A. M. Castle & Co. - Annual Report: 2007 (Form 10-K)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007		Commission File Number: 1-5415

A. M. CASTLE & CO.

 

(Exact name of registrant as specified in its charter)

Maryland		36-0879160
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
3400 North Wolf Road, Franklin Park, Illinois		60131
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (847) 455-7111
Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock — $0.01 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter is $568,838,639.

The number of shares outstanding of the registrant’s common stock on March 7, 2008 was 22,102,367 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Documents Incorporated by Reference		Applicable Part of Form 10-K
Proxy Statement furnished to Stockholders in connection with registrant’s Annual Meeting of Stockholders		Part III

 

 

PART I

ITEM 1 — Business

In this annual report on Form 10-K, “the Company,” “we” or “our” refer to A. M. Castle & Co., a Maryland corporation, and its subsidiaries included in the consolidated financial statements, except as otherwise indicated or as the context otherwise requires.

Business and Markets

The Company is a specialty metals and plastics distribution company serving principally the North American market, but with a significantly growing global presence. The Company provides a broad range of product inventories as well as value-added processing and supply chain services to a wide array of customers, principally within the producer durable equipment sector of the global economy. Particular focus is placed on the aerospace and defense, oil and gas, power generation, mining and heavy earth moving equipment manufacturing industries as well as general engineering applications.

     In September 2006, the Company acquired Transtar Intermediate Holdings #2, Inc. (“Transtar”), a wholly owned subsidiary of H.I.G. Transtar Inc. Transtar is a leading supplier of high performance aluminum alloys to the aerospace and defense industries, supporting the on-going requirements of those markets with a broad range of inventory, processing and supply chain services. As a result of the acquisition, the Company has increased its access to aerospace customers and avenues to cross-sell its other products into this growth market. The acquisition also provides the Company the benefits of deeper access to certain inventories and purchasing synergies, as well as provides the Company an existing platform to sell to markets in Europe and other international markets.

     The Company purchases metals and plastics from many producers. Satisfactory alternative sources are available for all inventory purchased by the Company and the business of the Company would not be adversely affected in a material way by the loss of any one supplier.

     Purchases are made in large lots and held in distribution centers until sold, usually in smaller quantities and often with some value-added processing services performed. The Company’s ability to provide quick delivery, frequently overnight, of a wide variety of specialty metals and plastic products, along with its processing capabilities, allow customers to lower their own inventory investment by reducing their need to order the large quantities required by producing mills or their need to perform additional material processing services. In connection with certain customer programs, principally in the aerospace and defense market, the Company’s sales and purchases are covered by long-term contracts and commitments.

     Approximately 90% of 2007’s consolidated net sales included materials shipped from Company stock. The materials required to fill the balance of sales were obtained from other sources, such as direct mill shipments to customers or purchases from other distributors. Thousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization. Deliveries are made principally by leased trucks. Common carrier delivery is used in areas not serviced directly by the Company’s fleet.

     The Company encounters strong competition both from other metals and plastics distributors and from large distribution organizations, some of which have substantially greater resources.

     Metal service centers act as supply chain intermediaries between primary metal producers, which necessarily deal in bulk quantities of metals in order to achieve economies of scale, and end-users in a variety of industries that require specialized metal products in significantly smaller quantities. Service centers manage the differences in lead times that exist in the supply chain. While OEMs and other customers often demand delivery within hours, the lead time required by primary metal producers can be as long as several months. Metal service centers also provide value to their customers by aggregating purchasing, providing warehousing and distribution services, and by processing metals to meet specific customer needs often with little or no further modification. According to Purchasing.com, metal service centers buy, hold, process and resell about 35% of all the metals used in the U.S. and Canada each year. The U.S. and Canadian metals distribution industry generated $126.5 billion in 2006 sales, 10% higher than the $115 billion in 2005 and 49% higher than the $85 billion of 2004.

     In order to capture scale efficiencies and remain competitive, many primary metal producers are consolidating their operations and focusing on their core production activities. These producers have increasingly outsourced metals distribution and inventory management to metals service centers.

     This process of outsourcing allows them to work with a relatively small number of intermediaries rather than many end customers. As a result, metals service centers are now providing a range of services for their customers, including metal purchasing, processing and supply chain management services. According to Purchasing.com, as of May 2006, over 360,000 North American OEMs, contractors and fabricators purchase some or all of their metal requirements from metals service centers.

     These end users of metal products benefit from the inventory management and just-in-time delivery capabilities of metals service centers, which enable them to reduce inventory and labor costs and to decrease capital requirements. These services, which help end users optimize production, are not generally provided by the primary producers.

     At December 31, 2007, the Company had 1,945 full-time employees in its operations throughout the United States, Canada, Mexico, France and the United Kingdom. Of these, 289 are represented by collective bargaining units, principally the United Steelworkers of America.

Business Segments

The Company distributes and performs processing on both metals and plastics. Although the distribution processes are similar, different customer markets, supplier bases and types of products exist. Additionally, our Chief Executive Officer reviews and manages these two businesses separately. As such, these businesses are considered reportable segments according to the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information” and are reported accordingly in the Company’s various public filings. Neither of the Company’s reportable segments has any unusual working capital requirements.

     In 2007, the Metals segment accounted for approximately 92% of the Company’s revenues, and its Plastics segment the remaining 8%. The Company’s customer base is well diversified and therefore, the Company does not have dependence upon any single customer, or a few customers. In the last three years, the percentages of total sales of the two segments were approximately as follows:

		2007				2006				2005
Metals			92	%			90	%			89	%
Plastics			8	%			10	%			11	%
			100	%			100	%			100	%

Metals Segment

In its Metals business, the Company’s market strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very tight specifications. Core products include nickel alloys, aluminum, stainless steels and carbon. Inventories of these products assume many forms such as plate, sheet, extrusions, round bar, hexagon bar, square and flat bars, tubing and coil. Depending on the size of the facility and the nature of the markets it serves, distribution centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, water-jet cutting equipment, stress relieving and annealing furnaces, surface grinding equipment, cut-to-length levelers and sheet shearing equipment.

     The Company’s primary metals distribution center and corporate headquarters is located in Franklin Park, Illinois. This center serves metropolitan Chicago and a nine-state area. In addition, there are 51 distribution centers in various other cities in North America and Europe (see Item 2).

     Our customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms. The coast-to-coast network of metal service centers within North America provides next-day delivery to most of the segment’s markets, and two-day delivery to virtually all of the rest.

Plastics Segment

The Company’s Plastics segment consists exclusively of Total Plastics, Inc. (“TPI”), a wholly-owned subsidiary headquartered in Kalamazoo, Michigan. This segment stocks and distributes a wide variety of plastics in forms that include plate, rod, tube, clear sheet, tape, gaskets and fittings. Processing activities within this segment include cut-to-length, cut-to-shape, bending and forming according to customer specifications.

     The Plastics segment’s diverse customer base consists of companies in the retail (point-of-

purchase), marine, office furniture and fixtures, transportation and general manufacturing industries. TPI has locations throughout the upper Northeast and Midwest portions of the U.S. and one facility in Florida from which it services a wide variety of users of industrial plastics.

Joint Venture

The Company holds a 50% joint venture interest in Kreher Steel Co., a Midwest metals distributor, focusing on customers whose primary need is for immediate, reliable delivery of large quantities of alloy, special bar quality and stainless bars. The Company’s equity in the earnings from this joint venture is reported separately in the Company’s consolidated statement of operations.

Access to SEC Filings

The Company makes available free of charge on or through its Web site at www.amcastle.com the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”).

ITEM 1A — Risk Factors

Our business, operations and financial condition are subject to various risks and uncertainties. Current or potential investors should carefully consider the risks and uncertainties described below, together with all other information in this annual report on Form 10-K and other documents filed with the SEC, before making any investment decisions with respect to the Company’s securities.

The prices we pay for raw materials, both metals and plastics, and the prices we charge for products may fluctuate depending on many factors not in our control, including general economic conditions (both domestic and international), competition, production levels, import duties and other trade restrictions and currency fluctuations. To the extent metals prices decline, we would generally expect lower sales and possibly lower net income, depending on the timing of the price changes. To the extent we are not able to pass on to our customers any increases in our raw materials prices, our results of operations may be adversely affected. In addition, because we maintain substantial inventories of metals in order to meet the just-in-time delivery requirements of our customers, a reduction in our selling prices could result in lower profit margins or, in some cases, losses, either of which would reduce our profitability.

Many of our products are sold to customers in industries that experience significant fluctuations in demand based on economic conditions, energy prices, consumer demand and other factors beyond our control. As a result of this volatility in the industries we serve, when one or more of our customers’ industries experiences a decline, we may have difficulty increasing or maintaining our level of sales or profitability if we are not able to divert sales of our products to customers in other industries. We have made a strategic decision to focus sales resources on certain industries, specifically the aerospace and oil and gas industries. As a result, there is some risk that adverse business conditions in these industries could be detrimental to our sales. We are also particularly sensitive to market trends in the manufacturing sector of the North American economy.

We may not be able to realize the benefits we anticipate from our acquisitions. Achieving those benefits depends on the timely, efficient and successful execution of a number of post-acquisition events, including our integration of the acquired businesses. Factors that could affect our ability to achieve these benefits include:

•

difficulties in integrating and managing personnel, financial reporting and other systems used by the acquired businesses;

•

the failure of the acquired businesses to perform in accordance with our expectations;

•

failure to achieve anticipated synergies between our business units and the acquired businesses; and

•

the loss of the acquired businesses’ customers.

The presence of any of the above factors individually or in combination could result in future impairment charges against the assets of the acquired business.

If the acquired businesses do not operate as we anticipate, it could adversely affect our business, financial condition and results of operations. As a result, there can be no assurance that the acquisitions will be successful or will not, in fact, adversely affect our business.

A substantial portion of our sales are concentrated in the aerospace and oil and gas industries, and thus our financial performance is highly dependent on the conditions of those industries.

A substantial portion of our sales are concentrated with customers in the aerospace and oil and gas industries. The aerospace and oil and gas industries tend to be highly cyclical, and capital spending by airlines, aircraft manufacturers, governmental agencies and defense contractors may be influenced by a variety of factors including current and predicted traffic levels, aircraft fuel pricing, labor issues, competition, the retirement of older aircraft, regulatory changes, the issuance of contracts, terrorism and related safety concerns, general economic conditions, worldwide airline profits and backlog levels. Additionally, a significant amount of work that we perform under contract in these industries tends to be for a few large customers. A reduction in capital spending in the aerospace or defense industries could have a significant effect on the demand for our products, which could have an adverse effect on our financial performance or results of operations.

We are vulnerable to interest rate fluctuations on our indebtedness, which could hurt our operating results.

We are exposed to various interest rate risks that arise in the normal course of business. We finance our operations with fixed and variable rate borrowings. Market risk arises from changes in variable interest rates. Under our revolving credit facility, our interest rate on borrowings is subject to changes based on fluctuations in the LIBOR and prime rates of interest.

Disruptions in the supply of raw materials could adversely affect our ability to meet our customer demands and our revenues and profitability.

The Company generally does not enter into long-term contracts to purchase metals. Accordingly, if for any reason our primary suppliers of metals should curtail or discontinue their delivery of raw materials to us at competitive prices and in a timely manner, our business could suffer. Unforeseen disruptions in our supply bases could materially impact our ability to deliver products to customers. The number of available suppliers could be reduced by factors such as industry consolidation and bankruptcies affecting steel, metals and plastics producers. If we are unable to obtain sufficient amounts of raw materials from our traditional suppliers, we may not be able to obtain such raw materials from alternative sources at competitive prices to meet our delivery schedules, which could have an adverse impact on our revenues and profitability.

Our industry is highly competitive, which may force us to lower our prices and may have an adverse effect on net income.

The principal markets that we serve are highly competitive. Competition is based principally on price, service, quality, processing capabilities, inventory availability and timely delivery. We compete in a highly fragmented industry. Competition in the various markets in which we participate comes from a large number of value-added metals processors and service centers on a regional and local basis, some of which have greater financial resources than we do and some of which have more established brand names in the local markets we serve. We also compete to a lesser extent with primary metals producers who typically sell to very large customers requiring shipments of large volumes of metal. Increased competition could force us to lower our prices or to offer increased services at a higher cost to us, which could reduce our operating profit and net income.

Our business could be adversely affected by a disruption to our primary distribution hub.

Our largest facility, in Franklin Park, Illinois, serves as a primary distribution center that ships product to our other facilities as well as external customers. This same facility also serves as our headquarters and houses our primary information systems. Our business could be adversely impacted by a major disruption at this facility in the event of:

•

damage to or inoperability of our warehouse or related systems;

•

a prolonged power or telecommunication failure;

•

a natural disaster such as fire, tornado or flood;

•

a work stoppage; or

•

an airplane crash or act of war or terrorism on-site or nearby as the facility is located within seven miles of O’Hare International Airport (a major U.S. airport) and lies below certain take-off and landing flight patterns.

We have data storage and retrieval procedures that include off-site system capabilities. However, a prolonged disruption of the services and capabilities of our Franklin Park facility and operation could adversely impact our financial performance.

A disruption in our information technology systems could impact our ability to report our financial performance.

We are in the process of implementing new ERP systems and any significant disruption relating to our current or new information technology systems may have an adverse affect on the Company’s ability to conduct business in its normal course or report its financial performance in a timely manner.

We operate in international markets, which expose us to a number of risks.

We serve and operate in certain international markets, which expose us to political, economic and currency related risks. We operate in Canada, Mexico, France and the United Kingdom, with limited operations in Singapore. An act of war or terrorism could disrupt international shipping schedules, cause additional delays in importing our products into the United States or increase the costs required to do so. Fluctuations in the value of the U.S. dollar versus foreign currencies could reduce the value of these assets as reported in our financial statements, which could reduce our stockholders’ equity. If we do not adequately anticipate and respond to these risks and the other risks inherent in international operations, it could have a material adverse effect on our operating results.

A portion of our workforce is represented by collective bargaining units, which may lead to work stoppages.

289 of our employees are unionized, which represented 14.9% of our employees at December 31, 2007, including those employed at our primary distribution center in Franklin Park. We cannot predict how stable our relationships with these labor organizations will be or whether we will be able to meet union requirements without impacting our financial condition. The unions may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our union relationships could negatively impact the timely processing and shipment of our products, which could strain relationships with customers and cause a loss of revenues that would adversely affect our results of operations.

We could incur substantial costs in order to comply with, or to address any violations under, environmental and employee health and safety laws, which could significantly increase our operating expenses and reduce our operating income.

Our operations are subject to various environmental statutes and regulations, including laws and regulations governing materials we use. In addition, certain of our operations are subject to international, federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. Our operations are also subject to various employee safety and health laws and regulations, including those concerning occupational injury and illness, employee exposure to hazardous materials and employee complaints. Certain of our facilities are located in industrial areas, have a history of heavy industrial use and have been in operation for many years and, over time, we and other predecessor operators of these facilities have generated, used, handled and

disposed of hazardous and other regulated wastes. Currently unknown cleanup obligations at these facilities, or at off-site locations at which materials from our operations were disposed, could result in future expenditures that cannot be currently quantified but which could have an adverse effect on our financial position, results of operations or cash flows.

Antidumping and other duties could be imposed on us, our suppliers and our products.

The imposition of an antidumping or other increased duty on any products that we import could have an adverse effect on our financial condition. For example, under United States law, an antidumping duty may be imposed on any imports if two conditions are met. First, the Department of Commerce must decide that the imports are being sold in the United States at less than fair value. Second, the International Trade Commission (the “ITC”), must determine that a United States industry is materially injured or threatened with material injury by reason of the imports. The ITC’s determination of injury involves a two-pronged inquiry: first, whether the industry is materially injured and second, whether the dumping, and not other factors, caused the injury. The ITC is required to analyze the volume of imports, the effect of imports on United States prices for like merchandise, and the effects the imports have on United States producers of like products, taking into account many factors, including lost sales, market share, profits, productivity, return on investment and utilization of production capacity.

Increases in energy prices would increase our operating costs and we may be unable to pass these increases on to our customers in the form of higher prices, which may reduce our profitability.

We use energy to process and transport our products. Our operating costs increase if energy costs, including electricity, gasoline and natural gas, rise. During periods of higher energy costs, we may not be able to recover our operating cost increases through price increases without reducing demand for our products. In addition, we do not hedge our exposure to higher prices via energy futures contracts. Increases in energy prices will increase our operating costs and may reduce our profitability if we are unable to pass the increases on to our customers.

We may not be able to retain or expand our customer base if the United States manufacturing industry continues to relocate production operations outside the U.S.

Our customer base primarily includes manufacturing and industrial firms in the United States, some of which are, or have considered, relocating production operations outside the United States or outsourcing particular functions to locations outside the United States. Some customers have closed their businesses as they were unable to compete successfully with foreign competitors. Although we have facilities in Canada, Mexico, France, the United Kingdom and Singapore, the majority of our facilities are located in the United States. To the extent our customers close or relocate operations to locations where we do not have a presence, we could lose all or a portion of their business.

Any prolonged disruption of our processing centers could adversely affect our business.

We have dedicated processing centers that permit us to produce standardized products in large volumes while maintaining low operating costs. Any prolonged disruption in the operations of any of our facilities, whether due to labor or technical difficulties, destruction or damage to any of the facilities or otherwise, could adversely affect our business and results of operations.

Our operating results are subject to the seasonal nature of our customers’ businesses.

A portion of our customers experience seasonal slowdowns. Our revenues in the months of July, November and December traditionally have been lower than in other months because of a reduced number of shipping days and holiday or vacation closures for some customers. Consequently, our sales in the first two quarters of the year are usually higher than in the third and fourth quarters. As a result, analysts and investors may inaccurately estimate the effects of seasonality on our results of operations in one or more future quarters and, consequently, our operating results may fall below expectations.

We may face product liability claims that are costly and create adverse publicity.

If any of the products we sell cause harm to any of our customers, we could be exposed to product liability lawsuits. If we were found liable under product liability claims, we could be required to pay substantial monetary damages. Further, even if we successfully defended ourselves against this type of claim, we could be forced to spend a substantial amount of money in litigation expenses, our

management could be required to spend valuable time in the defense against these claims and our reputation could suffer, any of which could adversely affect our business.

ITEM 1B — Unresolved SEC Staff Comments

     None

ITEM 2 — Properties

The Company’s principal executive offices are located in its Franklin Park facility near Chicago, Illinois. All properties and equipment are sufficient for the Company’s current level of activities. Distribution centers and sales offices are maintained at each of the following locations, some of which are owned, except as indicated:

		Approximate
		Floor Area in
Locations		Square Feet
Metals Segment
Bedford Heights, Ohio			374,400
Birmingham, Alabama			76,000
Charlotte, North Carolina			116,500
Dallas, Texas			78,000
Edmonton, Alberta			38,300	(1)
Fairfield, Ohio			166,000	(1)
Franklin Park, Illinois			522,600
Hammond, Indiana (H-A Industries)			243,000	(1)
Houston, Texas			109,100
Kansas City, Missouri			118,000	(1)
Kent, Washington			31,100	(1)
Minneapolis, Minnesota			65,200
Mississauga, Ontario			60,000	(1)
Monterrey, Mexico			55,000	(1)
Montreal, Quebec			38,760	(1)
Paramount, California			155,500	(1)
Philadelphia, Pennsylvania			71,600
Riverdale, Illinois			115,000	(1)
Saskatoon, Saskatchewan			15,000	(1)
Stockton, California			60,000	(1)
Twinsburg, Ohio			120,000	(1)
Wichita, Kansas			58,800	(1)
Winnipeg, Manitoba			50,000
Worcester, Massachusetts			56,000
Kennesaw, Georgia			87,500	(1)
Orange, Connecticut			32,144	(1)
Orange, Connecticut			25,245	(1)
Dallas, Texas			74,880	(1)
Torrance, California			12,171	(1)
Gardena, California			33,435	(1)
Gardena, California			117,000	(1)
Wichita, Kansas			42,000	(1)
Wichita, Kansas			48,000	(1)
Kent, Washington			65,000	(1)

		Approximate
		Floor Area in
Locations		Square Feet
Europe
Montoir de Bretagne, France			25,600	(1)
Letchworth, England			40,000	(1)
China
Shanghai, China			45,700	(1)
Sales Offices (1)
Cincinnati, Ohio
Milwaukee, Wisconsin
Phoenix, Arizona
Tulsa, Oklahoma
Total Metals Segment			3,442,535
Plastics Segment
Baltimore, Maryland			24,000	(1)
Cleveland, Ohio			8,600	(1)
Cranston, Rhode Island			14,990	(1)
Detroit, Michigan			22,000	(1)
Elk Grove Village, Illinois			22,500	(1)
Fort Wayne, Indiana			9,600	(1)
Grand Rapids, Michigan			42,500
Harrisburg, Pennsylvania			13,900	(1)
Indianapolis, Indiana			13,500	(1)
Kalamazoo, Michigan			81,000	(1)
Knoxville, Tennessee			16,530	(1)
Mt. Vernon, New York			30,000	(1)
New Philadelphia, Ohio			15,700	(1)
Pittsburgh, Pennsylvania			8,500	(1)
Rockford, Michigan			53,600	(1)
Tampa, Florida			17,700	(1)
Trenton, New Jersey			6,000	(1)
Worcester, Massachusetts			11,000
Total Plastics Segment			411,620
GRAND TOTAL			3,854,155

ITEM 3 — Legal Proceedings

The Company is a defendant in several lawsuits arising from the operation of its business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of the Company’s in-house counsel, based on current knowledge, that no uninsured liability will result from the outcome of this litigation that would have a material adverse effect on the consolidated results of operations, financial condition or cash flows of the Company.

ITEM 4 — Submission of Matters to a Vote of Security Holders

No items were submitted to a vote of security holders during the fourth quarter of fiscal 2007.

PART II

ITEM 5 —

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock trades on the New York Stock Exchange under the ticker symbol “CAS”. As of March 3, 2008 there were approximately 1,124 shareholders of record and an estimated 4,205 beneficial shareholders. The Company paid $4.7 million and $4.1 million in cash dividends on its common stock in 2007 and 2006, respectively.

     See Part III, Item 11, “Executive Compensation” for information regarding comparison of five year cumulative total return.

     See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management”, for information regarding common stock authorized for issuance under equity compensation plans.

     The Company did not purchase any of its equity securities during the fourth quarter of 2007.

The following table sets forth for the periods indicated the range of the high and low stock price:

		2007								2006
		Low				High				Low				High
First Quarter		$	22.72			$	30.85			$	22.16			$	31.31
Second Quarter		$	28.64			$	38.10			$	23.61			$	44.25
Third Quarter		$	26.23			$	37.22			$	25.34			$	34.86
Fourth Quarter		$	23.66			$	37.18			$	24.15			$	34.20

ITEM 6 — Selected Financial Data

(dollars in millions, except per share data)		2007				2006				2005				2004				2003
For the year ended December 31,:
Net sales		$	1,420.4			$	1,177.6			$	959.0			$	761.0			$	543.0
Net income (loss) (continuing operations)			51.8				55.1				38.9				15.4				(19.9	)
Earnings (loss) per diluted share (continuing operations)			2.41				2.89				2.11				0.82				(1.32	)
Cash dividends paid per common share			0.24				0.24				—				—				—
As of December 31:
Total assets			677.0				655.1				423.7				383.0				338.9
Long-term debt, less current portion			60.7				90.1				73.8				89.8				100.0
Total debt			86.5				226.1				80.1				101.4				108.3
Stockholders’ equity			385.1				215.9				175.5				130.4				113.7

ITEM 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

2007 marked a number of major accomplishments for the Company including 1) record sales and second highest net income in the Company’s history, 2) completion of a secondary public equity offering, 3) a concurrent move to the New York Stock Exchange (“NYSE”), 4) the continuing integration of Transtar Metals (“Transtar”), acquired in late 2006, and 5) realignment of the commercial leadership within our Metals segment into four end-market focused teams — Castle Metals, Castle Metals Aerospace, Castle Metals Oil and Gas, and Castle Metals Plate. In addition, the Company embarked upon an Oracle Enterprise Resource Planning (“ERP”) system implementation, as well as completed a lean engineering initiative at its flagship Franklin Park, Illinois facility. Finally, in January 2008 the Company completed a strategic acquisition of Metals UK Group, a distributor and processor of specialty metals with 2007 revenues of $72 million.

     The Company achieved record sales of $1,420.4 million in 2007, which was an increase of $242.8 million, or 20.6% versus 2006. The acquisition of Transtar contributed $191.7 million of the total net sales increase. Excluding Transtar, the Company experienced increased material prices, accounting for 13.1% of the sales growth, while overall volume declined 8.4%. Softer market conditions in certain markets resulted in reduced volumes and increased competitive pressure on pricing and margins, especially in the second half of the year. Regardless of these market dynamics, the Company achieved its second highest net income in its 117 year history, just falling short of its record net income performance in 2006.

     In May, 2007, the Company completed a secondary public offering of 5,000,000 shares of its common stock at $33.00 per share. Of these shares, the Company sold 2,347,826 plus an additional 652,174 to cover over-allotments. Selling stockholders sold 2,000,000 shares. The Company realized net proceeds from the equity offering of $92.9 million, which were used to accelerate the repayment of debt incurred to fund the acquisition of Transtar in late 2006. The equity offering proceeds combined with strong cash earnings drove the debt to total capital ratio to pre-Transtar acquisition levels. At December 31, 2007, the Company’s debt to total capital ratio was 18.3% compared to 51.2% at the end of 2006, providing an excellent capital structure to continue to fund its growth plans for the future.

     Concurrent with the equity offering, the Company moved to the NYSE which resulted in enhanced independent research analyst coverage and increased investor interest. The combination of the equity offering and the move to the NYSE resulted in average daily trading volume of the Company’s common stock nearly doubling, creating additional investment and trading opportunities that were not previously available to existing shareholders or other interested investors.

     In 2007, the Company continued to move forward in its integration of Transtar, creating a commercial team and product focus specifically for the needs of the aerospace and defense industry. Approximately one-third of the Company’s total revenue base is now in direct strategic alignment with this global industry which is believed to have continued strong growth potential into the future.

     In late 2007, the Company aligned the balance of its Metals business commercial leadership into other targeted end-market focused teams. In addition to aerospace (Castle Metals Aerospace) there are commercial organizations focused on the oil and gas business (Castle Metals Oil and Gas); the carbon, alloy and stainless plate business (Castle Metals Plate) with a focus on the heavy equipment and infrastructure markets and the bar and tubing business (Castle Metals) with a focus on the application of highly engineered products into the broad manufacturing markets. The Company believes that having a deep, focused understanding of certain key markets and the products, processing and services that those markets demand will help differentiate the Company and accelerate its growth. These commercial organizations will be supported by shared corporate services, and most significantly, a new Oracle ERP system.

     As the Company increasingly began to expand its international presence and capabilities, it became clear that it needed to upgrade its business technology. Hence, in 2007, the Company embarked upon an Oracle ERP business project to install this powerful platform across its entire Metals segment. By the end of 2007, the design phase of the project was completed and the testing and training were well advanced. The Company anticipates having the system installed across most of its Metals business by the end of 2008. The system will improve the Company’s ability to manage large OEM and program customer and supply chain requirements. The Company also expects further integration of the back office support functions of its previously acquired entities once the system implementation is completed.

     Finally, late in 2007, the Company completed a significant “lean engineering” project at its largest service center located in Franklin Park, Illinois. The changes within this key distribution hub are expected to improve employee safety, productivity and overall service levels to customers and meet the inventory management and material processing needs of the Company’s other facilities within the internal supply chain network The project successfully freed up valuable floor space allowing the Company to transfer the complete inventory and management of a nearby tubing facility, resulting in the full closure of that operation in early 2008.

     All of these initiatives were part of the early execution of the Company’s long-term strategy to become the foremost provider of specialty products and services and specialized supply chain solutions to targeted global industries.

Recent Market and Pricing Trends

In 2007, the Company experienced softer overall demand, but material prices remained at historically higher levels in most product lines. Aerospace and oil and gas demand remained at high levels in comparison, but the balance of the Metals business exhibited softer demand coming off record high levels of activity in 2006. On average, material pricing was higher than in 2006, but there were some volatile swings throughout the year, especially in nickel and stainless products Operating margins were impacted by the softer market conditions resulting in lower demand and increased competitive pricing pressure as the year progressed.

     Even though the build rates for commercial aircraft were strong, demand and margins for specialty aerospace grade aluminum plate were compressed, especially in the second half of the year. This was due to an over supply of the product throughout the entire supply chain. Aerospace aluminum plate was in short supply in 2006 and many manufacturers purchased as much product as they could obtain. In 2007, and more specifically the second half, the product was in oversupply due to the increased production capacity at the mills, the announced production delays of the Airbus 380 (“A 380”) and Joint Strike Fighter (“JSF”) programs and the excess inventories being held throughout the supply chain. Margins will remain depressed until these excess inventories are utilized, but subsequently could increase as build rates in the A 380, JSF, and other programs increase.

     The Company’s Plastics segment reported 0.5% sales growth in 2007. Volume decreased 2.3%, but material price increases more than offset the volume decline resulting in the year-over-year sales growth.

Current Business Outlook

Historically, management has used the Purchaser’s Managers Index (“PMI”) provided by the Institute of Supply Management (website is www.ism.ws) as an external indicator for tracking the demand outlook and possible trends in its general manufacturing markets. Table 1 below shows PMI trends from the first quarter of 2005 through the fourth quarter of 2007. Generally, it is considered that an index above 50.0 indicates continuing growth in the manufacturing sector of the U.S. economy. As the data indicates, the index experienced a slight decline in the fourth quarter 2007.

Table 1

YEAR		Qtr 1				Qtr 2				Qtr 3				Qtr 4
2005			55.3				52.1				54.3				56.0
2006			54.7				54.1				52.9				50.8
2007			50.5				53.0				51.3				49.6

     An unfavorable 2007 year-end PMI trend suggests that demand for some of the Company’s products and services, in particular those that are sold to the general manufacturing customer base in the U.S., could potentially be at a lower level in the near-term. Although the PMI does offer some insight, management typically relies on its relationships with the Company’s supplier and customer base to assess continuing demand trends. As of December 31, 2007, these other indicators generally point to a reasonably healthy demand for the Company’s specialty products in 2008. In particular, products utilized in the aerospace, oil and gas, and mining industries continued to exhibit strong levels of demand in 2007 and management believes these industries will remain strong in 2008. These specific markets now represent more than half of the Company’s total revenue stream. The outlook on demand for the balance of the Company’s end markets is less predictable. However, the Company continued to expand its international presence with the recent acquisition of Metals UK Group in early 2008 and announced the early second quarter 2008 start-up of its Shanghai, China service center. As the Company expands internationally, it becomes less reliant upon the North American manufacturing economy.

     Average metals pricing, in the aggregate, for the products the Company sells increased 14.2% versus 2006. Management believes that the ongoing consolidation of metal producers has resulted in better material price discipline through enhanced matching of material supply with global demand. The Company believes that this will result in more stable metal pricing throughout the steel industry

     Material pricing and demand in both the metals and plastics segments of the Company’s business have historically proven to be difficult to predict with any degree of accuracy. However, two of the areas of the U.S. economy which are currently experiencing significant decline, the automotive and residential construction markets, are areas in which the Company’s market presence is minimal. The Company has also not seen any effect of the recent credit market squeeze resulting from the residential mortgage lending crisis in its demand for products and services or in its own credit or lending structure.

RESULTS OF OPERATIONS: YEAR-TO-YEAR COMPARISONS AND COMMENTARY

Our discussion of comparative period results is based upon the following components of the Company’s consolidated statements of operations.

Net Sales —The Company derives its revenues from the sale and processing of metals and plastics. Pricing is established with each customer order and includes charges for the material, processing activities and delivery. The pricing varies by product line and type of processing. From time-to-time the Company will enter into long-term fixed price arrangements with a customer while simultaneously obtaining a similar agreement with its suppliers. Such long-term fixed price arrangements are more typical of customers in the aerospace and defense markets.

Cost of Materials — Cost of materials consists of the costs we pay suppliers for metals, plastics and related inbound freight charges. It excludes depreciation and amortization which are included in other operating costs and expenses discussed below. The Company accounts for inventory primarily on a last-in-first-out (“LIFO”) basis. LIFO adjustments are calculated as of December 31 of each year. Interim estimates of the year-end LIFO charge or credit are determined based on inflationary or deflationary purchase cost trends, estimated year-end inventory levels and projected inventory mix. Interim LIFO estimates may require significant year-end adjustment.

Other Operating Costs and Expenses — Other operating costs and expenses primarily consist of (1) warehouse, processing and delivery expenses, which include occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs; (2) selling expenses, which include compensation and employee benefits for sales personnel, (3) general and administrative expenses, which include compensation for executive officers and general management, expenses for professional services primarily attributable to accounting and legal advisory services, data

communication and computer hardware and maintenance; and (4) depreciation and amortization expenses, which include depreciation for all owned property and equipment, and amortization of various intangible assets.

2007 Results Compared to 2006

Consolidated results by business segment are summarized in the following table for years 2007 and 2006.

Operating Results by Segment (dollars in millions)

		Year Ended December 31,								Fav / (Unfav)
		2007				2006				$ Change				% Change
Net Sales
Metals		$	1,304.8			$	1,062.6			$	242.2				22.8	%
Plastics			115.6				115.0				0.6				0.5	%
Total Net Sales		$	1,420.4			$	1,177.6			$	242.8				20.6	%
Cost of Materials
Metals		$	954.4			$	762.3			$	192.1				25.2	%
% of Metals Sales			73.1	%			71.7	%							(1.4	)%
Plastics			78.0				76.9				1.1				1.4	%
% of Plastics Sales			67.5	%			66.9	%							(0.6	)%
Total Cost of Materials		$	1,032.4			$	839.2			$	193.2				23.0	%
% of Total Sales			72.7	%			71.3	%							(1.4	)%
Other Operating Costs and Expenses
Metals		$	256.0			$	205.3			$	50.7				24.7	%
Plastics			32.7				30.8				1.9				6.2	%
Other			8.6				9.8				(1.2	)			(12.2	)%
Total Other Operating Costs & Expenses		$	297.3			$	245.9			$	51.4				20.9	%
% of Total Sales			20.9	%			20.9	%							0.0	%
Operating Income
Metals		$	94.4			$	95.0			$	(0.6	)			(0.6	)%
% of Metals Sales			7.2	%			8.9	%							(1.7	)%
Plastics			4.9				7.3				(2.4	)			(32.9	)%
% of Plastics Sales			4.2	%			6.3	%							(2.1	)%
Other			(8.6	)			(9.8	)			1.2				12.2	%
Total Operating Income		$	90.7			$	92.5			$	(1.8	)			(1.9	)%
% of Total Sales			6.4	%			7.9	%							(1.5	)%

“Other” includes costs of executive, legal and finance departments which are shared by both segments of the Company.

Net Sales:

Consolidated 2007 net sales for the Company were a record $1,420.4 million, an increase of $242.8 million, or 20.6%, versus 2006. The acquisition of Transtar, in September 2006, contributed $191.7 million of the total net sales increase. Material price increases accounted for 13.1% of the growth, excluding Transtar, with lower volume accounting for a 7.5% reduction in year-over-year sales volume.

     Metals segment sales during 2007 of $1,304.8 million were 22.8% or $242.2 million higher than 2006. Transtar accounted for $191.7 million or 79.1% of the increase. Material price increases accounted for 14.2% of the growth, excluding Transtar, with volume and product mix accounting for the balance of the year-over-year sales change.

     Plastics segment sales during 2007 of $115.6 million were 0.5% or $0.6 million higher than 2006. Volume decreased approximately 2.3% during 2007, but material price increases more than offset the volume decline.

Cost of Materials:

Consolidated 2007 cost of materials (exclusive of depreciation and amortization) increased $193.2 million, or 23.0%, to $1,032.4 million. The acquisition of Transtar contributed $139.3 million of the material cost increase. The balance of the increase reflected higher metal costs from suppliers and mix of products sold. Cost of materials was 72.7% of sales for 2007 versus 71.3% in 2006, reflecting a more competitive pricing environment due to lower demand levels across most markets.

Other Operating Expenses and Operating Income:

On a consolidated basis, other operating costs and expenses increased $51.4 million, or 20.9%, over 2006 due to the inclusion of Transtar’s incremental operating expenses of $43.9 million and in support of the Company’s ERP implementation and its lean operations initiatives. However, other operating expense remained unchanged as a percent of sales at 20.9% for both 2007 and 2006.

     2007 operating income of $90.7 million was $1.8 million, or 1.9%, lower than last year. The Company’s 2007 operating profit margin (defined as operating income divided by net sales) decreased to 6.4% from 7.9% in 2006, largely due to competitive market pricing and softer demand.

Other Income and Expense, Income Taxes and Net Income:

Interest expense was $12.9 million in 2007, an increase of $4.6 million versus 2006, primarily due to the debt financing of the Transtar acquisition. The acquisition debt incurred remained on the Company’s financial statements until June, 2007 when it was repaid with proceeds from the Company’s secondary public equity offering. (See “Liquidity and Capital Resources” discussion below).

     Income tax expense decreased to $31.3 million from $33.3 million in 2006 due to lower taxable earnings. The effective tax rate was 40.2% in 2007 and 39.6% in 2006.

     Equity in earnings of the Company’s joint venture, Kreher Steel, was $5.3 million in 2007, $1.0 million higher than 2006, due largely to the joint venture’s acquisition of an Oklahoma-based metal distribution company in April 2007.

     Consolidated net income (after preferred dividends of $0.6 million) was $51.2 million, or $2.41 per diluted share, versus $54.2 million, or $2.89 per diluted share, for the same period in 2006. Weighted average diluted shares outstanding increased 13.0% to 21.5 million for the year-ended December 31, 2007 as compared to 19.1 million shares for the same period in 2006. The increase in average diluted shares outstanding is primarily due to the additional shares issued during the Company’s secondary equity offering in May 2007. The equity offering had a $0.30 per share dilutive impact on fiscal year 2007 earnings.

2006 Results Compared to 2005

Consolidated results by business segment are summarized in the following table for years 2006 and 2005.

Operating Results by Segment (dollars in millions)

		Year Ended December 31,								Fav / (Unfav)
		2006				2005				$ Change				% Change
Net Sales
Metals		$	1,062.6			$	851.3			$	211.3				24.8	%
Plastics			115.0				107.7				7.3				6.8
Total Net Sales		$	1,177.6			$	959.0			$	218.6				22.8	%
Cost of Materials
Metals		$	762.3			$	603.9			$	(158.4	)			(26.2	)%
% of Metals Sales			71.7	%			70.9	%							(0.8	)%
Plastics			76.9				73.3				(3.6	)			(4.9	)%
% of Plastics Sales			66.9	%			68.1	%							1.2	%
Total Cost of Materials		$	839.2			$	677.2			$	(162.0	)			(23.9	)%
% of Total Sales			71.3	%			70.6	%							(0.7	)%
Other Operating Costs and Expenses
Metals		$	205.3			$	172.0			$	(33.3	)			(19.4	)%
Plastics			30.8				28.9				(1.9	)			(6.5	)
Other			9.8				9.7				(0.1	)			—
Total Other Operating Costs & Expenses		$	245.9			$	210.6			$	(35.3	)			(16.8	)%
% of Total Sales			20.9	%			22.0	%							1.1	%
Operating Income
Metals		$	95.0			$	75.3			$	19.7				26.2	%
% of Metals Sales			8.9	%			8.8	%							0.1	%
Plastics			7.3				5.6				1.7				30.4	%
% of Plastics Sales			6.3	%			5.2	%							1.1	%
Other			(9.8	)			(9.7	)			(0.1	)			(1.0	)%
Total Operating Income		$	92.5			$	71.2			$	21.3				29.9	%
% of Total Sales			7.9	%			7.4	%							0.5	%

“Other” includes costs of executive, legal and finance departments which are shared by both segments of the Company.

Net Sales:

Consolidated 2006 net sales for the Company of $1,177.6 million increased $218.6 million, or 22.8%, versus 2005. The acquisition of Transtar contributed $77.9 million of the total net sales increase. Material price increases accounted for 8.0% of the growth with volume and product mix accounting for the balance of the year-over-year sales growth.

     Metals segment sales during 2006 of $1,062.6 million were 24.8% or $211.3 million higher than 2005. Material price increases accounted for 8.8% of the growth with volume and product mix accounting for the balance of the year-over-year sales growth. The aerospace, oil and gas, mining and heavy equipment sectors were especially robust.

     Plastics segment sales during 2006 of $115.0 million were 6.8% or $7.3 million higher than 2005. Volume increased approximately 3.9% during 2006, while material price increases contributed to the balance of the year-over-year sales growth.

Cost of Materials:

Consolidated 2006 cost of materials (exclusive of depreciation) increased $162.0 million, or 23.9%, to $839.2 million. The acquisition of Transtar contributed $55.4 million.

Other Operating Expenses and Operating Income:

On a consolidated basis, other operating costs and expenses increased $35.3 million, or 16.8%, over 2005 due to the inclusion of $19.4 million of Transtar’s other operating expenses and in support of higher overall customer demand. However, other operating expense declined as a percent of sales from 22.0% in 2005 to 20.9% in 2006 as the Company was able to leverage its expenses over higher sales.

     2006 operating income of $92.5 million was $21.3 million, or 29.9%, ahead of 2005. Solid underlying demand strengthened the Company’s operating income. The Company’s 2006 operating profit margin (defined as operating income divided by net sales) increased to 7.9% from 7.4% in 2005.

Other Income and Expense, Income Taxes and Net Income:

Interest expense of $8.3 million in 2006 increased $1.0 million versus 2005 on increased borrowings necessitated by the acquisition of Transtar. (See “Liquidity and Capital Resources” discussion below).

     Income tax expense increased to $33.3 million from $23.2 million in 2005. The effective tax rate was 39.6% in 2006 and 40.1% in 2005.

     Equity in earnings of the Company’s joint venture, Kreher Steel, was $4.3 million in 2006, the same as 2005.

     Consolidated net income applicable to common stock of $54.2 million, or $2.89 earnings per diluted share in 2006 compared favorably to $37.9 million, or $2.11 earnings per diluted share in 2005.

Liquidity and Capital Resources

The Company’s primary sources of liquidity include cash generated from operations and the use of new equity and available borrowing capacity to fund working capital needs and growth initiatives.

     Net cash from operating activities in 2007 was $78.7 million, driven by strong earnings and decreased working capital requirements, and is significantly higher than the $31.4 million generated in 2006.

     In May, 2007, the Company completed a public offering of 5,000,000 shares of its common stock at $33.00 per share. Of these shares, the Company sold 2,347,826 plus an additional 652,174 to cover over-allotments. Selling stockholders sold 2,000,000 shares.

     The Company realized net proceeds from the equity offering of $92.9 million. All of the proceeds were used to repay the $27.0 million outstanding balance on the U.S. Term Loan and to reduce current outstanding borrowings and accrued interest under its U.S. Revolver by $66.2 million. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

     Receivable days outstanding were 45.9 days at December 31, 2007 as compared to 47.3 days at December 31, 2006, reflecting better collections and receivable mix. Average Inventory DSI (days sales in inventory) was 132.4 days for 2007 versus 116.7 days for 2006. The increase in 2007 inventory levels are primarily in the Company’s aluminum and nickel products that support growth in the aerospace and oil and gas sectors. Since June 2007, the Company has aggressively reduced its inventory by $40.0 million and continues to seek improvements in its turn rate on this investment.

     Available revolving credit capacity is primarily used to fund working capital needs. As of December 31, 2007, the Company had outstanding borrowings of $4.3 million under its U.S. Revolver and had availability of $158.8 million. The Company’s Canadian subsidiary had no outstanding borrowings under the Canadian Facility and had availability of $9.9 million.

     As of December 31, 2007, the Company remained in compliance with the covenants of its credit agreements, which require it to maintain certain funded debt-to-capital and working capital-to-debt ratios, and a minimum adjusted consolidated net worth, as defined in the Company’s credit agreements.

     As of December 31, 2007, the Company had $12.1 million in outstanding trade acceptances with varying maturity dates ranging up to 120 days. The weighted average interest rate was 6.35%. A trade acceptance is a form of debt instrument having a definite maturity and obligation to pay and which has been accepted by an acknowledgement by the company upon whom it is drawn. As of December 31, 2007, the Company had $18.7 million of short-term debt which includes the $12.1 million in trade acceptances, the $4.3 million revolver, and $2.3 million in Transtar foreign debt. See Note 9 to the accompanying consolidated financial statements for more information.

     In 2007, the Company paid $5.0 million in cash for preferred and common stock dividends. The Company also paid $0.3 million of preferred dividends in common stock. The preferred stock was voluntarily converted to common stock and the common stock was subsequently sold by the stockholders as part of the secondary equity offering in May 2007.

     In addition to its available borrowing capacity, management believes the Company will be able to generate sufficient cash from operations and planned working capital improvements (principally from reduced inventories) to fund its ongoing capital expenditure programs, fund future dividend payments and meet its debt obligations.

Capital Expenditures

Capital expenditures for 2007 were $20.2 million as compared to $12.9 million in 2006. During 2007, the expenditures included spending associated with the Company’s Oracle ERP implementation ($7.8 million), the lean operations re-engineering at the Company’s Franklin Park, Illinois facility ($1.0 million), and the consolidation of the Company’s Riverdale plant into Franklin Park ($0.8 million), along with routine equipment replacement and upgrades.

Contractual Obligations and Other Commitments:

The following table includes information about the Company’s contractual obligations that impact its short- and long-term liquidity and capital needs. The table includes information about payments due under specified contractual obligations and is aggregated by type of contractual obligation. It includes the maturity profile of the Company’s consolidated long-term debt, operating leases and other long-term liabilities.

     At December 31, 2007, the Company’s contractual obligations, including estimated payments by period, were as follows: (dollars in thousands)

						Less				One to								More
						Than One				Three				Three to				Than Five
Payments Due In		Total				Year				Years				Five Years				Years
Long-Term Debt Obligations (excluding capital lease obligations)		$	66,828			$	6,412			$	17,580			$	15,678			$	27,158
Interest Payments on Debt Obligations (a)			21,115				4,627				7,462				5,284				3,742
Capital Lease Obligations			921				625				188				108				—
Operating Lease Obligations			57,101				14,193				20,588				15,311				7,009
Purchase Obligations (b)			335,867				253,528				52,339				30,000				—
Other (c)			5,521				5,029				492				—				—
Total		$	487,353			$	284,414			$	98,649			$	66,381			$	37,909

The above table does not include $15.7 million of other non-current liabilities recorded on the Consolidated Balance Sheets, as summarized in Notes 4 and 5 to the accompanying consolidated financial statements. These non-current liabilities consist of liabilities related to the Company’s non-funded supplemental pension plan and postretirement benefit plans for which payment periods cannot be determined. Non-current liabilities also include the deferred gain on the sale of assets, which are principally the sale-leaseback transactions disclosed in Note 4 to the consolidated financial statements. The cash outflows associated with these transactions are included in the operating lease obligations above.

Pension Funding

The Company’s funding policy on its defined benefit pension plan is to satisfy the minimum funding requirements of Employee Retirement Income Security Act (“ERISA”). Future funding requirements are dependent upon various factors outside the Company’s control including, but not limited to, fund asset performance and changes in regulatory or accounting requirements. Based upon factors known and considered as of December 31, 2007, the Company does not anticipate making any cash contributions to the pension plans in 2008.

Off-Balance Sheet Arrangements

With the exception of letters of credit and operating lease financing on certain equipment used in the operation of the business, it is not the Company’s general practice to use off-balance sheet arrangements, such as third-party special-purpose entities or guarantees to third parties.

     Obligations of the Company associated with its leased equipment are disclosed under the “Contractual Obligations and Other Commitments” section above.

     See Note 12 to the accompanying consolidated financial statements for more details on the Company’s outstanding letters of credit.

Critical Accounting Policies

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include amounts that are based on management’s estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented. The following is a description of the Company’s accounting policies that management believes require the most significant judgments and estimates when preparing the Company’s consolidated financial statements:

Revenue Recognition and Accounts Receivable — Revenue from the sales of products is recognized when the earnings process is complete and when the risk and rewards of ownership have passed to the customer, which is primarily at the time of shipment. Provisions for allowances related to sales discounts and rebates are recorded based on terms of the sale in the period that the sale is recorded. Management utilizes historical information and the current sales trends of the business to estimate such provisions.

     The Company also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance is maintained at a level considered appropriate based on historical experience and specific customer collection issues that we have identified. Estimations are based upon the application of a historical collection rate to the outstanding accounts receivable balance, which remains fairly level from year to year, and judgments about the probable effects of economic conditions on certain customers, which can fluctuate significantly from year to year. The Company cannot be certain that the rate of future credit losses will be similar to past experience.

Inventory — Over ninety percent of the Company’s inventories are valued using the LIFO method. Under this method, the current value of materials sold is recorded as Cost of Materials rather than the actual cost in the order in which it was purchased. This means that older costs are included in inventory, which may be higher or lower than current replacement costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals or plastics industries. The use of LIFO for inventory valuation was

chosen to better match replacement cost of inventory with the current pricing used to bill customers. On-hand inventory is reviewed on a regular basis and provisions for slow-moving inventory are adjusted based on historical and current sales trends. The Company’s product demand and customer base may affect the value of inventory on-hand, which could require higher provisions for slow-moving inventory.

Income Taxes —The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

     The Company records valuation allowances against its deferred tax assets when it is more likely than not that the amounts will not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event a determination was made that the Company would not be able to realize its deferred income tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be made which would reduce the provision for income taxes.

     Effective January 1, 2007, the Company adopted FIN 48. Under this interpretation, the Company recognized the tax benefits of an uncertain tax position only if those benefits have a greater than 50% likelihood of being sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more-likely-than-not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.

Retirement Plans — The Company values retirement plan assets and liabilities based on assumptions and valuations established by management following consultation with the Company’s independent actuary. Future valuations are subject to market changes, which are not in the control of the Company and could differ materially from the amounts currently reported. The Company evaluates the discount rate and expected return on assets at least annually and evaluates other assumptions involving demographic factors, such as retirement age, mortality and turnover periodically, and updates them to reflect actual experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

     Accumulated and projected benefit obligations are expressed as the present value of future cash payments which are discounted using the weighted average of market-observed yields for high quality fixed income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and subsequent-year pension expense; higher discount rates decrease present values and subsequent-year pension expense. To reflect market interest rate conditions, discount rates for retirement plans were increased at December 31, 2007, from 5.75% to 6.25%.

     To determine the expected long-term rate of return on pension plan assets, consideration is made of the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. Assets in the Company’s pension plans have earned approximately 12% since inception. The Company believes historical results and the current and expected asset allocations support the assumed long-term return of 8.75% on those assets. Note 5 to the accompanying consolidated financial statements disclose the assumptions used by management.

Goodwill and Other Intangible Assets Impairment — SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), establishes accounting and reporting standards for goodwill and other intangible assets. Under SFAS 142, goodwill is subject to an annual impairment test. The carrying value of the Company’s goodwill is evaluated annually in the first quarter of each fiscal year or when certain triggering events occur which require a more current valuation. The evaluation is based on the comparison of each reporting unit’s fair value to its carrying value. If the carrying value exceeds the fair value, the goodwill is deemed impaired. Fair value is determined using a discounted cash flow analysis developed based on historical data and management estimates of future cash flows. Since the estimates are forward looking, actual results could differ materially from those used in the valuation

process.

     The majority of the Company’s recorded intangible assets were acquired as part of the Transtar acquisition and consist primarily of customer relationships. The initial values of the intangible assets were based on a discounted cash flow valuation using assumptions made by management as to future revenues from select customers, the level and pace of attrition in such revenues over time and assumed operating income amounts generated from such revenues. These intangible assets are amortized over their useful lives as estimated by management, which are generally 11 years for customer relationships. Furthermore, when certain conditions or certain triggering events occur, a separate test of impairment, similar to the impairment test for long-lived assets, is performed and if the intangible asset is deemed impaired, such asset will be written down to its fair value.

Long-Lived Assets — The Company reviews the recoverability of its long-lived assets as required by SFAS No. 144 “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) and must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. The Company derives the required undiscounted cash flow estimates from historical experience and internal business plans. To determine fair value, the Company uses internal cash flow estimates discounted at an appropriate interest rate.

Stock-Based Compensation — The Company offers stock-based compensation to executive and other key employees, as well as its directors. Stock-based compensation expense is recorded over the vesting period based on the grant date fair value of the stock award. For stock option grants, the Company determines the grant date fair value of awards utilizing the Black-Scholes valuation model based on assumptions of the risk-free interest rate, expected term of the option, volatility and expected dividend yield. See Note 10 to the accompanying consolidated financial statements for a discussion of the specific assumptions made by management. Stock-based compensation expense for the Company’s long-term incentive plan is recorded using the fair value based on the grant date market price of the Company’s common stock. In recording stock-based compensation expense for the long-term incentive plan, management also must estimate the probable number of shares which will ultimately vest. The actual number of shares that will vest may differ from management’s estimate.

Recent Accounting Pronouncements:

A description of recent accounting pronouncements is included in Note 1 to the accompanying consolidated financial statements under the caption “Basis of Presentation and Significant Accounting Policies”.

ITEM 7a — Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to interest rate, commodity price, and foreign exchange rate risks that arise in the normal course of business.

     Interest Rate Risk — The Company finances its operations with fixed and variable rate borrowings. Market risk arises from changes in variable interest rates. Under its U.S. Revolver and Canadian Facility, the Company’s interest rate on borrowings is subject to changes in the LIBOR and Prime interest rate fluctuations. Based on the Company’s variable rate debt instruments at December 31, 2007, if interest rates were to increase hypothetically by 25 basis points, 2007 interest expense would have increased by approximately $0.3 million.

     Commodity Price Risk — The Company’s raw material costs are comprised primarily of engineered metals and plastics. Market risk arises from changes in the price of steel, other metals and plastics. Although average selling prices generally increase or decrease as material costs increase or decrease, the impact of a change in the purchase price of materials is more immediately reflected in the Company’s cost of materials than in its selling prices.

     Foreign Currency Risk — The Company conducts the majority of its business in the United States with limited operations in Canada, Mexico, France, the United Kingdom and Singapore. The Company’s results of operations are not materially affected by fluctuations in these foreign currencies

and, therefore, the Company has no financial instruments in place for managing the exposure of foreign currency exchange rates.

ITEM 8 — Financial Statements and Supplementary Data

Consolidated Statements of Operations

		Year Ended December 31,
(Dollars in thousands, except per share data)		2007				2006				2005
Net sales		$	1,420,353			$	1,177,600			$	958,978
Costs and expenses:
Cost of materials (exclusive of depreciation and amortization)			1,032,355				839,234				677,186
Warehouse, processing and delivery expense			139,993				123,204				108,427
Sales, general and administrative expense			137,153				109,407				92,848
Depreciation and amortization expense			20,177				13,290				9,340
Operating income			90,675				92,465				71,177
Interest expense, net			(12,899	)			(8,302	)			(7,348	)
Discount on sale of accounts receivable			—				—				(1,127	)
Loss on extinguishment of debt			—				—				(4,904	)
Income before income taxes and equity in earnings of joint venture			77,776				84,163				57,798
Income taxes			(31,294	)			(33,330	)			(23,191	)
Income before equity in earnings of joint venture			46,482				50,833				34,607
Equity in earnings of joint venture			5,324				4,286				4,302
Net income			51,806				55,119				38,909
Preferred stock dividends			(593	)			(963	)			(961	)
Net income applicable to common stock		$	51,213			$	54,156			$	37,948
Basic earnings per share		$	2.49			$	2.95			$	2.37
Diluted earnings per share		$	2.41			$	2.89			$	2.11
Dividends paid per common share		$	0.24			$	0.24				—

The accompanying notes to consolidated financial statements are an integral part of these statements.

Consolidated Balance Sheets

		As of
		December 31,
(Dollars in thousands, except share and par value data)		2007				2006
Assets
Current assets
Cash and cash equivalents		$	22,970			$	9,526
Accounts receivable, less allowances of $3,220 in 2007 and $3,112 in 2006			146,675				160,999
Inventories, principally on last-in, first-out basis (replacement cost higher by $142,118 in 2007 and $128,404 in 2006)			207,284				202,394
Other current assets			13,462				18,743
Total current assets			390,391				391,662
Investment in joint venture			17,419				13,577
Goodwill			101,540				101,783
Intangible assets			59,602				66,169
Prepaid pension cost			25,426				5,681
Other assets			7,516				5,850
Property, plant and equipment, at cost
Land			5,196				5,221
Building			48,727				49,017
Machinery and equipment			155,950				141,090
			209,873				195,328
Less — accumulated depreciation			(134,763	)			(124,930	)
			75,110				70,398
Total assets		$	677,004			$	655,120
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	109,055			$	117,561
Accrued payroll and employee benefits			14,757				15,168
Accrued liabilities			18,386				14,984
Income taxes payable			2,497				931
Deferred income taxes — current			7,298				16,339
Current portion of long-term debt			7,037				12,834
Short-term debt			18,739				123,261
Total current liabilities			177,769				301,078
Long-term debt, less current portion			60,712				90,051
Deferred income taxes			37,760				31,782
Other non-current liabilities			6,585				5,666
Pension and postretirement benefit obligations			9,103				10,636
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value — 10,000,000 shares authorized; no shares issued at December 31, 2007 and 12,000 shares issued and outstanding at December 31, 2006			—				11,239
Common stock, $0.01 par value — 30,000,000 shares authorized; 22,330,946 shares issued and 22,097,869 outstanding at December 31, 2007; and 17,085,091 shares issued and 16,722,977 shares outstanding at December 31, 2006			223				170
Additional paid-in capital			179,707				69,775
Retained earnings			207,134				160,625
Accumulated other comprehensive income (loss)			1,498				(18,504	)
Deferred unearned compensation			—				(1,392	)
Treasury stock, at cost — 233,077 shares in 2007 and 362,114 shares in 2006			(3,487	)			(6,006	)
Total stockholders’ equity			385,075				215,907
Total liabilities and stockholders’ equity		$	677,004			$	655,120

The accompanying notes to consolidated financial statements are an integral part of these statements.

Consolidated Statements of Cash Flows

		For the
		Year Ended December 31,
(Dollars in thousands)		2007				2006				2005
Cash flows from operating activities:
Net income		$	51,806			$	55,119			$	38,909
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			20,177				13,290				9,340
Amortization of deferred gain			(907	)			(760	)			(498	)
Loss on sale of fixed assets			1,293				94				73
Loss on sale of subsidiary			425				—				—
Impairment of long-lived asset			589				—				—
Equity in earnings of joint venture			(5,324	)			(4,286	)			(4,302	)
Dividends from joint venture			1,545				1,623				1,915
Deferred tax provision (benefit)			(13,148	)			4,537				(2,046	)
Share-based compensation expense			5,018				4,485				4,174
Loss on pension curtailment			284				—				—
Excess tax benefits from share-based payment arrangements			(993	)			(1,186	)			(793	)
Increase (decrease) from changes, net of acquisitions, in:
Accounts receivable			14,700				(19,678	)			(26,217	)
Inventories			(6,275	)			(22,521	)			16,742
Other current assets			1,639				(2,570	)			2,186
Other assets			879				722				(398	)
Prepaid pension costs			6,074				1,920				316
Accounts payable			(11,008	)			7,882				9,702
Accrued payroll and employee benefits			3,085				(1,350	)			2,319
Income taxes payable			7,007				(10,090	)			7,594
Accrued liabilities			1,507				2,044				506
Postretirement benefit obligations and other liabilities			293				2,165				271
Net cash from operating activities			78,666				31,440				59,793
Investing activities:
Investments and acquisitions, net of cash acquired			(280	)			(175,583	)			(236	)
Capital expenditures			(20,183	)			(12,935	)			(8,685	)
Proceeds from sale of fixed assets			823				124				33
Proceeds from sale of subsidiary			5,707				—				—
Collection of note receivable			—				—				2,465
Net cash from (used in) investing activities			(13,933	)			(188,394	)			(6,423	)
Financing activities:
Short-term borrowings (repayments), net			(104,690	)			110,919				—
Proceeds from issuance of long-term debt			—				30,000				75,000
Repayments of long-term debt			(35,337	)			(7,832	)			(96,271	)
Payment of debt issuance fees			(173	)			(3,156	)			—
Preferred stock dividends			(345	)			(963	)			(961	)
Common stock dividends			(4,704	)			(4,061	)			—
Proceeds from issuance of common stock, net			92,883				—				—
Exercise of stock options and other			552				2,840				2,227
Excess tax benefits from share-based payment arrangements			993				1,186				793
Net cash from (used in) financing activities			(50,821	)			128,933				(19,212	)
Effect of exchange rate changes on cash and cash equivalents			(468	)			155				128
Net increase (decrease) in cash and cash equivalents			13,444				(27,866	)			34,286
Cash and cash equivalents — beginning of year			9,526				37,392				3,106
Cash and cash equivalents — end of year		$	22,970			$	9,526			$	37,392

See Note 1 to the consolidated financial statements for supplemental cash flow disclosures.

The accompanying notes to consolidated financial statements are an integral part of these statements.

Consolidated Statement of Stockholders’ Equity

																						Additional								Deferred				Accum. Other
		Common				Treasury				Preferred				Common				Treasury				Paid-in				Retained				Unearned				Comprehensive
(Dollars and shares in thousands)		Shares				Shares				Stock				Stock				Stock				Capital				Earnings				Compensation				Income				Total
Balance at January 1, 2005			15,806				(62	)		$	11,239			$	159				$(245	)		$	45,052			$	72,582				$(2	)		$	1,616			$	130,401
Comprehensive Income:
Net income																											38,909												38,909
Foreign currency translation																																			1,151				1,151
Minimum pension liability, net of tax benefit of $254																																			(397	)			(397	)
Total comprehensive income																																							39,663
Preferred stock dividend																											(961	)											(961	)
Long-term incentive plan expense																							2,143																2,143
Exercise of stock options and other			800				(484	)							7				(9,471	)			13,721								2								4,259
Balance at December 31, 2005			16,606				(546	)		$	11,239			$	166				$(9,716	)		$	60,916			$	110,530			$	—			$	2,370			$	175,505
Comprehensive Income:
Net income																											55,119												55,119
Foreign currency translation																																			66				66
Minimum pension liability, net of tax expense of $206																																			322				322
Total comprehensive income																																							55,507
Adjustment to initially apply SFAS No. 158, net of tax benefit of $13,611																																			(21,262	)			(21,262	)
Preferred stock dividend																											(963	)											(963	)
Common stock dividend																											(4,061	)											(4,061	)
Long-term incentive plan expense																							3,209																3,209
Exercise of stock options and other			479				184								4				3,710				5,650								(1,392	)							7,972
Balance at December 31, 2006			17,085				(362	)		$	11,239			$	170				$(6,006	)		$	69,775			$	160,625				$(1,392	)			$(18,504	)		$	215,907
Comprehensive Income:
Net income																											51,806												51,806
Foreign currency translation																																			4,268				4,268
Defined benefit pension liability adjustments, net of tax expense of $10,085																																			15,734				15,734
Total comprehensive income																																							71,808
Preferred stock dividend																											(593	)											(593	)
Common stock dividend																											(4,704	)											(4,704	)
Long-term incentive plan expense																							4,016																4,016
Conversion of preferred stock and issuance of common stock			4,801								(11,239	)			53								104,069																92,883
Exercise of stock options and other			445				129												2,519				1,847								1,392								5,758
Balance at December 31, 2007			22,331				(233	)		$	—			$	223				$(3,487	)		$	179,707			$	207,134			$	—			$	1,498			$	385,075

The accompanying notes to consolidated financial statements are an integral part of these statements.

A. M. Castle & Co.
Notes to Consolidated Financial Statements
December 31, 2007

(1) Basis of Presentation and Significant Accounting Policies

Nature of operations — A.M. Castle & Co. and its subsidiaries (the “Company”) distribute specialty metals and plastics to customers globally from operations in North America, France and the United Kingdom, with limited operations in Singapore. The Company provides a broad range of product inventories as well as value-added processing services to a wide array of customers, principally within the producer durable equipment sector of the economy.

Basis of presentation — The consolidated financial statements include the accounts of A. M. Castle & Co. and its subsidiaries over which the Company exhibits a controlling interest. The equity method of accounting is used for the Company’s 50% owned joint venture, Kreher Steel Company, LLC. All inter-company accounts and transactions have been eliminated.

Use of estimates — The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of estimation reflected in the consolidated financial statements are sales returns and allowances, inventory, goodwill and intangible assets, income taxes, contingencies and litigation, defined benefit retirement obligations, share-based compensation, and self-insurance reserves.

Revenue recognition — Revenue from the sales of products is recognized when the earnings process is complete and when the risk and rewards of ownership have passed to the customer, which is primarily at the time of shipment. Revenue from shipping and handling charges is recorded in net sales. Provision for allowances related to sales discounts and rebates are recorded based on terms of the sale in the period that the sale is recorded.

Cost of materials — Cost of materials consists of the costs the Company pays for metals, plastics and related inbound freight charges. It excludes depreciation and amortization which are discussed below. The Company accounts for the majority of its inventory on a last-in, first-out (“LIFO”) basis and LIFO adjustments are recorded to cost of materials. LIFO adjustments are calculated as of December 31 of each year.

Other operating expenses — Other operating expenses primarily consist of (1) warehousing, processing and delivery expenses, which include occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs; (2) selling expenses, which include compensation and employee benefits for sales personnel, (3) general and administrative expenses, which include compensation for executive officers and general management, expenses for professional services primarily attributable to accounting and legal advisory services, data communication and computer hardware and maintenance; and (4) depreciation and amortization expenses, which include depreciation for all owned property and equipment and amortization of various intangible assets.

Cash and cash equivalents — Short-term investments that have an original maturity, at the time of purchase, of 90 days or less are considered cash and cash equivalents.

Statement of cash flows —The Company had non-cash financing activities for the years ended December 31, 2006 and 2005, which included the receipt of shares of the Company’s common stock tendered in lieu of cash by employees exercising stock options. There were no shares tendered in 2007. In 2006, the

tendered shares had a value of less than $0.1 million (1,620 shares) and in 2005, the tendered shares had a value of $9.4 million (509,218 shares). All tendered shares were recorded as treasury stock. In 2007, and 2006, the Company also contributed shares of treasury stock to its profit sharing plan totaling $3.0 million and $2.7 million, respectively, and paid $0.3 million in preferred dividends in shares of common stock.

      Following are the supplemental disclosures of consolidated cash flow information (dollars in millions):

		Year Ended December 31,
		2007				2006				2005
Cash paid during the year for:
Interest		$	13.4			$	9.0			$	8.4
Income taxes		$	36.7			$	38.9			$	16.9

      The Company had non-cash capital obligations in accounts payable of $2.2 million at December 31, 2007. The amount of non-cash capital obligations in 2006 and 2005 were immaterial.

      Subsequent to the issuance of the Company’s 2006 consolidated financial statements, the Company determined that dividends from joint venture previously reported as cash flows from investing activities in the consolidated statements of cash flows for the years ended December 31, 2006 and 2005 of $1.6 million and $1.9 million, respectively, should have been reported as cash flows from operating activities. As a result, the consolidated statements of cash flows have been corrected to reduce cash inflows from investing activities and increase cash flows from operating activities by $1.6 million for the year ended December 31, 2006 and $1.9 million for the year ended December 31, 2005, respectively, from amounts previously reported to properly present dividends from joint venture.

Inventories — Inventories consist primarily of finished goods. Final inventory determination under the last-in, first-out (LIFO) method can only be made at the end of each fiscal year based on the actual inventory levels and costs at that time. Over 90 percent of the Company’s inventories are stated at the lower of LIFO cost or market. The Company values its LIFO increments using the cost of its latest purchases during the years reported. Current replacement cost of inventories exceeded book value by $142.1 million and $128.4 million at December 31, 2007 and December 31, 2006, respectively. Income taxes would become payable on any realization of this excess from reductions in the level of inventories.

Insurance plans —The Company is self-insured for a portion of its worker’s compensation, automobile insurance, and general liability. Self-insurance amounts are capped for individual claims and in the aggregate, for each policy year by an insurance company. Self-insurance reserves are based on unpaid, known claims (including related administrative fees assessed by the insurance company for claims processing) and a reserve for incurred but not reported claims based on the Company’s historical claims experience and development.

Property, plant and equipment — Property, plant and equipment are stated at cost and include assets held under capital leases. Major renewals and betterments are capitalized, while maintenance and repairs that do not substantially improve or extend the useful lives of the respective assets are expensed currently. When items are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. The Company provides for depreciation of plant and equipment sufficient to amortize the cost of properties over their estimated useful lives (buildings and building improvements — 12 to 40 years; machinery and equipment — 5 to 20 years). For assets classified as machinery and equipment, lives used for calculating depreciation expense are from 10 to 20 years for manufacturing equipment, 10 years for furniture and fixtures, and 5 years for vehicles and office equipment. Leasehold improvements are depreciated over the shorter of their useful lives or the remaining term of the lease. Depreciation is recorded using the straight-line method and depreciation expense for 2007, 2006 and 2005 was $13.6 million, $11.1 million and $9.3 million, respectively.

Long-lived assets — The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. The Company derives the required undiscounted cash flow estimates from historical experience and internal business plans. To determine fair value, the Company uses internal cash flow estimates discounted at an appropriate interest rate.

Goodwill and intangible assets — Goodwill is subject to an annual impairment test or more frequently if certain triggering events occur. The Company performs an annual impairment test on goodwill in the first quarter of each fiscal year. Intangible assets are amortized over their useful lives as estimated by management, which are generally 11 years for customer relationships and 3 years for non-compete agreements.

Income taxes — The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

      The Company records valuation allowances against its deferred tax assets when it is more likely than not that the amounts will not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event a determination was made that the Company would not be able to realize its deferred income tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be made which would reduce the provision for income taxes. No valuation allowance has been recorded as of December 31, 2007 and 2006.

      The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007. No change in liability for unrecognized tax benefits was recorded as a result of the adoption. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

      Income tax expense includes provisions for amounts that are currently payable, and changes in deferred tax assets and liabilities. The Company does not provide for deferred income taxes on undistributed earnings considered permanently reinvested in its foreign subsidiaries.

Foreign currency translation — For the majority of all non-U.S. operations, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates, and income and expenses are translated using the average exchange rates for the reporting period. In accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”, the currency effects of translating financial statements of the Company’s non-U.S. operations which operate in local currency environments are recorded in accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Gains or losses resulting from foreign currency transactions were not material in 2007, 2006 or 2005.

Earnings per share — The Company determined earnings per share in accordance with SFAS No. 128, “Earnings per Share” (“SFAS 128”). For the periods presented through the conversion of the preferred stock in connection with the secondary offering in May 2007, the Company’s preferred stockholders participated in dividends paid on the Company’s common stock on an “if converted” basis. In accordance with Emerging Issues Task Force Issue No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share”, basic earnings per share is computed by applying the two-class method to compute earnings per share. The two-class method is an earnings allocation method under which earnings per share is calculated for each class of common stock and participating security considering both dividends declared and participation rights in undistributed earnings as if all such earnings had been distributed during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock plus common stock equivalents. Common stock equivalents consist of stock options, restricted stock awards, convertible preferred stock shares and other share-based payment awards, which have been included in the calculation of weighted average shares outstanding using the treasury stock method. In accordance with SFAS 128, the following table is a reconciliation of the basic and diluted earnings per share calculations for 2007, 2006 and 2005:

(dollars and shares in thousands,
except per share data)		2007				2006				2005
Numerator:
Net income		$	51,806			$	55,119			$	38,909
Preferred dividends distributed			(593	)			(963	)			(961	)
Undistributed earnings		$	51,213			$	54,156			$	37,948
Undistributed earnings attributable to:
Common stockholders		$	49,981			$	49,831			$	37,948
Preferred stockholders, as if converted			1,232				4,325				—
Total undistributed earnings		$	51,213			$	54,156			$	37,948
Denominator:
Denominator for basic earnings per share:
Weighted average common shares outstanding			20,060				16,907				16,033
Effect of dilutive securities:
Outstanding employee and directors’ common stock options and restricted stock			756				360				593
Convertible preferred stock			732				1,794				1,794
Denominator for diluted earnings per share			21,548				19,061				18,420
Basic earnings per share		$	2.49			$	2.95			$	2.37
Diluted earnings per share		$	2.41			$	2.89			$	2.11
Outstanding employees and directors common stock options, restricted shares and convertible preferred stock shares having no dilutive effect			—				20				53

Concentrations — The Company serves a wide range of industrial companies within the producer durable equipment sector of the economy from locations throughout the United States, Canada, Mexico, France, the United Kingdom and Singapore. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms spread across the entire spectrum of metals and plastics using industries. The Company’s customer base is well diversified and therefore, the Company does not have dependence upon any single customer, or a few customers.

Approximately 88% of the Company’s business is conducted in the United States with the remainder of the sales generated by the Company’s operations in Canada, Mexico, France, the United Kingdom and Singapore.

Share-based compensation — The Company records share-based compensation expense ratably over the award vesting period based on the grant date fair value of share-based compensation awards.

New Accounting Standards — Issued Not Yet Adopted:

In September 2006 the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS 157”) and in February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 157 was issued to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance in applying these definitions. SFAS 157 encourages entities to combine fair value information disclosed under SFAS 157 with other accounting pronouncements, including SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, where applicable. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Additionally, SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not expect the adoption of these statements to materially affect its consolidated financial results of operations, cash flows or its financial position.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Accordingly, any business combinations the Company engages in will be recorded and disclosed following existing generally accepted accounting principles until January 1, 2009. It is expected that SFAS 141R will have an impact on the Company’s consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions the Company consummates after the effective date. The Company is still assessing the full impact of this standard on the Company’s future consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 requires that accounting and reporting for minority interests will be re-characterized as non-controlling interests and classified as a component of equity. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the Company’s financial condition, results of operations and cash flows.

(2) Acquisitions and Divestitures

On October 2, 2007, the Company completed the sale of Metal Mart LLC doing business as Metal Express, a wholly owned subsidiary, to Metal Supermarkets (Chicago) Ltd., a unit of Metal Supermarkets Corp. for approximately $6.3 million. Metal Express is a small order metals distribution business which

served the general manufacturing industry from its network of 15 locations throughout the U.S. Metal Express was included in the Company’s Metals segment for historical reporting purposes. For the fiscal year ended December 31, 2006, Metal Express’ revenues were $16.6 million. The Company recorded a loss of approximately $0.5 million on the divestiture. The net proceeds from the sale were used to repay a portion of the Company’s outstanding debt.

In September 2006, the Company acquired all of the issued and outstanding capital stock of Transtar Intermediate Holdings #2, Inc. (“Transtar”), a wholly owned subsidiary of H.I.G. Transtar Inc. The results of Transtar’s operations have been included in the consolidated financial statements since that date. These results and the assets of Transtar are included in the Company’s Metals segment. The aggregate purchase price, net of cash acquired, was $175.6 million. An escrow account in the amount of $18 million funded from the purchase price was established to satisfy H.I.G. Transtar Inc.’s indemnification obligations under the stock purchase agreement.

      The following table summarizes the preliminary allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed at the date of the Transtar acquisition. In accordance with the purchase agreement, the determination of the final purchase price is subject to a working capital adjustment. The final determination and agreement on the adjustment has not yet been completed, but the Company is pursuing a conclusion, the result of which is not expected to be material to the purchase price. The purchase price adjustment will impact the final allocation of purchase price to the acquired assets and liabilities. The Company has established the valuation of certain intangible assets and the allocation of the purchase price is as follows (dollars in thousands):

Current assets		$	99,746
Property, plant & equipment, net			4,274
Intangible assets			68,324
Goodwill			70,025
Other long-term assets			300
Total assets			242,669
Current liabilities			38,424
Long-term liabilities			25,950
Total liabilities			64,374
Net assets		$	178,295

      The acquired intangible assets have a weighted average useful life of approximately 10.8 years and include $66.8 million for the acquired customer relationships with a useful life of 11 years and $1.5 million of non-compete agreements with a useful life of 3 years. The goodwill and intangible assets are not deductible for tax purposes.

(3) Segment Reporting

The Company distributes and performs processing on both metals and plastics. Although the distribution processes are similar, different customer markets, supplier bases and types of products exist. Additionally, the Company’s Chief Executive Officer, the chief operating decision-maker, reviews and manages these two businesses separately. As such, these businesses are considered reportable segments according to SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” and are reported accordingly.

      In its Metals segment, the Company’s market strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very tight specifications. Core products include nickel alloys, aluminum, stainless steels and carbon. Inventories of these products assume many forms such as plate, sheet, round bar,

hexagon bar, square and flat bars; tubing and coil. Depending on the size of the facility and the nature of the markets it serves, service centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, water-jet cutting, stress relieving and annealing furnaces, surface grinding equipment and sheet shearing equipment. This segment also performs various specialized fabrications for its customers through pre-qualified subcontractors that thermally processes, turns, polishes and straightens alloy and carbon bar.

      The Company’s Plastics segment consists exclusively of Total Plastics, Inc. (“TPI”) headquartered in Kalamazoo, Michigan. The Plastics segment stocks and distributes a wide variety of plastics in forms that include plate, rod, tube, clear sheet, tape, gaskets and fittings. Processing activities within this segment include cut to length, cut to shape, bending and forming according to customer specifications. The Plastics segment’s diverse customer base consists of companies in the retail (point-of-purchase), marine, office furniture and fixtures, transportation and general manufacturing industries. TPI has locations throughout the upper Northeast and Midwest portions of the U.S. and one facility in Florida from which it services a wide variety of users of industrial plastics.

      The accounting policies of all segments are the same as described in Note 1. Management evaluates the performance of its business segments based on operating income.

      The Company operates locations in the United States, Canada, Mexico, France, the United Kingdom and Singapore. No activity from any individual country outside the United States is material, and therefore, foreign activity is reported on an aggregate basis. Net sales are attributed to countries based on the location of the Company’s subsidiary that is selling direct to the customer. Company-wide geographic data as of and for the years ended December 31, 2007, 2006 and 2005 are as follows (dollars in millions):

		2007				2006				2005
Net sales
United States		$	1,246.0			$	1,069.9			$	871.7
All other countries			174.4				107.7				87.3
Total		$	1,420.4			$	1,177.6			$	959.0
Long-lived assets
United States		$	68.6			$	65.3			$	59.5
All other countries			6.5				5.1				4.9
Total		$	75.1			$	70.4			$	64.4