Environmental Compliance:

We are subject to comprehensive and continually evolving environmental regulation of our operations under federal, state, provincial and local laws with respect to air emissions, wastewater and storm water discharges, handling and use of hazardous substances and waste management practices, including the handling, generation, storage, transportation, treatment and disposal of hazardous waste. These would include, among others, the Resource Conservation and Recovery Act (RCRA), the Clean Air Act, including the 1990 Amendments to the Clean Air Act, the Clean Water Act, the Canadian Environmental Protection Act, the Canadian Fisheries Act and regulations promulgated in connection with those laws. Such laws and regulations include those concerning the discharge of contaminants as air emissions or waste water effluents and the disposal of solid and/or hazardous wastes, such as electric arc furnace dust. As a result, we are from time to time involved in administrative and judicial proceedings and administrative inquiries related to environmental matters.

We require federal, state and provincial permits regulating air and water discharges in order to operate our facilities. We believe that our facilities are in compliance with all relevant federal, state and provincial environmental laws and regulations.

Pursuant to RCRA, which governs the treatment, handling and disposal of solid and hazardous wastes, the U.S. Environmental Protection Agency (USEPA) and authorized state environmental agencies can require facilities to take corrective action to remediate releases of wastes. RCRA also allows citizens to bring suits against regulated facilities for potential damages and clean up. We operate four steel mini-mills, three of which are in the U.S., that produce dust that contains lead, cadmium and chromium, which are classified as a hazardous waste. Dust produced by our electric arc furnaces are collected through emission control systems and is managed in facilities that are approved by the appropriate regulatory authority. While we cannot predict the future actions of the regulators or other interested parties, the potential exists for required corrective action at our facilities, the costs of which could be substantial.

When we acquired NSG, we assumed the obligations related to a closed hazardous waste landfill on our property in Wilder, Kentucky that is being monitored according to post-closure care and monitoring requirements and a permit that was issued by the Kentucky Division of Waste Management. We have accrued the estimated costs for the post-closure care of the landfill and funds have been set aside in a trust to pay these costs.

The USEPA has proposed an air emission rule relating to air emissions from Electric Arc Furnace (“EAF”) operations. The USEPA regulates major sources of hazardous air emissions under a rule known as Maximum Achievable Control Technology (“MACT”). EAF operations are not major sources of hazardous air pollutants and are, therefore, not subject to MACT requirements. However, the USEPA has authority to regulate small hazardous emission sources under a set of rules called the Area Source Rules. The main focus of the proposed air emission rule relating to EAF operations has been mercury emissions caused by mercury switches in automotive scrap. It had been expected that this rule would be effective in 2005, however, USEPA recognized that the removal of switches from automobiles prior to the shredding process was the best method to control EAF mercury emissions. As a result, USEPA began multi-stakeholder negotiations to develop a national program for removal and recycling of these switches prior to the time shredded automotive scrap is sent to the EAF operations. The negotiations lead to an agreement on a National Program which was signed by all stakeholders in the fall of 2006. As a result of these negotiations, the finalization of the EAF Area Source Rule was delayed and it is now expected that the final rule will be issued in 2007 and will include the National Mercury Switch Recovery Program as a key component. While we cannot, at this time, predict the impact of the final rule on our operations, it is expected that they will not be material to our electric arc furnace operations.

In Canada, Environment Canada has been looking to mirror the mercury switch program being developed by USEPA. As a result of the length of time taken by USEPA to complete the negotiations, Environment Canada has issued a notice under the Canadian Environmental Protection Act that requires development of a cost sharing arrangement between the auto manufacturers and the steel industry to remove mercury switches from autos before they are shredded. The negotiation of this type of program is ongoing. The current version of Environment Canada notice does not include regulations that would require the installation of mercury control equipment at the Company’s Regina EAF operations. The Company believes that the program contemplated in Canada would not add any material cost in operations or in capital expenditures. The Company’s scrap recycling operation, General Scrap Partnership, has been proactive in this area and has been removing mercury switches and properly disposing of them since 2003. This program was used by both the USEPA and Environment Canada as a model during development of their respective programs.

In 2006, a new emission standard for Canadian manufacturers covering dioxin emissions from EAF operations became effective. For new or significantly modified EAF related facilities, the standard is 100 picograms per normal cubic meter of exhaust gas from the EAF melting operations, while the existing EAF facilities standard is 150 picograms. A new baghouse to capture EAF particulate emissions was recently constructed at the Regina Steelworks, at a cost of approximately CDN $14 million. In addition to dramatic improvements in the capture and control of particulates, the new baghouse has allowed the Regina operations to meet the new source dioxin standard of 100 picograms. The Regina facility is subject to annual compliance testing for dioxin emissions; however, we do not anticipate any further material impact associated with the implementation of this new standard.

In the U.S., the Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA,” the USEPA and, in some instances, private parties have the authority to impose joint and several liability for the remediation of contaminated properties upon generators of waste, current and former site owners and operators, transporters and other potentially responsible parties, regardless of fault or the legality of the original disposal activity. We have a number of waste handling agreements with various contractors to properly dispose of our electric arc furnace dust and certain other waste products of steel-making. However, we cannot assure that, even if there has been no fault by us, we may not still be cited for liability as a waste generator by reason of an environmental clean up at a site to which our waste products were transported.

In late 2001, the USEPA designated Imperial Adhesives, Inc., a former subsidiary of the NSG, as one of a number of potentially responsible parties (PRP) under CERCLA at an environmental remediation site. The USEPA has contended that any company linked to a CERCLA site is potentially liable for costs associated with the site under the legal doctrine of joint and several liabilities. This environmental remediation site involves a municipal waste disposal facility owned and operated by an independent operator. In December of 2006, a settlement was paid in full of all outstanding environmental claims associated with the sale of Imperial Adhesives.

In addition to RCRA and CERCLA, there are a number of other environmental, health and safety laws and regulations that apply to our facilities and may affect our operations. By way of example and not of limitation, certain portions of the United States Clean Air Act, Clean Water Act, Oil Pollution Act, Safe Drinking Water Act, Emergency Planning and Community Right-to-Know Act and the Canadian Environmental Protection Act, as well as state, provincial and local laws and regulations implemented by the regulatory agencies, apply to our facilities’ operations. Many of these laws allow both the governments and citizens to bring certain suits against regulated facilities for alleged environmental violations. Finally, any steel-making company could be subject to certain toxic tort suits brought by citizens or other third parties alleging causes of action such as nuisance, negligence, trespass, infliction of emotional distress or other claims alleging personal injury or property damage.

With the ratification of the Kyoto Protocol Treaty (the “Protocol”) by the Canadian government, manufacturing operations in Canada have become subject to reporting of greenhouse gases, and will likely be subject to mandated reductions in emissions of greenhouse gases. In Canada, as part of the effort to comply with the Protocol, the Canadian government identified a number of industrial sectors that would be required to reduce emissions during the first commitment period ending in 2012. These sectors were classified as “Large Final Emitters.” The steel industry was included in this group. The Company has been actively engaged in negotiations with the Canadian government on implementation of any reductions that may be required within the steel industry. As a result of these negotiations, and the fact that the government has capped the cost of CO2 credits at $15 per ton, we do not currently expect the implementation of the Protocol in Canada to have a material impact on our operations. In late 2006, the Canadian Government issued a draft Clean Air Act which contemplates reductions of emissions of greenhouse gases as well as criteria air pollutants by industry. As part of this proposal, the Government has agreed to conduct consultations with impacted industry segments including the steel industry and the Company will participate in these consultations. It is difficult to predict impacts of this proposed regulation, but any outcome that significantly restricts access to sufficient allocations of carbon credits could impact our ability to expand steel melting operations in Regina.

The U.S. has not ratified the Kyoto Protocol and, as a result, has not agreed to mandated reduction, but instead has committed to national emissions reporting under the Protocol, and also is conducting many voluntary reduction programs.

Since the level of enforcement of environmental laws and regulations, or the nature of those laws that may be enacted from time to time are subject to changing social or political pressures, our environmental capital expenditures and costs for environmental compliance may increase in the future. In addition, due to the possibility of unanticipated regulatory or other developments, the amount and timing of future environmental expenditures may vary substantially from those currently anticipated. The cost of current and future environmental compliance may also place North American producers at a competitive disadvantage with respect to foreign steel producers, which may not be required to undertake equivalent costs in their operations.

We have accrued liabilities of approximately $7.3 million and $3.7 million for environmental remediation obligations at December 31, 2006 and 2005, respectively. Based upon our evaluation of available information, we do not believe that any of the environmental contingency matters discussed above are likely, individually or in the aggregate, to have a material adverse effect upon our consolidated results of operations, financial position or cash flows. However, we cannot predict with certainty that new information or developments with respect to our environmental contingency matters, individually or in the aggregate, will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.

We, believe, that we are currently in substantial compliance with applicable environmental regulations. We cannot predict the level of required capital expenditures or operating costs that may result from compliance with future environmental regulations.

Capital expenditures for the next 12 months relating to environmental control facilities are expected to be approximately $3.0 million. However, such expenditures could be influenced by new or revised environmental regulations and laws or new information or developments with respect to our operating facilities. Given the continual evolution of environmental laws and increased enforcement actions taken by regulators, our environmental capital expenditures, as well as compliance costs, will likely increase in the future and may vary substantially from those currently anticipated.