UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
| x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2007
| ¨ | 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
CLAYMONT STEEL HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| 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)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No: ¨
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 Exchange Act). Yes ¨ No x
As of July 23, 2007, there were 17,566,754 shares of the registrant’s common stock par value $0.001 per share outstanding.
| Page | ||||
| EXPLANATORY NOTE | 3 | |||
| PART I | FINANCIAL INFORMATION | |||
| Item 1 | Financial Statements | 4 | ||
| PART II | OTHER INFORMATION | |||
| Item 6 | Exhibits | 14 | ||
| SIGNATURES | 15 | |||
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We are filing this Amendment No. 1 to our Form 10-Q for the first quarter ended March 31, 2007 (the “Form 10-Q”), originally filed with the Securities and Exchange Commission on May 15, 2007, for the purpose of restating our long-term and short-term debt as of December 31, 2006. 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-Q to reclassify the $75.0 million pay-in-kind notes from long-term debt to short-term debt as of December 31, 2006.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of Item 1 of Part I is set forth below and Item 6 of Part II is amended to contain updated certifications from our Chief Executive Officer and Chief Financial Officer. This Amendment No. 1 speaks as of the original filing date of the Form 10-Q and reflects only the changes to Part I and Part II discussed above. No other information included in the Form 10-Q 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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| Item 1. | Financial Statements. |
Claymont Steel Holdings, Inc., Condensed Consolidated Statements of Earnings (Unaudited), dollar amounts in thousands
| Three Months (13 weeks) Ended March 31, 2007 | Three Months 2006 | |||||||
Sales | $ | 84,777 | $ | 81,340 | ||||
Cost of sales | 63,860 | 55,642 | ||||||
Gross profit | 20,917 | 25,698 | ||||||
Selling, general and administrative expenses | 4,143 | 2,750 | ||||||
Income from operations | 16,774 | 22,948 | ||||||
Other income (expense): | ||||||||
Interest income | 402 | 841 | ||||||
Interest expense | (30,851 | ) | (5,811 | ) | ||||
Other non-operating income | 139 | |||||||
Total other income (expense) | (30,449 | ) | (4,831 | ) | ||||
Income (loss) before income taxes | (13,675 | ) | 18,117 | |||||
Income tax expense (benefit) | (4,815 | ) | 6,733 | |||||
Net Income (Loss) | $ | (8,860 | ) | $ | 11,384 | |||
Net Earnings (Loss) per Common Share – basic | $ | (0.51 | ) | $ | 1.00 | |||
Net Earnings (Loss) per Common Share – diluted | $ | (0.50 | ) | $ | 1.00 | |||
Weighted Average Shares Outstanding: | ||||||||
Basic | 17,510,165 | 11,241,302 | ||||||
Diluted | 17,808,931 | 11,316,754 | ||||||
See notes to condensed consolidated financial statements.
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Claymont Steel Holdings, Inc., Condensed Consolidated Balance Sheets (Unaudited), dollar amounts in thousands
March 31, 2007 | December 31, 2006 (As Restated | |||||||
| (dollars in thousands, except per share data) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 1,259 | $ | 20,120 | ||||
Investment securities | 5,089 | 94,774 | ||||||
Accounts receivable, net | 48,915 | 41,081 | ||||||
Inventories | 48,553 | 40,698 | ||||||
Deferred income taxes | 888 | 795 | ||||||
Income taxes receivable | 3,236 | 2,949 | ||||||
Prepaid expenses | 1,247 | 515 | ||||||
Total current assets | 109,187 | 200,932 | ||||||
Property, plant and equipment, net | 28,124 | 24,103 | ||||||
Intangible assets, net | 4,629 | 4,975 | ||||||
Deferred pension asset | 472 | 472 | ||||||
Deferred income taxes | 3,820 | |||||||
Deferred financing fees, net | 3,618 | 9,583 | ||||||
Total assets | $ | 149,850 | $ | 240,065 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES: | ||||||||
Current portion of long-term debt | $ | 6,667 | $ | 75,000 | ||||
Accounts payable | 26,750 | 17,117 | ||||||
Accrued expenses | 3,152 | 2,425 | ||||||
Accrued profit sharing | 763 | 3,115 | ||||||
Accrued interest payable | 1,165 | 12,958 | ||||||
Total current liabilities | 38,497 | 110,615 | ||||||
Long-term debt | 161,219 | 168,848 | ||||||
Deferred income taxes | 916 | |||||||
Total liabilities | 199,716 | 280,379 | ||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Common stock, $0.001 par value – authorized 20,000,000 and issued and outstanding 17,566,754 | 6 | 6 | ||||||
Additional paid-in capital | 97,602 | 97,602 | ||||||
Accumulated deficit | (148,189 | ) | (138,637 | ) | ||||
Accumulated other comprehensive gain | 715 | 715 | ||||||
Total stockholder’s deficit | (49,866 | ) | (40,314 | ) | ||||
Total liabilities and stockholder’s deficit | $ | 149,850 | $ | 240,065 | ||||
See notes to condensed consolidated financial statements.
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Claymont Steel Holdings, Inc., Condensed Consolidated Statements of Cash Flows (Unaudited), dollar amounts in thousands
January 1 to March 31, 2007 | January 1 to April 1, 2006 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (8,860 | ) | $ | 11,384 | |||
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 12,178 | 956 | ||||||
Deferred taxes, net | (4,829 | ) | 123 | |||||
Stock compensation | 163 | |||||||
Changes in assets and liabilities which provided (used) cash: | ||||||||
Accounts receivable | (7,834 | ) | (3,227 | ) | ||||
Inventory | (7,855 | ) | (2,969 | ) | ||||
Prepaid expenses | (732 | ) | (145 | ) | ||||
Income taxes receivable | (287 | ) | ||||||
Accounts payable | 9,633 | 1,062 | ||||||
Accrued interest payable | (11,793 | ) | (5,082 | ) | ||||
Accrued taxes | 5,761 | |||||||
Accrued liabilities and profit sharing | (1,625 | ) | (3,544 | ) | ||||
Due to seller | (500 | ) | ||||||
Other assets and liabilities | 2 | |||||||
Net cash provided by (used in) operating activities | (21,841 | ) | 3,821 | |||||
INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (4,969 | ) | (4,394 | ) | ||||
Purchase of investment securities | (15,603 | ) | (68,857 | ) | ||||
Maturities of investment securities | 105,288 | 68,164 | ||||||
Net cash provided by (used in) investing activities | 84,716 | (5,087 | ) | |||||
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Claymont Steel, Inc. (formerly CitiSteel USA, Inc.) Condensed Consolidated Statements of Cash Flows (Unaudited), dollar amounts in thousands
January 1 to March 31, 2007 | January 1 to April 1, 2006 | |||||
FINANCING ACTIVITIES: | ||||||
Borrowings under revolving credit facility, net | 43,997 | |||||
Borrowings under term loan | 20,000 | |||||
Repayments under term loan | (1,111 | ) | ||||
Borrowings under senior secured fixed rate notes due 2015 | 105,000 | |||||
Repayment under senior secured floating rate notes due 2010 | (170,110 | ) | ||||
Borrowings under senior secured floating rate notes | 89 | |||||
Repayment under senior secured pay-in-kind notes due 2010 | (75,000 | ) | ||||
Deferred financing costs | (3,657 | ) | (106 | ) | ||
Dividend | (855 | ) | ||||
Net cash used in financing activities | (81,736 | ) | (17 | ) | ||
NET INCREASE (DECREASE) IN CASH | (18,861 | ) | (1,283 | ) | ||
CASH—Beginning of period | 20,120 | 2,619 | ||||
CASH—End of period | 1,259 | 1,336 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION – Cash paid during the period for: | ||||||
Interest | 19,157 | 10,339 | ||||
Income Taxes | 300 | 976 | ||||
See notes to condensed consolidated financial statements.
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Claymont Steel Holdings, Inc. – Notes to Condensed Consolidated Financial Statements (Unaudited)
1. BASIS OF INTERIM PRESENTATION: The information furnished in Item 1 reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods and are of a normal and recurring nature. The information furnished has not been audited; however, the December 31, 2006 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the audited financial statements of Claymont Steel Holdings, Inc. and subsidiary (the “Company”) for the fiscal year ended December 31, 2006. The accounting policies of the predecessor and successor company are the same.
Comprehensive income is equal to net income for the thirteen weeks ended March 31, 2007 as there is no minimum pension liability adjustment for the period.
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 10% of operating revenue.
On August 3, 2006, the Company changed its name from CitiSteel Holdings USA, Inc. to Claymont Steel Holdings, Inc. and its subsidiary changed its name from CitiSteel USA Holdings, Inc. to Claymont Steel, Inc. in order to establish a separate corporate identity from the Company’s previous owner, CITIC USA Holdings, Inc. As a result of the name change the Company wrote off the value of the trade name included in intangible assets.
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.
The Company files a consolidated federal income tax return with its subsidiary and has a tax sharing agreement with it whereby the subsidiary makes payments to the Company for the federal income taxes it would have paid directly to the Internal Revenue Service had the subsidiary not been included in the Company’s consolidated return. The Company reflects balances under the tax sharing agreement as income tax expense and income taxes receivable and payable in its financial statements.
2. PRINCIPLES OF CONSOLIDATION: The condensed consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany transactions and accounts have been eliminated.
3. INVESTMENT SECURITIES: Investment securities available for sale at March 31, 2007 and December 31, 2006 are as follows:
| Amortized Cost | Fair Value | |||||
| (in thousands) | ||||||
March 31, 2007: | ||||||
Money market fund | $ | 5,089 | $ | 5,089 | ||
| $ | 5,089 | $ | 5,089 | |||
December 31, 2006: | ||||||
Municipal and tax-exempt agency obligations | 62,616 | 62,616 | ||||
Closed end funds | 32,158 | 32,158 | ||||
| $ | 94,774 | $ | 94,774 | |||
4. INVENTORIES: Inventories, net of any reserves, consist of the following:
March 31, 2007 | December 31, 2006 | |||||
| (in thousands) | ||||||
Raw materials | 7,491 | 6,252 | ||||
Work-in-process | 17,580 | 9,720 | ||||
Finished Goods | 16,335 | 17,182 | ||||
Spare Parts Inventory | 409 | 1,030 | ||||
Supplies | 6,738 | 6,514 | ||||
| $ | 48,553 | $ | 40,698 | |||
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5. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded net of accumulated depreciation and is $28.1 million at March 31, 2007 and $24.1 million at December 31, 2006.
6. FINANCING ARRANGEMENTS
Debt refinancing and redemption – The Company redeemed its $75 million 15% senior secured pay-in-kind notes due 2010 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 due 2010. The Company wrote-off $9.4 million of deferred financing fees related to the debt redemption and incurred $3.7 million of deferred financing costs related to issuing the new debt. The Company is amortizing the new deferred financing costs over the expected life of the debt.
Line of Credit – On August 25, 2005 the Company established a $20 million revolving credit facility with US Bank under which the Company may borrow, repay and re-borrow 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 maximum revolver amount which is equal to $20 million less any outstanding letters of credit. The revolving facility matures on August 25, 2008. There were no amounts outstanding under the revolving credit agreement during 2006. Interest is payable at US Bank’s prime rate, which was 8.25% on December 31, 2006 and 2005. This line of credit was cancelled and replaced on February 15, 2007.
On February 15, 2007, the Company replaced the $20 million revolving credit facility with an $80 million senior secured revolving credit facility from US Bank, including a $60 million revolving credit facility and a $20 million term loan. The Company may borrow, repay and re-borrow 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 maximum revolver amount which is equal to $60 million less any outstanding letters of credit. The revolving facility matures on February 15, 2012. A total of $44.0 million was borrowed on the $60 million revolving credit facility when the facility was established and remains outstanding at March 31, 2007. Interest is payable at either US Bank’s prime rate, which was 8.25% on March 31, 2007 or LIBOR plus 1.25%. Availability under the line of credit was $16.4 million at March 31, 2007.
Long-Term Debt – On August 25, 2005 the Company issued $172 million of Senior Secured Floating Rate Notes. Interest was payable at six month LIBOR plus 7.5% semiannually on March 1 and September 1. There were no scheduled principal payments prior to the maturity date. The interest rate for the interest payment period on March 1, 2006 was 11.6%, the rate for the September 1, 2006 payment was 12.6% and the rate for the March 1, 2007 payment was 13.0%. The Notes were issued at a 1% discount to face value. The discount was being amortized over the expected life of the Notes. The Notes were secured by a lien on substantially all the assets of the Company. The Notes were redeemed on March 19, 2007.
On February 15, 2007, the Company issued $105 million of 8.875% senior notes due 2015. The proceeds of these notes and the revolving credit facility were used to redeem the $172 million senior secured floating rate notes. Interest is payable at 8.875% and the notes mature on February 15, 2015. The notes contain certain financial covenants, including limitations on additional indebtedness and restricting certain defined payments. The Company is required to register the notes with the Securities and Exchange Commission within 180 days after the issuance date.
On February 15, 2007, the Company borrowed $20 million under a term loan from US Bank as part of the $80 million senior secured revolving credit facility. Interest is payable at either US Bank’s prime rate, which was 8.25% at March 31, 2007, or at LIBOR + 2.5%. Payments of principal amortize in equal monthly installments over 36 months. In addition, the term loan requires quarterly mandatory prepayments in an amount equal to 50% of excess cash flow (as defined by the loan agreement).
Long-term debt at March 31, 2007 and December 31, 2006 consists of the following:
March 31, 2007 | December 31, 2006 | |||||
| (dollars in thousands) | ||||||
Revolving Credit Facility | $ | 43,997 | — | |||
Term Loan | 18,889 | |||||
Senior Notes, due 2015 | 105,000 | |||||
Senior Secured Pay-in-Kind Notes, due 2010 | 75,000 | |||||
Secured Floating Rate Notes, due 2010 | 168,848 | |||||
| $ | 167,886 | $ | 243,848 | |||
Less current portion of long-term debt | 6,667 | 75,000 | ||||
| $ | 161,219 | $ | 168,848 | |||
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Future maturities of long-term debt are: $5 million for the nine months ended December 31, 2007; $6.7 million for the year ended December 31, 2008; $6.7 million for the year ended December 31, 2009; $0.5 million for the year ended December 31, 2010, $44.0 million for the year ended December 31, 2012; and, $105 million for the year ended December 31, 2015.
7. 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. No contributions were made for the thirteen weeks ended March 31, 2007 and the expected employer contributions for the year ended December 31, 2007 are $0. The components of net periodic pension cost for the thirteen weeks ended March 31, 2007 are:
| January 1 to March 31, 2007 | ||||
| (in thousands) | ||||
Service cost | $ | 148 | ||
Interest cost | 131 | |||
Expected return on plan assets | (184 | ) | ||
Net periodic pension cost | $ | 95 | ||
8. DIVIDENDS: The Company paid a dividend of $855,000 in January 2007 to its chief executive officer for amounts withheld from previous common stock dividends declared during 2006.
9. 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 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 March 31, 2007, one quarter of the total 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 $89,000 in the year ended December 31, 2006. 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.
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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 the Company’s stockholders. As of March 31, 2007, awards under the program consisted of stock options and 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 March 31, 2007, 450,000 shares of common stock have been authorized for this stock incentive plan.
For the thirteen week period ended March 31, 2007 and for the year ended December 31, 2006, the Company incurred stock-based compensation expense under SFAS No. 123R of $163,000 ($106,000 after tax) and $259,000 ($158,000 after tax), respectively, in the Consolidated Statement of Earnings. The $163,000 and $259,000 of expense were recorded in selling, general and administrative expenses and the tax benefits of $57,000 and $101,000 were recorded in income tax expense.
Stock Options
Generally, options expire seven years from the date of grant. Options generally vest in equal annual installments over a four-year period based on continued employment or service on the board of directors. The fair value of each option award on the grant date was estimated using the Black-Scholes option-pricing model with the following assumptions:
| Three Months Ended March 31, 2007 | |||
Expected dividend yield | — | ||
Expected stock price volatility | 51 | % | |
Weighted average risk-free interest rate | 4.82 | ||
Expected life of options (years) | 4.75 |
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 March 31, 2007 and December 31, 2006, and changes during the periods then ended is presented as follows:
| Shares Subject to Options | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Life (years) | |||||
Outstanding at December 31, 2006 | 106,465 | $ | 17.00 | 7.0 | |||
Granted | 80,000 | $ | 18.65 | 7.0 | |||
Outstanding at March 31, 2007 | 186,465 | $ | 17.00 | 6.8 | |||
Exercisable at March 31, 2007 | 0 | 0 | 0 | ||||
On January 31, 2007, Jeff Bradley was granted options to purchase 80,000 shares of common stock at an exercise price of $18.65 per share. The options expire 7 years after the grant date and vest in four equal annual installments which include certain performance criteria.
As of March 31,2007 and December 31, 2006 the Company had $814,000 and $868,000 of total unrecognized compensation expense related to unvested stock options that will be recognized over the weighted average period of 3.8 and 4 years, respectively.
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.
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A summary of the status of the Company’s RSUs, and the restricted stock granted to Mr. Bradley in July 2005, as of March 31, 2007, December 31, 2006 and 2005, and changes during the periods then ended, is presented below:
| Units/Shares | Weighted Average Grant Date Fair Value (per share) | Weighted Average Remaining Contractual Life (years) | |||||
Outstanding at December 31, 2006 | 138,940 | $ | 13.87 | 3.4 | |||
Granted | 0 | ||||||
Outstanding at March 31, 2007 | 138,940 | $ | 13.87 | 3.1 | |||
For the thirteen weeks ended March 31, 2007 and the year ended December 31, 2006, the aggregate grant date fair value of RSUs and restricted stock that vested was $0 and $175,800, respectively. As of March 31, 2007 and December 31, 2006, the Company had $1,695,000 and $1,831,000 of total unrecognized compensation expense related to RSUs and restricted stock that will be recognized over the weighted average period of 3.1 and 3.4 years, respectively.
10. MANAGEMENT AGREEMENT: On June 10, 2005 the Company entered into a management agreement with H.I.G. Capital, LLC, an affiliate of a 43% stockholder, that included a $675,000 annual fee and called for certain additional payments. In December 2006, in connection with the Company’s initial public offering, the Company paid H.I.G. Capital $3 million to terminate the agreement and $1.1 million of additional compensation related to the initial public offering. The agreement is no longer in effect and no further payments are due.
The Company entered into a 12-month management services agreement with CITIC as part of the acquisition in June 2005 for the provision of services by a certain executive. The agreement called for total payments of $551,000 plus a year-end 2005 payment of $500,000. The year-end 2005 payment was made in March 2006 and the agreement is no longer in effect and no further payments are due.
11. EARNINGS PER SHARE: The following table represents the calculation of net earnings per common share – basic and diluted:
| January 1 to March 31, 2007 | January 1 to April 1, 2006 | ||||||
Weighted average common shares outstanding | 17,510,165 | 11,241,302 | |||||
Dilutive effect of outstanding options and restricted stock | 298,766 | 75,452 | |||||
Weighted average common and common equivalent shares outstanding | 17,808,931 | 11,316,754 | |||||
Net earnings (loss) per common share—basic | $ | (0.51 | ) | $ | 1.00 | ||
Net earnings (loss) per common and common equivalent share— diluted | $ | (0.50 | ) | $ | 1.00 | ||
Net income (loss) | $ | (8,860 | ) | $ | 11,384 | ||
12. 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. 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
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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.
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 adverse effect on the consolidated financial position or results of operations of the Company if disposed of unfavorably.
13. 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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| Item 6. | Exhibits. |
(a) Exhibits.
| Exhibit No. | Description | |
| 4.1 | Indenture, dated as of February 15, 2007, between Claymont Steel, Inc., CitiSteel PA, Inc. and The Bank of New York, as Trustee, with respect to the Senior Notes due 2015 (previously filed as Exhibit 4.1 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 4.2 | Form of Senior Note due 2015 (included as Exhibit A to the Indenture (Exhibit 4.1)) (previously filed as Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 4.3 | Registration Rights Agreement, dated as of February 15, 2007, between Claymont Steel, Inc., CitiSteel PA, Inc., Jefferies & Company, Inc. and CIBC World Markets Corp. (previously filed as Exhibit 4.3 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 10.1 | Amended and Restated Financing Agreement, dated as of February 15, 2007, between the Lenders party thereto, U.S. Bank National Association, as Agent and Claymont Steel, Inc., as Borrower (previously filed as Exhibit 10.1 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 10.2 | Purchase Agreement, dated as of February 5, 2007, between Claymont Steel, Inc., CitiSteel PA, Inc., Jefferies & Company, Inc. and CIBC World Markets Corp. (previously filed as Exhibit 10.2 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 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. |
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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.
| CLAYMONT STEEL HOLDINGS, INC. | ||||
| Date: July 23, 2007 | By: | /S/ JEFF BRADLEY | ||
Jeff Bradley Chief Executive Officer and Director (Principal Executive Officer) | ||||
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Exhibit Index
| Exhibit No. | Description | |
| 4.1 | Indenture, dated as of February 15, 2007, between Claymont Steel, Inc., CitiSteel PA, Inc. and The Bank of New York, as Trustee, with respect to the Senior Notes due 2015 (previously filed as Exhibit 4.1 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 4.2 | Form of Senior Note due 2015 (included as Exhibit A to the Indenture (Exhibit 4.1)) (previously filed as Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 4.3 | Registration Rights Agreement, dated as of February 15, 2007, between Claymont Steel, Inc., CitiSteel PA, Inc., Jefferies & Company, Inc. and CIBC World Markets Corp. (previously filed as Exhibit 4.3 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 10.1 | Amended and Restated Financing Agreement, dated as of February 15, 2007, between the Lenders party thereto, U.S. Bank National Association, as Agent and Claymont Steel, Inc., as Borrower (previously filed as Exhibit 10.1 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 10.2 | Purchase Agreement, dated as of February 5, 2007, between Claymont Steel, Inc., CitiSteel PA, Inc., Jefferies & Company, Inc. and CIBC World Markets Corp. (previously filed as Exhibit 10.2 to the Registration Statement on Form S-4 (File No. 333-142867) of Claymont Steel, Inc. filed with the Commission on May 11, 2007) | |
| 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. |
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