As filed with the Securities and Exchange Commission on July 7, 2006

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Tube City IMS Corporation

(Exact name of registrant as specified in its charter)

Delaware

6719

34-0617390

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial Classification Code Number)

(IRS Employer

Identification Number)

12 Monongahela Avenue

Glassport, Pennsylvania 15045

412-678-6141

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Thomas E. Lippard, Esq.

12 Monongahela Avenue

Glassport, Pennsylvania 15045

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Raphael M. Russo, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

(212) 373-3000

LizabethAnn R. Eisen, Esq.

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

(212) 474-1000

Approximate date of commencement of proposed sale of the securities to the public:

As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of

Securities to be Registered

Proposed Maximum Aggregate
Offering Price (1)(2)

Amount of

Registration fee

Common stock, par value $.001 per share

172,500,000

18,458

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).

(2)

Includes shares of common stock which may be purchased by the underwriters to cover over-allotments, if any.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 7, 2006

LOGO

Tube City IMS Corporation

Common Stock

We are selling shares of common stock and the selling stockholders are selling shares of common stock. We will not receive any of the proceeds from the shares of common stock sold by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $ and $ per share. We intend to apply to list our common stock on the Nasdaq Global Market under the symbol “TCMS.”

The underwriters have an option to purchase from the selling stockholders a maximum of additional shares to cover over-allotments of shares.

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 14.


	Price to Public	Underwriting Discounts and Commissions	Proceeds to Tube City IMS Corporation	Proceeds to Selling Stockholders
Per Share	$	$	$	$
Total	$	$	$	$

Delivery of the shares of common stock will be made on or about , 2006.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



Credit Suisse	UBS Investment Bank	Jefferies & Company, Inc.

The date of this prospectus is , 2006.

TABLE OF CONTENTS


		Page
PROSPECTUS SUMMARY		1
RISK FACTORS		14
INDUSTRY AND MARKET DATA		26
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		27
USE OF PROCEEDS		28
DIVIDEND POLICY		29
CAPITALIZATION		30
DILUTION		31
SELECTED CONSOLIDATED FINANCIAL DATA		32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		34
INDUSTRY OVERVIEW		58
BUSINESS		61
MANAGEMENT		73


		Page
PRINCIPAL AND SELLING STOCKHOLDERS		89
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		90
DESCRIPTION OF CAPITAL STOCK		91
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES		94
SHARES ELIGIBLE FOR FUTURE SALE		98
UNDERWRITING		101
NOTICE TO OFFSHORE INVESTORS		104
NOTICE TO CANADIAN RESIDENTS		107
LEGAL MATTERS		109
EXPERTS		109
WHERE YOU CAN FIND MORE INFORMATION		109
GLOSSARY OF SELECTED TERMS		G-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate as of the date of this document.

Dealer Prospectus Delivery Obligation

Until , 2006 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you may want to consider before investing in our common stock. You should read the entire prospectus carefully, including the section describing the risks of investing in our common stock under the caption “Risk Factors” and all of the consolidated financial statements and related notes included elsewhere in this prospectus before making an investment decision. Some of the statements in this summary are forward-looking statements. For more information, please see “Special Note Regarding Forward-Looking Statements.” Except as otherwise noted, all information in this prospectus assumes the underwriters do not exercise their over-allotment option to purchase additional shares of our Common Stock.

Except as the context otherwise requires, references in this prospectus to the “Company,” “we,” “our” or “us” are to Tube City IMS Corporation and its consolidated subsidiaries. The term “predecessor company” refers to the Company prior to its acquisition on October 26, 2004 by Mill Services Holdings LLC, an affiliate of Wellspring Capital Partners III, L.P., which we refer to as “Wellspring Capital.” We sometimes refer to the predecessor company as “IMS.” The term “successor company” refers to the Company after its acquisition by Mill Services Holdings LLC. We acquired Tube City Holdings, LLC on December 21, 2004. Tube City Holdings, LLC and its consolidated subsidiaries, including Tube City, LLC, are referred to as “Tube City.” Tube City’s results of operations have been included in our results of operations since December 21, 2004.

Our Company

We are the largest provider of outsourced services to steel mills in North America and one of the largest globally. With over 80 years of experience, we offer our operational expertise and specialized services at 66 sites in North America and Europe and have recently established a presence in China. We also have created a number of international initiatives to expand our global footprint to Latin America and additional countries throughout Europe and Asia. We do not produce steel, but rather we are integral in virtually every other stage of the steel making process, from initial raw materials procurement through finished goods handling. Our services enable our customers to generate cost savings through operational efficiencies while focusing on their core steel production processes. Our total revenue and net revenue in 2005 were $1,123.5 million and $328.6 million, respectively. For a reconciliation of total revenue to net revenue, see “—Summary Financial Data and Supplemental Information.”

We believe we offer the industry’s most comprehensive array of services through two segments: our Tube City Division (pre-production services) and our IMS Division (primarily post-production services). Total revenue, net revenue and EBITDA for our Tube City Division in 2005 were $866.9 million, $74.1 million and $33.7 million, respectively. Total revenue, net revenue and EBITDA for our IMS Division in 2005 were $256.6 million, $254.5 million and $62.0 million, respectively. Expenses incurred by our administrative segment were $22.2 million in 2005. For a reconciliation of total revenue to net revenue by segment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

LOGO

Pre-Production Services. These services occur in the steel making process prior to the production of steel.

•

Raw Materials Procurement. We are the second largest supply chain management/outsourced procurement firm in North America with a rapidly growing international presence. We operate on a worldwide basis and act on behalf of our customers to purchase over seven million tons of raw material inputs annually, including scrap metal and scrap substitutes for use in the steel production process. It is common practice for the raw materials procurement function to be outsourced by steel producers. Our extensive supplier contacts, substantial purchasing scale and superior market knowledge enable us to procure raw materials cost-effectively for our customers. In some cases, we earn a contractually determined, volume-based fee for arranging delivery of raw material shipments to a customer directly from a vendor. In other cases, we concurrently arrange to purchase and sell raw materials at specified prices, typically locking in a margin.

•

Raw Materials Optimization. We developed and market the Scrap OptiMiser^™ software, a proprietary, real-time raw materials optimization system that includes a materials planning, procurement and utilization platform that we believe is the most advanced and comprehensive resource management solution in the steel industry. This unique service allows steel producers to achieve significant savings by optimizing their purchasing and utilization of input materials (specifically scrap metal) to obtain the lowest input cost on a just-in-time basis for a desired grade of steel based on market conditions and raw materials availability.

•

Material Handling, Scrap Management and Scrap Preparation Services. We provide mills’ melt shops with inspection, preparation and just-in-time delivery of raw materials, as well as inventory control through logistics management. Our management and preparation services include receiving, inspecting, sorting, cleaning, shearing, burning, shredding and baling of scrap metal into various sized pieces and compositions according to customer specifications. Our inspection and testing protocols stage the incoming scrap for processing through a variety of methods based on size, composition and type of material. We utilize a variety of specialized heavy equipment, including rail cars, large off-highway trucks, mobile mass spectrometers and hydraulic cranes to inspect and analyze incoming raw materials and transport raw material inventory within a mill’s facility.

Post-Production Services. These services occur in the steel making process after the production of steel.

•

Material Handling/Product Handling. Our skilled operators handle and transport semi-finished and finished steel products utilizing operations-specific equipment. In many mills, the finishing facilities are not contiguous to the caster area and thus require a customized transportation and logistics system to move the product reliably and efficiently. Our skilled operators use large slab, billet and pallet carriers to transport thousands of tons of materials within a mill every hour, 24 hours per day. Material handling equipment is also used to move finished products from the mill into inventory and from inventory onto rail cars, trucks or barges for shipment to the mill’s customers. We also provide rail services, including use of our site dedicated fleet of rail cars, on-site track installation and maintenance.

•

Co-Product Processing, Metal Recovery and Sales. We are the leading provider of co-product processing services in North America, providing services to 55 of the approximately 125 mills in this region. We pioneered original methods of removing co-product material from melt shops that are now commonly used throughout the industry. We perform these services under long-term contracts and are typically compensated on a fee-per-ton basis, with periodic pricing escalators based on price indices to offset changes in our operating costs. The vast majority of modern mills employ co-product processing as it is an essential element in the efficiency of steel mills’ operations. During the steel production process, slag accumulates inside the mills’ melt shops and must be removed. We remove and process the slag to recover valuable metallic material that is either reused in the production of steel by the host mill or sold. The remaining non-metallic materials typically are sold to third parties as aggregates for use in cement production, road construction and agricultural applications.

•

Surface Conditioning. We are the largest provider of robotic surface conditioning services in North America. Surface conditioning is a value-added process that removes inclusions and other imperfections from steel mill products so that they can be used in high end applications such as white goods and automotive products.

Our customer base includes the leading integrated and mini mill steel producers in the world. The nature of our services typically requires us to integrate our operations with those of our customers at each steel mill. As a result, we generally provide our services under long-term contracts, which normally range from five to 10 years in length. Our customer contracts typically include periodic pricing escalators based on price indices to offset changes in our operating costs. We have a history of successfully renewing contracts, which has resulted in the development of longstanding customer relationships. On average, based on 2005 net revenue, we have served our top 10 customers for over 30 years.

Based on current levels of outsourcing by steel mills, the North American and global outsourced steel services industries generate annual net revenue, estimated on an equivalent basis to our own net revenue operating metric, of approximately $1.1 billion and $3.6 billion, respectively. Since 1999, global steel production has grown at a compound annual growth rate (“CAGR”) of 6.2% and is anticipated to grow at a CAGR of 6.0% over the next 10 years. As steel mills continue to improve their overall cost structures and operational flexibility, we believe they will continue to increase the number of services they outsource. We believe the North American and global markets will grow to $1.4 billion and $7.4 billion in annual net revenue, respectively, over the next 10 years in correlation to steel production growth and increased outsourcing. Unlike steel producers and other service providers, the market volatility of steel does not have a direct impact on the outsourced steel providers’ volume or margins.

Competitive Strengths

•

Leading North American Market Position With Growing Global Presence. We are the largest provider of outsourced services to steel mills in North America, with the #1 or #2 market position in each of our services, and one of the largest globally. Our market position provides us with credibility and name recognition throughout the steel industry. We have increased our international customer base, having recently established operations in France and a presence in China, which complement our existing foreign operations in Serbia and Slovakia. As a result, we believe we are well positioned to capitalize on global steel production growth and increased outsourcing throughout the industry.

•

Broadest Portfolio of Services Globally. We are the only outsourced steel services company that offers a comprehensive suite of pre- and post-production services to steel producers globally. Our Tube City Division and IMS Division combine operational and technological expertise to enable our customers to efficiently and cost-effectively outsource virtually all pre- and post-production services required in the steel making process through a single point of contact. The combination has also provided us the scale and resources to operate on a global basis, thus giving us an advantage over a majority of our competitors. The services we provide enable our clients to focus on their core steel making processes.

•

Exclusive, Long-Term Contracts Generating Recurring Revenue. Our services are typically provided under long-term contracts that normally range from five to 10 years in length. In 2005, approximately 99% of our service revenue was generated from long-term contracts, with the majority of these contracts expiring in 2012 and beyond, as measured by service revenue. Our contract fees are primarily based on steel production volume, are independent of steel pricing and generally include periodic pricing escalators based on price indices to offset changes in our operating costs. As of December 31, 2005, and based on 2005 production volumes and contract terms, we estimate that our existing multi-year contracts will generate future service revenue, which we refer to as backlog, of $1.9 billion.

•

Longstanding Relationships With Strong History of Contract Renewals and Wins. We have longstanding relationships with our major customers, including with many of the leading global consolidators within the steel industry. On average, we have served our top 10 customers, based on 2005 net revenue, for over 30 years. We are embedded at 63 steel mill sites where we have deployed over 5,500 pieces of equipment. The strength of our relationships with our customers creates significant barriers to entry and has driven our high customer retention rate. Since 2000, we have achieved a contractual renewal rate of 97% on a service revenue basis. In addition, we have a successful track record of winning new business and gaining market share, having won 28 new contracts since 2000, including 12 contracts at sites where we did not previously provide services and 16 contracts at existing sites where we offered additional services. We believe that the 12 mill sites we did not previously serve represent approximately 10% of the steel mills in North America.

•

History of New Service Innovation. We believe that our ability to develop and implement innovative solutions has contributed to our market leading position. For example, we pioneered the North American commercial application of robotic surface conditioning. Prior to the introduction of this technology, manual surface conditioning was a time consuming and costly process. Our technological advancements in robotic surface conditioning increased the speed, quality and consistency of the surface conditioning process, enabling us to achieve significant market share within this industry niche. We currently have automated surface conditioning installations at five of the seven mills in North America that outsource this process and we provide manual surface conditioning to certain other customers. Additional innovations include our Scrap OptiMiser^™ and related software applications, which are real-time raw materials optimization systems that utilize our proprietary database of commodity and freight information to aid each mill in the planning, procurement and utilization of scrap metal and scrap substitutes based on current pricing and on-site inventory levels. Based on information from our customers, we estimate the system has produced significant cost savings for our customers in the range of $3.00 to $6.00 per ton of liquid steel depending on market conditions and other mill-specific factors. We have acquired eight new service contracts for our Scrap OptiMiser^™ since 2004 and believe that the system’s broad appeal and growing track record will lead to increased product demand among both existing and new customers. Recently, we also acquired the technology to enable us to optimize non-ferrous metals.

•

Experienced and Committed Management Team. Our senior management team has extensive experience, with an average of approximately 24 years of experience with us. In addition, our senior management team has significant equity ownership in us and participates in an equity incentive program.

Business Strategy

Our business strategy is to continue to provide high quality services that allow steel producers to focus on their core functions and generate cost savings by outsourcing these functions.

•

Capitalize on Trend Towards Outsourcing and Multi-Site Service Contracts. We believe that steel mills are increasingly outsourcing non-core functions. We seek to capture new outsourcing contracts by leveraging our expertise and comprehensive service offerings. We believe substantial opportunities for future growth exist both in North America and abroad. We estimate that approximately 40% of North American mills currently outsource material handling and scrap management services. Internationally, the percentage of mills that outsource these services, while substantially lower, is growing rapidly. We believe continued outsourcing will provide us with significant opportunities for growth as mills increasingly turn to specialized providers to perform these essential functions. We believe we are in a unique position to leverage our existing embedded operations to generate new cross-selling opportunities at existing sites.

•

Continue to Strengthen Our Partnerships With and Increase Penetration of Existing Customers. We seek to capitalize on our strong customer relationships by offering additional outsourced services to mills with which we currently have service contracts. The December 2004 combination of Tube City and IMS presented significant cross-selling opportunities, many of which we are just beginning to achieve as we bid for new contracts. On average, we provide approximately two out of our five primary services at the mills at which we currently operate, presenting a meaningful opportunity for additional growth within our existing customer base.

•

Aggressively Pursue International Growth Opportunities. The combination of Tube City and IMS provided us the scale and resources to operate on a global basis. Our established operations in North America and Western and Central Europe provide the platforms for continued international expansion into other parts of Europe, Asia and Latin America. We have recently recruited senior executives with significant international operating experience in the outsourced steel services industry and strong relationships with global and leading regional steel producers. Further, we believe our existing relationships with leading domestic and certain of the largest global steel producers will help facilitate our expansion into these regions. We believe that as the only global outsourced steel services provider capable of serving virtually all pre- and post-production service needs, we are well positioned to significantly expand our presence in these geographies. In 2006, we increased our international business and are pursuing a rapidly increasing number of international opportunities, including in Europe, China and Latin America.

•

Continue to Focus on Cost Advantage. A key element of our value proposition is to ensure that we deliver our comprehensive suite of outsourced services at favorable prices. Our advantageous labor agreements allow us to utilize our work force efficiently, enabling us to furnish these services at a lower cost than many of our customers can perform them using in-house labor. Our flexible operating structure, efficient use of knowledge sharing from on-site operations at 63 locations globally and use of best practices also contribute to our cost advantages over our customers. We will continue to utilize our favorable cost structure to increase our penetration at sites we currently serve, to win contracts to serve new sites for existing customers and to win contracts to serve new customers.

•

Capitalize on Strategic Acquisitions and Joint Ventures. The global outsourced steel services industry is highly fragmented with a number of smaller local and regional private companies providing mill services on a regional and, sometimes, on a single site basis. We intend to use a disciplined and focused approach to selectively pursue strategic acquisitions that will diversify our existing portfolio of products and services, expand our geographic footprint and bring new customer relationships. We will also consider acquisitions that can add innovative capabilities to our portfolio of services. We have demonstrated this approach in the acquisition of Auximetal SAS, or “Auximetal,” in France and our strategic relationship with Tuner Industry and Trade Corporation, or “Tuner,” in China. We believe that by continuing to utilize our disciplined acquisition and joint venture strategies, we will be able to supplement our organic growth prospects and enhance our long-term earnings growth.

Risk Factors

In the execution of our business strategy, we have faced and will continue to face significant challenges. Our ability to execute our strategy is subject to numerous risks as discussed more fully in the section entitled “Risk Factors” immediately following this Prospectus Summary. These risks include: decreased steel production in North America and elsewhere; consolidation in the steel industry in North America and globally; the difficulty of comparing our historical financial periods; financial difficulties of our customers; the loss of a significant customer, including through insolvency; uncertainty regarding our backlog; competition; labor unrest; increases in energy prices; price and inventory risk; failure to develop or expand our operations with our existing and new customers; changes in government regulations; operating risks, including equipment failures; our success in bidding for new long-term contracts; claims and litigation relating to environmental contamination; successful

integration of acquisitions; changes in national, regional and local economic, market, business or political conditions in the countries and other territories in which we and our customers operate; loss of key personnel; access to freight transportation; failure to maintain competitive advantages; risks related to acquisitions and joint ventures; expansion of foreign operations; exchange rate fluctuations; covenants in our credit facility; control by a principal stockholder; internal controls over financial reporting; and our underfunded pension and other post-employment benefit plans.

Any of the above risks could adversely affect our financial condition and results of operations. Investment in our common stock involves risks. You should read and consider the information set forth in “Risk Factors” and all other information set forth in this prospectus before investing in our common stock.

Our Principal Stockholder

Upon completion of this offering, Wellspring Capital will control approximately shares of our common stock or % (or shares of our common stock or % if the underwriters exercise their over-allotment option in full). Founded in 1995, Wellspring Capital is a New York-based private equity firm with more than $2 billion in equity capital under management, including $1 billion of capital in its current fund. The firm takes controlling positions in promising middle-market companies where it can realize substantial value by contributing innovative operating and financing strategies as well as capital. Wellspring Capital’s limited partners include some of the largest and most respected institutional investors in the United States, Canada and Europe. In addition to its investment in us, Wellspring Capital’s current portfolio includes investments in food distribution, restaurants, education, business services and other industries.

Corporate Information

In October 2004, an affiliate of Wellspring Capital acquired all the stock of our predecessor company, which we refer to as the “IMS Transaction;” and, in December 2004, we acquired all the outstanding equity interests of Tube City, which we refer to as the “Tube City Acquisition.”

Our principal executive office is located at 12 Monongahela Avenue, Glassport, Pennsylvania 15045. Our telephone number at that address is (412) 678-6141. Our web site address is www.tubecityims.com. The information and other content contained on or linked from our web site are not part of this prospectus.

The Offering

Common stock offered by us

Common stock offered by the selling stockholders

shares (or shares if the underwriters exercise their over-allotment option in full).

Common stock to be outstanding after this offering

Use of Proceeds

We estimate that we will receive proceeds from our offering of our common stock, after deducting underwriting discounts and other expenses, of approximately $ million, assuming the shares are offered at $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. We intend to use all of the net proceeds from the sale of the shares of our common stock being sold by us to repay a portion of our existing term loan. For sensitivity analysis as to the offering price and other information, see “Use of Proceeds.”

We will not receive any proceeds from the sale of our common stock by the selling stockholders, including if the underwriters exercise their option to purchase additional shares from the selling stockholders. In the aggregate, the selling stockholders will receive approximately $ million of the net proceeds of this offering, or approximately $ million if the underwriters’ option to purchase additional shares is exercised in full, assuming the shares are offered at $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. See “Use of Proceeds” and “Underwriting.”

Dividend Policy

We currently do not expect to pay dividends or make any other distributions on our common stock in the future. See “Dividend Policy.”

Listing

We intend to apply to list our common stock on the Nasdaq Global Market under the trading symbol “TCMS.”

Unless we specifically state otherwise, the information in this prospectus:

•

assumes that our common stock will be sold at $ per share, which is the mid-point of the estimated offering price range set forth on the cover page of this prospectus;

•

assumes that the underwriters will not exercise their over-allotment option;

•

gives effect to a to one stock split that will occur prior to this offering; and

•

excludes, in the number of shares of common stock to be outstanding after this offering, options to purchase shares of common stock that will have a weighted average exercise price equal to $ .

Summary Financial Data and Supplemental Information

The summary consolidated financial data and supplemental information set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (particularly the information under “Matters Impacting Comparability of Results”), “Selected Consolidated Financial Data” and all of the consolidated historical financial statements and the notes to those financial statements included elsewhere in this prospectus. The summary consolidated historical income statement data for the year ended December 31, 2005, the period from October 27, 2004 to December 31, 2004, the period from January 1, 2004 to October 26, 2004 and for the year ended December 31, 2003 and the balance sheet data as of December 31, 2005 and December 31, 2004 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated historical income statement data for the years ended December 31, 2002 and 2001 and balance sheet data as of October 26, 2004 and December 31, 2003, 2002 and 2001 have been derived from our audited consolidated financial statements not included in this prospectus. The summary consolidated historical income statement data for the three months ended March 31, 2006 and 2005 and the summary consolidated balance sheet data as of March 31, 2006 have been derived from our unaudited financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of March 31, 2005 have been derived from our unaudited financial statements not included in this prospectus. All adjustments that are, in our opinion, necessary for a fair statement of the results for the interim periods presented have been recorded. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The term “predecessor company” refers to the Company prior to the IMS Transaction. The term “successor company” refers to the Company after the IMS Transaction.


	Predecessor Company												Successor Company
	Year ended December 31,									Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			Three months ended March 31,
	Year ended December 31,																		Three months ended March 31,
	2001			2002			2003												2005			2006
	(In thousands of dollars, except for share and per share data)
Statement of Operations Data:
Revenue:
Revenue from sale of materials	$	—		$	—		$	—		$	—		$	20,122		$	832,531		$	254,080		$	232,024
Service revenue		157,594			159,514			164,687			144,048			34,586			290,919			73,258			76,053

Total revenue		157,594			159,514			164,687			144,048			54,708			1,123,450			327,338			308,077
Costs and expenses:
Cost of scrap shipments		—			—			—			—			14,092			794,744			246,822			221,871
Site operating costs		107,787			106,156			111,079			94,339			28,044			207,297			49,839			56,276
Selling, general and administrative expenses		10,081			9,647			13,483			9,679			3,533			39,874			10,243			10,120
Compensation provided as a result of business combinations		—			—			3,688			10,019			—			—			—			—
Expenses associated with withdrawn public offerings		—			—			—			2,129			—			5,028			—			—
Depreciation		21,963			26,610			25,061			20,763			6,117			49,623			11,866			11,746
Amortization		4,818			1,133			952			596			864			7,039			1,675			1,804

Total costs and expenses		144,649			143,546			154,263			137,525			52,650			1,103,605			320,445			301,817

Income from operations		12,945			15,968			10,424			6,523			2,058			19,845			6,893			6,260
Loss on debt extinguishment		—			—			(1,448	)		—			(7,010	)		(2,812	)		—			—
Interest expense, net		(21,600	)		(9,898	)		(9,158	)		(8,648	)		(2,522	)		(23,950	)		(5,023	)		(8,050	)
Income (loss) from equity investments		—			—			—			—			10			(99	)		25			(5	)
Other income		—			—			3,144			—			—			—			—			—

(Loss) income before income taxes		(8,655	)		6,070			2,962			(2,125	)		(7,464	)		(7,016	)		1,895			(1,795	)


	Predecessor Company												Successor Company
	Year ended December 31,									Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			Three months ended March 31,
	Year ended December 31,																		Three months ended March 31,
	2001			2002			2003												2005			2006
	(In thousands of dollars, except for share and per share data)
Income tax (expense) benefit		(885	)		(821	)		(990	)		224			2,512			2,332			(453	)		954

(Loss) income from continuing operations		(9,540	)		5,249			1,972			(1,901	)		(4,952	)		(4,684	)		1,442			(841	)
Income from discontinued operations, net of tax		5,338			2,741			—			—			—			—			—			—

(Loss) income before extraordinary item		(4,202	)		7,990			1,972			(1,901	)		(4,952	)		(4,684	)		1,442			(841	)
Extraordinary gain on financial restructuring, net of tax		61,963			—			—			—			—			—			—			—

Net income (loss)		57,761			7,990			1,972			(1,901	)		(4,952	)		(4,684	)		1,442			(841	)
Preferred stock dividend requirements		(1,306	)		(3,252	)		(1,002	)		(76	)		—			—			—			—

Income (loss) applicable to common shares	$	56,455		$	4,738		$	970		$	(1,977	)	$	(4,952	)	$	(4,684	)	$	1,442		$	(841	)

Basic and diluted earnings per share:
(Loss) income from continuing operations before extraordinary item	$	(10.06	)	$	1.85		$	0.90		$	(1.83	)	$	(5.48	)	$	(5.14	)	$	1.59		$	(0.92	)
Income from discontinued operations		4.95			2.55			—			—			—			—			—			—
Income from extraordinary item		57.48			—			—			—			—			—			—			—

Net income (loss) per share	$	52.37		$	4.40		$	0.90		$	(1.83	)	$	(5.48	)	$	(5.14	)	$	1.59		$	(0.92	)

Average common shares outstanding (basic and diluted)		1,077,960			1,077,960			1,077,960			1,077,960			902,900			911,302			905,317			913,260
Other Operating Data:
Capital expenditures	$	21,674		$	13,754		$	19,932		$	15,850		$	3,920		$	47,106		$	11,678		$	7,645

Cash Flow Data:
Cash provided by (used in) operating activities	$	32,650		$	48,153		$	34,910		$	27,758		$	16,112		$	44,038		$	(5,160	)	$	3,036
Net cash used in investing activities		(24,751	)		(14,419	)		(18,564	)		(15,168	)		(231,750	)		(53,199	)		(11,671	)		(9,485	)
Net cash (used in) provided by financing activities		(8,893	)		(25,753	)		(20,794	)		(9,457	)		229,839			11,530			5,969			(1,830	)

Key Non-GAAP Financial Measures Used to Evaluate the Company:
Net revenue(1)	$	157,594		$	159,514		$	164,687		$	144,048		$	40,626		$	328,607		$	80,541		$	86,201
EBITDA(2)(3)		39,726			43,711			38,133			27,882			2,039			73,596			20,459			19,805
LTM covenant EBITDA(2)(4)																	84,075						84,820

	December 31,									October 26, 2004			December 31,						March 31,
	2001			2002			2003			October 26, 2004			2004			2005			2005			2006
	(In thousands of dollars)
Balance Sheet Data:
Cash and cash equivalents	$	223		$	8,204		$	3,756		$	6,889		$	14,201		$	16,570		$	3,339		$	8,291
Restricted cash equivalents		—			—			31,962			—			—			—			—			—
Working capital (deficit)		(2,686	)		3,000			(10,219	)		(17,616	)		15,599			23,161			26,168			22,270
Goodwill and other intangible assets		96,159			96,159			96,159			96,159			293,665			286,591			292,042			286,214
Total assets		235,139			226,814			252,005			224,077			662,235			614,388			603,733			630,070
Long-term debt, excluding current portion		81,715			58,124			82,458			67,673			320,126			378,309			318,634			378,972
Stockholders’ equity		89,314			100,022			87,383			84,725			85,382			35,131			87,840			36,765

(1)

Net revenue is not a recognized measure under generally accepted accounting principles in the United States (“GAAP”). We define net revenue as total revenue minus cost of scrap shipments and adjusted to include income (loss) from equity investments. During the second quarter of 2006, our sole equity investment was redeemed. We believe net revenue is more appropriate than total revenue as a measure of our performance because net revenue eliminates the impacts of market pricing fluctuations that generally do not impact our income from operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Line Items Presented.”

The following table reconciles our total revenue to net revenue for each period presented.


	Predecessor Company								Successor Company
	Year ended December 31,						Period from January 1, to October 26, 2004		Period from October 27, to December 31, 2004			Year ended December 31, 2005			Three months ended March 31,
	Year ended December 31,														Three months ended March 31,
	2001		2002		2003										2005			2006
	(In thousands of dollars)
Total revenue	$	157,594	$	159,514	$	164,687	$	144,048	$	54,708		$	1,123,450		$	327,338		$	308,077
Cost of scrap shipments		—		—		—		—		(14,092	)		(794,744	)		(246,822	)		(221,871	)
Income (loss) from equity investments		—		—		—		—		10			(99	)		25			(5	)

Net revenue	$	157,594	$	159,514	$	164,687	$	144,048	$	40,626		$	328,607		$	80,541		$	86,201

(2)

We use EBITDA as the performance measure of our operating segments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosure About Segments of an Enterprise and Related Information. We also use EBITDA as a basis for our incentive compensation targets for certain executive and management employees. See “Management—Incentive Plans.” We define EBITDA as net income (loss) minus the income tax benefit (or plus the income tax expense) plus interest expense, depreciation and amortization.

LTM covenant EBITDA is used to determine our compliance with financial covenants included in our credit agreement. LTM covenant EBITDA is EBITDA for the trailing twelve month period further adjusted to eliminate management fees, transactional fees and expenses, non-cash option expense, other non-cash charges, write-off of debt issuance costs and extraordinary losses, each of which is more particularly defined in our credit agreement. Our credit agreement requires us to satisfy certain maximum and minimum financial ratios, such as a consolidated leverage ratio (total debt to LTM covenant EBITDA), a consolidated first lien leverage ratio (first lien debt to LTM covenant EBITDA) and a consolidated interest coverage ratio (LTM covenant EBITDA to twelve month interest expense). Our failure to maintain these ratios in compliance with our debt covenants would result in an event of default under our credit agreement, in which case we would be unable to borrow under our revolving credit facility and all outstanding amounts under our credit facility could be declared due and payable by the lenders. As of December 31, 2005 and March 31, 2006, we were in compliance with our financial covenant ratios under our credit facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

EBITDA and LTM covenant EBITDA have important limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA and LTM covenant EBITDA:

•

are not recognized measures under GAAP and do not have standardized meanings prescribed by GAAP; as a result, EBITDA and LTM covenant EBITDA may not be comparable to similar measures presented by other companies;

•

do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

•

do not reflect changes in or cash requirements for our working capital needs;

•

do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debts;

•

exclude tax payments that represent a reduction in cash available to us;

•

do not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; and

•

do not reflect certain non-recurring and other fees and charges (some of which are payable in cash) incurred in connection with or following the consummation of the IMS Transaction and the Tube City Acquisition.

(3)

The following table reconciles our (loss) income from continuing operations to EBITDA for each period presented.


	Predecessor Company										Successor Company
	Year ended December 31,							Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			Three months ended March 31,
	2001			2002		2003		Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			2005		2006
	(In thousands of dollars)
(Loss) income from continuing operations	$	(9,540	)	$	5,249	$	1,972	$	(1,901	)	$	(4,952	)	$	(4,684	)	$	1,442	$	(841	)
Income tax expense (benefit)		885			821		990		(224	)		(2,512	)		(2,332	)		453		(954	)
Interest expense, net		21,600			9,898		9,158		8,648			2,522			23,950			5,023		8,050
Depreciation		21,963			26,610		25,061		20,763			6,117			49,623			11,866		11,746
Amortization		4,818			1,133		952		596			864			7,039			1,675		1,804

EBITDA(a)	$	39,726		$	43,711	$	38,133	$	27,882		$	2,039		$	73,596		$	20,459	$	19,805

(a)

EBITDA is not adjusted to exclude the impact of the following items that we believe do not reflect our ongoing cost structure:

•

Expenses associated with withdrawn public offerings of $2.1 million in the period from January 1 to October 26, 2004 and $5.0 million in 2005; and

•

Losses on early debt extinguishment of $1.4 million in 2003, $7.0 million in the period from October 27, 2004 to December 31, 2004 and $2.8 million in 2005.

(4)

The following table reconciles (loss) income from continuing operations to LTM covenant EBITDA for each of the twelve month periods presented.


	Successor Company
	Twelve months ended
	December 31, 2005			March 31, 2006
	(In thousands of dollars)
(Loss) income from continuing operations	$	(4,684	)	$	(6,967	)
Income tax expense (benefit)		(2,332	)		(3,739	)
Interest expense, net		23,950			26,977
Depreciation		49,623			49,503
Amortization		7,039			7,168

EBITDA		73,596			72,942
Management fees		1,000			1,000
Transactional fees and expenses(a)		5,028			5,028
Non-cash option expense		157			314
Other non-cash charges (income), net(b)		1,482			1,495
Write-off of debt issuance costs(a)		2,812			2,812
Full year effect of EBITDA for acquisitions(c)		—			1,229

LTM covenant EBITDA	$	84,075		$	84,820

(a)

Transactional fees and expenses consist of costs in connection with a Canadian Income Participating Security offering that we prepared and registered with the Ontario Securities Commission in 2005. We withdrew the offering due to a sudden degradation in market conditions brought about by threatened changes to Canadian tax rulings. We incurred $5.0 million in expenses associated with the offering including investment banking, legal and other professional fees. We also recorded a loss on debt extinguishment associated with the October 2005 amendment and restatement of our credit facility. Our credit agreement specifies that these charges, which we recorded in the fourth quarter of 2005, should be added back to determine LTM covenant EBITDA.

(b)

Our credit agreement specifies that non-cash charges recorded in a given period that are not in the ordinary course of business should be added back in determining LTM covenant EBITDA to the extent that such charges reduce net income, but do not result in cash outflow in the period. Other non-cash charges include charges related primarily to two claims incurred as a result of accidents at our sites. These items should reduce LTM covenant EBITDA in the period when the cash outflow occurs.

(c)

Our credit agreement specifies that EBITDA of certain acquisitions should be included on a pro forma basis for the twelve months immediately preceding the acquisition. For the twelve month period ending March 31, 2006, this adjustment includes the results of operations of the two businesses we acquired in the first quarter of 2006 (i) for the periods prior to their respective acquisitions, based on each of these companies’ unaudited results of operations prepared by prior management and (ii) for the periods subsequent to their respective acquisitions, as reported in our results of operations.

Supplemental Historical Financial Data for Tube City Holdings, LLC

The summary consolidated financial data of Tube City Holdings, LLC set forth below for the period from January 1, 2004 to December 21, 2004 (the date we acquired it) and for the years ended December 31, 2003 and December 31, 2002 and the balance sheet data as of December 21, 2004 and December 31, 2003 have been derived from the audited consolidated financial statements of Tube City Holdings, LLC included elsewhere in this prospectus. The historical audited financial statements of Tube City Holdings, LLC use a different basis of presentation than our current financial statements, and, as a result, the historical audited financial statements of Tube City Holdings, LLC are not directly comparable to the financial results of our current Tube City Division segment. This supplemental historical financial data of Tube City Holdings, LLC should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (particularly the information under “—Matters Impacting Comparability of Results”), “Selected Consolidated Financial Data” and all of the consolidated historical financial statements and the notes to those financial statements included elsewhere in this prospectus.


	Year ended December 31,						Period from January 1, 2004 to December 21, 2004
	2002			2003			Period from January 1, 2004 to December 21, 2004
	(In thousands of dollars)
Statement of Operations Data:
Revenue:
Revenue from sale of materials	$	324,277		$	409,392		$	994,703
Service revenue		93,530			100,432			107,645

Total revenue		417,807			509,824			1,102,348
Cost and expenses:
Cost of scrap shipments		304,600			387,541			953,915
Site operating costs		72,437			76,233			72,024
Selling, general and administrative expenses		18,593			21,637			29,422
Acquisition related compensation		—			2,251			8,332
Depreciation		11,799			10,854			11,337
Amortization		—			117			169

Total costs and expenses		407,429			498,633			1,075,199

Income from operations		10,378			11,191			27,149
Other (expense) income:
Interest expense, net		(5,622	)		(5,007	)		(5,544	)
Debt extinguishment expense		—			(1,875	)		(636	)
Accretion of put warrants		(1,136	)		—			—
Income from equity investments		77			233			666

Income before income taxes		3,697			4,542			21,635
Income tax expense		—			278			32

Net income	$	3,697		$	4,264		$	21,603

Key Non-GAAP Financial Measures:
Net revenue(1)	$	113,284		$	122,516		$	149,099
EBITDA(2)	$	21,118		$	20,520		$	38,685

				December 31, 2003			December 21, 2004
				(In thousands of dollars)

Balance Sheet Data:
Cash				$	1,510		$	6,606
Total current assets					88,381			198,436
Total current liabilities					86,590			191,570
Goodwill and other intangible assets					1,415			2,372
Total assets					129,762			239,408
Long-term debt					31,637			45,076

(1)

Net revenue is not a recognized measure under GAAP. Net revenue is total revenue minus cost of scrap shipments and adjusted to include income from equity investments. We believe net revenue is more appropriate than total revenue as a measure of operating performance because net revenue eliminates the impact of market price fluctuations that generally did not impact Tube City Holdings, LLC’s income from operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Line Items Presented.”

The following table reconciles Tube City Holdings, LLC’s total revenue to net revenue for each period presented.


	Year ended December 31,						Period from January 1, 2004 to December 21, 2004
	2002			2003			Period from January 1, 2004 to December 21, 2004
	(In thousands of dollars)
Total revenue	$	417,807		$	509,824		$	1,102,348
Cost of scrap shipments		(304,600	)		(387,541	)		(953,915	)
Income from equity investments		77			233			666

Net revenue	$	113,284		$	122,516		$	149,099

(2)

Tube City Holdings, LLC defined EBITDA as net income (loss) minus the income tax benefit (or plus the income tax expense) plus interest expense, depreciation and amortization.

EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of Tube City Holdings, LLC’s results as reported under GAAP. For example, EBITDA:

•

is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP; as a result, EBITDA may not be comparable to similar measures presented by other companies;

•

does not reflect Tube City Holdings, LLC’s cash expenditures or future requirements for capital expenditures or contractual commitments;

•

does not reflect changes in or cash requirements for Tube City Holdings, LLC’s working capital needs;

•

does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on Tube City Holdings, LLC’s debts;

•

excludes tax payments that represent a reduction in cash available to Tube City Holdings, LLC;

•

does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; and

•

does not reflect certain non-recurring and other fees and charges.

The following table reconciles Tube City Holdings, LLC’s net income to EBITDA for each period presented.


	Year ended December 31,				Period from January 1, 2004 to December 21, 2004
	2002		2003		Period from January 1, 2004 to December 21, 2004
	(In thousands of dollars)
Net income	$	3,697	$	4,264	$	21,603
Income tax expense		—		278		32
Interest expense, net		5,622		5,007		5,544
Depreciation		11,799		10,854		11,337
Amortization		—		117		169

EBITDA	$	21,118	$	20,520	$	38,685

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before investing. Any of the risk factors we describe below could adversely affect our business, financial condition or operating results. The market price of our common stock could decline if one or more of these risks and uncertainties develop into actual events. You could lose all or part of the money you pay to buy our common stock. Some of the statements in “Risk Factors” are forward-looking statements. For more information about forward-looking statements, please see “Special Note Regarding Forward-Looking Statements.”

Risks Related to Our Business

A decrease in production of steel by our customers as a result of economic or other factors would have a negative impact on our results of operations.

We derive substantially all of our net revenue from providing services to North American steel mills. The majority of the fees that we collect for our services are based on steel production at our customers’ mills, and accordingly, a decline in production by our customers can have a direct negative impact on our net revenue and other results of operations. Many factors can adversely affect the production of steel by our customers, including, but not limited to:

•

a decrease in the demand for steel as a result of general economic conditions or conditions in certain industries such as the automotive, appliance, construction and energy industries;

•

an increase in imports of steel that may result in an oversupply of steel in the North American market that displaces our customers’ steel production;

•

an increase in imports as a result of adverse changes in currency rates or import and export tariffs;

•

the imposition of significant restrictions, including foreign tariffs, or costs, including increased energy prices, for exporting steel products internationally;

•

damage to or equipment failure at customers’ facilities; and

•

suspension of work or planned outages.

All of these factors are beyond our control. Periods of diminished or weakened demand for our services have occurred in the past and may occur in the future as a result of lower steel production volume. These and other similar adverse developments could cause a material decrease in our net revenue and profits.

Our historical financial information does not reflect what our actual results of operations and financial condition would have been had we been a combined company for the periods presented, and thus these results are not indicative of our future operating performance.

The historical financial information included in this prospectus includes the separate financial statements of the predecessor company, the successor company and Tube City and does not reflect what our results of operations and financial condition would have been had we been a combined entity during the periods presented or what our results of operations and financial condition will be in the future.

Our limited operating history as a combined company and the challenge of integrating previously independent businesses make evaluating our business and our future financial prospects difficult. Our potential for future business success and operating profitability must be considered in light of the risks, uncertainties, expenses and difficulties typically encountered by recently combined companies.

In addition, both the IMS Transaction and the Tube City Acquisition were accounted for using the purchase method of accounting. Acquired tangible assets and assumed liabilities were recorded on our books at fair value.

Because the acquisition consideration exceeded the fair value of the net identifiable tangible and intangible assets, we recorded goodwill in each transaction. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Matters Impacting Comparability of Results—The IMS Transaction and Tube City Acquisition.” In addition, future acquisitions will likely be accounted for using purchase accounting and, therefore, similar limitations regarding comparability of historical and future results could arise.

Accordingly, our historical financial information may be of limited use in evaluating our historical performance and comparing it to other periods.

The calculation of LTM covenant EBITDA pursuant to our credit agreement permits certain estimates and assumptions that may differ materially from actual results.

Although LTM covenant EBITDA is derived from our financial statements, the calculation of LTM covenant EBITDA pursuant to our credit agreement, which we have presented in this prospectus as LTM covenant EBITDA, permits certain estimates and assumptions that may differ materially from actual results. For example, the inclusion of the full year effect of EBITDA for our acquisitions requires assumptions and estimates. In addition, the determination of non-cash charges requires certain assumptions about any corresponding cash component of such charges and the timing of any such payment. Although our management believes these estimates and assumptions are reasonable, investors should not place undue reliance upon the calculation of LTM covenant EBITDA pursuant to our credit agreement given how it is calculated and the possibility that the underlying estimates and assumptions may ultimately not reflect actual results. In addition, our credit agreement permits us to adjust LTM covenant EBITDA for items that may not otherwise meet the standards for inclusion in summary financial statements under Regulation S-X and the other rules of the Securities and Exchange Commission, or “SEC.” Some of these adjustments may be too speculative to merit adjustment under Regulation S-X; however, our credit agreement would permit such adjustments for purposes of determining LTM covenant EBITDA under the credit agreement. As a result of these adjustments, we may be able to incur more debt or pay dividends or make other restricted payments in greater amounts that would otherwise be permitted without such adjustments.

We are subject to credit risk and credit concentration. Some of our customers could experience financial difficulties, which could have a negative impact on our results of operations.

The financial condition of some of our customers may expose us to credit risk. In a material economic downturn in the North American steel manufacturing industry, some of our customers could experience financial difficulties and, as a result, close operations or significantly decrease production for an extended period, suffering losses and financial difficulty. If our customers suffer financial difficulty, they may not pay us, which could have a material adverse effect on our results of operations.

We have several large customers throughout the world with significant accounts receivable balances. In 2005, our single largest customer accounted for 37% of our total revenue and our top 10 customers accounted for 78% of our total revenue. As of March 31, 2006 our single largest customer accounted for 40% of our accounts receivable and our top 10 customers accounted for 68% of our accounts receivable. We are party to multiple long-term contracts with many of our customers, and if they encounter financial difficulties, it is possible that customers may reject their obligations to us pursuant to such contracts under bankruptcy laws or otherwise. Bankruptcies are possible as competition intensifies and more customers report operating losses. These bankruptcies could further impact our future net revenue and increase operating expenses by requiring larger provisions for bad debt. In addition, even when our contracts with these customers are not rejected, if customers are unable to meet their obligations on a timely basis, it could adversely impact our ability to collect receivables, the valuation of inventories and the valuation of long-lived assets of our business, as well as negatively affect the forecasts used in performing our goodwill impairment testing under SFAS No. 142, Goodwill and Other Intangible Assets. If we determine that goodwill or other assets are impaired or that inventories or receivables cannot be realized at recorded amounts, we would be required to record a write-down in the period of determination, which would reduce our net income or increase our net loss for that period. Further, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation.

Additionally, further consolidation in the global steel industry is possible. Should transactions occur involving some of the steel industry’s larger companies, which are our customers, it could result in an increase in concentration of credit risk for us. For each of these reasons, there are significant uncertainties associated with our net revenue expectations from customer contracts and investors should not place undue reliance on our net revenue expectations.

We rely on a number of significant customers and contracts, the loss of any of which could have a material adverse effect on our results of operations.

One of our significant customers maintains in certain of its contracts with us a provision providing the right to terminate for convenience, in the latter half of the contracts’ 10 year terms expiring in 2015, through the payment of scheduled termination fees based on the remaining years of the contracts. Generally our contracts do not guarantee a minimum amount of volume. A reduction in activity by a customer at a given site (or its decision to idle or permanently close the site) would reduce the revenue we receive from such customer. A loss of a significant customer or the partial loss of a customer’s business through the termination or non-renewal of a significant contract with us, or shut down of a site, could have a material adverse effect on our net revenue and other results of operations.

Further, because our business is conducted under long-term contracts (often servicing the same steel company under separate, site-specific contracts with our various divisions or operating units) and is highly dependent on business relationships, it could be very difficult to replace a current customer or contract with a new customer or contract. Even if we were to replace a significant customer or contract, we might not be able to find another customer or enter into a replacement contract that would provide us with comparable service revenue. We may lose significant customers or contracts in the future, and any resulting losses could adversely affect results of operations.

Amounts included in our backlog may not result in actual revenue or translate into profits.

Our backlog may not be realized as revenue or, if realized, may not result in profits. Backlog is often difficult to determine with certainty. As of December 31, 2005, and based on 2005 production volumes and contract terms, we estimate that our existing multi-year contracts will generate $1.9 billion in future service revenue, or backlog. Our backlog includes significant estimates and is based on assumptions that may prove to be incorrect. Accordingly, investors should not place undue reliance on our calculations of backlog. Reductions in backlog due to cancellation by a customer or for other reasons could significantly reduce the revenue and profit we actually receive from contracts included in backlog. In the event of a cancellation, we may be reimbursed for certain costs but typically have no contractual right to the amount of service revenue reflected in our backlog. Our customers’ future requirements and our estimates included in backlog may prove to be unreliable. If our backlog fails to materialize, we could experience a reduction in service revenue and a decline in profitability, which would result in a deterioration of our financial condition, profitability and liquidity.

We face significant competition in the markets we serve.

The North American outsourced steel services industry is highly competitive in most service categories and geographic regions. Certain of our competitors are companies or divisions or operating units of companies that have greater financial and other resources than we do. Competition is based largely upon service quality, price, past experience and reputation. In order to win new contracts or extend existing contracts, we may be required by market conditions to reduce our prices or make other concessions on terms in order to remain competitive. On a larger scale, we also compete with the internal steel production support service capabilities of some of our customers, and, in some cases customers have replaced our services with internally provided support services. We may not be able to retain or renew our existing contracts, and we may not be able to continue to compete successfully against existing or new competitors. Any such failure could have a material adverse effect on our business, financial condition, results of operations and cash flows. See “Business — Competition.”

Many of our employees and the employees of our customers belong to unions, which can cause us and our customers to experience work stoppages and increased labor costs.

As of June 30, 2006, approximately 48% of our hourly employees are covered by collective bargaining agreements. Our negotiations of new labor agreements with our union employees are time consuming and subject

to many factors outside of our control, and we may not be successful in such negotiations. If we are unable to negotiate new terms with our unionized labor successfully as their contracts come due, we could experience a work stoppage, which could adversely impact our results of operations or, in the worst case scenario, lead to the termination of contracts with one or more of our significant customers.

In addition, many of our customers have employees who are members of trade unions. Because our service revenue is primarily derived from steel mill production, a prolonged work stoppage or frequent work stoppages in our customers’ mills could cause a decline in production and a reduction in our profitability.

We maintain business interruption insurance coverage for certain of our sites to help protect us in the event of a labor stoppage by a customer’s union, but such insurance may not cover our losses or our losses may be in excess of our insurance coverage.

Increases in energy prices could increase our operating costs and reduce profitability.

Worldwide political and economic conditions and extreme weather conditions, among other factors, may result in an increase in the volatility of energy costs, both on a macro basis and for us specifically. We consume approximately 10 million gallons of diesel fuel annually. We estimate that a 10% change in the price of fuel would affect income from operations by approximately $1.9 million. To the extent that such costs cannot be passed to customers in the future on a timely basis or at all, whether as a result of price escalators or otherwise, operating income and results of operations may be adversely affected.

Some of our operations are subject to market price and inventory risk.

Although significant portions of our operations are more sensitive to changes in steel production than to changes in prices, certain of our business operations subject us directly to price and/or inventory risk. In particular:

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we routinely maintain a percentage of unsold scrap inventory at two of our scrap processing facilities, subjecting us to inventory risk;

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in order to ensure an adequate supply of raw materials to contracted customers, there are occasions when we may purchase quantities of raw materials and scrap, such as hot briquetted iron, in excess of immediate sales commitments. Similarly, we may have contractual commitments to provide certain raw materials to customers without a corresponding right to purchase all of the materials required to fulfill our commitment;

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we typically have the right to sell for our own account, subject to royalty payments to the host mill, certain co-products under our contracts; and

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we generate a portion of our net revenue in our outsourced purchasing activities from procurement fees that can fluctuate with changes in prices, market conditions and competition.

If we are unable to manage inventory or price risk, our results of operations and profitability could be negatively impacted.

We expend significant funds and resources to integrate ourselves into our customers’ sites, but may not receive significant profits from such efforts for several years.

The development or expansion of our operations at our customers’ mill sites may involve a long payback cycle. Depending on the scope of services that we provide, we could expend significant funds and resources in connection with newly-added sites or services before such efforts result in any significant profits. We continue to review possible opportunities for establishing operations at new customer sites that will generate additional profits, but those opportunities, particularly with respect to scrap handling, co-product processing and surface conditioning also require significant capital spending. For example, our cash flow used in investing activities in 2005 was $53.2 million, including $47.1 million in capital additions ($20.7 million of which was used towards capital spending in connection with new contracts, renewal of existing contracts or productivity improvements) and $5.6 million to acquire a long-term service contract at a customer location. For the three months ended

March 31, 2006, we have spent $2.1 million related to the expansion of our operations at new sites, the performance of additional services or productivity improvements, and we expect to spend an additional $10.0 million in 2006. If the profits anticipated from our capital spending are delayed or not consistent with our expectations, it could have a material adverse effect on our cash flows.

Our business is subject to environmental regulations that could expose us to liability, increase our cost of operations and otherwise have a material adverse effect on our results of operations.

Our business and that of our customers are subject to extensive regulation related to protection of the environment, including requirements concerning the handling, storage and disposal of waste materials, air emissions, wastewater discharges, and the cleanup of contaminated sites. We and our customers are regulated and monitored by environmental agencies because of the high level of environmental risk in the steel industry. As a result, we have been involved from time to time in environmental regulatory or judicial proceedings. Environmental regulations are becoming increasingly stringent, and we may be subject to enhanced enforcement. If we are not in compliance with such requirements, we could be required to make significant expenditures to cure violations. In such circumstances, we could also be subject to material fines or penalties and, potentially, criminal sanctions.

Violations of environmental laws, accidents or releases of hazardous materials by us or our customers could result in temporary shutdowns or interruptions in our operations. If that happened, it could have a material adverse effect on our results of operations.

In addition, environmental laws regarding cleanup of contamination may, in certain circumstances, impose joint and several liability, resulting in our liability for the cost of such cleanup, without regard to any negligence or fault on our part. Such laws may expose us to liability for conditions caused by others or by our acts that were in compliance with all applicable laws at the time such acts were performed, including environmental conditions arising with respect to premises we no longer occupy.

Our business involves a number of operating risks, and our failure to properly manage these risks could result in liabilities not fully covered by insurance and loss of future business and could have a material adverse effect on results of operations.

Our business activities involve certain operating hazards that can result in personal injury and loss of life, damage and destruction of operating equipment, damage to the surrounding areas, interruption or suspension of operations at a customer site and loss of net revenue and future business. Under certain circumstances, we may be required to indemnify our customers against such losses even though we may not be at fault. While we have in place policies to minimize the risk of serious injury or death to our employees or other visitors to our operations, we may nevertheless be unable to avoid material liabilities for any such death or injury that may occur in the future, and these types of incidents may have a material adverse effect on our financial condition. Although we believe that we have obtained adequate insurance, there can be no assurance that our insurance will be sufficient or effective under all circumstances or against all claims or hazards to which we may be subject or that we will be able to continue to obtain adequate insurance protection. A successful claim for damage resulting from a hazard for which we are not fully insured could adversely affect our results of operations. In addition, if we were to be held responsible for an accident at one of our customer sites that resulted in significant losses to them and/or an interruption or suspension of their operations, we could lose such customer’s business. Moreover, such events may adversely affect our reputation in the steel industry, which may make it difficult to renew or extend existing contracts or gain new customers.

Unexpected equipment failures and other events may lead to service curtailments or shutdowns.

Any unexpected interruptions in our service capabilities would increase operating costs and reduce our revenue and income. In addition to equipment failures, our operations are also subject to the risk of significant loss due to unanticipated events such as fires, explosions or adverse weather conditions. Our steel production

support services depend on critical pieces of mobile heavy equipment, including steel slab carriers, large earth- moving front-end loaders/track loaders, pot carriers, pallet carriers, hydraulic/cable cranes, large off-highway trucks, magnetic separating and processing plants, surface conditioning machines and other equipment. Such equipment may, on occasion, be out of service as a result of unanticipated failures. In the future, we may experience material service curtailments or periods of reduced service as a result of equipment failure or other unanticipated events. Furthermore, any interruption in service capability may require us to make large capital expenditures to remedy the situation, which could have a negative effect on profitability and cash flows. In addition, unexpected equipment failures by our customers or our customers’ other vendors might result in temporary shutdowns or interruptions in their operations that, in turn, might result in reduction of the services provided to these customers.

Although we maintain business interruption insurance, any recovery under this insurance coverage may not offset the lost net revenue or increased costs that we experience during the disruption of operations. In addition to the net revenue losses that may not be recoverable through insurance, longer-term business disruption could result in a loss of customers. If this were to occur, future sales levels, and, therefore, our profitability could be adversely affected.

Our long-term contracts subject us to certain risks that could impact our profitability.

The majority of our net revenue in 2005 was derived from locations where we have long-term contracts that typically have a term of five to 10 years. When bidding for a job, we are required to estimate the amount of production at a particular steel mill and the costs of providing services. If our estimates for a contract ultimately prove to be incorrect, our profitability under that contract may be adversely affected.

Our contracts for scrap management and co-product processing generally include escalators that are linked to price indices. These escalator provisions generally permit us to adjust our service fees upward on an annual basis. Accordingly, we cannot immediately pass on some cost increases to our customers. Due to the implementation of changes on an annual basis, there is often a period of time during which margins are negatively impacted for the periods of rising costs, which unfavorably impacts our profitability.

We may be subject to potential environmental and other liabilities associated with former businesses.

We may be subject to liability related to lines of business that we no longer own or operate, including liability related to subsidiaries that we have sold or spun off and to businesses that we operated while known successively as White Motor Corporation, Northeast Ohio Axle, Inc., NEOAX, Inc. and Envirosource, Inc. Some of our former lines of business, such as portions of IU International, a conglomerate we acquired in 1988, engaged in environmentally sensitive businesses such as the operation of hazardous waste landfills. In addition, we and our former subsidiaries have been and may in the future be subject to asbestos-related personal injury claims. Although we have various indemnities, contractual protections, insurance coverage and legal defenses with respect to asbestos-related claims related to these former lines of business, we may be liable for such claims if the indemnities and contractual protections fail, if our insurance coverage is exhausted or if a court does not recognize our legal defenses. The discovery of material liabilities relating to former lines of business could have a material adverse effect on our business, financial condition or future prospects.

We depend on our key personnel for the future success of our business.

Our future success and our ability to manage future growth depend in large part upon the continued services of our senior management and the ability to attract and retain key officers and other highly qualified personnel. Competition for such personnel can be intense. There can be no assurance that we will continue to be successful in attracting and retaining qualified personnel, and the loss of the services of any of these individuals could have a material adverse effect on our net revenue, our financial performance and our results of operations. Specifically, the loss of Mr. I Michael Coslov or other members of our senior management team could adversely affect us.

Messrs. Coslov, Raymond S. Kalouche, Joseph Curtin, J. David Aronson, Thomas E. Lippard and Daniel E. Rosati currently have employment agreements with us. However, we cannot assure you that any of these individuals will remain with us. We currently do not have a life or disability insurance policy on any of the members of the senior management team. The death or loss of the services of any of our senior managers or the inability to attract and retain additional senior management personnel could have a material adverse effect on our business.

Certain of our operations are dependent on access to freight transportation.

We rely on freight transportation to perform certain aspects of our business, and we could be unfavorably impacted by factors affecting transportation, including, but not limited to, the following:

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Our inability to transport material on commercially reasonable terms if the preferred modes of transportation (i.e., barges, vessels, trucks, rail cars, etc.) are unavailable or uneconomical; and

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We may incur demurrage or similar charges, which could be substantial, in the event of a delay in loading cargo when scheduled.

If we did not have access to freight transportation on reasonable terms, our ability to operate our business would be adversely affected.

We may not be able to sustain our competitive advantages in the future.

We believe that our success is based on our ability to provide leading levels of service, cost-efficient services and technologically advanced products such as our Scrap OptiMiser™ system. Currently, our competitors include other full-service providers of outsourced steel services and the in-house service capabilities of customers themselves. From time to time, local “mom-and-pop” steel service businesses receive expansion financing and attempt to compete with established market participants, particularly on the basis of price. In addition, as new methods of optimizing scrap management are developed or new technologies gain increased market acceptance, we may find ourselves competing with more technologically sophisticated competitors. It is possible that new competitors or alliances among existing and new competitors may emerge and rapidly acquire significant market share. Any of the foregoing may make it difficult for us to compete effectively in the future. Pricing pressures or loss of potential customers resulting from our failure to compete effectively may adversely affect our financial results and condition.

We are subject to acquisition risks. If we are not successful in integrating companies that we acquire or have acquired, we may not achieve the expected benefits and our profitability could suffer. In addition, the cost of evaluating and pursuing acquisitions may not result in a corresponding benefit.

One of our business strategies is to pursue strategic acquisitions and joint ventures, particularly as part of our international expansion plans. Acquisition targets and joint ventures will be evaluated on their ability to broaden our global footprint and be accretive to earnings. As part of this strategy, we acquired Auximetal in the first quarter of 2006. We continue to consider strategic acquisitions now and plan to in the future, some of which may be larger than those previously completed and could be material acquisitions. Integrating acquisitions is often costly, and delays or other operational or financial problems may result that interfere with our operations. If we fail to implement proper overall business controls for companies we acquire or fail to successfully integrate these acquired companies in our processes, our financial condition and results of operations could be adversely affected. In addition, it is possible that we may incur significant expenses in the evaluation and pursuit of potential acquisitions and that such acquisitions may not be successfully completed. Other risks inherent in our acquisition strategy include diversion of management’s attention and resources, failure to retain key personnel and risks associated with unanticipated events or liabilities. In addition, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we are required to test goodwill for impairment at least annually or more frequently if events or circumstances exist that indicate that goodwill may be impaired. As a result of changes in circumstances after valuing assets in connection with acquisitions, we may be required to take writedowns of intangible assets, including goodwill, which could be significant.

The expansion of our foreign operations will subject us to a variety of risks arising from doing business internationally.

We currently operate at steel mills and plants located in the United States, Canada, France, Serbia and Slovakia. In addition, in 2006, we have implemented a number of international initiatives to expand our global footprint to China, Latin America and other countries throughout Europe and Asia. As a result, we will further become exposed to a variety of risks that may adversely affect results of operations, cash flows or financial position. These include the following:

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periodic economic downturns in the countries in which we do business;

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fluctuations in currency exchange rates;

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customs matters and changes in trade policy or tariff regulations;

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imposition of or increases in currency exchange controls and hard currency shortages;

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changes in regulatory requirements in the countries in which we do business;

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labor relations and works’ council and other regulatory requirements;

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higher tax rates and potentially adverse tax consequences including restrictions on repatriating earnings, adverse tax withholding requirements and double taxation;

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longer payment cycles and difficulty in collecting accounts receivable;

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complications in complying with a variety of international laws and regulations;

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political, economic and social instability, civil unrest and armed hostilities in the countries in which we do business;

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inflation rates in the countries in which we do business;

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laws in various international jurisdictions that limit the right and ability of subsidiaries to pay dividends and remit earnings to affiliated companies unless specified conditions are met; and

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uncertainties arising from local business practices, cultural considerations and international political and trade tensions.

If we are unable to successfully manage the risks associated with our increasingly global business, our financial condition, cash flows and results of operations may be negatively affected.

The terms of our credit facility may restrict our current and future operations, particularly our ability to finance additional growth or take some strategic or operational actions.

Our credit facility contains and any future refinancing or additional debt instruments likely would contain a number of restrictive covenants that impose significant operating and financial restrictions on us. Our credit facility includes covenants restricting, among other things, our ability to:

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incur additional debt, including guarantees or credit support;

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incur liens;

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dispose of assets;

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enter into mergers, consolidations or amalgamations;

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pay dividends and make other restricted payments;

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enter into sale and leaseback transactions;

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engage in any new businesses; and

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enter into transactions with our stockholders and our affiliates.

Our credit facility also includes financial covenants, including requirements that we satisfy:

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a maximum consolidated first lien leverage ratio;

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a maximum consolidated leverage ratio;

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a maximum consolidated capital expenditure test; and

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a minimum consolidated interest coverage ratio.

In addition, our future debt or other contracts could contain financial or other covenants more restrictive than those applicable to the above items. If we fail to satisfy our financial covenants, we will not be able to borrow under our credit facility and the lenders under our credit facility could accelerate our debt and require immediate payment. Our credit facility is secured by substantially all of our assets.

We are controlled by a principal stockholder whose interest in our business may be different than yours.

Upon completion of the offering, Wellspring Capital will beneficially own approximately % of our outstanding common stock (or % if the underwriters exercise their over-allotment option in full). Accordingly, Wellspring Capital will exercise significant influence over our business policies and affairs, including the composition of our board of directors and any action requiring the approval of our stockholders, including the adoption of amendments to our articles of incorporation and the approval of mergers or sales of substantially all of our assets. The concentration of ownership may also delay, defer or even prevent a change in control of our company and may make some transactions more difficult or impossible without the support of Wellspring Capital. Because Wellspring Capital will own more than 50% of the voting power of our company upon consummation of this offering, we are considered a “controlled company” in connection with the Nasdaq Global Market listing requirements. As such, the requirements that our board of directors and our compensation committee be independent will not apply to us. As a result, the ability of our independent directors to influence our business policies and affairs may be reduced. Furthermore, you will not have the same protections afforded to the stockholders of companies that are subject to all of the Nasdaq Global Market corporate governance requirements. The interests of Wellspring Capital may conflict with your interests as a stockholder.

For additional information regarding the share ownership of and our relationships with Wellspring Capital, you should read the information under the headings “Principal and Selling Stockholders” and “Certain Relationships and Related Party Transactions.”

Failure to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results and stock price.

Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. If we are unable to achieve and maintain adequate internal controls, our business and operating results could be harmed. We are also beginning to evaluate how to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules of the SEC, which require, among other things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on that assessment beginning with our Annual Report on Form 10-K for the year ending December 31, 2007. During the course of this documentation and testing, we may identify reportable conditions that we may be unable to remedy before the requisite deadline for those reports. Our auditors have not conducted an audit of our internal control over financial reporting. We are aware of certain significant deficiencies with respect to our internal control regarding software program changes and access to information technology systems. We may incur substantial additional cost in the form of software and related costs for training and support activities in connection with the remediation of reportable conditions. Any failure to remediate the reportable conditions noted by our independent registered public accounting firm or

to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If our management or our independent registered public accounting firm were to conclude in their reports that our internal control over financial reporting was not effective, investors could lose confidence in our reported financial information and the trading price of our stock could drop significantly.

Our pension and other post-employment benefit plans are currently underfunded or unfunded and we have to make cash payments, which may be greater in the future, reducing the cash available for our business.

Certain of our pension plans were underfunded when their assets and liabilities were last computed. We will have to make cash payments of approximately $0.3 million to the underfunded pension plans in 2006, which consists primarily of minimum contributions required by ERISA regulations and Canadian governmental authorities. The funded status of the plans may be adversely affected by the investment experience of the plans’ assets in both the United States and Canada, by any changes in the law either in the United States or Canada, and by changes in the statutory interest rates used by “tax-qualified” pension plans in the United States to calculate funding liability. Accordingly, if the performance of our plans’ assets does not meet our expectations, if there are changes to the U.S. Internal Revenue Service (the “IRS”) regulations or other applicable law or if other actuarial assumptions are modified, our future contributions to our underfunded pension plans could be higher than we expect.

In addition, we have contractual obligations pursuant to collective bargaining agreements to make payments for employees and could be required to provide additional benefits based on changes in participation in union defined benefit plans.

We also have certain post-employment benefit plans that provide health care benefits primarily to retired employees. The plans are not funded; we pay post-employment benefits as required for individual participants. During 2005, we paid $0.5 million of benefits under these plans. If health care costs or other actuarial assumptions differ from our expectations, future benefit payments under these plans could be greater than anticipated.

Risks Related to Ownership of Our Common Stock

We do not intend to pay dividends in the foreseeable future, and, because we are a holding company, we may be unable to pay dividends.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. In addition, our credit facility restricts our ability to pay dividends. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant. Furthermore, because we are a holding company, we depend on the cash flow of our subsidiaries, and our credit facility imposes restrictions on our subsidiaries’ ability to distribute cash to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Description of Capital Stock—Common Stock.”

Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.

Our certificate of incorporation and bylaws contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors. These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. These provisions include, among others:

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a board of directors that is divided into three classes with staggered terms;

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elimination of the right of our stockholders to act by written consent;

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rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

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the right of our board of directors to issue preferred stock without stockholder approval; and

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limitations on the right of stockholders to remove directors.

Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. For more information, see “Description of Capital Stock.”

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity. Even if a market were to develop, the stock prices in the market may not exceed the offering price.

Prior to this initial public offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy.

The initial public offering price for the shares will be determined by negotiations among us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in this offering.

Our stock price may be volatile and you may lose all or part of your investment.

The market price of our common stock could fluctuate significantly, in which case you may not be able to resell your shares at or above the offering price. The market price of our common stock may fluctuate based on a number of factors in addition to those listed in this prospectus, including:

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our operating performance and the performance of our competitors and other similar companies;

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the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

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changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry;

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changes in general economic conditions;

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the number of shares to be publicly traded after this offering;

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actions of our current stockholders, including sales of common stock by our directors and executive officers;

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the arrival or departure of key personnel;

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acquisitions, strategic alliances or joint ventures involving us or our competitors; and

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other developments affecting us, our industry or our competitors.

In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations are often unrelated to the operating performance of particular companies. These broad market fluctuations may cause declines in the market price of our common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with us or our performance, and these fluctuations could materially reduce our stock price.

You will experience immediate and substantial dilution as the net tangible book value of the shares of common stock will be substantially lower than the offering price.

The initial public offering price of the shares of common stock is substantially higher than the net tangible book value per share of the outstanding common stock. As a result, if we were liquidated for book value immediately following this offering, you would experience immediate and substantial dilution of $ per share of common stock. Upon completion of the offering, we will have outstanding stock options to purchase shares of our common stock at a weighted average exercise price of $ per share as of . Dilution is the difference between the offering price per share and the net tangible book value per share of our common stock. See “Dilution,” including the discussion of the effects on dilution from a change in the price of the offering.

Future sales of shares could depress our stock price.

Sales of a substantial number of shares of our common stock or the perception that a large number of shares will be sold following our initial public offering could depress the market price of our common stock. We and our executive officers and directors, including our principal stockholder, have agreed with the underwriters not to offer, sell, dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock, subject to specified exceptions and extensions, during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus, except with the prior written consent of Credit Suisse Securities (USA) LLC and UBS Securities LLC. Our articles of incorporation will authorize us to issue up to shares of common stock, of which shares will be outstanding and shares will be issuable upon the exercise of outstanding stock options upon completion of this offering. Of these shares, shares, including the shares (or shares if the underwriters exercise their over-allotment option in full) sold in this offering, are freely tradable. Approximately of the outstanding shares will be eligible for resale after the expiration of the 180-day lock-up period. Shares of common stock held by our affiliates will continue to be subject to the volume and other restrictions of Rule 144 under the Securities Act of 1933 (the “Securities Act”). Credit Suisse Securities (USA) LLC and UBS Securities LLC may, in their joint discretion and at any time without notice, release all or any portion of the shares subject to the 180-day lock-up.

The holders of approximately shares of our common stock (including shares issuable upon the exercise of outstanding options) have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. By exercising their registration rights and selling a large number of shares, these stockholders could cause the price of our common stock to decline. In addition, immediately following this offering, we intend to file a registration statement registering under the Securities Act the shares reserved for issuance under our employee stock option plan.

See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sales upon completion of this offering.

We will incur increased costs as a result of being a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and the Nasdaq Global Market, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time consuming and costly. For example, as a result of becoming a public company, we may create additional board committees and will adopt additional policies regarding internal controls over financial reporting and disclosure controls and procedures. In addition, we will incur additional costs associated with our public company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

INDUSTRY AND MARKET DATA

This prospectus includes industry data that we obtained from periodic industry publications and internal company surveys. Although we believe these sources are reliable, we have not independently verified the information. In addition, this prospectus includes market share and industry data that we prepared primarily based on our knowledge of the industry and industry data. Statements as to our market position relative to our competitors are approximated and based on the above-mentioned third-party data and internal analysis and estimates and have not been verified by independent sources. Unless otherwise noted, all information regarding our market share is based on the latest available data, all dollar amounts refer to U.S. dollars and all references to market shares refer to both volume and number of mills served.

References in this prospectus to a “ton” of material refer to a ton of 2,000 pounds, and references to a “tonne” of material are to a metric ton of 2,204.6 pounds. We have provided definitions for some of the steel and outsourced steel services industry terms used in this prospectus in the “Glossary of Selected Terms” beginning on page G-1 of this prospectus.

Where applicable, we report market data on the basis of “net revenue,” a non-GAAP financial measure that excludes the cost of scrap shipments from total revenue because changes in the market price of raw materials sold typically do not affect relevant market participants’ operating results.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. Such forward-looking statements include the discussions of our business strategies, estimates of future global steel production and other market metrics and our expectations concerning future operations, margins, profitability, liquidity and capital resources. In addition, in certain portions of this prospectus, the words “anticipates,” “believes,” “estimates,” “seeks,” “expects,” “plans,” “intends” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, risks associated with:

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decreased steel production in North America and elsewhere;

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consolidation in the steel industry in North America and globally;

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the difficulty of comparing our historical financial periods;

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financial difficulties of our customers;

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the loss of a significant customer, including through insolvency;

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uncertainty regarding our backlog;

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competition, including pricing pressures from existing or future competitors, on the offering of our services;

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labor unrest;

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increases in energy prices;

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price and inventory risk;

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failure to develop or expand our operations with our existing and new customers;

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changes in government regulations, including environmental laws, accounting standards and taxation rates;

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operating risks, including equipment failures;

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our success in bidding for new long-term contracts;

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claims and litigation relating to environmental contamination, including in respect of former businesses;

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successful integration of acquisitions;

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changes in national, regional and local economic, market, business or political conditions in the countries and other territories in which we and our customers operate;

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loss of key personnel;

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access to freight transportation;

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failure to maintain competitive advantages;

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risks related to acquisitions and joint ventures;

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expansion of foreign operations;

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exchange rate fluctuations;

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covenants in our credit facility;

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control by a principal stockholder;

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internal controls over financial reporting;

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our underfunded pension and other post-employment benefit plans; and

•

the other factors described under “Risk Factors.”

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this prospectus as a result of new information, future events or developments except as required by federal securities laws.

USE OF PROCEEDS

We estimate that our net proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million.

We intend to use the net proceeds from the sale of the common stock offered by us to repay all or a portion of our existing debt and related fees and expenses. The interest rate and maturity of our indebtedness to be discharged are % and , respectively. We expect to use the remainder of the net proceeds of the offering for general corporate purposes.

Assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) the amount of proceeds from this offering available to repay certain of our indebtedness by $ million.

We will not receive any proceeds from the sale of our common stock by the selling stockholders, including any proceeds resulting from the underwriters’ exercise of their option to purchase additional shares from the selling stockholders.

DIVIDEND POLICY

For the foreseeable future, we intend to retain any earnings, and we do not anticipate paying any cash dividends on our common stock. In addition, our credit facility restricts our ability to pay dividends. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant. Furthermore, because we are a holding company, we depend on the cash flow of our subsidiaries’, and our credit facility imposes restrictions on our subsidiaries’ ability to distribute cash to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Description of Capital Stock—Common Stock.” In October 2005, we paid a one-time distribution of $45.7 million in the aggregate on our common stock.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our consolidated capitalization as of March 31, 2006:

•

on an actual basis; and

•

on an as adjusted basis to give effect to the offering and the application of the net proceeds to us as described in “Use of Proceeds.”

This table should be read together with “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and all of the consolidated financial statements and notes to those statements included elsewhere in this prospectus.


	Actual			As Adjusted(1)
	(In thousands)
Cash and cash equivalents	$	8,291		$

Current portion of long-term debt	$	6,825		$
Long-term debt, excluding current portion:
First lien term loan		323,092
Second lien term loan		50,000
Capitalized equipment leases		3,580
Other		2,300

Total long-term debt, excluding current portion		378,972
Stockholders’ equity:
Common stock ($.001 par value), shares authorized and shares issued and outstanding on an actual basis; shares authorized and shares issued and outstanding as adjusted		1
Additional paid-in capital		45,976
Accumulated deficit		(10,477	)
Accumulated other comprehensive equity		1,265

Total stockholders’ equity		36,765

Total capitalization	$	422,562		$

(1)

Assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) cash and cash equivalents by $ million, additional paid-in capital by $ million, total stockholders’ equity by $ million and total capitalization by $ million.

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the net tangible book value per share of our common stock upon the completion of this offering.

Our net tangible book value as of , 2006 without giving effect to this offering was $ million or $ per share of common stock. Net tangible book value per share is determined by dividing tangible stockholders’ equity, which is total tangible assets less total liabilities, by the aggregate number of shares of common stock outstanding. Tangible assets represent total assets excluding goodwill and other intangible assets. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the net tangible book value per share of our common stock immediately afterwards. After giving effect to our sale of common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), our adjusted net tangible book value at , 2006 would have been $ million or $ per share. This represents an immediate reduction in net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to new stockholders purchasing shares of common stock in this offering. The following table illustrates this dilution per share:

Assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) the increase in net tangible book value attributable to this offering by $ per share and the dilution to new investors by $ per share and decrease (increase) the pro forma net tangible book deficit after this offering by $ per share.

The following table summarizes as of , 2006 the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering before deducting the underwriting discount and estimated offering expenses payable by us:


	Shares Purchased		Total Consideration		Average Price per Share
	Number	Percent	Amount	Percent	Average Price per Share

Existing stockholders		%	$	%	$
New investors
Total		%	$	%	$

Assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) the total consideration paid by new investors by $ million, the total consideration paid by all stockholders by $ and the average price per share by $ per share.

To the extent any outstanding options are exercised or any additional options are granted and exercised, there may be economic dilution to new investors.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (particularly the information under “Matters Impacting Comparability of Results”) and all of the consolidated historical financial statements and the notes to those financial statements included elsewhere in this prospectus. The selected consolidated historical income statement data for the year ended December 31, 2005, the period from October 27, 2004 to December 31, 2004, the period from January 1, 2004 to October 26, 2004 and for the year ended December 31, 2003 and balance sheet data as of December 31, 2005 and December 31, 2004 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated historical income statement data for the years ended December 31, 2002 and 2001 and balance sheet data as of October 26, 2004 and December 31, 2003, 2002 and 2001 have been derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated historical income statement data for the three months ended March 31, 2006 and 2005 and the selected consolidated balance sheet data as of March 31, 2006 have been derived from our unaudited financial statements included elsewhere in this prospectus. The selected consolidated balance sheet data as of March 31, 2005 have been derived from our unaudited financial statements not included in this prospectus. All adjustments that are, in our opinion, necessary for a fair statement of the results for the interim periods presented have been recorded. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The term “predecessor company” refers to the Company prior to the IMS Transaction. The term “successor company” refers to the Company after the IMS Transaction.


	Predecessor Company												Successor Company
	Year ended December 31,									Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			Three months ended March 31,
	2001			2002			2003			Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			2005			2006
	(In thousands of dollars, except per share and share data)
Statement of Operations Data:
Revenue:
Revenue from sale of materials	$	—		$	—		$	—		$	—		$	20,122		$	832,531		$	254,080		$	232,024
Service revenue		157,594			159,514			164,687			144,048			34,586			290,919			73,258			76,053

Total revenue		157,594			159,514			164,687			144,048			54,708			1,123,450			327,338			308,077
Costs and expenses:
Cost of scrap shipments		—			—			—			—			14,092			794,744			246,822			221,871
Site operating costs		107,787			106,156			111,079			94,339			28,044			207,297			49,839			56,276
Selling, general and administrative expenses		10,081			9,647			13,483			9,679			3,533			39,874			10,243			10,120
Compensation provided as a result of business combinations		—			—			3,688			10,019			—			—			—			—
Expenses associated with withdrawn public offerings		—			—			—			2,129			—			5,028			—			—
Depreciation		21,963			26,610			25,061			20,763			6,117			49,623			11,866			11,746
Amortization		4,818			1,133			952			596			864			7,039			1,675			1,804

Total costs and expenses		144,649			143,546			154,263			137,525			52,650			1,103,605			320,445			301,817

Income from operations		12,945			15,968			10,424			6,523			2,058			19,845			6,893			6,260
Loss on debt extinguishment		—			—			(1,448	)		—			(7,010	)		(2,812	)		—			—
Interest expense, net		(21,600	)		(9,898	)		(9,158	)		(8,648	)		(2,522	)		(23,950	)		(5,023	)		(8,050	)
Income (loss) from equity investments		—			—			—			—			10			(99	)		25			(5	)
Other income		—			—			3,144			—			—			—			—			—

(Loss) income before income taxes		(8,655	)		6,070			2,962			(2,125	)		(7,464	)		(7,016	)		1,895			(1,795	)
Income tax (expense) benefit		(885	)		(821	)		(990	)		224			2,512			2,332			(453	)		954


	Predecessor Company												Successor Company
	Year ended December 31,									Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			Three months ended March 31,
	2001			2002			2003			Period from January 1, to October 26, 2004			Period from October 27, to December 31, 2004			Year ended December 31, 2005			2005			2006
	(In thousands of dollars, except for per share and share data)
(Loss) income from continuing operations		(9,540	)		5,249			1,972			(1,901	)		(4,952	)		(4,684	)		1,442			(841	)
Income from discontinued operations, net of tax		5,338			2,741			—			—			—			—			—			—

(Loss) income before extraordinary item		(4,202	)		7,990			1,972			(1,901	)		(4,952	)		(4,684	)		1,442			(841	)
Extraordinary gain on financial restructuring, net of tax		61,963			—			—			—			—			—			—			—

Net income (loss)		57,761			7,990			1,972			(1,901	)		(4,952	)		(4,684	)		1,442			(841	)
Preferred stock dividend requirements		(1,306	)		(3,252	)		(1,002	)		(76	)		—			—			—			—

Income (loss) applicable to common shares	$	56,455		$	4,738		$	970		$	(1,977	)	$	(4,952	)	$	(4,684	)	$	1,442		$	(841	)

Basic and diluted earnings per share:
(Loss) income from continuing operations before extraordinary item	$	(10.06	)	$	1.85		$	0.90		$	(1.83	)	$	(5.48	)	$	(5.14	)	$	1.59		$	(0.92	)
Income from discontinued operations		4.95			2.55			—			—			—			—			—			—
Income from extraordinary item		57.48			—			—			—			—			—			—			—

Net income (loss) per share	$	52.37		$	4.40		$	0.90		$	(1.83	)	$	(5.48	)	$	(5.14	)	$	1.59		$	(0.92	)

Average common shares outstanding (basic and diluted)		1,077,960			1,077,960			1,077,960			1,077,960			902,900			911,302			905,317			913,260
Cash dividends declared per common share	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Other Operating Data:
Capital expenditures	$	21,674		$	13,754		$	19,932		$	15,850		$	3,920		$	47,106		$	11,678		$	7,645

Cash Flow Data:
Cash provided by (used in) operating activities	$	32,650		$	48,153		$	34,910		$	27,758		$	16,112		$	44,038		$	(5,160	)	$	3,036
Net cash used in investing activities		(24,751	)		(14,419	)		(18,564	)		(15,168	)		(231,750	)		(53,199	)		(11,671	)		(9,485	)
Net cash (used in) provided by financing activities		(8,893	)		(25,753	)		(20,794	)		(9,457	)		229,839			11,530			5,969			(1,830	)

	December 31,									October 26, 2004			December 31,						March 31,
	2001			2002			2003			October 26, 2004			2004			2005			2005			2006
	(In thousands of dollars)

Balance Sheet Data:
Cash and cash equivalents	$	223		$	8,204		$	3,756		$	6,889		$	14,201		$	16,570		$	3,339		$	8,291
Restricted cash equivalents		—			—			31,962			—			—			—			—			—
Working capital (deficit)		(2,686	)		3,000			(10,219	)		(17,616	)		15,599			23,161			26,168			22,270
Goodwill and other intangible assets		96,159			96,159			96,159			96,159			293,665			286,591			292,042			286,214
Total assets		235,139			226,814			252,005			224,077			662,235			614,388			603,733			630,070
Long-term debt, excluding current portion		81,715			58,124			82,458			67,673			320,126			378,309			318,634			378,972
Stockholders’ equity		89,314			100,022			87,383			84,725			85,382			35,131			87,840			36,765

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is supplemental to and should be read in conjunction with all of the consolidated financial statements included elsewhere in this prospectus. Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that are subject to a variety of factors that could cause actual results to differ materially from those contemplated by these statements. See “Special Note Regarding Forward-Looking Statements.” Some of the factors that could cause results or events to differ from current expectations include, but are not limited to, the factors described under “Risk Factors.”

Overview

We are the largest provider of outsourced services to steel mills in North America and one of the largest globally. We do not produce steel, but rather we are integral in virtually every other stage of the steel making process, from initial raw materials procurement through finished goods handling. We offer our services through two divisions that report as two separate financial segments. The Tube City Division segment, which we refer to as the “Tube City Division,” primarily provides pre-production services, whereas the IMS Division segment, which we refer to as the “IMS Division,” primarily focuses on post-production services. Our IMS Division includes 14 sites that were acquired through Tube City. As a result, the segment presentations discussed herein do not match the historic presentations reported in our audited financial statements.

A significant majority of our services is charged to our steel producing customers on a fee-per-ton basis. Additionally, our Tube City Division, and the historic pre-acquisition Tube City business, generates a significant portion of its revenue from raw materials procurement activities. In some cases, we earn a contractually determined, volume-based fee for arranging delivery of raw material shipments to a customer directly from a vendor. In other cases, we concurrently arrange to purchase and sell raw materials at specified prices, typically locking in a margin. In these types of transactions, changes in the price of raw materials from period to period will typically result in a change in our revenue from sale of materials and an offsetting change in our cost of scrap shipments. Because changes in the market price of the raw material sold will typically not significantly affect our income from operating activities due to the offsetting effect described above, management measures our operating results on the basis of “net revenue,” a non-GAAP financial measure that excludes the cost of scrap shipments from total revenue. As an illustration of the magnitude of the impact of pass-through scrap costs on revenue, raw materials procurement activities generated 67% of our total revenue, but only 8% of our net revenue in 2005. See “—Key Line Items Presented—Net Revenue,” below. Tables reconciling total revenue to net revenue are included in each of the periods discussed in “—Results of Operations.”

Key Line Items Presented

Revenue From Sale of Materials. Revenue from sale of materials is mainly generated by our raw materials procurement business. We generate revenue from raw materials procurement through two different types of arrangements. In some cases, we earn a contractually determined, volume based fee for arranging delivery of scrap or other raw material shipments to a customer directly from a vendor. In other cases, we concurrently arrange to purchase scrap or other raw materials from a vendor and sell those materials to a customer at specified prices, typically locking in a margin on a per ton basis. In these types of transactions, changes in the price of raw materials from period to period will typically result in a change in our revenue from sale of materials and an offsetting change in our cost of scrap shipments. In addition to raw materials procurement, revenue from sale of materials also includes revenue from two locations in our pre-production materials handling business for the purchase, processing and sale of scrap inventory for our own account.

Service Revenue. This category includes revenue from material handling or scrap management, raw materials optimization, co-product processing, metal recovery and sales, material handling or product handling and surface conditioning. A significant majority of our service revenue is based on the volume of customer material handled, usually under long-term contract. In some instances, we also generate revenue through base

monthly fees. In addition, some co-product processing, metal recovery and sales revenue is earned from sales of co-product to third parties, in which case we typically compensate the slag producing mill with a royalty fee. This royalty expense is recorded in cost of sales.

Net Revenue. We measure our sales volume on the basis of “net revenue.” Net revenue is not a recognized measure under GAAP, but management believes net revenue is more appropriate than total revenue as a measure of our performance because net revenue eliminates the impact of market pricing fluctuations of scrap and other raw material that generally do not impact our profits. We define net revenue as total revenue minus cost of scrap shipments in our raw materials procurement business adjusted to include income from equity investments. During the second quarter of 2006, our sole equity investment was redeemed at an amount that approximated the carrying value. Tables reconciling total revenue to net revenue are included in each of the periods discussed in “—Results of Operations.”

Site Operating Costs. Site operating costs consist of employees’ wages and benefits, as well as costs of operating supplies, such as fuels and lubricants, repair and maintenance costs and equipment leasing costs. Repair and maintenance and supply costs are largely variable and generally fluctuate directly in relation to volume. Certain types of employee costs, such as overtime pay, generally vary directly in relation to volume. Other types of employee costs, such as base pay and benefits, are variable through layoffs in the event of a downturn at a site. Leasing costs are generally fixed over the term of a lease. Our leases typically apply to mobile equipment that can be relocated among sites as needed.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses consist of labor and related costs of selling and administration, professional fees, insurance costs, management fees, bad debt costs, bank fees and corporate expenses and bonuses.

Depreciation and Amortization. Depreciation consists of depreciation expenses related to property, plant and equipment; and amortization consists of amortization expenses related to finite life intangibles such as environmental permits and customer related intangibles, in each case recognized on a straight-line basis over the estimated useful life of the asset.

Key Measures We Use to Evaluate Our Company

We use the following financial measures to evaluate and assess our business:

Net Revenue. We measure our sales volume on the basis of net revenue. Net revenue is not a recognized measure under GAAP, but management believes net revenue is more appropriate than total revenue as a measure of our performance because net revenue eliminates the impact of market pricing fluctuations of scrap that generally do not impact our profits. For further discussion of this item, see “—Key Line Items Presented—Net Revenue.”

EBITDA. We utilize EBITDA as the primary performance measure of our operating segments in accordance with SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information. Prior to the Tube City Acquisition, Tube City used EBITDA as the performance measure of its operating segments in accordance with SFAS No. 131. EBITDA is not a recognized measurement under GAAP, but we believe it is useful in measuring our operating segment performance.

LTM Covenant EBITDA. LTM covenant EBITDA is used to determine our compliance with financial covenants included in our credit agreement. For a further discussion of this item, see “—Liquidity and Capital Resources.”

Matters Impacting Comparability of Results

The IMS Transaction and Tube City Acquisition. We are the result of the combination of two functionally complementary businesses in the fourth quarter of 2004. On October 26, 2004, Mill Services Holdings LLC, an affiliate of Wellspring Capital, acquired all of our outstanding capital stock in the IMS Transaction. The

aggregate consideration paid for the IMS Transaction was $299.9 million, consisting of $137.3 million of cash and the assumption of $162.6 million of liabilities. On December 21, 2004, we acquired all of the outstanding equity interests in Tube City. The aggregate consideration paid for the Tube City Acquisition was $383.6 million, consisting of $104.4 million of cash, the assumption of $265.4 million of liabilities and shares of our stock valued at $13.8 million.

As a result of the change in ownership in the IMS Transaction, under GAAP we are required to present separately the operating results for the predecessor period and the successor period in the 2004 financial year, including financial quarters in such year. The following is a summary of the two periods:

•

January 1, 2004 to October 26, 2004. The results for the period from January 1, 2004 to October 26, 2004 and prior periods are included under the heading “predecessor company,” as they refer to us prior to the IMS Transaction. Our audited financial statements for such periods do not include the results of Tube City and its consolidated subsidiaries, which had not yet been acquired.

•

October 27, 2004 to December 31, 2004. After the IMS Transaction, our results appear under the heading “successor company.” However, for the period from October 27, 2004 to December 20, 2004, our operations consist almost entirely of post-production sites operated as part of the IMS business. The successor period in 2004 includes only 10 days of the Tube City business, which we acquired on December 21, 2004.

Both the IMS Transaction and the Tube City Acquisition were accounted for using the purchase method of accounting. Acquired tangible assets and assumed liabilities were recorded on our books at fair value. Because the acquisition consideration exceeded the fair value of the net identifiable tangible and intangible assets, we recorded goodwill in each transaction. As a result of the IMS Transaction, we increased the carrying value of property plant and equipment by $25.1 million, and we recorded $144.3 million of intangible assets, consisting of $74.5 million of identifiable intangible assets and $69.8 million of goodwill. As a result of the Tube City Acquisition, we acquired $30.7 million of property, plant and equipment and acquired $149.5 million of intangible assets, consisting of $39.9 million of identifiable tangible assets and $109.6 million of goodwill. Our net increase in annual depreciation expense and annual amortization expense as a result of the IMS Transaction was approximately $8.2 million and $3.7 million, respectively. Our net increase in annual depreciation expense and annual amortization expense as a result of the Tube City Acquisition was approximately $13.0 million and $2.7 million, respectively.

The IMS Transaction and the Tube City Acquisition also had a significant impact on the results reported by the predecessor company and Tube City. The IMS Transaction triggered a “Realization Event” under our 2001 Executive and Nonemployee Director Stock Appreciation Rights Plan, which accelerated vesting in certain rights under that plan and resulted in a charge of $10.0 million in the period from January 1, 2004 to October 26, 2004.

Comparability between 2005 and 2004 results is further affected by increased interest expense resulting from the larger debt component of our capital structure. In connection with the IMS Transaction in October 2004, we incurred $83.3 million of additional term indebtedness as part of a refinancing of our predecessor company’s existing debt at lower interest rates. The combined effect of the refinancing was to increase our annual interest expense by approximately $1.2 million. In connection with the Tube City Acquisition, we incurred an additional $160.0 million of term indebtedness, which further increased our annual interest expense by approximately $8.3 million.

In the fourth quarter of 2005, we increased our existing term loan facility by adding an additional $65.0 million of outstanding indebtedness, which further increased our annual interest expense by approximately $5.1 million, including the impact of an increase in LIBOR and a small margin increase. See “—Liquidity and Capital Resources” for a discussion of floating interest rates. The proceeds of the additional borrowing were principally used to fund a special distribution to our stockholders.

We recorded a loss on debt extinguishment of $7.0 million in connection with the Tube City Acquisition and $2.8 million in connection with the 2005 amendment to our credit facility.

As a result of the foregoing factors, the results of operations of Tube City IMS Corporation for periods prior to the IMS Transaction and Tube City Acquisition are not comparable to results for subsequent periods. In order to enhance comparability, management’s discussion and analysis of financial condition and results of operations includes supplemental data regarding Tube City and its consolidated subsidiaries for the period from January 1, 2004 to December 21, 2004. The historical financial information included in this prospectus does not reflect what our results of operations and financial condition would have been had we been a combined entity during the periods presented.

Recent Acquisitions. We completed two acquisitions in the first quarter of 2006 that affected comparability with our financial results in 2005. The results of these two companies’ operations are included in the successor company’s financial statements beginning from January 12, 2006 and March 1, 2006, their respective dates of acquisition. These acquisitions were completed with existing cash on hand and did not have a material impact on our results of operations or financial position.

Operating Segments. We have two reportable operating segments, our IMS Division and our Tube City Division. Prior to its acquisition by us, Tube City had two reportable operating segments, the Slag Division and the Scrap Division. Upon completion of the Tube City Acquisition, Tube City’s Slag Division segment, which we refer to as the “Tube City Slag Division,” became part of our IMS Division, and Tube City’s Scrap Division segment, which we refer to as the “Tube City Scrap Division,” became our Tube City Division. Our Tube City Division had no operations prior to the Tube City Acquisition.

Components of Our Historical Financial Statements. The following is a summary of the periods presented and the effect of the acquisitions described above:

Our financial data for the year ended December 31, 2003 include the results of operations of our predecessor and its consolidated subsidiaries only.

Our financial data for the year ended December 31, 2004 includes:

•

the results of operations of our predecessor and its consolidated subsidiaries for the period from January 1, 2004 to October 26, 2004, and

•

the results of operations of our successor and its consolidated subsidiaries for the period from October 27, 2004 to December 31, 2004, which include the results of operations of Tube City and its consolidated subsidiaries for the period from December 21, 2004 to December 31, 2004.

Our financial data for the three months ended March 31, 2005 and the year ended December 31, 2005 includes the results of operations of our successor and its consolidated subsidiaries for the full three months ended March 31, 2005 and the full year ended December 31, 2005, which includes the results of operations of Tube City and its consolidated subsidiaries for the full three months ended March 31, 2005 and the full year ended December 31, 2005.

Our financial data for the three months ended March 31, 2006 includes:

•

the results of operations of our successor and its consolidated subsidiaries for the full three months ended March 31, 2006, which includes the results of operations of Tube City and its consolidated subsidiaries for the full three months ended March 31, 2006, and

•

the results of operations of our acquired businesses from their respective dates of acquisition of January 12, 2006 and March 1, 2006 through March 31, 2006.

Industry Factors Impacting the Company

Steel Mill Production Volumes. The vast majority of our revenue is tied to each mill’s production volume. Factors that affect a steel mill’s production levels also impact our revenue and profitability. Such factors may include general economic conditions, the North American and worldwide demand for steel, steel pricing and the relative strength of the U.S. dollar. Many of these factors were favorable for the industry in 2004. In 2005, some of these factors became less favorable, and industry participants reduced volumes accordingly. Various North American steel producers, including our most significant customer, used this opportunity to invest large amounts of capital into updating and maintaining their facilities. Management believes that the current investment activity is favorable for the long-term health of the industry and for our customer base specifically, despite the short-term unfavorable impact of temporary volume reductions that can result from our customers making major capital upgrades. Production volumes at our customer sites during the first half of 2006 have improved over 2005.

Restructuring of the North American Steel Industry. The recent restructuring of the North American steel industry has significantly improved the financial profile and credit quality of steel producers and has placed greater emphasis on the outsourcing of steel services. Between 2001 and 2003, excess global production capacity and subsidized foreign steel led to significantly higher import levels and weak economic conditions, resulting in a significant restructuring of the North American steel industry. The consolidation of industry players, shedding of burdensome legacy costs and rationalization of excess capacity resulted in the emergence of a financially stable, globally competitive base of producers. With significantly improved cost structures, North American steel producers have been able to successfully compete with global steel producers and have returned to profitability, creating greater stability in the customer base of outsourced steel service providers. Further, with new, more flexible labor contracts, producers are able to outsource services more easily than in the past, creating increased opportunities for providers of these services.

Application of Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions in applying our critical accounting policies that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We continually evaluate our judgments and estimates in determining our financial condition and operating results. Estimates are based upon information available as of the date of the financial statements and, accordingly, actual results could differ from these estimates, sometimes materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and operating results and require management’s most subjective judgments. The most critical accounting policies and estimates are described below.

Trade Receivables. We perform ongoing credit evaluations of our customers and generally do not require our customers to post collateral. Account balances outstanding longer than the payment terms are considered past due. Provisions are made for estimated uncollectible receivables. Our estimate is based on historical collection experience, a review of the current status of receivables, the condition of the general economy and the industry and our judgment about the credit quality of our customers. Decisions to charge off receivables are based on management’s judgment after consideration of facts and circumstances surrounding potential uncollectible accounts. It is reasonably possible that our estimate of the allowance for doubtful accounts will change.

Property, Plant and Equipment. Property, plant and equipment are recorded at cost less accumulated depreciation. Costs in connection with business combinations are based on fair market value at the time of acquisition. Major components of certain high value equipment are recorded as separate assets with depreciable lives determined independently from the remainder of the asset. Expenditures that extend the useful lives of existing plant and equipment are capitalized, while expenditures for repairs and maintenance that do not extend the useful lives or improve productivity of the related assets are charged to expense as incurred. Interest costs

applicable to major asset additions are capitalized during the construction period. The cost of property, plant and equipment retired or otherwise disposed of and the related accumulated depreciation are removed from our accounts, and any resulting gain or loss is reflected in current operations.

Depreciation of property, plant and equipment is computed principally on the straight-line method over the estimated useful lives of assets.

Impairment of Long-Lived Assets. Long-lived assets, including property, plant and equipment and amortizable intangible assets are reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Impairment is assessed when the undiscounted expected cash flow derived from an asset is less than its recorded amount. Impairment losses are measured as the amount by which carrying value of an asset exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flow used to assess impairments and the fair value of an impaired asset.

Goodwill and Other Intangible Assets. Goodwill and other indefinite life intangible assets not subject to amortization are recorded at the lower of cost or implied fair value. Finite life intangible assets subject to amortization are recorded at cost less accumulated amortization provided on a straight-line basis over the intangible assets’ estimated useful lives. Goodwill and indefinite life intangibles are evaluated for potential impairment on an annual basis or whenever events or circumstances indicate that an impairment may have occurred. SFAS No. 142, Goodwill and Other Intangible Assets, requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test used to identify potential impairment compares the estimated fair value of the reporting unit containing goodwill with the related carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, the reporting unit’s goodwill is not considered to be impaired, and the second step of the impairment test is unnecessary. If the reporting unit’s carrying amount exceeds its estimated fair value, the second step test must be performed to measure the goodwill impairment loss, if any. The second step test compares the implied fair value of the reporting unit’s goodwill, determined in the same manner as the amount of goodwill recognized in a business combination, with the carrying amount of such goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill so calculated, an impairment loss is recognized in an amount equal to the excess.

Revenue Recognition. Revenue includes two categories, namely service revenue and revenue from sale of materials.

We generate service revenue from scrap management, scrap preparation, raw materials optimization, co-product processing, metal recovery and sales, material handling or product handling, slag processing and metal recovery services and surface conditioning. We recognize revenue from scrap management, scrap preparation, raw materials optimization, material handling or product handling, slag processing and metal recovery services and surface conditioning when we perform the service. We recognize revenue from co-product sales when title and risk of loss pass to the buyer.

Revenue from sale of materials is mainly generated by our raw materials procurement business. In addition to raw materials procurement, revenue from sale of materials also includes revenue from two locations in our pre-production materials handling business that purchase, process and sell scrap inventory for our own account in addition to receiving service revenue through scrap handling services to steel mill customers. We recognize revenue from sale of materials when title and risk of loss pass to the customer, which can be either F.O.B. shipping point or F.O.B. destination depending on terms of sale.

In our raw materials procurement business, we generally engage in two types of transactions that require different accounting treatment. For certain transactions, we facilitate the purchase or sale of raw materials between a buyer and seller for a volume based commission. The seller assumes the credit risk after delivery. At no point in the transaction do we take title to or assume the risk of loss of the material. We record only the commission as revenue on these transactions.

For other raw materials procurement transactions, we purchase the material from a seller and sell it to a buyer. In these transactions, we generally have discretion in supplier selection, and we take title to the material and assume the risk of loss for some period of time, usually during transit between the seller and the buyer. We also assume credit risk for the full amount billed to the customer. In these transactions, we record revenue from the sale of materials for the full value of the material based on the amount we invoice to our customer.

Health Insurance. We provide health insurance to approximately 40% of our employees through premium based indemnity plans. We provide health insurance to the rest of our employees under a self-insurance plan that uses a third party administrator to process and administer claims. We have stop-loss coverage through an insurer, in excess of a stated self-insured limit per employee. We maintain an accrual for unpaid claims and claims incurred but not reported.

Workers’ Compensation. We self-insure our workers’ compensation insurance under a large deductible program. Under this program, the maximum exposure per claim ranges from $0.25 million to $1 million depending on the policy year. Stop-loss coverage is maintained through an insurer for amounts above these retained limits. The aggregate maximum exposure is limited to a percentage of payroll for each open policy. We accrue for this expense in amounts that include estimates for incurred but not reported claims, as well as estimates for the ultimate cost of all known claims.

Share-Based Compensation. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123-R”). This statement replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123-R eliminates the ability to account for share-based compensation transactions using the intrinsic method. SFAS 123-R requires such transactions be accounted for using a fair-value-based method that would result in expense being recognized in our financial statements. SFAS 123-R is effective for fiscal years beginning after June 15, 2005. We elected to adopt the statement on October 1, 2005, and recorded $0.2 million of expense during each of the fourth quarter of 2005 and the first quarter of 2006 related to its adoption. The impact of SFAS 123-R on us will depend on share-based compensation programs implemented by us. Under our current program, we expect that the adoption of SFAS 123-R will increase our operating expenses by approximately $0.6 million annually.

Results of Operations

Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005

The following table sets forth each of the line items in our statement of operations for each of the periods indicated and the changes between the periods in terms of dollar amounts and percentage changes. The table also provides a reconciliation of total revenue to net revenue for each of the periods presented.


	Three months ended March 31,						Dollar changes			Percent changes
	2005			2006			Dollar changes			Percent changes
	(In thousands of dollars)									(%)
Statement of Operations Data:
Revenue:
Revenue from sale of materials	$	254,080		$	232,024		$	(22,056	)	(8.7	)%
Service revenue		73,258			76,053			2,795		3.8

Total revenue		327,338			308,077			(19,261	)	(5.9	)
Costs and expenses:
Cost of scrap shipments		246,822			221,871			(24,951	)	(10.1	)
Site operating costs		49,839			56,276			6,437		12.9
Selling, general and administrative expenses		10,243			10,120			(123	)	(1.2	)
Depreciation		11,866			11,746			(120	)	(1.0	)
Amortization		1,675			1,804			129		7.7

Total costs and expenses		320,445			301,817			(18,628	)	(5.8	)

Income from operations		6,893			6,260			(633	)	(9.2	)
Interest expense, net		(5,023	)		(8,050	)		(3,027	)	60.3
Income (loss) from equity investments		25			(5	)		(30	)	(120.0	)

Income (loss) before income taxes		1,895			(1,795	)		(3,690	)	(194.7	)
Income tax (expense) benefit		(453	)		954			1,407		(310.6	)

Net income (loss)	$	1,442		$	(841	)	$	(2,283	)	(158.3	)

Non-GAAP Financial Measures:
Net revenue:
*Consolidated*
Total revenue	$	327,338		$	308,077		$	(19,261	)	(5.9	)%
Cost of scrap shipments		(246,822	)		(221,871	)		24,951		(10.1	)
Income (loss) from equity investments		25			(5	)		(30	)	(120.0	)

Net revenue	$	80,541		$	86,201		$	5,660		7.0

*IMS Division*
Total revenue	$	62,147		$	67,145		$	4,998		8.0
Cost of scrap shipments		(388	)		(336	)		52		(13.4	)
Income (loss) from equity investments		—			—			—		—

Net revenue	$	61,759		$	66,809		$	5,050		8.2

*Tube City Division*
Total revenue	$	265,191		$	240,932		$	(24,259	)	(9.1	)
Cost of scrap shipments		(246,434	)		(221,535	)		24,899		(10.1	)
Income (loss) from equity investments		25			(5	)		(30	)	(120.0	)

Net revenue	$	18,782		$	19,392		$	610		3.2

Total Revenue. Total revenue for the first quarter of 2006 was $308.1 million compared to $327.3 million for the first quarter of 2005, a decrease of $19.3 million or 5.9%. Revenue from sales of materials declined by $22.1 million, accompanied by a decline in the cost of scrap shipments of $25.0 million related to a decrease in the market price of the raw materials we procured for our customers. The decline in market price generally had an offsetting effect on both line items and had a minimal impact on our income from operations. Service revenue increased $2.8 million or 3.8% as a result of new customers and additional mill volume. The items that affect service revenue generally impact net revenue and are discussed below.

IMS Division total revenue increased by $5.0 million to $67.1 million. Factors that affected the IMS Division increase in total revenue also affected net revenue and are discussed below. Tube City Division total revenue decreased by $24.3 million to $240.9 million primarily as a result of lower scrap prices, but that decline was accompanied by a decline in the cost of scrap shipments of $24.9 million.

Net Revenue. Net revenue for the first quarter of 2006 was $86.2 million compared to $80.5 million for the same period in 2005, an increase of $5.7 million or 7.0%.

IMS Division net revenue increased $5.1 million to $66.8 million. The following factors contributed to the increase:

•

We entered into new contracts at two sites in 2005, but due to the timing of entering into those agreements, those sites produced only $0.3 million of net revenue in the first quarter of 2005. Those same sites produced $4.4 million of net revenue in first quarter of 2006.

•

We acquired two businesses in the first quarter of 2006. One of the businesses contributed $0.5 million of net revenue in March 2006, and the other had no impact on net revenue in the first quarter of 2006.

•

A customer permanently shut down its steel making operation in June 2005 resulting in a decrease in net revenue of approximately $2.1 million in the first quarter of 2006 compared to the first quarter of 2005.

•

Our largest customer temporarily idled one of its largest facilities to make capital additions. The facility was restarted midway through the first quarter of 2006, but the lost production associated with the idling and the ramp up period resulted in a $0.5 million reduction in net revenue in the first quarter of 2006 compared to the same period in 2005.

•

Approximately 71% of IMS Division sites increased net revenue in the first quarter of 2006 compared to the same period in 2005, helping to offset the net revenue reductions associated with customer outages.

Tube City Division net revenue increased $0.6 million to $19.4 million primarily as a result of increased volume at our scrap processing yards and increased raw materials procurement volume.

Site Operating Costs. Site operating costs for the first quarter of 2006 were $56.3 million compared to $49.8 million in the first quarter of 2005, an increase of $6.4 million or 12.9%. IMS Division site operating costs increased $6.4 million to $48.6 million. Factors that drove the revenue increase at the IMS Division also contributed to the increase in site operating costs as the addition of two new sites added $3.3 million to site operating costs. We acquired two businesses in the first quarter of 2006. One of the businesses resulted in $0.5 million of additional operating costs. The other business we acquired had no impact on operating costs. Other IMS Division sites also experienced increases in site operating costs primarily related to fuel costs, which were $0.8 million higher in the first quarter of 2006 than in the same period in 2005, and the cost of tires for mobile equipment, which increased $0.3 million. Tube City Division site operating costs in the first quarter of 2006 were $7.7 million, consistent with those in the first quarter of 2005. As a percentage of net revenue, site operating costs increased from 61.9% in the first quarter of 2005 to 65.3% in the first quarter of 2006 driven largely by increased fuel and tire costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the first quarter of 2006 were $10.1 million, which were comparable to the first quarter of 2005 when we incurred $10.2 million in selling, general and administrative expenses.

EBITDA. EBITDA for the first quarter of 2006 was $19.8 million, compared to $20.5 million in the first quarter of 2005, a decrease of $0.7 million or 3.2%. IMS Division EBITDA decreased $1.3 million to $15.1 million. The following factors contributed to the decrease:

•

A customer permanently shut down its primary steel making operation in June 2005 resulting in a decrease of approximately $0.7 million in EBITDA in the first quarter of 2006 compared to the same period in 2005.

•

Our largest customer temporarily idled one of its largest facilities to make capital additions. The facility was restarted midway through the first quarter of 2006, but the lost production associated with the idling and the ramp up period resulted in a $0.5 million decline in EBITDA in the first quarter of 2006 compared to the same period in 2005.

Tube City Division EBITDA in the first quarter of 2006 was $8.4 million, which was comparable to the prior year. Our corporate administration costs decreased $0.8 million to $9.1 million in the first quarter of 2006 compared to the first quarter of 2005, increasing our EBITDA.

Expenses incurred by our administrative segment were $3.7 million in the first quarter of 2006 and $4.4 million in the first quarter of 2005. See Note 11 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

Depreciation and Amortization. Depreciation expense for the first quarter of 2006 was $11.7 million compared to $11.9 million in the first quarter of 2005, a decrease of approximately $0.1 million or 1.0%. Amortization expense for the first quarter of 2006 was $1.8 million compared to $1.7 million for the same period in 2005, an increase of $0.1 million or 7.7%. The increase in amortization expense resulted from the amortization of contract intangible assets acquired in the second quarter of 2005 when the IMS Division acquired a long-term contract at a new customer location.

Interest Expense. Interest expense for the first quarter of 2006 was $8.1 million compared to $5.0 million for the first quarter of 2005, an increase of $3.0 million or 60.3%. This increase is attributed to increased debt associated with a fourth quarter 2005 refinancing that added an additional $65.0 million of outstanding first lien term debt. The additional $65.0 million in outstanding debt increased our interest expense by $1.2 million in the first quarter of 2006 compared to the first quarter of 2005, while general increases in interest rates and the margins on variable rate debt increased our interest expense by $1.7 million.

Income Tax Benefit. The income tax benefit for the first quarter of 2006 was $1.0 million or 53.1% of our pre-tax loss, compared to a $0.5 million provision or 23.9% of our pre-tax income for the same period in 2005, a change of $1.4 million. The increase in the effective rate was driven by the amount of permanent differences relative to the estimated annual pre-tax income (loss).

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

As a result of the IMS Transaction and the resulting change in ownership, under GAAP we are required to present separately in our audited 2004 financial statements our operating results for the predecessor period of January 1, 2004 to October 26, 2004 and the successor period of October 27, 2004 to December 31, 2004. Due to the different accounting periods created in 2004, we believe that presenting our 2004 results on an arithmetically combined basis provides a more useful presentation. Where we refer to financial measures given on a “non-GAAP combined” basis, we refer to the arithmetic sum of our predecessor period and successor period in 2004, without giving effect to purchase accounting for the full year, cost savings, interest expense or other pro forma adjustments resulting from the IMS Transaction and the Tube City Acquisition. When we discuss changes in our results of operations between 2004 and 2005 by segment, we make comparisons between the 2005 results of our Tube City Division segment (whose operations are included in the successor period commencing on December 22, 2004) and the Scrap Division segment of Tube City Holdings, LLC for the period from January 1, 2004 to December 21, 2004. That analysis therefore compares results of different companies over different periods using different bases of accounting and may not be indicative of future results of the segment. See “—Matters Impacting Comparability of Results.” We believe that such comparisons are useful in evaluating our financial performance.

The following table sets forth each of the line items in our statement of operations for each of the periods indicated and the changes between the periods in terms of dollar amounts. The table also provides a reconciliation of total revenue to net revenue for each of the periods presented.


	Historical predecessor company January 1 - October 26, 2004			Historical successor company October 27 - December 31, 2004			Non-GAAP combined year ended December 31, 2004			Historical successor company year ended December 31, 2005			Fiscal year 2005 compared to non-GAAP combined 2004 dollar changes			Historical Tube City Holdings, LLC January 1 - December 21, 2004
	(In thousands of dollars)
Statement of Operations Data:
Revenue:
Revenue from sale of materials	$	—		$	20,122		$	20,122		$	832,531		$	812,409		$	994,703
Service revenue		144,048			34,586			178,634			290,919			112,285			107,645

Total revenue		144,048			54,708			198,756			1,123,450			924,694			1,102,348
Costs and expenses:
Cost of scrap shipments		—			14,092			14,092			794,744			780,652			953,915
Site operating costs		94,339			28,044			122,383			207,297			84,914			72,024
Selling, general and administrative expenses		9,679			3,533			13,212			39,874			26,662			29,422
Compensation provided as a result of business combinations		10,019			—			10,019			—			(10,019	)		8,332
Expenses associated with withdrawn public offerings		2,129			—			2,129			5,028			2,899			—
Depreciation		20,763			6,117			26,880			49,623			22,743			11,337
Amortization		596			864			1,460			7,039			5,579			169

Total costs and expenses		137,525			52,650			190,175			1,103,605			913,430			1,075,199

Income from operations		6,523			2,058			8,581			19,845			11,264			27,149
Loss on debt extinguishment		—			(7,010	)		(7,010	)		(2,812	)		4,198			(636	)
Interest expense, net		(8,648	)		(2,522	)		(11,170	)		(23,950	)		(12,780	)		(5,544	)
Income (loss) from equity investments		—			10			10			(99	)		(109	)		666

(Loss) income before income taxes		(2,125	)		(7,464	)		(9,589	)		(7,016	)		2,573			21,635
Income tax benefit (expense)		224			2,512			2,736			2,332			(404	)		(32	)

(Loss) income from continuing operations	$	(1,901	)	$	(4,952	)	$	(6,853	)	$	(4,684	)	$	2,169		$	21,603

Non-GAAP Financial Measures:
Net revenue:
*Consolidated*
Total revenue	$	144,048		$	54,708		$	198,756		$	1,123,450		$	924,694		$	1,102,348
Cost of scrap shipments		—			(14,092	)		(14,092	)		(794,744	)		(780,652	)		(953,915	)
Income (loss) from equity investments		—			10			10			(99	)		(109	)		666

Net revenue	$	144,048		$	40,626		$	184,674		$	328,607		$	143,933		$	149,099


	Historical predecessor company January 1 - October 26, 2004		Historical successor company October 27 - December 31, 2004			Non-GAAP combined year ended December 31, 2004			Historical successor company year ended December 31, 2005			Fiscal year 2005 compared to non-GAAP combined 2004 dollar changes
	(In thousands of dollars)
*IMS Division*
Total revenue	$	144,048	$	33,757		$	177,805		$	256,540		$	78,735
Cost of scrap shipments		—		—			—			(2,063	)		(2,063	)
Income (loss) from equity investments		—		—			—			—			—

Net revenue	$	144,048	$	33,757		$	177,805		$	254,477		$	76,672

*Tube City Division*
Total revenue	$	—	$	20,951		$	20,951		$	866,910		$	845,959
Cost of scrap shipments		—		(14,092	)		(14,092	)		(792,681	)		(778,589	)
Income (loss) from equity investments		—		10			10			(99	)		(109	)

Net revenue	$	—	$	6,869		$	6,869		$	74,130		$	67,261

Total Revenue. Total revenue for 2005 was $1,123.5 million compared to $198.8 million for non-GAAP combined 2004, an increase of $924.7 million. Of this increase, $915.6 million was due to the inclusion of a full year of operations of Tube City during 2005 compared to 10 days of Tube City operations in 2004.

IMS Division total revenue for 2005 was $256.5 million compared to $177.8 million for non-GAAP combined 2004, an increase of $78.7 million. Of this increase, $69.6 million was due to inclusion of a full year of operations of Tube City whose Slag Division became part of our IMS Division following the Tube City Acquisition. Total revenue in 2005 of the sites formerly comprising Tube City’s Slag Division was comparable to total revenue of Tube City’s Slag Division for the period from January 1, 2004 to December 21, 2004. Excluding the impact of the Tube City Acquisition, IMS Division total revenue increased $9.1 million. Factors that affected IMS Division total revenue also affected net revenue and are discussed below.

Tube City Division total revenue for 2005 was $866.9 million compared to $21.0 million for non-GAAP combined 2004, an increase of $845.9 million. The entire amount of the increase was due to the inclusion of a full year of Tube City’s operations in 2005 compared to only 10 days in 2004. For the period January 1, 2004 to December 21, 2004, Tube City’s Scrap Division (which became our Tube City Division following the Tube City Acquisition) had total revenue of $1,033.6 million. Our Tube City Division total revenue for 2005 was $166.7 million lower than the total revenue of Tube City’s Scrap Division for the period from January 1, 2004 to December 21, 2004. In addition to the 10-day shorter period, the following factors contributed to the decrease:

•

Revenue from the sale of materials declined due to lower scrap prices and the planned transition of customers to agency arrangements, in which we record an agency fee rather than revenue for the full sales value of the material. Lower scrap prices and lower sales volume as a result of the transition to agency arrangements were accompanied by corresponding decreases in our cost of scrap shipments. A decline in the market price of scrap had a generally offsetting effect on both line items and a minimal impact on net revenue and income from operations.

•

A contract to provide exclusive outsourced purchasing services to a customer expired in November 2004. In 2005, we still provided outsourced purchasing services to that customer, but were no longer under an exclusive arrangement with that customer, resulting in a decline in total revenue of $47.7 million. The decline in total revenue was largely offset by a corresponding decline in the cost of scrap shipments to that customer.

Net Revenue. Net revenue for 2005 was $328.6 million compared to $184.7 million of non-GAAP combined 2004, an increase of $143.9 million. Of this increase, $135.3 million was due to the inclusion of a full year of Tube City operations during 2005 compared to 10 days of Tube City operations in 2004.

IMS Division net revenue for 2005 was $254.5 million compared to $177.8 million in non-GAAP combined 2004, an increase of $76.7 million. Of this increase $68.1 million was due to the inclusion of a full year of

operations of Tube City, whose Slag Division became part of our IMS Division following the Tube City Acquisition. Net revenue in 2005 of the sites formerly comprising Tube City’s Slag Division was comparable to net revenue of Tube City’s Slag Division for the period from January 1, 2004 to December 21, 2004. Excluding the impact of the Tube City Acquisition, IMS Division net revenue increased $8.6 million. The following factors contributed to the increase:

•

Two new slag processing and metal recovery sites contributed an additional $11.0 million in 2005.

•

Two sites that were added in mid-2004 contributed $1.9 million more in 2005 than in non-GAAP combined 2004.

•

The permanent shut down of primary steel making operations in June of 2005 of a customer resulted in a decline in net revenue of $5.7 million in 2005 compared to non-GAAP combined 2004. That decline was partially offset by improved volumes across other customer sites.

•

Our largest customer temporarily idled one of its largest facilities in order to make significant capital upgrades. The idling and the corresponding reduction in volume reduced IMS Division net revenue by $2.7 million.

•

Approximately 69% of the other customer sites in the IMS Division increased net revenue in 2005 compared to non-GAAP combined 2004, helping to partially offset the net revenue reductions associated with customer outages.

Tube City Division net revenue for 2005 was $74.1 million compared to $6.9 million in non-GAAP combined 2004, an increase of $67.3 million. Substantially all of the increase was due to the inclusion of a full year of Tube City’s operations in 2005 compared to only 10 days in 2004. For the period from January 1, 2004 to December 21, 2004, Tube City’s Scrap Division had net revenue of $82.3 million. Our Tube City Division net revenue for 2005 was $8.2 million lower than Tube City’s Scrap Division net revenue for the period from January 1, 2004 to December 21, 2004. The following factors contributed to the decrease:

•

A decline in profit margin to more typical levels at the processing sites where we sell scrap for our own account caused a $6.2 million decline in net revenue.

•

Revenue from one optimization site was $4.8 million lower in 2005 due to a negotiated contract change from a shared savings arrangement that fluctuated with market prices to a long-term fixed fee-per-ton. Although the change resulted in lower revenue in 2005, we expect to generate a less volatile revenue stream in the long-term from the new arrangement. That net revenue reduction was partially offset by $2.9 million in net revenue from new service contracts.

Site Operating Costs. Site operating costs for 2005 were $207.3 million compared to $122.4 million for non-GAAP combined 2004, an increase of $84.9 million. Most of the increase was due to the inclusion of a full year of operations of Tube City during 2005, compared to 10 days of Tube City operations in 2004.

IMS Division site operating costs for 2005 were $179.3 million compared to $116.8 million in non-GAAP combined 2004, an increase of $62.5 million. Of this increase, $47.0 million was due to the inclusion of a full year of operations of Tube City, whose Slag Division became part of our IMS Division following the Tube City Acquisition. Site operating costs in 2005 of the sites formerly comprising Tube City’s Slag Division were approximately $1.0 million greater than site operating costs of Tube City’s Slag Division for the period from January 1, 2004 to December 21, 2004, driven largely by $0.8 million of additional costs incurred during one customer’s transition from an integrated steelmaking facility to a minimill facility. Excluding the impact of the Tube City Acquisition, IMS Division site operating cost increased $15.5 million. The following factors contributed to the increase:

•

The IMS Division won contracts for two new customer sites in 2005, which resulted in additional revenue but also resulted in $10.7 million of additional operating costs.

•

Fuel costs increased by $3.3 million in 2005 due mainly to higher prices for diesel fuel used to operate mobile equipment.

Tube City Division site operating costs for 2005 were $28.0 million compared to $5.5 million in non-GAAP combined 2004, an increase of $22.5 million. Substantially all of the increase was due to the inclusion of a full year of Tube City’s operations in 2005 compared to only 10 days in 2004. For the period from January 1, 2004 to December 21, 2004, Tube City’s Scrap Division had site operating costs of $26.1 million. Our Tube City Division site operating costs for 2005 were $1.9 million higher than the site operating costs of Tube City’s Scrap Division for the period from January 1, 2004 to December 21, 2004 due primarily to the extra 10-day period and an increase in fuel prices.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for 2005 were $39.9 million compared to $13.2 million for non-GAAP combined 2004, an increase of $26.7 million. Most of the increase was due to the inclusion of a full year of operations of Tube City during 2005, compared to 10 days of Tube City operations in 2004, which had the effect of increasing 2005 selling, general and administrative expenses by $27.9 million.

Compensation Provided as a Result of Business Combination. In non-GAAP combined 2004, our predecessor company incurred $10.0 million in compensation costs related to business combinations as the IMS Transaction resulted in the accelerated vesting of rights under the predecessor company’s stock appreciation rights plan. The total amount owed under the plan was paid out immediately following the acquisition of the predecessor company, and the plan was terminated. There was no such cost in 2005.

Expenses Associated with Withdrawn Public Offerings. In 2005, we incurred $5.0 million in expenses associated with a Canadian Income Participating Security offering that was withdrawn. In non-GAAP combined 2004, we incurred $2.1 million in charges related to a similar Canadian public offering that was withdrawn by our predecessor company. When the offerings were withdrawn, these items were charged to operating expense.

Depreciation. Depreciation expense for 2005 was $49.6 million compared to $26.9 million of non-GAAP combined deprecation for 2004, an increase of $22.7 million. A portion of the increase was due to the inclusion of a full year of operations of Tube City during 2005, compared to 10 days of Tube City operations in 2004. The Tube City Acquisition resulted in the recording of $30.7 million in fair value of property, plant and equipment acquired, which had the effect of increasing depreciation expense by approximately $13.0 million. The following factors also contributed to the increased depreciation expense between 2005 and 2004 on a non-GAAP combined basis:

•

The IMS Transaction resulted in an increase in the balance of property, plant and equipment of $25.1 million to state assets at their fair value. In 2005, we incurred a full year of depreciation related to that adjustment to fair value as compared to just over two months in non-GAAP combined 2004, resulting in an increase in depreciation of approximately $8.2 million.

•

Capital expenditures in 2005 also resulted in additional depreciation, but such addition was largely offset by decreases associated with assets reaching the end of their estimated useful lives.

Amortization. Amortization expense for 2005 was $7.0 million compared to $1.5 million in non-GAAP combined 2004, an increase of $5.6 million. The IMS Transaction and the Tube City Acquisition resulted in the recording of finite life intangible assets, which are amortized over periods ranging from nine to 25 years. See “—Matters Impacting Comparability of Results—The IMS Transaction and Tube City Acquisition.” Finite life intangible assets associated with the IMS Transaction and the Tube City Acquisition resulted in amortization expense totaling $6.5 million for 2005.

Additionally, in the second quarter of 2005, we recorded a finite life intangible asset of $5.5 million in connection with our buyout of a competitor’s service contract with a customer. The amount represents the difference between our buyout cost and the fair value of the tangible assets purchased to service the contract. The resulting intangible asset is being amortized over the 10 year life of our contract, and we recorded amortization expense of $0.4 million related thereto in 2005.

Loss on Debt Extinguishment. In October 2005, we amended and restated our then-outstanding credit facility to add $65.0 million of additional first lien term debt and an additional $10.0 million of revolving credit capacity. We charged $2.8 million as a loss on the extinguishment of the previous debt. In December 2004, we refinanced our existing debt with a new $315.0 million term loan facility, incurring $7.0 million debt extinguishment costs in the process.

Interest Expense. Interest expense for 2005 was $24.0 million compared to $11.2 million of non-GAAP combined interest expense for 2004, an increase of $12.8 million. In connection with both the IMS Transaction and the Tube City Acquisition, we increased our outstanding term debt. Immediately prior to the IMS Transaction, we had $71.7 million of outstanding term debt. In connection with the IMS Transaction, we refinanced that term debt with a $155.0 million of new term loans. In connection with the Tube City Acquisition, we amended the term loans to add $160.0 million of term debt. In October, 2005, we again amended our credit facility to add an additional $65.0 million of term debt. As a result of these transactions, our average outstanding term debt in 2005 was $325.9 million compared to $94.6 million in non-GAAP combined 2004. The greater outstanding term debt resulted in an increase in interest expense of approximately $12.5 million in 2005 compared to non-GAAP combined 2004.

Income Tax Benefit. Our income tax benefit for 2005 was $2.3 million, representing an effective rate of 33%, compared to $2.7 million in non-GAAP combined 2004, representing an effective rate of 23%. The change in the effective rate was primarily driven by a permanent difference in 2004 related to a valuation allowance on deferred tax assets in 2004 that was not required in 2005.

Combined Non-GAAP Unaudited Year Ended December 31, 2004 Compared to Year Ended December 31, 2003


	Historical predecessor company year ended December 31, 2003			Historical predecessor company January 1 - October 26, 2004			Historical successor company October 27 - December 31, 2004			Non-GAAP combined year ended December 31, 2004			Non-GAAP combined 2004 compared to fiscal year 2003 dollar changes			Non-GAAP combined 2004 compared to fiscal year 2003 percent changes
				(In thousands of dollars)												(%)
Statement of Operations Data:
Revenue:
Revenue from sale of materials	$	—		$	—		$	20,122		$	20,122		$	20,122		—
Service revenue		164,687			144,048			34,586			178,634			13,947		8.5	%

Total revenue		164,687			144,048			54,708			198,756			34,069		20.7

Costs and expenses:
Cost of scrap shipments		—			—			14,092			14,092			14,092		—
Site operating costs		111,079			94,339			28,044			122,383			11,304		10.2
Selling, general and administrative expenses		13,483			9,679			3,533			13,212			(271	)	(2.0	)
Compensation provided as a result of business combinations		3,688			10,019			—			10,019			6,331		171.7
Expenses associated with withdrawn public offerings		—			2,129			—			2,129			2,129		—
Depreciation		25,061			20,763			6,117			26,880			1,819		7.3
Amortization		952			596			864			1,460			508		53.4

Total costs and expenses		154,263			137,525			52,650			190,175			35,912		23.3

Income from operations		10,424			6,523			2,058			8,581			(1,843	)	(17.7	)
Loss on debt extinguishment		(1,448	)		—			(7,010	)		(7,010	)		(5,562	)	384.1
Interest expense, net		(9,158	)		(8,648	)		(2,522	)		(11,170	)		(2,012	)	22.0
Income from equity investments		—						10			10			10		—
Other income		3,144			—			—			—			(3,144	)	(100.0	)

Income (loss) before income taxes		2,962			(2,125	)		(7,464	)		(9,589	)		(12,551	)	(423.7	)
Income tax (expense) benefit		(990	)		224			2,512			2,736			3,726		(376.4	)

Net income (loss)	$	1,972		$	(1,901	)	$	(4,952	)	$	(6,853	)	$	(8,825	)	(447.5	)

Non-GAAP Financial Measures:
Net revenue:
*Consolidated*
Total revenue	$	164,687		$	144,048		$	54,708		$	198,756		$	34,069		20.7	%
Cost of scrap shipments		—			—			(14,092	)		(14,092	)		(14,092	)	—
Income from equity investments		—			—			10			10			10		—

Net revenue	$	164,687		$	144,048		$	40,626		$	184,674		$	19,987		12.1


	Historical predecessor company year ended December 31, 2003		Historical predecessor company January 1 - October 26, 2004		Historical successor company October 27 - December 31, 2004			Non-GAAP combined year ended December 31, 2004			Non-GAAP combined 2004 compared to fiscal year 2003 dollar changes			Non-GAAP combined 2004 compared to fiscal year 2003 percent changes
			(In thousands of dollars)											(%)
*IMS Division*
Total revenue	$	164,687	$	144,048	$	33,757		$	177,805		$	13,118		8.0	%
Cost of scrap shipments		—		—		—			—			—		—
Income (loss) from equity investments		—		—		—			—			—		—

Net revenue	$	164,687	$	144,048	$	33,757		$	177,805		$	13,118		8.0

*Tube City Division*
Total revenue	$	—	$	—	$	20,951		$	20,951		$	20,951
Cost of scrap shipments		—		—		(14,092	)		(14,092	)		(14,092	)
Income (loss) from equity investments		—		—		10			10			10

Net revenue	$	—	$	—	$	6,869		$	6,869		$	6,869

Total Revenue. Total revenue for non-GAAP combined 2004 was $198.8 million compared to $164.7 million in 2003, representing an increase of $34.1 million or 20.7%. Of that increase, $22.6 million, including $20.1 million of revenue from sale of materials, related to revenue generated by Tube City after its acquisition on December 21, 2004. Excluding the effect of the Tube City acquisition, total revenue increased $11.5 million or 7.0%. The following factors contributed to the increase:

•

Increased raw steel production volume at our customer sites that resulted in increased revenue for slag processing of approximately $2.7 million, higher recovered metal and co-product sales of approximately $3.4 million and increases in other services such as slab hauling of approximately $4.0 million.

•

In 2004, we began providing services related to two new contracts resulting in $3.0 million of additional revenue.

Cost of Scrap Shipments. The cost of scrap shipments of $14.1 million in the non-GAAP combined 2004 results relates entirely to the operations of Tube City after its acquisition.

Site Operating Costs. Site operating costs for non-GAAP combined 2004 were $122.4 million compared to $111.1 million for 2003, representing an increase of $11.3 million or 10.2%. Of that increase, $6.9 million related to Tube City after its Acquisition on December 21, 2004. Excluding the effect of the Tube City Acquisition, site operating costs increased $4.5 million or 4.0%. The following factors contributed to the increase:

•

Increased raw steel production, which resulted in an increase in revenue, also resulted in an increase in our site operating costs, including a $1.0 million increase in wages and benefits and a $0.5 million increase in repair and maintenance expense.

•

Fuel costs increased $1.7 million due mainly to higher prices for diesel fuel.

•

Royalty costs increased $0.5 million as a result of greater co-product sales.

Selling, General and Administration Expenses. Selling, general and administrative expenses for non-GAAP combined 2004 were $13.2 million compared to $13.5 million for 2003, representing a decrease of $0.3 million or 2.0%.

Compensation Provided as a Result of Business Combinations. In non-GAAP combined 2004, our predecessor company incurred $10.0 million in compensation costs related to business combinations as the IMS Transaction resulted in accelerated vesting of rights under the predecessor company’s stock appreciation rights plan. The total amount owed under the plan was paid out immediately following the IMS Transaction, and the plan was terminated.

During 2003, our predecessor company offered to repurchase certain vested stock appreciation rights then outstanding. Accordingly, all of the outstanding rights were re-valued, and the predecessor company recorded $3.7 million in compensation expense.

Depreciation and Amortization. Depreciation expense in non-GAAP combined 2004 was $26.9 million compared to $25.1 million in 2003, representing an increase of $1.8 million or 7.3%. The increase resulted from a $25.1 million increase in the carrying value of our property, plant and equipment in conjunction with the IMS Transaction to reflect the fair market value of those assets and from additional capital employed at new and existing sites. Amortization expense in non-GAAP combined 2004 was $1.5 million compared to $1.0 million in 2003, representing an increase of $0.5 million or 53.4%. The increase in amortization expense was primarily due to additional amortizable intangible assets of $114.1 million recorded in connection with the IMS Transaction and the Tube City Acquisition.

Interest Expense. Interest expense was $11.2 million in non-GAAP combined 2004 compared to $9.2 million for 2003, an increase of $2.0 million or 22.0%. This increase is attributed to increased debt associated with the IMS Transaction and the Tube City Acquisition. Total indebtedness increased from $93.7 million at December 31, 2003 to $326.8 million at December 31, 2004.

Income Tax Benefit. The effective tax rate of 28.5% in non-GAAP combined 2004 resulted in an income tax benefit of $2.7 million compared to income tax expense of $1.0 million at an effective rate of 33.4% in 2003. The effective rates are less than the statutory rate of 35% due principally to the tax effects of permanent differences in the amount of $0.9 million in the non-GAAP combined 2004 and the effect of state taxes ($0.5 million expense), accretion of preferred stock ($0.3 million expense) and a decrease in the valuation allowance for deferred taxes of $0.8 million for 2003. See Note 6 to our audited consolidated financial statements included elsewhere in this prospectus.

Liquidity and Capital Resources

Our working capital needs are largely created by changes in accounts receivable and accounts payable associated with our outsourced purchasing activities. Fluctuations in accounts receivable and accounts payable can have a significant short-term impact based on the timing of receipts from our customers and payments to our vendors, but such fluctuations tend to be less volatile over the longer term. Our inventory consists of a small volume of scrap we sell for our own account, spare parts for equipment repairs and raw material shipments in transit. Inventory fluctuations are generally not significant in comparison to the fluctuations in accounts receivable and accounts payable. We had cash and cash equivalent balances of $8.3 million and $16.6 million on March 31, 2006 and December 31, 2005, respectively. After reductions for revolving loans and letters of credit outstanding, we had availability under our revolving credit facility of $52.5 million and $52.1 million on March 31, 2006 and December 31, 2005, respectively. We believe that cash flow from operations, together with our revolving credit facility, will be sufficient to fund our 2006 operating, capital and debt service requirements.

Cash Flow

Cash flow provided by operations for the three months ended March 31, 2006 was $3.0 million compared to net cash used in operations of $5.2 million for the same period in 2005, an increase of $8.2 million. Operating results for the first quarter of 2006 were slightly lower than the first quarter of 2005, but cash used by working capital in the first quarter of 2006 was $6.5 million compared to $20.0 million for the same quarter in 2005. The primary reason for the difference in the two periods was the extension of additional trade credit to existing customers in the first quarter of 2005 to stimulate additional business opportunities.

Net cash used in investing activities in the first quarter of 2006 was $9.5 million, consisting primarily of $7.6 million in capital expenditures and $1.7 million in cash used to acquire new businesses. Net cash used in investing activities in the first quarter of 2005 was $11.7 million, consisting almost entirely of capital expenditures.

Net cash used in financing activities in the first quarter of 2006 was $1.8 million and included scheduled principal payments of $0.8 million on our first lien term loan and $1.0 million related to capital lease and other obligations. Cash provided by financing activities in the first quarter of 2005 was $6.0 million and included net borrowings under our revolving credit facility of $7.0 million and $1.0 million in proceeds from issuing shares to some of our management employees, partially offset by $2.1 million in payments of term debt and capital lease obligations.

We generated $44.0 million in cash from operations during 2005 and $16.1 million in cash from operations during the period from October 27, 2004 to December 31, 2004. Our predecessor company generated $27.8 million in cash from operations during the period from January 1, 2004 to October 26, 2004. In 2005, operating cash outflows included $23.2 million of interest and $3.1 million of income taxes. Working capital also utilized $4.9 million of cash in 2005.

Net cash used in investing activities in 2005 was $53.2 million and included $47.1 million in capital additions and $5.6 million to acquire a long-term service contract at a customer location. Net cash used in investing activities during the period from October 27, 2004 to December 31, 2004 was $231.8 million and included $3.9 million of capital additions and $228.3 million used in connection with the IMS Transaction on October 26, 2004 and the Tube City Acquisition on December 21, 2004. Net cash used in investing activities for the period from January 1, 2004 to October 26, 2004 was $15.2 million and included $15.9 million in capital expenditures. The capital additions were greater in 2005 than in the 2004 periods due largely to the capital spending of Tube City in 2005, but also included $14.0 million in capital spending in connection with new contracts.

The net cash provided by financing activities in 2005 was $11.5 million and included $62.6 million of net proceeds from the October refinancing offset by a $45.7 million distribution to stockholders. Our 2005 financing activities also included $6.5 million of debt repayment and $1.0 million in proceeds from the sale of shares to some of our management employees. The net cash provided by financing activities in the period from October 27, 2004 to December 31, 2004 was $229.8 million and included all of the cash provided by financing activities associated with the IMS Transaction on October 26, 2004 and the Tube City Acquisition on December 21, 2004.

Indebtedness

At March 31, 2006, our total debt consisted of the following (in thousands):


	Current		Non-Current		Total
Revolving credit facility	$	—	$	—	$	—
First lien term debt		3,280		323,092		326,372
Second lien term debt		—		50,000		50,000
Capital leases and other		3,545		5,880		9,425

	$	6,825	$	378,972	$	385,797

On October 25, 2005, we amended and restated our credit facility (the “Second Amended and Restated Credit Agreement”) resulting in $65.0 million of additional first lien term debt and an increase in our revolving credit capacity by $10.0 million to $65.0 million. The proceeds of the transactions, which totaled $62.6 million after certain fees were deducted, were used to pay off $4.0 million of revolving loans then outstanding and pay a distribution to stockholders of $45.7 million. The remaining proceeds were held to pay fees associated with withdrawn public offerings and for general corporate purposes.

The Second Amended and Restated Credit Agreement provides a variety of affirmative and negative covenants including covenants related to financial performance. As of March 31, 2006 and December 31, 2005, we were in compliance with all the covenants under our Second Amended and Restated Credit Agreement.

The Second Amended and Restated Credit Agreement provides for a revolving credit facility and first and second lien term loans. A description of each of these components follows.

Revolving Credit Facility. The revolving credit facility provides for revolving loans up to $65 million to be made with variable interest rates based on a margin of 1.75% over prime rate for base rate loans and 2.75% over LIBOR for Eurodollar loans, at our option. The revolving credit facility also provides us with the ability to issue letters of credit up to $40 million with outstanding letters of credit reducing amounts otherwise available under the revolving credit facility. At March 31, 2006, we had $12.5 million of outstanding letters of credit. The revolving credit facility expires on October 26, 2009.

First Lien Term Loan. The first lien term loan has an outstanding balance of $326.4 million as of March 31, 2006 at variable interest rates based on a margin added to base rate loans and Eurodollar loans. The margin varies between 1.25% to 1.75% over prime rate for base rate loans and 2.25% and 2.75% over LIBOR for Eurodollar loans depending on our financial performance. The first lien term loan provides for 21 consecutive quarterly principal payments, which began on December 31, 2005. The first 17 principal payments are each in an amount equal to 0.25% of the original loan amount, the eighteenth principal payment is in an amount equal to 23.75% of the original loan amounts and the final three principal payments are each in an amount equal to 24.00% of the original loan amount. Beginning in the first quarter of 2007, the first lien term loan also carries mandatory prepayment provisions that vary in amount depending on our financial performance. The first lien term loan matures on December 31, 2010.

Second Lien Term Loan. The second lien term loan provides $50.0 million of funding at variable interest rates based on a margin added to base rate loans and Eurodollar loans. The margin varies from 4.5% to 5.00% over prime rate for base rate loans and 5.5% to 6.00% over LIBOR for Eurodollar loans depending on our financial performance. The Second Lien Term Loan matures on October 26, 2011 and provides for a single principal repayment of the entire amount on that date.

Covenant Compliance. LTM covenant EBITDA is used to determine our compliance with financial covenants included in our credit agreement. LTM covenant EBITDA is EBITDA for the trailing twelve month period further adjusted to eliminate management fees, transactional fees and expenses, non-cash option expense, other non-cash charges, write-off of debt issuance costs and extraordinary losses, each of which is more particularly defined in our credit agreement.

Our Second Amended and Restated Credit Agreement contains customary affirmative and negative covenants and requirements affecting us and our subsidiaries. Our Second Amended and Restated Credit Agreement also requires that we and our subsidiaries meet the following financial covenants:

•

a limitation on capital expenditures of $30.0 million per year; provided, that up to 50% of such amount, if not so expended in any fiscal year, may be carried over for expenditure in the next fiscal year. Additional amounts of capital expenditures may be available, not to exceed $80.0 million during the term of our Second Amended and Restated Credit Agreement, for, among other things, new customer contracts, the extension or renewal of an existing customer contract and any other amendment or modification to an existing customer contract, including the addition of new services or improvements at existing sites;

•

the maintenance of a maximum consolidated leverage ratio (total debt to LTM covenant EBITDA) as of the last day of any period of four consecutive fiscal quarters ended (a) on or prior to September 30, 2006 of 5.00 to 1.00, (b) from December 31, 2006 to September 30, 2007 of 4.75 to 1.00, (c) from December 31, 2007 to September 30, 2008 of 4.50 to 1.00, (d) from December 31, 2008 to September 30, 2009 of 4.00 to 1.00, (e) from December 31, 2009 to September 30, 2010 of 3.50 to 1.00 and (f) on or after December 31, 2010 of 3.25 to 1.00;

•

the maintenance of a maximum consolidated first lien leverage ratio (first lien debt to LTM covenant EBITDA) as of the last day of any period of four consecutive fiscal quarters ended (a) on or prior to September 30, 2006 of 4.50 to 1.00, (b) from December 31, 2006 to September 30, 2007 of 4.00 to 1.00,

(c) from December 31, 2007 to September 30, 2008 of 3.75 to 1.00, (d) from December 31, 2008 to September 30, 2009 of 3.50 to 1.00, (e) from December 31, 2009 to September 30, 2010 of 3.00 to 1.00 and (f) on or after December 31, 2010 of 2.75 to 1.00; and

•

the maintenance of a minimum consolidated interest coverage ratio (LTM covenant EBITDA to twelve month interest expense) for any period of four consecutive fiscal quarters ended (a) from December 31, 2005 to December 31, 2007 of 2.75 to 1.00 and (b) on or after March 31, 2008 of 3.00 to 1.00.

Our failure to maintain these ratios in compliance with our debt covenants would result in an event of default under our credit agreement, in which case we would be unable to borrow under our revolving credit facility and all outstanding amounts under our credit facility could be declared due and payable by the lenders. As of December 31, 2005 and March 31, 2006, we were in compliance with our financial covenant ratios under our credit facility.

We expect to use substantially all of the proceeds from this offering to repay existing indebtedness under our credit facility. See “Use of Proceeds.”

Capital Leases and Other. From time to time we enter into lease arrangements with unrelated parties to finance the acquisition of equipment used on our job sites.

Capital Expenditures

If current industry conditions continue, we expect our capital expenditures to maintain our current level of operations budget for 2006 to be approximately $28.0 million, including $7.1 million in buyouts of capital equipment leases. We have made, and we expect we will be required to make, significant capital expenditures each year to keep our equipment operational to meet the demands of our customers and to begin operating at new sites following contract wins. Depending on the scope of services provided, we will incur capital expenditures in connection with newly added sites and services. For the three months ended March 31, 2006, we invested $2.1 million in the expansion of our operations at new sites or the performance of additional services and we expect to spend an additional $10.0 million in 2006. We will continue to review possible opportunities for the expansion to new customer sites that will generate additional revenue, but may also require additional capital spending. While we have no agreements to acquire additional businesses or equipment other than those described in this prospectus, suitable opportunities may arise in the future. We cannot predict the timing or success of any acquisition effort, the size of the associated potential capital commitments or if funding will be available to us on satisfactory terms. Our credit facility generally limits our maintenance capital expenditures to $30.0 million annually as described above. Capital to service new customer sites or provide additional services at existing customer sites is limited to $80.0 million over the term of the loan agreement.

Inflation and Changing Prices

Other than the impact of rising fuel costs, we believe that inflation did not have a significant impact on our consolidated results of operations during the periods discussed above because inflation rates generally have remained at relatively low levels during the periods presented. Contracts for scrap management and co-product processing generally include escalators linked to price indices, thereby allowing us to reduce our exposure to inflation.

Seasonality

Our consolidated results are not significantly impacted by seasonality. From time to time we have experienced a slight decrease in revenue during the winter months at certain customers’ sites.

Pension and Post-employment Benefit Obligations

Our pension and post-employment benefit plans are in compliance with applicable U.S. and Canadian regulatory and funding requirements and filings. However, some of our pension plans were underfunded when their assets and liabilities were last computed on October 31, 2005. We will have to make cash payments of

approximately $0.3 million to the underfunded pension plans in 2006, which consists primarily of minimum contributions required by ERISA regulations and Canadian governmental authorities. Funding requirements in future years may be higher or lower depending on the investment experience of the plans’ assets and changes in the law in either the United States or Canada and by changes in the statutory interest rates used by “tax-qualified” pension plans in the United States to calculate funding liability.

We estimate that benefit payments for the defined benefit plans over the next five years and in aggregate for the five years thereafter will be as follows (in thousands):


		Year(s) of Payment				Amounts
		2006				$ 1,200
		2007				1,200
		2008				1,000
		2009				1,500
		2010				1,100
		2011-2015				8,200

Costs for our defined contribution plans amounted to approximately $1.1 million for 2005, of which $0.8 million was included in site operating costs and $0.3 million was included in selling general and administrative expenses.

Our share of related estimated plan benefits and assets for the defined benefit multi-employer pension plans in which certain of our employees participate is not available. Our costs for such defined benefit multi-employer pension plans amounted to $4.4 million for 2005.

We also participate in several defined contribution multi-employer plans that provide health care and other welfare benefits to certain unionized employees during their working lives and after retirement. Annual costs for these plans amounted to approximately $6.0 million in 2005.

We have defined benefit post-employment plans that provide varying amounts of medical and death benefits that are not funded and that we pay as required for individual participants. The accrued post-employment benefit obligation at December 31, 2005 and December 31, 2004 was $6.4 million and $6.6 million, respectively, of which $3.4 million at December 31, 2005 and $3.8 million at December 31, 2004 represented obligations related to employees of affiliates of our predecessor company that we have assumed. The discount rate used to actuarially compute this liability was 5.75% for both 2005 and 2004.

Future cost increases in health care benefits are assumed to be 11.0% in 2005, decreasing by 1.0% per year to 5.0% by 2012 and remaining at that level thereafter. Increasing these rates by 1.0% each year would increase the accumulated post-employment benefit obligation as of December 31, 2005 by $0.3 million and would not have had a significant impact on the post-employment benefit cost for 2005.

Commitments and Contractual Obligations

A summary of all of our contractual obligations as of December 31, 2005, classified by type and commitment expirations, is presented in the following table:


	Total as of December 31, 2005		Payments Due by Period
	Total as of December 31, 2005		2006		2007		2008		2009		2010		Thereafter
	(In thousands of dollars)
Contractual Obligations:
Long-term debt obligations	$	377,192	$	3,280	$	3,280	$	3,280	$	3,280	$	314,072	$	50,000
Capital lease and other debt obligations		8,922		4,237		3,267		1,127		291		—		—
Operating lease obligations		12,961		6,036		2,268		1,816		1,446		1,237		158
Purchase obligations		5,208		5,208		—		—		—		—		—
Other long-term obligations		8,289		1,458		1,873		1,770		802		369		2,017

	$	412,572	$	20,219	$	10,688	$	7,993	$	5,819	$	315,678	$	52,175

Off-Balance Sheet Financing

Our off-balance sheet financing arrangements consist of operating leases with scheduled payments of $13.0 million as of December 31, 2005. See “—Commitments and Contractual Obligations.”

Recently Issued Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. The purpose of this statement is to clarify the accounting of abnormal amounts of idle facility expense, freight, handling costs and waste material. ARB No. 43 stated that under some circumstances these costs may be so abnormal that they are required to be treated as current period costs. SFAS No. 151 requires that these costs be treated as current period costs regardless of whether they meet the criteria of “so abnormal.” In addition, the statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provision of this statement shall be effective for inventory costs incurred during fiscal years beginning after December 31, 2004. We adopted this statement on January 1, 2005. It did not have a material impact on our results of operations, financial position or cash flow.

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143. This interpretation clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation was effective for our calendar year ended December 31, 2005 and did not have a material impact on our results of operations, financial position or cash flow.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments— an amendment of FASB Statements No. 133 and 140. This statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets, and is 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 do not expect any financial statement implications related to the adoption of this statement.

Quantitative and Qualitative Disclosures About Market Risk

Certain statements we make under this “Quantitative and Qualitative Disclosures About Market Risk” constitute “forward-looking statements.” See “Special Note Regarding Forward-Looking Statements.”

We are exposed to the impact of interest rate and commodity price changes and, to a lesser extent, foreign currency fluctuations. In the normal course of business, we employ established policies and procedures to manage our exposure changes in interest rates on our variable rate debt using financial instruments we deem appropriate.

Interest Rate Risk

Our term debt carries variable interest rates based on a prime or Eurodollar (LIBOR) option at our election plus an interest rate spread that varies based on financial performance. In order to mitigate that risk, we have entered into agreements to swap a variable rate for a fixed rate for a portion of our outstanding term debt. At March 31, 2006, we had $376.4 million in outstanding variable rate term debt. If interest rates increase, our debt service obligations on the variable rate term debt would increase even though the amount borrowed remained the same. Assuming the amount of variable rate term debt remains the same after the offering, an increase of 1% in interest rates payable on our variable rate term debt would increase our fiscal 2006 estimated debt service requirements by approximately $3.8 million. We have entered into a hedge agreement to swap a notional amount of $319.9 million of variable rate term debt into debt that fixes the LIBOR portion of the rate at approximately 4.9%. The notional amount of the swap agreements decreases over time as we expect to make scheduled amortization payments and optional prepayments on the outstanding term debt.

Foreign Currency Risk

Movements in foreign currency exchange rates may affect the translated value of our earning and cash flow associated with our foreign operations as well as the translation of net asset or liability positions that are denominated in foreign currencies. In countries outside the United States, we generate revenue and incur operating expenses denominated in local currencies. In 2005, operating income in these countries would have decreased or increased by $0.1 million if all foreign currencies uniformly weakened or strengthened 10% relative to the U.S. dollar. As part of our growth strategies discussed above and elsewhere in this prospectus, we are seeking to increase our operations overseas with the possibility that such operations will increase our foreign currency risk. We also plan to employ strategies, when appropriate, to mitigate foreign currency risk, and such strategies may include the use of derivative financial instruments.

Commodity Risk

Our operations, which include buying, selling and preparing scrap and other raw materials for our customers, have limited scrap price risk. In general, we carry little inventory relative to our sales volume. We typically purchase scrap only after receiving a firm purchase order from our customers and thereby limit the risk of changes in scrap and other raw material prices. However, we do maintain some inventory at warehouse locations and two retail operations, and we do, at times, purchase quantities of raw material and scrap in excess of immediate sales commitments or have sales commitments without a corresponding right to purchase all of the material required to fulfill the commitment. As a result, we have some exposure to changes in raw material prices, but we believe that this exposure is generally not material to us.

We also purchase commodities for use in our operations, most notably diesel fuel. We consume approximately 10 million gallons of diesel fuel annually. We estimate that a 10% change in the price of fuel would affect income from operations by approximately $1.9 million per year; however, substantially all of our contracts contain periodic pricing escalators based on price indices that would generally offset some portion of fuel price changes.

INDUSTRY OVERVIEW

Outsourced steel services providers do not produce steel, but rather are integral in virtually every other stage of the steel making process. Outsourced steel services providers offer operational and technical specialization, labor related efficiencies, superior asset utilization and economies of scale to enable steel producers to rationalize costs and improve operating efficiencies. Tangible benefits for steel makers include: (i) lower overall costs; (ii) increased productivity from focus on core competencies; (iii) increased flexibility and scalability; and (iv) reduced capital expenditures. We estimate that the global market for outsourced steel services was approximately $3.6 billion in 2005.

Outsourced steel services providers generally operate on-site at customers’ mills under long-term contracts, usually ranging from five to 10 years in length. Although contracts vary based on site-specific factors, revenues are typically based on a fee-per-ton model and generally include periodic pricing escalators based on price indices to offset changes in our operating costs. Unlike the volume and margins of steel producers and other service providers, the volume and margins of outsourced steel services providers are generally not impacted by the volatility of steel prices. Given the physical and operational integration with clients, outsourced steel services providers generally enjoy high contract renewal rates.

Outsourced steel services providers typically embed their operations within customers’ sites by bringing in the mobile equipment and infrastructure needed to provide their services. Larger providers are often able to deploy these on-site assets more efficiently by moving equipment that may be idle or underutilized at existing sites, maintaining lower inventories of spare parts and utilizing operational experience to work quickly and efficiently to take over newly outsourced operations. While employees are recruited locally, sites are generally supervised by a team of experienced service-specific specialists. Outsourced steel services providers are thus able to leverage their operational expertise to meet or exceed steel producers’ overall safety, quality and environmental standards while creating material cost savings.

Market Size

Based on current levels of outsourcing by steel mills, the North American and global outsourced steel services industries generate annual net revenue, measured on an equivalent basis to our own net revenue operating metric, of approximately $1.1 billion and $3.6 billion, respectively. Since 1999, global steel production has grown at a CAGR of 6.2% and is anticipated to grow at a CAGR of 6.0% over the next 10 years. As steel mills continue to improve their overall cost structures and operational flexibility, we believe they will continue to increase the number of services they outsource. We believe the North American and global markets will grow to $1.4 billion and $7.4 billion in annual net revenue, respectively, over the next 10 years in direct correlation to steel production growth and increased outsourcing.

LOGO

Source: International Iron and Steel Institute.

The following table presents certain data upon which the above graph was based, as well as certain 2006 estimates.

Global Steel Production, 2001 - 2006E


(Millions of Tonnes)	2001	2002	2003	2004	2005	2006E⁽¹⁾	‘01-06E CAGR
North America⁽²⁾	106.2	109.0	108.7	116.1	110.5	116.5	1.9	%
Europe	198.0	200.9	209.3	221.9	215.4	231.4	3.2	%
Latin America⁽³⁾	50.7	54.9	58.2	62.6	61.6	58.6	2.9	%
China	142.5	179.6	219.4	273.9	348.8	389.2	22.2	%
Other⁽⁴⁾	340.6	349.7	367.2	380.5	388.2	394.0	3.0	%

Total	838.0	894.1	962.8	1,055.0	1,124.5	1,189.7	7.3	%

Source: International Iron and Steel Institute.

(1)

Estimated by annualizing year-to-date 2006 figures.

(2)

Includes Canada, the United States, Cuba, Guatemala, Trinidad and Tobago. Excludes Mexico.

(3)

Includes Mexico.

(4)

Includes Africa, Asia (excluding China), Australia, Middle East and New Zealand.

Regional Overview

North America. We believe the $1.1 billion (based on net revenue) North American outsourced steel services industry is expected to grow to $1.4 billion over the next 10 years. The North American steel production market has significantly consolidated in recent years. Industry consolidators, such as Mittal Steel Company N.V., Nucor Corporation, United States Steel Corporation and Gerdau SA have employed outsourced steel services providers to drive operational efficiencies and improve cost structures. We and MultiServ, a division of Harsco Corporation, which is primarily a post-production services provider, are the world’s two largest outsourced services providers. There are also certain other privately owned providers, such as Stein Steel Mill Services, Inc. and Edward C. Levy Co., that focus primarily on post-production services.

Europe. We believe the $1.5 billion (based on net revenue) European outsourced steel services industry is expected to grow significantly over the next 10 years. Most of the growth in European steel production has been in Central and Eastern Europe, driven in part by the consolidation of the world’s largest steel producers in those regions, including certain of our customers, such as Mittal and United States Steel. We believe that as global steel producers expand into Central and Eastern Europe, the region’s use of outsourced steel services will grow. We believe the largest provider of outsourced steel services in Europe is the MultiServ division of Harsco Corporation, which recently acquired another top regional provider. There are several smaller providers, such as privately owned Gagneraud Industries SAS in Europe, which provide pre- and post-production services to a limited number of mills. While producers are currently outsourcing most post-production services, pre-production outsourced servicing in Europe is relatively less mature, providing an opportunity for industry expansion.

Latin America. The Latin American steel production market has significantly consolidated in recent years, led by certain of our customers, such as Gerdau and Arcelor, which have significant levels of outsourced steel services in their North American and European operations. We believe, based on steel producers’ recognition of the value of outsourced steel services, that the Latin American outsourced steel services market will continue to grow from its current level of $640.0 million (based on net revenue).

China. While China is the largest and fastest growing steel producer in the world, its mills have only begun recently to recognize the efficiencies created by outsourcing services. We believe that the growth of the addressable Chinese outsourced steel services market, currently estimated to be only $50.0 million (based on net revenue), will materially outpace production growth as steel producers continue to shift their focus towards improving efficiency and profitability.

Rest of the World. While we believe the majority of the rest of the world’s steel services are predominantly performed in-house, as industry consolidation persists and global steel producers continue to recognize benefits of outsourcing pre- and post-production services, there is potential for significant growth.

Steel Production Industry Trends

Favorable U.S. Supply/Demand Dynamics. The supply and demand dynamics of the U.S. steel industry are expected to result in steady production among U.S. steel makers for the foreseeable future. North America has been a net importer of steel for five decades. On average, for the period 1995 to 2005, demand exceeded supply in the United States by 25 million tonnes per year, creating steady, structural demand for U.S. production.

Initiatives to Improve Cost Structure. Volatility of raw material prices, the presence of competing materials and a demanding customer base have forced steel producers to continually improve their cost structures. By outsourcing services to lower cost service providers, steel producers can significantly reduce costs, reduce capital expenditures and improve competitive positioning.

More Favorable Labor Relations and Management Flexibility. The North American steel industry restructuring of 2001–2004 has resulted in important changes in steel mill labor relations and workforce flexibility. Historically, labor agreements in the steel industry generally required fixed staffing levels for a variety of on-site services, preventing steel producers from outsourcing certain services. Recent labor agreements, structured to make the North American steel industry more competitive on a global basis, have increased management flexibility. This new management adaptability is expected to result in an increase in the number of services that steel producers seek to outsource in order to decrease the variable portion of their cost structures.

Continued Growth of Mini Mills. Over the past 40 years, the steel industry has experienced a dramatic shift in the manner in which steel is produced, which in turn has benefited the outsourced steel services industry. Driven by lower initial capital requirements, lower fixed costs and more flexible labor rules than those of integrated steel mills, the percentage of total North American steel production represented by mini mills has increased from 38% in 1980 to 61% in 2005, according to the International Iron and Steel Institute. Since mini mills produce steel using scrap as their primary input, the rise of the mini mill has resulted in increased demand for certain outsourced steel services, including raw materials procurement, raw materials optimization and scrap management services. Further, integrated steel producers have substantially increased the proportion of lower grades of scrap that they use to make steel in an attempt to reduce their cost structures, further increasing the demand for scrap management and raw materials optimization services. The shift toward mini mill production is expected to continue in the future.

Globalization of Steel Makers. As North American and European steel producers look internationally for growth opportunities, providers of outsourced steel services are expected to benefit as their customers acquire capacity abroad and implement an outsourcing business model similar to that employed domestically. In addition, as foreign steel producers enter the North American market and become acquainted with steel services outsourcing, they can be expected to increase outsourcing at the mills they own both in North America and globally. International expansion and globalization of steel producers, particularly in developing countries, will create a greater market for outsourced steel services as efficiencies and cost savings currently experienced in North America become more globally prevalent.

BUSINESS

Business Overview

We are the largest provider of outsourced services to steel mills in North America and one of the largest globally. With over 80 years of experience, we offer our operational expertise and specialized services at 66 sites in North America and Europe and have recently established a presence in China. We also have created a number of international initiatives to expand our global footprint to Latin America and additional countries throughout Europe and Asia. We do not produce steel, but rather we are integral in virtually every other stage of the steel making process, from initial raw materials procurement through finished goods handling. Our services enable our customers to generate cost savings through operational efficiencies while focusing on their core steel production processes. Our total revenue and net revenue in 2005 were $1,123.5 million and $328.6 million, respectively. For a reconciliation of total revenue to net revenue, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Competitive Strengths

•

barriers to entry and has driven our high customer retention rate. Since 2000, we have achieved a contractual renewal rate of 97% on a service revenue basis. In addition, we have a successful track record of winning new business and gaining market share, having won 28 new contracts since 2000, including 12 contracts at sites where we did not previously provide services and 16 contracts at existing sites where we offered additional services. We believe that the 12 mill sites we did not previously serve represent approximately 10% of the steel mills in North America.

•

History of New Service Innovation. We believe that our ability to develop and implement innovative solutions has contributed to our market leading position. For example, we pioneered the North American commercial application of robotic surface conditioning. Prior to the introduction of this technology, manual surface conditioning was a time consuming and costly process. Our technological advancements in robotic surface conditioning increased the speed, quality and consistency of the surface conditioning process, enabling us to achieve significant market share within this industry niche. We currently have automated surface conditioning installations at five of the seven mills in North America that outsource this process and we provide manual surface conditioning to certain other customers. Additional innovations include our Scrap OptiMiser^™ and related software applications, which are real-time raw materials optimization systems that utilize our proprietary database of commodity and freight information to aid each mill in the planning, procurement and utilization of scrap metal and scrap substitutes, based on current pricing and on-site inventory levels. Based on information from our customers, we estimate the system has produced significant cost savings for our customers in the range of $3.00 to $6.00 per ton of liquid steel, depending on market conditions and other mill-specific factors. We have acquired eight new service contracts for our Scrap OptiMiser^™ since 2004 and believe that the system’s broad appeal and growing track record will lead to increased product demand among both existing and new customers. Recently, we also acquired the source code for software that will enable us to optimize non-ferrous metals.

•

Business Strategy

Our business strategy is to continue to provide high quality services that allow steel producers to focus on their core functions and generate cost savings by outsourcing these functions.

•

Capitalize on Strategic Acquisitions and Joint Ventures. The global outsourced steel services industry is highly fragmented with a number of smaller local and regional private companies providing mill services on a regional and, sometimes, on a single site basis. We intend to use a disciplined and focused approach to selectively pursue strategic acquisitions that will diversify our existing portfolio of products and services, expand our geographic footprint and bring new customer relationships. We will also consider acquisitions that can add innovative capabilities to our portfolio of services. We have demonstrated this approach in the acquisition of Auximetal in France and our strategic relationship with Tuner in China. We believe that by continuing to utilize our disciplined acquisition and joint venture strategies, we will be able to supplement our organic growth prospects and enhance our long-term earnings growth.

Services Provided

We believe we offer the industry’s most comprehensive array of outsourced steel services. Our operational expertise and broad range of services enable steel producers to better focus on steel production and improve their cost structure by outsourcing specific nonproduction functions to us. The following table summarizes the five primary services we provide ranked in terms of contribution to 2005 net revenue.

Tube City IMS Corporation Service Contribution


	Co-Product Processing, Metal Recovery and Sales	Material Handling	Raw Materials Procurement	Surface Conditioning	Raw Materials Optimization
Estimated Market Position in North America	#1	#1	#2	#1	#1
IMS Division	ü	ü		ü
Tube City Division		ü	ü		ü
International Operations	ü	ü	ü	ü	ü

We also offer other services, including equipment rental, mobile equipment maintenance, dust and debris management and refractory removal.

Co-Product Processing, Metal Recovery and Sales

We are the leading provider of co-product processing services in North America, providing services to 55 of the approximately 125 mills in this region. We pioneered original methods of removing co-product material from melt shops that are now commonly used throughout the industry. We perform these services under long-term contracts and are typically compensated on a fee-per-ton basis, with periodic pricing escalators based on price indices to offset changes in our operating costs. The vast majority of modern mills employ co-product processing as it is an essential element in the efficiency of steel mills’ operations. During the steel production process, slag accumulates inside the mills’ melt shops and must be removed. We remove and process the slag to recover valuable metallic material that is either reused in the production of steel by the host mill or sold. The remaining non-metallic materials typically are sold to third parties as aggregates for use in cement production, road construction and agricultural applications.

Co-product processing and metal recovery are fundamental to accelerating our international expansion. We are currently pursuing numerous opportunities to grow our services in Europe and China and to establish a leading presence in Latin America.

Material Handling

In North America and Europe, we offer our customers comprehensive material handling services, from receiving, inspecting, processing and managing raw material inputs to handling and managing of finished products. Our material handling expertise and specialized equipment allow us to take care of a broad array of our customers’ on-site logistical requirements from the beginning to the end of the steel production process.

•

Pre-production material handling services (scrap management). We provide mills’ melt shops with inspection, preparation and just-in-time delivery of raw materials, as well as inventory control through logistics management. Our management and preparation services include receiving, inspecting, sorting, cleaning, shearing, burning, shredding and baling of scrap metal into various sized pieces and compositions according to customer specifications. Our inspection and testing protocols stage the incoming scrap for processing through a variety of methods based on size, composition and type of material. We utilize a variety of specialized heavy equipment, including rail cars, large off-highway trucks, mobile mass spectrometers and hydraulic cranes to inspect and analyze incoming raw materials and transport raw material inventory within a mill’s facility.

•

Post-production services (material handling/product handling). Our skilled operators handle and transport semi-finished and finished steel products utilizing operations-specific equipment. In many mills, the finishing facilities are not contiguous to the caster area and thus require a customized transportation and logistics system to move the product reliably and efficiently. Our skilled operators use large slab, billet and pallet carriers to transport thousands of tons of materials within a mill every hour, 24 hours per day. Material handling equipment is also used to move finished products from the mill into inventory and from inventory onto rail cars, trucks or barges for shipment to the mill’s customers. We also provide rail services, including use of our site dedicated rail cars, on-site track installation and maintenance.

We estimate that approximately 40% of North American mills currently outsource material handling and scrap management services. Internationally, the percentage of mills that outsource these services, while substantially lower, is growing rapidly. We believe continued trends towards outsourcing will provide us with significant opportunities for growth as mills increasingly turn to specialized providers to perform these essential functions.

Raw Materials Procurement

We are the second largest supply chain management/outsourced procurement firm in North America with a rapidly growing international presence. We operate on a worldwide basis and act on behalf of our customers to purchase over seven million tons of raw material inputs annually, including scrap metal and scrap substitutes for

use in the steel production process. It is common practice for the raw materials procurement function to be outsourced by steel producers. Our extensive supplier contacts, substantial purchasing scale and superior market knowledge enable us to procure raw materials cost-effectively for our customers. In some cases, we earn a contractually determined, volume-based fee for arranging delivery of raw material shipments to a customer directly from a vendor. In other cases, we concurrently arrange to purchase and sell raw materials at specified prices, typically locking in a margin.

We procure materials on behalf of every major steel producer in North America. Our longstanding customer relationships and exclusive agency agreements are a result of our strength and reputation within the industry. We have doubled our North American market share to an estimated 10% over the last three years. We are rapidly growing our European and Asian presence with increased focus in these regions. As we increase our scale and reach, we expect to continue winning global market share.

Surface Conditioning

Surface conditioning is a value-added process that removes inclusions and other imperfections from steel mill products so that they can be used in high end applications such as white goods and automotive products. We pioneered the North American commercial application of robotic surface conditioning and we are the largest provider of such services in North America.

Prior to the introduction of this technology, manual surface conditioning was a time consuming and costly process. Our technological advancements in robotic surface conditioning increased the speed, quality and consistency of the surface conditioning process, enabling us to achieve significant market share within this industry niche. We currently have automated surface conditioning installations at five of the seven mills in North America that outsource this process and provide manual surface conditioning to certain other customers.

Significant international opportunities exist for surface conditioning as developing nations focus on higher grades of steel production. Specifically, demand for higher end finished steel, suitable for automotive and other advanced applications, continues to accelerate in these growing markets.

Raw Materials Optimization

We developed and market the Scrap OptiMiser^™ software, a proprietary, real-time raw materials optimization system that includes a materials planning, procurement and utilization platform that we believe is the most advanced and comprehensive resource management solution in the steel industry. This unique service allows steel producers to achieve significant savings by optimizing their purchasing and utilization of input materials (specifically scrap metal) to obtain the lowest input cost on a just-in-time basis for a desired grade of steel based on market conditions and raw materials availability.

In addition, our Scrap OptiMiser^™ and related software applications utilize our proprietary database of commodity and freight information to aid each mill in the planning, procurement and utilization of scrap metal and scrap substitutes, based on current pricing and on-site inventory levels. Based on information from our customers, we estimate the system has produced significant cost savings for our customers in the range of $3.00 to $6.00 per ton of liquid steel depending on market conditions and other mill-specific factors. We have acquired eight new service contracts for the Scrap OptiMiser^™ since 2004 and believe that the system’s broad appeal and growing track record will lead to increased product demand among both existing and new customers. Recently, we also acquired the technology to enable us to optimize non-ferrous metals.

Other Services

We offer additional services that complement our other offerings and represent additional opportunities for steel mills to outsource other support activities. Additional services include:

•

Equipment Rental Services. These services allow customers to benefit from our access to low cost equipment, on-site synergies and maintenance expertise.

•

Mobile Maintenance. We offer comprehensive maintenance services for our customers’ mobile equipment that utilize our on-site maintenance resources.

•

Dust and Debris Management. We provide on-site dust and debris management services to our customers, including road watering, road sweeping and vacuum truck services.

•

Refractory Removal. We offer furnace, ladle and vessel refractory removal services that utilize our specialized on-site equipment and skilled operators.

Customers

Our customer base includes the leading integrated and mini mill steel producers in the world. We are embedded at 63 steel mill sites across North America and Europe, representing strategic sites for our customers either in terms of total capacity or the nature of steel produced at these mills. The following diagram shows the geographical distribution of our customers.

LOGO

Our consistent track record of cost-reduction, superior performance, safety and environmental stewardship has facilitated longstanding relationships with global steel producers. On average, we have served our top 10 customers, based on 2005 net revenue, for over 30 years. In 2005, our sales to United States Steel Corporation and affiliates and AK Steel and affiliates were in each case in excess of 10% of our consolidated revenue. In 2005, United States Steel Corporation and AK Steel accounted for 37% and 14% of our total revenue, respectively, and our top 10 customers accounted for 78% of our total revenue. We provide services to United States Steel Corporation and its affiliates under several contracts that together cover 26 services at seven sites. We provide services to AK Steel and its affiliates under several contracts that together cover eight services at four sites. The average remaining contract life for the services we provide to United States Steel Corporation is about eight years, and the average remaining contract life for the services we provide to AK Steel is about four years. The strength of our relationships with our customers creates significant barriers to entry and has driven our high rate of customer retention.

Tube City IMS Corporation Summary of Top 10 Customers


	Contract
Customers(1)	Number of Sites	Years of Service(2)
Mittal Steel	6	66
United States Steel	7	63
Wheeling-Pittsburgh	1	47
Gerdau Ameristeel	10	29
Nucor	10	27
Quanex	3	22
AK Steel	3	18
IPSCO	2	17
V&M Star	1	13
Commercial Metals Company (CMC Steel)	2	12

Top 10 Customers	45

(1)

Customers include either the parent listed in the table or a subsidiary of the parent. Customers are listed in order of years of service.

(2)

Includes services provided by predecessor companies and to predecessor companies.

Contracts

Our business model is based on providing a full suite of outsourced steel services through our embedded operations at 63 steel mill sites. In 2005, approximately 99% of our service revenue was generated from long-term contracts, with a majority of these contracts expiring in 2012 and beyond, as measured by service revenue. Our contract fees are primarily based on steel production volume, are independent of steel pricing and generally include periodic pricing escalators based on price indices to offset changes in our operating costs. Our contracts generally have initial terms of between five and 10 years in length. The weighted average remaining term of our current portfolio of contracts is approximately seven years. The contracts are site-specific and typically include multiple services per site. No single contract represented more than 10% of our total revenue in 2005.

Substantially all of our contractual service revenue is based on the volume of material handled and is therefore not influenced by steel pricing. Service revenue generated from our contracts is largely a function of mills’ production volumes and, in some cases, is coupled with monthly base fees. Further, certain contracts include tiered pricing, with higher net revenue per ton at lower volume levels, which preserves net revenue and profitability in the event that production volumes decrease. Apart from the monthly base fees, we are generally not guaranteed any minimum amount of volume or revenue by our contracts. As of December 31, 2005, and based on 2005 production volumes and contract terms, we estimate that our existing multi-year contracts will generate revenue, or backlog, of $1.9 billion. Of our current contracts, 58% will expire in 2011 and beyond, as measured by service revenue.

The following table shows service revenue backlog by renewal date based on percentage of total future contractual service revenue.

Tube City IMS Corporation Contract Renewal Dates


Renewal Year				% of Total Service Revenue Under Contract(1)
2006				1%
2007				14%
2008				7%
2009				8%
2010				12%
2011-2017				58%

Total				100%

(1)

Based on 2005 contractual service revenue.

Existing Contract Renewals

We have been very successful in retaining existing business as contract renewals arise. Since 2000, we have achieved a contractual renewal rate of 97% on a service revenue basis, having renewed 91 contracts. Contract negotiations and bids are based on strict return criteria on capital targets. The table below provides additional detail on contract renewals.

Tube City IMS Corporation Renewal History(1)


	2000		2001		2002		2003		2004		2005		2006 YTD		Cumulative
Number of Renewals	6		18		12		17		13		18		7		91
Renewal Rate Based on Net Revenue	100	%	99	%	100	%	91	%	94	%	100	%	100	%	97	%

(1)

Represents our combined renewal history. Excludes mills that have ceased operations.

New Contract Bidding

We have a successful track record of winning new business and gaining market share, having won 28 new contracts since 2000, including 12 contracts at sites where we did not previously provide services and 16 contracts at existing sites where we offered additional services. Further, we have won eight commitments for new business and renewed 26 contracts since the combination of Tube City and IMS in December 2004, highlighting the strength of our integrated services platform. Our market share has increased as a result of these new contracts and commitments.

We evaluate and pursue new contract opportunities by assembling multi-functional teams, including representatives from sales and marketing, engineering, site operations and finance, to analyze opportunities and formulate comprehensive proposals. Our disciplined approach of preparing detailed financial analyses that incorporate pricing, net revenue, fixed costs, required equipment and personnel, creditworthiness, customer reputation, historical and forecasted production volume and the unique characteristics of each mill is utilized in developing each proposal. Final decisions regarding a proposed bidding strategy are subject to final approval by an executive committee consisting of members of senior management.

International Expansion

As the only global provider of the full range of outsourced steel services, we are well positioned to aggressively expand our international operations by: (i) participating in the growth of the global steel industry, (ii) benefiting from increased outsourcing and (iii) gaining market share from both global competitors and local contractors. We believe that significant opportunity exists for accelerated expansion into Europe and Asia as well as penetration of Latin America.

In 2005, we advanced our international growth strategy by building additional operating infrastructure in Europe, Asia and Latin America and recruiting senior executives with extensive international operating experience and strong relationships with global steel producers. We believe that limited international competition, combined with our strong customer relationships and ability to offer a comprehensive range of pre- and post-production services, will serve as the drivers of our international growth. Our new international focus has yielded early success with the acquisition of Auximetal in France in the first quarter of 2006.

We estimate that the addressable market opportunity in Europe is approximately $1.5 billion (based on net revenue). We currently operate in three European mills located in France, Serbia and Slovakia. We have further developed our platform with the recent commencement of a comprehensive European outsourced purchasing initiative that operates from our site in Slovakia. We are using our current operations in Europe to grow our customer base by pursuing new contracts with major steel producers and cross-selling new services to existing customers. We are actively pursuing a number of contracts that commence during the second half of 2006, representing a significant opportunity for new business. In addition, we believe that our outsourced purchasing operations will grow rapidly in the highly fragmented European scrap market as we continue to add professionals to augment our operations.

While China is the largest and fastest growing steel producer in the world, its mills have only begun recently to recognize the efficiencies created by outsourcing services. We believe that the growth of the addressable Chinese outsourced steel services market, currently estimated to be only $50.0 million (based on net revenue), will materially outpace production growth as steel producers continue to shift their focus towards improving efficiency and profitability. We currently have several strategic joint venture opportunities for the IMS Division in advanced stages of development, and plan to expand our existing presence in China by opening a raw materials procurement office.

We believe we can leverage our longstanding relationships with leading global steel producers, such as Gerdau and Arcelor, in order to facilitate our expansion into the $640.0 million (based on net revenue) Latin American outsourced steel services market. To accelerate our penetration of this market, we recently added highly experienced marketing and operating professionals with strong relationships with steel producers in Latin America. We have developed a comprehensive strategic plan, visited potential customers and begun submitting proposals to service numerous Latin American mills, several of which may be awarded during 2006. We believe that these efforts will enable us to gain share rapidly in the Latin American outsourced steel services market.

Operations and Facilities

We have operations on-site at steel mills throughout North America and Europe. At each of these locations, with the exception of one owned site, we occupy space for our operations either through a lease or a license. In addition, the Tube City Division maintains sales offices worldwide to support its materials procurement operations. These offices are either owned, leased or licensed by the Tube City Division. Below is a chart identifying all of our locations as of July 1, 2006, whether the location is owned, leased or licensed and, if leased, the expiration date of the term.

Summary of Properties


Location	Description	Owned/ Leased/Licensed	Lease Expiry
Headquarters and Administration
Conshohocken, PA	Administrative – Tube City and IMS Divisions; Sales – Tube City	Leased	01/31/2014
Glassport, PA	Corporate and Tube City Division Headquarters	Owned	n/a
Horsham, PA	IMS Division Headquarters	Leased	03/31/2011
Marseilles, France	Administrative – IMS Division	Leased	07/31/2008

Tube City Division
Ashland, KY	Operating Site and Sales	Licensed	n/a
Cincinnati, OH	Sales	Licensed	n/a
Claymont, DE	Operating Site	Licensed	n/a
Draper, UT	Sales	Leased	06/30/2011
Ecorse, MI	Operating Site	Leased	12/31/2014


Location	Description	Owned/ Leased/Licensed	Lease Expiry
Fairfield, AL	Operating Site	Leased	12/31/2014
Gary, IN	Operating Site	Leased	12/31/2014
Granite City, IL	Operating Site	Leased	12/31/2014
Hudson, OH	Sales	Leased	12/31/2006
Kosice, Slovakia	Operating Site and Sales	Leased	indefinite
Mansfield, OH	Operating Site	Leased	03/15/2010
Smederevo, Serbia	Operating Site and Sales	Leased	02/19/2009
Stowe, OH	Sales	Licensed	n/a
West Mifflin, PA	Operating Site	Owned	n/a

IMS Division, Leased Operating Sites
Belle Vernon, PA	Operating Site	Leased	12/01/2010
Bethlehem, PA	Operating Site	Leased	12/31/2007
Braddock, PA	Operating Site	Leased	04/30/2015
Burns Harbor, IN	Operating Site	Leased	12/31/2012
Ecorse, MI	Operating Site	Leased	04/30/2015
Gary, IN	Operating Site	Leased	04/30/2015
Johnstown, PA	Operating Site	Leased	04/03/2007
Marion, OH	Off-Mill Storage Site	Leased	11/30/2007
Middletown, OH	Operating Site	Leased	01/31/2007
New Castle, PA	Off-Mill Operating Site	Leased	06/30/2010
Parkesburg, PA	Lab	Leased	07/31/2007



IMS Division, Licensed Operating Sites
Ashland, KY	Flowood, MS	Midland, PA	Reading, PA
Auburn, NY	Freeport, TX	Mingo Junction, OH	Regina, SK
Beaumont, TX	Ft. Smith, AR	Mobile, AL	Sand Springs, OK
Birmingham, AL	Girard, OH	Monroe, MI	Saukville, WI
Bourbonnais, IL	Jackson, MI	New Castle, PA	Sayreville, NJ
Bridgeville, PA	Jackson, TN	Norfolk, NE	Seguin, TX
Burgettstown, PA	Jewett, TX	Peoria, IL	Selkirk, MB
Cartersville, GA	Knoxville, TN	Perth Amboy, NJ	St. Paul, MN
Cayce, SC	Longview, TX	Petersburg, VA	Tuscaloosa, AL
Claymont, DE	L’Orignal, ON	Plymouth, UT	Weirton, WV
Cleveland, OH	Marion, OH	Portage, IN	Wilton, IA
Darlington, SC	Marseilles, France	Rancho Cucamonga, CA
East Chicago, IN	McMinnville, OR
Elrama, PA

Service Equipment

Equipment located at the individual steel mill sites includes loaders, pot carriers, slab haulers, metal recovery plants, cranes, crushers, rail cars, trucks, shop and office structures and other equipment used in metal recovery operations and industrial service work. Due to the size of our customer base, we are able to effectively redistribute equipment to other sites when needed, enabling us to operate more efficiently, maximize the utilization of our equipment and minimize capital expenditures. Beyond purchasing replacement equipment, our capital expenditures reflect equipment additions purchased in connection with new business contracts.

Competition

The global outsourced steel services industry is highly competitive. In North America, primary direct competitors include Harsco Corporation through its MultiServ division, Edward C. Levy Co., the David J. Joseph Company and Stein Steel Mill Services, Inc., although most of our service categories include one or more additional competitors. In Europe, Latin America and Asia, competition is divided among one global provider and numerous local contractors, including Gagneraud Industries SAS and Egon Evertz KG in Europe.

Excluding competition from internal support capabilities at the mills themselves, we believe that we hold a leading position within each of the service categories in which we operate.

Market Segments Served


Service Category		Primary Third-Party Competitors

Co-Product Processing and Metal Recovery		MultiServ, Gagneraud Industries SAS, Edward C. Levy Co., Stein Steel Mill Services, Inc. and local and regional competitors

Material Handling		MultiServ, Gagneraud Industries SAS, Edward C. Levy Co., Stein Steel Mill Services, Inc., Marine Terminals Corporation and local and regional competitors

Raw Materials Procurement		The David J. Joseph Company, OmniSource Corporation, local and regional competitors

Surface Conditioning		MultiServ, Edward C. Levy Co., Egon Evertz KG, local and regional competitors

Raw Materials Optimization		No known competitors offering real-time optimization currently

Other Services		L.A. Grant and local suppliers

Employees

As of June 30, 2006, we employ 2,250 people, 1,815 of whom are hourly employees. Approximately 48% of the hourly employees are covered by 33 site specific collective bargaining agreements with various unions, including the International Union of Operating Engineers, the United Steelworkers and the International Brotherhood of Teamsters. These collective bargaining agreements average three years in length. We currently are operating under two recently expired labor contracts. The first expired contract covering eight employees in Sand Springs, OK has been extended, subject to 72 hours’ notice of termination by either party. The second expired contract covering 25 employees at our site in Regina, Saskatchewan, Canada remains subject to ongoing negotiations. We expect favorable resolutions in the near future. We believe we have very good relations with our employees and the unions and have not experienced any work stoppages or labor strikes since 1993.

Our labor agreements allow us to utilize our work force in an efficient manner to furnish our products and services to mills at attractive prices. We have been able to attract and retain stable and qualified work forces across our various operations.

Regulatory Considerations—Environmental, Safety and Quality Matters

Our business, like that of our customers and competitors, is subject to extensive regulation related to protection of the environment, including requirements concerning the handling, storage and disposal of waste materials, air emissions, wastewater discharges and the cleanup of contaminated sites. We are heavily regulated and closely monitored by environmental agencies because of the high level of environmental risk in the steel industry. Certain of our operations, including metal recovery, co-product processing, materials handling, scrap management and surface conditioning, require permits for air emissions and/or wastewater discharges. We periodically monitor the regulatory status of each of our facilities, including changes in operations, to ensure

compliance with applicable environmental regulations. Although we have been involved from time to time in environmental regulatory or judicial proceedings, we believe that our business currently is in substantial compliance with applicable environmental laws and regulations.

Worker safety is a high priority for us, and we conduct regular safety compliance audits, maintain a comprehensive safety manual and engage in continuous worker safety training. All employees at a site are required to pass our medical surveillance program prior to performing work. Our employees participate in ongoing environmental and safety awareness training, which is incorporated into continuous job requirements. Our employees periodically meet with customers to develop mutually beneficial standard operating procedures designed to increase work safety and efficiencies. Site construction incorporates all government-required industrial hygiene and environmental safeguards. We provide for the maintenance of safety and environmental controls and devices on an ongoing basis.

We have obtained ISO 9002 quality certification at the following facilities: Gary, Indiana; Mansfield, Ohio; Middletown, Ohio; Fairfield, Alabama; Ecorse, Michigan; West Mifflin, Pennsylvania; and Kosice, Slovakia.

Legal Proceedings

We are involved in various personal injury, property damage and other legal proceedings that are considered to be in the ordinary course of our business.

Our former landfill and waste management business, together with two non-operating subsidiaries of IU International Corporation (“IU”), were spun off to our stockholders in October 2002. The two former subsidiaries of IU were subject to asbestos-related personal injury claims. We believe that we have no obligations for asbestos-related claims regarding the spun-off subsidiaries. In addition, we have been named as a defendant in certain asbestos-related claims relating to lines of businesses that we discontinued over 20 years ago. We believe that we are sufficiently protected by insurance with respect to these asbestos-related claims related to these former lines of business, and we do not believe that a negative outcome will have a material adverse effect on our financial position, results of operations and cash flows.

Intellectual Property

We own a number of registered, applied-for and/or unregistered trademarks and service marks that we use in connection with our businesses, including: TUBE CITY IMS, TUBE CITY, INTERNATIONAL MILL SERVICE, IMS, WE CREATE VALUE and SCRAP OPTIMISER and certain related designs and logos. Our IMS Division owns four issued U.S. patents and one issued Canadian patent covering various devices, systems and/or processes related to the steel services business. We own a number of U.S. copyright registrations covering portions and/or versions of our Scrap OptiMiser^™ software. We currently have no patents on any of our software and rely instead on copyright and trade secret protection. We have acquired licenses to use certain third party software programs in some of our software programs including our Scrap OptiMiser^™ software. Furthermore, on May 22, 2006, our Tube City Division acquired physical copies of the source code to and certain licensed rights under software to perform optimization services in certain non-ferrous metals industries.

MANAGEMENT

Executive Officers and Directors

The following table sets forth information regarding our directors and executive officers together with their positions and ages as of July 1, 2006:


Name	Age	Position
I Michael Coslov	64	Chairman and Chief Executive Officer
Joseph Curtin	60	President and Chief Operating Officer of the Tube City Division and Director
Raymond S. Kalouche	44	President and Chief Operating Officer of the IMS Division and Director
Daniel E. Rosati	43	Vice President, Chief Financial Officer and Treasurer
Thomas E. Lippard	63	Vice President, General Counsel and Secretary
J. David Aronson	39	Executive Vice President – Outsource Purchasing, Tube City Division
Alexander E. Carles	30	Director
William F. Dawson, Jr.	41	Director
Greg S. Feldman	49	Director
David C. Mariano	41	Director
Carl M. Stanton	38	Director
Laurence N. Weiss	68	Director

Set forth below is a brief description of the business experience of each of our directors and executive officers:

I Michael Coslov is the Chief Executive Officer and Chairman of our board of directors. He has been our Chairman and a Director since December 2004. He has been involved in the operations of Tube City since 1963. In 1987, he acquired full ownership of Tube City from other members of his family through a leveraged buyout and became its Chief Executive Officer. In 2003, he sold a controlling interest in Tube City to Blue Point Capital Partners, L.P. Mr. Coslov is highly regarded in the outsourced steel services industry and has held various leadership positions with the Institute of Scrap Recycling Industries. He received a BA from Duquesne University in 1963.

Joseph Curtin is the President and Chief Operating Officer of our Tube City Division. He joined Tube City in 1983 and was named President in January 1996. He was elected a Director in February 2005. Prior to joining us, he had been with Mellon Bank from 1968 to 1977. From 1977 to the present, Mr. Curtin has been involved in trading, sales and marketing in the scrap industry. He received a BA from the University of Pittsburgh in 1968 and an MBA from Duquesne University in 1977.

Raymond S. Kalouche is the President and Chief Operating Officer of our IMS Division. He joined IMS in 1989 and was promoted to President and Chief Executive Officer in 2004. He was elected a Director in May 2004. Before 2004, Mr. Kalouche served as Executive Vice President and Chief Operating Officer of IMS. Mr. Kalouche’s early career at IMS was spent in the Surface Conditioning Division where he advanced to the position of General Manager before being promoted to Vice President of Operations Planning of IMS and, in 2000, he was named Senior Vice President—General Manager of IMS. He has a MS degree in Civil Engineering from Ohio State University.

Daniel E. Rosati is our Chief Financial Officer and Treasurer and a Vice President. He joined Tube City in January 2003 as Vice President and Chief Financial Officer and remains responsible for all financial aspects of our business, including financial reporting and analysis, back office administration and information technology.

Prior to joining Tube City, Mr. Rosati was the Director of Finance for Black Box Corporation, a publicly traded distributor of network infrastructure products and provider of network installation services. While at Black Box, from 1993 to 2003, he had responsibilities in most financial aspects of the company including financial reporting, business and financial controls, budgeting and forecasting, managing the company’s bank facilities and investor relations. Furthermore, Mr. Rosati led the financial integration of more than 80 acquisitions over a five-year period. Prior to that, from 1984 to 1993, Mr. Rosati was Senior Tax Manager with Arthur Andersen’s Pittsburgh office. Mr. Rosati graduated from Duquesne University in 1984 with a BA in Accounting and Finance. He is a certified public accountant.

Thomas E. Lippard is our General Counsel and Secretary and a Vice President. He joined Tube City in January 1997 as Senior Vice President of Finance and Administration, Secretary and General Counsel. In 2002, he was named Executive Vice President of Finance and Administration at Tube City. From 1968 to 1996, Mr. Lippard was a lawyer in private practice, most recently as a partner at Thorp, Reed & Armstrong in Pittsburgh. Mr. Lippard earned a BA from the University of Pittsburgh in 1965 and a JD from the University of Chicago in 1968.

J. David Aronson is the Executive Vice President – Outsourced Purchasing, Tube City Division, and as such is responsible for its domestic and international trading operations. He has worked in the scrap industry since 1989 and joined Tube City in 1991 as an account executive. In 1993, Mr. Aronson was promoted within Tube City to Midwest Region District Manager, a position he held until he was named senior vice president in 1996 and subsequently promoted to his current position in 2004. Mr. Aronson received a BA from the University of Wisconsin in 1989.

Alexander E. Carles was elected a director in February 2005. He joined Wellspring Capital in 2001. He was previously at Whitney & Co. where he was a senior associate in that firm’s middle market buyout group. At Whitney & Co., Mr. Carles worked on a range of transactions in industries such as plastics, consumer products, telecommunications and media investments. Prior to Whitney, Mr. Carles was a high yield research analyst with Lehman Brothers, Inc. Mr. Carles graduated with honors from the College of William & Mary with a BA in economics.

William F. Dawson, Jr. was elected a director in October 2004. He has been a partner at Wellspring Capital since 2001 and currently serves as a director of Vatterott College, Vistar Corporation and Stripes Holdings Company. Mr. Dawson previously chaired the middle-market buyout group at Whitney & Co. and, from 1986 until 2000, was with Donaldson, Lufkin & Jenrette Securities Corporation, where he most recently served as Managing Director. After earning a BS from St. Francis College, Mr. Dawson received an MBA from Harvard Business School. Mr. Dawson has served on numerous public and private company boards.

Greg S. Feldman was elected a director in October 2004. He is a partner of Wellspring Capital, which he co-founded in January 1995. Mr. Feldman has served on the boards of numerous public and private companies.

David C. Mariano was elected a director in February 2005. He joined Wellspring Capital as a partner in 1997. He previously spent six years at The Blackstone Group where he was most recently a managing director in the restructuring group. Prior to joining Blackstone, Mr. Mariano was a senior manager in the Corporate Finance Department of Ernst & Young, where he was involved in numerous mergers, acquisitions and restructuring transactions. Mr. Mariano holds a BA from Gustavus Adolphus College and an MBA from Duke University. Mr. Mariano has served on the boards of numerous public and private companies.

Carl M. Stanton was elected a director of our Company in December 2004. He has been with Wellspring Capital since 1998, where he is currently a partner. Mr. Stanton was previously a principal with Dimeling, Schreiber & Park, a private equity firm, where he led the acquisition of numerous middle-market companies. Prior to this, Mr. Stanton was a senior consultant for the corporate finance group of Ernst & Young LLP and was

also with Peter J. Solomon Co., Ltd., a boutique investment bank. Mr. Stanton graduated with a Bachelor of Science degree from the University of Alabama and an MBA from Harvard Business School. Mr. Stanton has served on the boards of numerous public and private companies.

Laurence N. Weiss was elected a director in February 2005. He is a certified public accountant and graphic arts entrepreneur, and is the President of Hippographics Inc., a venture capital firm. From 1980 to 1999, Mr. Weiss acted as Chief Executive Officer of a major direct mail printing and fulfillment business, Spectra Graphics. In 1999, Spectra Graphics was sold to Transcontinental Printing, USA, Inc. Mr. Weiss is a graduate of the Pennsylvania State University and a member of the Chief Executives Organization, the World Presidents Organization and the Pennsylvania Institute of Certified Public Accountants.

Board Structure and Compensation

Our board of directors will be fixed at directors divided into three classes of directors, designated as Class I, Class II and Class III, with the directors in each class serving staggered three-year terms. Each class will consist, as nearly as possible, of one-third of the directors constituting the entire board. Messrs. , and will serve initially as Class I directors, Messrs. , and will serve initially as Class II directors and , and will serve initially as Class III directors. At the first annual stockholders’ meeting following this offering, the term of office of the Class I directors will expire and new Class I directors will be elected for a full term of three years. At the second annual stockholders’ meeting following this offering, the term of office of the Class II directors will expire and new Class II directors will be elected for a full term of three years. At the third annual stockholders’ meeting following this offering, the term of office of the Class III directors will expire and new Class III directors will be elected for a full term of three years.

Following the consummation of this offering, we will be deemed a “controlled” company pursuant to the rules of the Nasdaq Global Market. As a result, we are not required to have a majority of independent directors on our board of directors. We are also not subject to Nasdaq rules that call for a compensation committee and nominating committee, but we expect to have a compensation committee following completion of this offering.

Upon the consummation of this offering, we will have an audit committee that will have responsibility for, among other things:

•

overseeing management’s maintenance of the reliability and integrity of our accounting policies and financial reporting and our disclosure practices;

•

overseeing management’s establishment and maintenance of processes to assure that an adequate system of internal control is functioning;

•

overseeing management’s establishment and maintenance of processes to assure our compliance with all applicable laws, regulations and corporate policy;

•

reviewing our annual and quarterly financial statements prior to their filing and prior to the release of earnings; and

•

reviewing the performance and qualifications of our independent accountants and making recommendations to the board of directors regarding the appointment or termination of the independent accountants and considering and approving any non-audit services proposed to be performed by the independent accountants.

is currently serving as a member of our audit committee and we plan to nominate a second independent member to our audit committee within 90 days following the consummation of this offering and a third independent member within one year following the consummation of this offering so that all of our audit committee members will be independent, as such term is defined in Rule 10A-3(b)(i) under the Securities Exchange Act of 1934 (the “Exchange Act”). Our board of directors has determined that is an “audit

committee financial expert” under the rules of the SEC implementing Section 407 of the Sarbanes-Oxley Act of 2002, and meets the independence and experience requirements of the Nasdaq Global Market and the federal securities laws.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board of directors or compensation committee. After the consummation of this offering, our board of directors will form a compensation committee as described above. None of our executive officers will serve as a member of our compensation committee, and none of them has served, or will be permitted to serve, on the compensation committee, or other committee serving a similar function, of any entity of which an executive officer is expected to serve as a member of our compensation committee.

Directors’ Compensation

Directors who are employees of the Company will receive no compensation for service as members of either the board of directors or board committees. Each non-employee director will receive an annual cash retainer of $ and an annual grant of . We will pay non-employee directors $ for each meeting of the board of directors that they attend ($ for telephonic meetings) and $ for each meeting of a committee of the board of directors that they attend ($ for telephonic meetings). The above cash compensation may be deferred by directors into a deferred compensation plan that we will establish. All directors will also be reimbursed for expenses incurred in connection with their service as directors, including travel expenses for meeting attendance.

Executive Compensation

The following table sets forth certain information concerning the compensation of those persons who were, at December 31, 2005, our Chief Executive Officer and our four highest paid executive officers (collectively, the “named executive officers”).


						Long-term Compensation
		Annual Compensation				Awards	All Other Compensation ($)(1)
Name and Principal Position	Year	Salary($)	Bonus($)	Other Annual Compensation($)		Securities Underlying Options (#)	All Other Compensation ($)(1)
I Michael Coslov Chairman and Chief Executive Officer (2)	2005	1,028,462	650,000	147,364	(2)		$	64,515

Joseph Curtin Director, President and Chief Operating Officer of the Tube City Division (3)	2005	554,000	600,000	155,701	(3)			25,179

Raymond S. Kalouche Director, President and Chief Operating Officer of the IMS Division (4)	2005	480,748	700,000	18,892	(4)			55,905

J. David Aronson Executive Vice President—Outsource Purchasing of the Tube City Division (5)	2005	497,693	600,000	56,273	(5)			10,993

Thomas E. Lippard Vice President, General Counsel and Secretary (6)	2005	497,693	300,000	40,678	(6)			16,031

(1)

Includes the value of (a) contribution to 401(k) plans, (b) premiums paid for term life and disability insurance for the benefit of the insured and (c) contribution to a supplemental executive retirement plan (“SERP”). The amounts described in clause (a), (b) and (c) above for each of the above officers paid in 2005 are set forth below:


	(a)		(b)		(c)
I Michael Coslov	$	8,925	$	55,590	$	—
Joseph Curtin		8,925		16,254		—
Raymond S. Kalouche		16,800		3,229		35,876
J. David Aronson		8,925		2,068		—
Thomas E. Lippard		8,925		7,106		—

(2)

Includes $8,308 for a car allowance and $79,540 for country club dues.

(3)

Includes $24,923 for a car allowance, $24,300 for country club dues and $100,000 for initiation fees to one country club.

(4)

Includes $18,000 for car allowance and $892 gross-up payment for Medicare tax liability on vested deferred compensation.

(5)

Includes $24,923 for car allowance and $27,023 for country club dues.

(6)

Includes $24,923 for car allowance and $10,755 for country club dues.

Option Grants in Last Fiscal Year

The following table contains information covering the number and value of our stock options granted to the named executive officers during the last fiscal year ended December 31, 2005.


Name	Number of Securities Underlying Options(1)	Percent of Total Options Granted to Employees in Fiscal Year		Exercise Price(2)	Expiration Date(3)	Grant Date Present Value of Options(3)(4)
I Michael Coslov		17.4 6.2	%	$	12/21/2014 6/1/2015	$	880,250 316,890
Joseph Curtin		14.9 5.4			12/21/2014 6/1/2015		754,500 271,620
Raymond S. Kalouche		14.9 5.4			12/21/2014 6/1/2015		754,500 271,620
J. David Aronson		8.9			12/21/2014		452,700
Thomas E. Lippard		5.9			12/21/2014		301,800

(1)

The options were granted in January 2005 and in June 2005 at an exercise price per share of $ , as adjusted to reflect our stock split on , 2006. There are two types of options: service-based and performance-based. Each grantee receives an equal number of each type on each date of grant. The service-based options vest in four equal annual installments on December 21, 2005, December 21, 2006, December 21, 2007 and December 21, 2008 (in the case of the January 2005 grants), and on June 1, 2006, June 1, 2007, June 1, 2008 and June 1, 2009 (in the case of the June 2005 grants) and the performance-based options vest based on a certain stipulated liquidity event or initial public offering event, if certain performance criteria are met.

(2)

In the fourth quarter of 2005, we paid a distribution of $ per share on our outstanding common stock. Consistent with the 2004 Plan (as defined below), the exercise price of the outstanding options was reduced from $ per share to $ per share. At year end, all outstanding options had an exercise price of $ per share.

(3)

Options generally terminate on the earliest of the 91st day following the date the grantee ceases to be employed or engaged by us or any of our affiliates for any reason (except if such cessation is on account of death or disability, the 366th day following such cessation); provided however, that (i) in all cases the portion of any option that did not vest prior to or upon the date of termination of employment or engagement for any reason shall terminate immediately upon such termination, and (ii) if such termination is for cause, the vested portion shall terminate as well.

(4)

The grant date valuation method alternative was used for the above table. Under SFAS 123-R, the fair value of each option granted under the 2004 plan is estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumption: risk-free interest rate of 3.899% in 2005; volatility (based on the volatility of similar public companies) of 42.5%; dividend yield of 0.0%; and a weighted expected option life of seven years. The weighted-average fair values of shares issued in 2005 and all shares outstanding at December 31, 2005 was $ , as adjusted to reflect our for one stock split on , 2006. The above valuation was determined using the weighted average value of $ multiplied by the total number of shares granted.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

The following table contains information covering the number and value of our unexercised stock options held by the named executive officers at the end of the fiscal year ended December 31, 2005, as adjusted to reflect our stock split on , 2006.


Name	Number of Securities Underlying Unexercised Options at Fiscal Year End Exercisable/ Unexercisable	Value of Unexercised In-the-Money Options at Fiscal Year End ($) Exercisable/ Unexercisable(1)
I Michael Coslov		$30,632/$302,568
Joseph Curtin		26,250/259,350
Raymond S. Kalouche		26,250/259,350
J. David Aronson		15,750/110,250
Thomas E. Lippard		10,500/73,500

(1)

The value of each share of unexercised in-the-money options at year end represents the spread between the per share fair market value and the per share exercise price multiplied by the number of shares.

Equity Compensation Plan Information at December 31, 2005

The following table sets forth information as of December 31, 2005 regarding compensation plans under which our equity securities are authorized for issuance (as adjusted to reflect our for one stock split on , 2006).


	(a)	(b)	(c)
Plan Category

Initial public offering price per share of common stock

Net tangible book value per share as of , 2006

Increase in net tangible book value per share attributable to this offering

Pro forma net tangible book value per share after this offering

Dilution per share to new investors

Tube City IMS CORP S-1