[SCHULTE ROTH & ZABEL LLP LETTERHEAD] 919 Third Avenue New York, NY 10022 (212) 756-2000 fax (212) 593-5955 www.srz.com Writer's Direct Number Writer's E-mail Address (212) 756-2497 james.nicoll@srz.com October 26, 2006 By EDGAR - -------- Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, D.C. 20549 Attention: Brigitte Lippmann Re: RathGibson, Inc. -- Registration Statement on Form S-4 File No. 333-134875 (the "Registration Statement") ------------------------------------------------------ Dear Ms. Lippmann: On behalf of RathGibson, Inc. (the "REGISTRANT"), we have filed simultaneously by EDGAR Amendment No. 2 to the above-referenced Registration Statement ("AMENDMENT NO. 2") addressing comments contained in the Comment Letter (as defined below). We note that the appropriate filing fee was previously sent by the Registrant to the Securities and Exchange Commission by wire transfer. This letter is in response to the comments of the Staff set forth in its letter dated October 18, 2006, concerning Amendment No. 1 to the Registration Statement (the "COMMENT LETTER"). For the convenience of the Staff, we have repeated each of the Staff's comments in italics immediately above our response to the corresponding comment. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in Amendment No. 2. Our responses to the Staff's comments set forth in the Comment Letter are as follows: General - ------- 1. IT DOES NOT APPEAR THAT THE FORM S-4 HAS BEEN FILED ON EDGAR FOR GREENVILLE TUBE COMPANY AS AN ADDITIONAL REGISTRANT. PLEASE FILE YOUR NEXT AMENDMENT FOR ALL REGISTRANTS. Securities and Exchange Commission October 26, 2006 Page 2 Amendment No. 2 has been filed on behalf of RathGibson, Inc. and Greenville Tube Company. Risk Factors, page 11 - --------------------- To service our indebtedness ... page 12 - --------------------------------------- 2. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 9. QUANTIFY YOUR ANNUAL DEBT SERVICE OBLIGATIONS. The revision requested by the Staff has been made. Compliance with and changes in environmental ... page 18 - -------------------------------------------------------- 3. WE NOTE YOUR DISCLOSURE REGARDING YOUR CLARKSVILLE ARKANSAS FACILITY. PLEASE PROVIDE MORE DETAILED DISCLOSURE IN THE BUSINESS SECTION AS REQUIRED BY INSTRUCTION 5 TO ITEM 103 OF REGULATION S-K. The revision requested by the Staff has been made. Management's Discussion and Analysis - ------------------------------------ Results of Operations, page 44 - ------------------------------ 4. PLEASE DO NOT PRESENT OR DISCUSS THE COMBINED RESULTS OF YOUR PREDECESSORS AND THE SUCCESSOR. IT IS MORE APPROPRIATE TO DISCUSS THE SEPARATE HISTORICAL RESULTS OF EACH. PLEASE REVISE YOUR MD&A ACCORDINGLY. The revisions requested by the Staff have been made. Expiration Date; Extensions, Amendment, page 59 - ----------------------------------------------- 5. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 28. PLEASE REVISE YOUR DISCLOSURE TO CLARIFY THAT YOU ARE REFERRING TO THE RIGHT TO DELAY ACCEPTANCE ONLY DUE TO AN EXTENSION OF THE EXCHANGE OFFER. The revision requested by the Staff has been made. RathGibson, Inc. Audited Financial Statements - --------------------------------------------- Note 2. Summary of Significant Accounting Policies - --------------------------------------------------- Goodwill and Other Intangible Assets, page F-8 - ---------------------------------------------- 6. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 18. IT IS UNCLEAR HOW YOU DETERMINED THE APPROPRIATE AMORTIZATION PERIODS FOR YOUR CUSTOMER LISTS. WE REMIND YOU THAT PARAGRAPH 11 OF SFAS 142 STATES THAT THE USEFUL LIFE OF AN INTANGIBLE ASSET TO AN ENTITY IS THE PERIOD OVER WHICH THE ASSET IS EXPECTED TO CONTRIBUTE DIRECTLY OR INDIRECTLY TO YOUR FUTURE CASH FLOWS. YOU STATE THAT OTHER INTANGIBLE ASSETS, CONSISTING PRIMARILY OF CUSTOMER LISTS ARE Securities and Exchange Commission October 26, 2006 Page 3 AMORTIZED PRINCIPALLY BY THE STRAIGHT-LINE METHOD OVER THEIR ESTIMATED USEFUL LIVES OF 40 YEARS. ON PAGE F-27 IN YOUR INTERIM FINANCIAL STATEMENTS, YOU STATE THAT THE ESTIMATED USEFUL LIVES OF CUSTOMER LISTS - SMALL WAS 7 YEARS AND CUSTOMER LISTS - LARGE WAS 20 YEARS. PLEASE FURTHER ADVISE HOW YOU ORIGINALLY DETERMINED 40 YEARS WAS APPROPRIATE FOR ALL CUSTOMER LISTS AND SUBSEQUENTLY DETERMINED 20 YEARS WAS APPROPRIATE FOR LARGE CUSTOMER LISTS. PROVIDE US WITH A DETAIL OF YOUR LARGE CUSTOMER LISTS AS OF JULY 31, 2006 WITH CORRESPONDING AMOUNTS RECORDED AS WELL AS A DETAIL OF YOUR CUSTOMER LISTS AS OF JANUARY 31, 2006 WITH CORRESPONDING AMOUNTS RECORDED. FOR EACH SIGNIFICANT CUSTOMER LIST, PLEASE PROVIDE US WITH A DETAILED EXPLANATION OF HOW YOU DETERMINED THESE CUSTOMER LISTS WOULD CONTRIBUTE TO YOUR FUTURE CASH FLOWS FOR 20 YEARS AND 40 YEARS. In connection with the acquisition of the Registrant in 1991, the Registrant determined that the estimated useful life of customer lists - large was 40 years and customer lists - small was 5 years. In 1995, the Registrant was acquired by Liberty Partners and the Registrant determined that the net book value of the customer lists - large approximated fair value and the estimated useful life was 36 years, calculated by subtracting the 4 years that had passed since the original determination of 40 years in 1991. As of January 31, 2006, the only remaining net book value is related to customer lists - large; the customer lists - small had been fully amortized. For financial statement disclosure purposes, the Registrant rounded the estimated useful life of 36 years for the customer lists - large to 40 years. On February 7, 2006 (date of the Acquisition), the Registrant preliminarily determined the estimated use life (i.e., the period of time over which the customer list existing at the time of the acquisition is estimated to contribute to the Registrant's cash flows) of customer lists - large was 20 years, based on the following quantitative and qualitative factors of the top 21 customers, which represents customers with sales exceeding $1.6 million for fiscal 2006 and accounts for approximately 60% of net sales of the Registrant: (i) top 2 customers, accounting for 25% of the fiscal 2006 net sales of the Registrant, have been customers of the Registrant for a weighted average of 20 years; (ii) top 19 customers, accounting for 34% of the fiscal 2006 net sales of the Registrant, have been customers of the Registrant for up to 29 years; (iii) top 21 customers have a weighted average years of service with the Registrant of approximately 19 years; (iv) 25 years remained from the estimated useful life of the original customer lists - large, which was established in 1991; (v) changes in the global economy since 1991; (vi) the Registrant is a recognized market leader for the majority of products it manufacturers, having been in business for over 50 years; the quality and longevity of the Registrant's products is substantiated by 20 years of corrosion data and the Registrant believes that its customer base would be hesitant to purchase products that have not been rigorously tested due to the mission critical end use of many of the Registrant's products. The preliminary estimates of customer lists - large and estimated useful lives may change once more analysis of the detail customer information is developed through appraisals and valuation studies to be provided by third party valuation specialists engaged by the Registrant. The Registrant will consider the results of the valuations obtained in finally concluding on the estimated useful lives of the customer lists. Such valuations will be completed prior to the end of fiscal 2007, at which time changes, if any, in the preliminary estimates of the purchase price allocation will be reflected in the financial statements. Securities and Exchange Commission October 26, 2006 Page 4 The following is the detail of customer lists - large as of January 31, 2006, which was originally established in 1991: Gross Years of Customer Name Value Service - ---------------------------------- ---------------- ------------- (in thousands) Customer 1 $ 2,765 >15 Customer 2 3,916 <15 Customer 3 354 <15 Customer 4 2,810 >15 Customer 5 . 381 >15 Customer 6 780 >15 Customer 7 435 21 Customer 8 109 >15 Customer 9 1,614 >15 Customer 10 426 26 Customer 11 109 <15 Customer 12 18 >15 Customer 13 789 >15 Customer 14 82 >15 Customer 15 73 >15 Customer 16 490 >15 Customer 17 562 >15 Customer 18 154 >15 Customer 19 462 >15 Customer 20 526 >15 Customer 21 480 >15 Customer 22 36 >15 Customer 23 661 >15 Customer 24 82 <15 Customer 25 271 <15 Customer 26 82 >15 Customer 27 135 >15 ---------------- $ 18,602 ================ The following is the detail of customer lists - large as of July 31, 2006: Weighted Average Gross Years of Years of Rank Customer Name Value Service Service - ---- ------------- ----- ------- ------- (in thousands) 1 Customer 7 $ 11,745 21 5.27 2 Customer 28 8,120 19 3.30 3 Customer 29 3,462 21 1.55 4 Customer 10 2,852 26 1.58 5 Customer 30 2,269 24 1.16 6 Customer 31 2,237 13 0.62 7 Customer 32 1,461 10 0.31 8 Customer 33 1,332 21 0.60 9 Customer 34 1,281 11 0.30 10 Customer 35 1,211 3 0.08 11 Customer 36 1,157 23 0.57 12 Customer 37 1,141 23 0.56 13 Customer 38 1,134 2 0.05 14 Customer 39 1,100 29 0.68 15 Customer 40 1,062 3 0.07 16 Customer 41 1,056 29 0.65 17 Customer 42 1,030 25 0.55 18 Customer 43 913 24 0.47 19 Customer 44 759 28 0.45 20 Customer 45 750 13 0.21 21 Customer 46 743 8 0.13 ---------- ----- $ 46,815 19.16 ========== ===== Securities and Exchange Commission October 26, 2006 Page 5 Note 9. Stockholders' Equity, page F-l3 - ---------------------------------------- 7. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 43. PLEASE TELL US THE FAIR VALUE OF YOUR COMMON STOCK AS OF MARCH 7, 2004. PLEASE ALSO TELL US HOW YOU ARRIVED AT THIS FAIR VALUE. YOUR EXPLANATION SHOULD INCLUDE A SUMMARY OF SIGNIFICANT ESTIMATES AND ASSUMPTIONS USED TO ARRIVE AT THIS FAIR VALUE AS WELL AS YOUR BASIS FOR USING THESE ESTIMATES AND ASSUMPTIONS. The fair value of the Registrant's common stock at March 7, 2004, as calculated pursuant to an EBITDA multiple of 6x less outstanding debt used by the Board of Directors at January 31, 2004, was de minimus. As the EBITDA multiple less outstanding debt used by the Board of Directors has historically been used to purchase shares of stock from other owners, the Registrant believes the EBITDA multiple less outstanding debt was appropriate for these purposes. Additionally, the EBITDA multiple used by Castle Harlan, Inc. in the Acquisition was approximately 6.1, which supports the use of the EBITDA multiple used by the Board of Directors. The increase in the purchase price per equity share between 2004 and 2006 is due to the hiring of a new executive team that implemented a comprehensive set of operational initiatives at the Registrant's Janesville, Wisconsin facility, which enhanced its efficiency and profitability. These included improved purchasing activities, the reduction of scrap generation and the upgrading of equipment to increase throughput and reduce labor costs. The Registrant believes the analysis performed at January 31, 2004 was acceptable to use to determine the fair value of the shares at March 7, 2004 as the Registrant's results had not substantially changed between January 31, 2004 and March 7, 2004. The fair value was calculated by applying an EBITDA multiple of 6x, as prescribed by the Board of Directors, to the Registrant's fiscal 2004 results less outstanding debt as of January 31, 2004. The calculation is as follows (in thousands): FAIR VALUE AT JANUARY 31, 2004: EBITDA for the twelve months ended January 31, 2004 $ 20,044 Multiple 6.00 ------------ 120,264 Less: debt outstanding at January 31, 2004 (154,453) ------------ Fair value, not less than zero $ - ============ RathGibson, Inc. Interim Financial Statements - --------------------------------------------- Note 3. Basis of Presentation, page F-24 - ----------------------------------------- 8. PLEASE DISCLOSE WHY YOU ARE PROVIDING SEPARATE PRESENTATION OF PREDECESSOR AND SUCCESSOR ENTITIES TO HELP READERS UNDERSTAND YOUR PRESENTATION. The revision requested by the Staff has been made. Note 10. Stockholders' Equity (Deficiency), page F-28 - ------------------------------------------------------ 9. PLEASE TELL US HOW YOU DETERMINED THE APPROPRIATE AMOUNT OF COMPENSATION EXPENSE TO RECORD RELATED TO YOUR STOCK OPTIONS AND PHANTOM RIGHTS, WITH REFERENCE TO THE APPLICABLE ACCOUNTING LITERATURE. YOUR EXPLANATION SHOULD ALSO INCLUDE A SUMMARY OF ANY SIGNIFICANT ESTIMATES AND ASSUMPTIONS USED TO DETERMINE THE APPROPRIATE AMOUNT OF COMPENSATION EXPENSE AS WELL AS YOUR BASIS FOR USING THESE ESTIMATES AND ASSUMPTIONS. The total compensation expense disclosed in Note 10 is summarized as follows: Stock Option Plan $ 53,809 Phantom Rights Plan 3,188,045 Cash Incentives 3,373,213 ---------- $6,615,667 ========== Securities and Exchange Commission October 26, 2006 Page 6 Stock Option Plan - ----------------- The Registrant accounted for its stock options under APB 25. In July 2005 (the date of grant for 256 stock options), the Registrant determined the compensation expense to be immaterial and no amount was recorded for financial statement purposes. On February 7, 2006 (date of the Acquisition), the Registrant settled these stock options in cash and as prescribed by paragraph 11 of APB 25, recorded compensation expense of $53,809, calculated as follows: Number of Stock Options 256 Purchase price per equity share $ 338.76 Less: exercise price per share (128.57) $ 210.19 -------- ---------- Total compensation expense $ 53,809 ========== Phantom Rights Plan - ------------------- Under APB 25 and FIN 38, the Registrant had recognized compensation expense, related to the Phantom Rights Plan, of $3,188,645 in connection with the sale of the company to an of affiliate Castle Harlan, Inc., calculated as follows: Number of Phantom Rights 9,375 Purchase price per equity share $ 338.76 ---------- 3,175,875 Employer portion of Medicare tax 12,770 ---------- Total compensation expense $3,188,645 ========== Amendment No. 2 to the Registration Statement was filed by the Registrant in response to the comments set forth in the Comment Letter. We respectfully request your prompt review of Amendment No. 2 to the Registration Statement. If you have any questions or comments or require further information with respect to the foregoing, please do not hesitate to call me at (212) 756-2497 or Michael R. Littenberg of this firm at (212) 756-2524. Very truly yours, /s/ James Nicoll James Nicoll cc: Barry Nuss, RathGibson, Inc. Michael Littenberg, Schulte Roth & Zabel LLP
