increased usage as a result of the higher melt shop output coupled with expanded custom production requiring higher volumes of specialized grades.

Energy costs increased $14 per shipped ton in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 largely as a result of higher electricity rates and higher output at the EAF furnace.

Labor, parts and service costs increased a total of $24 per shipped ton in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006. A number of operational difficulties hindered production during the thirty-nine weeks ended September 29, 2007. In January, the plate mill did not have an adequate supply of slabs to roll. This was caused by production difficulties in the melt shop related to the installation of the replacement reactors for the transformers and the subsequent fine tuning of the electrical field. This issue was remedied in late January however it further complicated the Company’s ability to roll and ship plate because the lost tonnage was required to fulfill the current order book. Without the proper slab grades in the existing inventory, the plate mill experienced further curtailments and lost approximately 10,000 tons of rolling due to this issue. In February and March 2007 the plate mill idled operations again because of a natural gas supply curtailment. The interruption was mandated by the Public Service Commission as a result of the extremely cold weather experienced during that time. The local utility company has limited transmission capacity and is therefore empowered by the commission to limit supply to certain customers by contract. Claymont had an interruptible contract with the utility and was obligated by law to cease operations. As a result, plate mill production was curtailed by a total of 9,000 tons in February and March 2007. The Company has recently secured a non-interruptible supply contract for natural gas and will no longer experience these types of delays. Lastly, higher than normal delays at the plate mill in the second quarter 2007 impacted production and increased costs due to the delay of the two-week planned plate mill shut down that was to originally occur in April. Immediately following the plate mill outage, operating difficulties due to the reheat furnace combined with mechanical delays subsequently increased costs.

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Depreciation expense increased by $4 per shipped ton in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 as a result of increased capital expenditures.

Gross profit declined $26.5 million, or 33.8%, in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 as a result of the 15.2% increase in cost of goods sold, while revenue remained flat. Gross profit margins in the thirty-nine weeks ended September 29, 2007 declined to 21.0% from 31.6% in the same period in 2006 as cost of goods sold per shipped ton increased $123 while average selling prices increased only $24. Though the Company experienced record average selling prices during the period, increased sales revenues were not experienced, because the high cost of scrap had a negative impact on our spreads. In addition to the high scrap prices, gross profit was affected by the inability of the plate mill to run evenly as a result of gas curtailments in February and March, as well as efficiency issues in June due to delaying the reheat furnace outage and the difficulty experienced coming out of the July outage.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.3 million, or 2.3%, in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 primarily due to increases in support growth and our public company reporting requirements, which include costs for increased headcount, for Sarbanes Oxley compliance, and for filing reports required by the Securities and Exchange Commission.

Interest Income and Expense

Interest income is earned on short-term investment securities and overnight deposits of available cash balances. The earnings associated with these investments decreased $1.4 million, or 72.2%, in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 as the balance in investment securities declined. The Company restructured its long term debt in February and available cash is used to pay down the revolving credit facility and the term loan.

Interest expense is comprised of interest, amortization of original issue discount and amortization of deferred financing fees on the Company’s revolving credit facility, term loan, and notes. Interest expense increased by $17.9 million in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006. This increase was due to the one-time charges related to refinancing debt, as follows:

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The Company redeemed its $75 million 15% Senior Secured Pay-in-Kind notes in February 2007 with the proceeds from the initial public offering. The Company then refinanced its remaining debt, also in February 2007, by issuing $105 million of 8.875% senior notes due 2015 and entering into an $80 million senior secured revolving credit facility and using the proceeds from this debt to redeem its $170 million Senior Secured Floating Rate Notes. The Company incurred $3.7 million of deferred financing costs related to the newly issued debt and is amortizing the amount over the expected life of the debt.

The Company projects a reduction in ongoing annual interest expense to approximately $15 million.

Income Tax Expense

Income tax expense declined by $17.4 million in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006 as a result of a $46.2 million decline in pre-tax income. The Company experienced unexpected challenges during the third quarter related to the restart of its reheat furnace following an upgrade completed as planned during the recent annual plate mill outage. The expected tax rate for the year will be approximately 39%.

Net Income