A. M. Castle & Co. - Annual Report: 2008 (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, 2008		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		(I.R.S. Employer Identification No.)
incorporation or organization)
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):

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 $462,553,234.

The number of shares outstanding of the registrant’s common stock on March 6, 2009 was 22,865,212 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 to be held April 23, 2009.		Part III

 

 

Disclosure Regarding Forward-Looking Statements

Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and the Company assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “predict,” “plan,” or similar expressions. These statements are not guarantees of performance or results, and they involve risks, uncertainties, and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements, including those risk factors identified in Item 1A “Risk Factors” of this report. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

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

Company Overview

The Company is a specialty metals (92% of net sales) and plastics (8% of net sales) distribution company serving customers on a global basis. The Company provides a broad range of products and 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, heavy equipment manufacturing, marine, office furniture and fixtures, transportation and general manufacturing industries.

     The Company’s primary metals service center and corporate headquarters are located in Franklin Park, Illinois. The Company has 51 service centers located throughout North America (45), Europe (5) and Asia (1). The Company’s service centers hold inventory, process and distribute products to local geographic markets. The Company’s metals and plastics service centers are separate operations, with no facilities serving both metals and plastics customers.

Industry and Markets

Service centers act as supply chain intermediaries between primary producers, which necessarily deal in bulk quantities in order to achieve economies of scale, and end-users in a variety of industries that require specialized products in significantly smaller quantities and forms. Service centers also 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 producers can be as long as several months. Service centers also provide value to their customers by aggregating purchasing, providing warehousing and distribution services, and by processing material to meet specific customer needs.

     According to a May 2008 article in Purchasing magazine, “service centers comprise the largest single customer group for North American mills, buying and reselling more than 40% of all the carbon, alloy, stainless and specialty steels, aluminum, copper, brass and bronze, and super alloys produced in the U.S. and Canada each year. The U.S. and Canadian metals distribution industry generated record revenues of $143 billion in 2007,” reflecting 13% growth from 2006.

     The principal markets served by the Company are highly competitive. Competition is based on price, service, quality, processing capabilities, inventory availability, timely delivery and ability to provide supply chain solutions. The Company competes in a highly fragmented industry. Competition in the various markets in which the Company participates 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 and some of which have more established brand names in the local markets served by the Company.

     The Company also competes to a lesser extent with primary metals producers who typically sell to larger customers requiring shipments of large volumes of metal.

     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.

Recent Acquisitions and Expansions

In January 2008, the Company acquired Metals U.K. Group (“Metals U.K.”). Metals U.K. is a distributor and processor of specialty metals primarily serving the oil and gas, aerospace, petrochemical and power generation markets worldwide. Metals U.K. has distribution and processing facilities in Blackburn, England, Hoddesdon, England and Bilbao, Spain. The acquisition of Metals U.K. is expected to allow the Company to expand its global reach and service certain potential high growth industries.

     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 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 market. The acquisition also provides the Company the benefits of deeper access to certain inventories and purchasing synergies, as well as platforms to sell to markets in Europe, Asia and other international markets.

     Refer to Note 8 to the consolidated financial statements for goodwill impairment discussion related to the above acquisitions.

In January 2008, the Company obtained a business license for the opening of a new service center in Shanghai, China. The 45,700 square foot facility became fully operational in the second quarter of 2008. The Shanghai service center provides the Company the ability to serve new customers in China, as well as existing customers, which previously received processed specialty aerospace grade metals from the Company’s U.S. based aerospace operations.

Procurement

The Company purchases metals and plastics from many producers. The Company’s operations would not be adversely affected in a material way by the loss of any one supplier, as satisfactory alternative sources are available.

     The Company purchases material in large lots and stocks material at its service centers until sold, usually in smaller quantities and typically with some value-added processing services performed. The Company’s ability to provide quick delivery, frequently same-day or overnight, of a wide variety of specialty metals and plastic products, along with its processing capabilities, allows 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. Some of the Company’s purchases are covered by long-term contracts and commitments, which have corresponding customer sales agreements.

     Orders are primarily filled with materials shipped from Company stock. The materials required to fill non-stock orders are 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 Company-leased trucks. Common carrier delivery is used in areas not serviced directly by the Company’s fleet.

Employees

At December 31, 2008, the Company had 1,923 full-time employees in its operations throughout the United States, Canada, Mexico, France, Spain, the United Kingdom and China. Of these, 258 are represented by collective bargaining units, principally the United Steelworkers of America and Teamsters.

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 the last three years, the percentages of total sales of the two segments were as follows:

		2008				2007				2006
Metals			92	%			92	%			90	%
Plastics			8	%			8	%			10	%
			100	%			100	%			100	%

Metals Segment

In its Metals segment, the market strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services. Core products include alloy, aluminum, stainless, nickel, titanium and carbon. Inventories of these products assume many forms such as plate, sheet, extrusions, round bar, hexagon bar, square and flat bar, 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 customer base is well diversified and therefore, the Company does not have dependence upon any single customer, or a few customers. The customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms.

     The Company’s broad network of locations 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.

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 statements 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”). Information on our website does not constitute part of this annual report on Form 10-K.

Certifications

Certification statements by the President and CEO and the Vice President and CFO of the Company required to be filed with the SEC pursuant to Section 302 of the Sarbanes-Oxley Act are included as Exhibits 31.1 and 31.2 to this Annual Report. In addition, an annual CEO certification regarding compliance with the New York Stock Exchange’s (“NYSE”) Corporate Governance listing standards was submitted by our President and CEO to the NYSE on May 12, 2008.

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.

Our future operating results depend on a number of factors beyond our control, such as the prices of metals and plastics, which could cause our results to be adversely affected.

The prices we pay for raw materials, both metals and plastics, and the prices we charge for products may fluctuate depending on many factors, 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.

We service industries that are highly cyclical, and any downturn in our customers’ industries could reduce our revenue and 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.

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;
•		the loss of the acquired businesses’ customers; and
•		cyclicality of business.

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

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.

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.

The current global economic crisis has had and may continue to have an adverse impact on our business, results of operations and financial condition.

The potential effects of the current global economic and financial market crises are difficult to forecast and mitigate. There can be no assurance as to the timing or nature of any recovery. Many of our customers and the industries we serve have been significantly impacted by the deteriorating economic conditions. As a result, the current global economic downturn has had and may continue to have an adverse impact on our business, results of operations and our financial condition. Continued negative economic conditions, as well as a slow recovery period, could lead to reduced demand for our products, increased price competition for our products, reduced gross margins, increased risk of excess and obsolete inventories and higher operating costs as a percentage of revenue. Credit risk

associated with our customers may also increase.

Due to the current credit crisis, it has been increasingly difficult for businesses to secure financing. These conditions could persist for a prolonged period of time or worsen in the future. Although we do not anticipate needing additional capital in the near term, our ability to access the capital markets may be restricted at a time when we would like, or need, to access those markets. The resulting lack of available credit could have a negative impact on our liquidity. In addition, due to the current volatile state of the credit markets, there is a risk that our lenders could fail or refuse to honor their debt commitments under our existing credit facilities. While this would be highly unusual, if our lenders fail to honor their legal commitments under our credit facilities, it could be difficult in the current environment to replace our credit agreements on similar terms. Although we believe that our operating cash flow, access to capital markets and existing credit facilities will give us the ability to satisfy our anticipated liquidity needs in the near term, the failure of any of the lenders to honor their commitments under our credit facilities may impact our ability to finance our operations.

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

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 conduct business and/or 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 Spain, Singapore and China. 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.

Approximately 258 of our employees are unionized, which represented 13% of our employees at December 31, 2008, including those employed at our primary distribution center in Franklin Park, Illinois. 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.

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

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, Spain, the United Kingdom, Singapore and China, 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 Staff Comments

     None.

ITEM 2 — Properties

The Company’s principal executive offices are located in its Franklin Park, Illinois 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, most of which are leased, except as indicated:

		Approximate
		Floor Area in
Locations		Square Feet
Metals Segment
Arlington, Texas			74,880
Bedford Heights, Ohio			374,400	(1)
Birmingham, Alabama			76,000	(1)
Charlotte, North Carolina			116,500	(1)
Dallas, Texas			78,000	(1)
Edmonton, Alberta			38,300
Fairfield, Ohio			166,000
Franklin Park, Illinois			522,600	(1)
Gardena, California			150,435
Hammond, Indiana (H-A Industries)			243,000
Houston, Texas			109,100	(1)
Houston, Texas (Administrative location)			1,961
Kansas City, Missouri			118,000
Kennesaw, Georgia			87,500
Kent, Washington			53,000
Minneapolis, Minnesota			65,200	(1)
Mississauga, Ontario			60,000
Monterrey, Mexico			55,000
Montreal, Quebec			38,760
Orange, Connecticut			57,389
Paramount, California			155,500
Philadelphia, Pennsylvania			71,600	(1)
Saskatoon, Saskatchewan			15,000
Stockton, California			60,000
Torrance, California (Administrative location)			15,028
Twinsburg, Ohio			120,000
Wichita, Kansas			148,800
Winnipeg, Manitoba			50,000	(1)
Worcester, Massachusetts			56,000	(1)
Sales Offices
Cincinnati, Ohio	(Intentionally left blank)
Milwaukee, Wisconsin
Phoenix, Arizona
Tulsa, Oklahoma

		Approximate
		Floor Area in
Locations		Square Feet
Europe
Blackburn, England			62,139
Hoddesdon, England			9,472
Bilbao, Spain			10,000
Due Pre’ Cadeau, France			25,600
Letchworth, England			40,000
China
Shanghai, China			45,700
Total Metals Segment			3,370,864
Plastics Segment
Baltimore, Maryland			24,000
Cleveland, Ohio			8,600
Cranston, Rhode Island			14,990
Detroit, Michigan			22,000
Elk Grove Village, Illinois			22,500
Fort Wayne, Indiana			17,600
Grand Rapids, Michigan			42,500	(1)
Harrisburg, Pennsylvania			13,900
Indianapolis, Indiana			13,500
Kalamazoo, Michigan			81,000
Knoxville, Tennessee			16,530
Maple Shade, New Jersey			12,480
Mt. Vernon, New York			30,000
New Philadelphia, Ohio			15,700
Pittsburgh, Pennsylvania			12,800
Rockford, Michigan			53,600
Tampa, Florida			17,700
Worcester, Massachusetts			11,000	(1)
Total Plastics Segment			430,400
GRAND TOTAL			3,801,264

ITEM 3 — Legal Proceedings

The Company is a party to several lawsuits arising in the normal course of the Company’s business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of management, 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

None.

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 2, 2009 there were approximately 1,054 shareholders of record. The Company used cash of $5.4 million and $4.7 million to pay quarterly cash dividends of $0.06 per share on its common stock in 2008 and 2007, respectively. The payment of dividends, if any, is at the discretion of the Board of Directors and will depend on the Company’s earnings, capital requirements and financial condition and such other factors as the Board of Directors may consider.

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 and Related Stockholder Matters”, 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 2008.

Directors of the company who are not employees may elect to defer receipt of up to 100% of his or her cash retainer and meeting fees. A director who defers board compensation may select either an interest or a stock equivalent investment option for amounts in the director’s deferred compensation account. Disbursement of the stock equivalent unit account may be in shares of Company common stock or in cash as designated by the director. If payment from the stock equivalent unit account is made in shares of the Company’s common stock, the number of shares to be distributed will equal the number of full stock equivalent units held in the director’s account. For the period covered by this report, receipt of approximately 3,972 shares was deferred as payment for the 2008 board compensation. In each case, the shares were acquired at prices ranging from $6.29 to $32.35 per share, which represented the closing price of the Company’s common stock on the day as of which such fees would otherwise have been paid to the director. Exemption from registration of the shares is claimed by the company under Section 4(2) of the Securities Act of 1933, as amended.

The following table sets forth the range of the high and low sales prices of shares of the Company’s common stock for the periods indicated:

		2008								2007
		Low				High				Low				High
First Quarter		$	16.70			$	29.65			$	22.72			$	30.85
Second Quarter		$	26.08			$	34.20			$	28.64			$	38.10
Third Quarter		$	16.16			$	28.46			$	26.23			$	37.22
Fourth Quarter		$	6.12			$	17.41			$	23.66			$	37.18

ITEM 6 — Selected Financial Data

The Selected Financial Data in the table below includes the results of the September 2006 and January 2008 acquisitions of Transtar and Metals U.K., respectively, and the October 2007 divestiture of Metal Express.

(dollars in millions, except per share data)		2008				2007				2006				2005				2004
For the year ended December 31:
Net sales		$	1,501.0			$	1,420.4			$	1,177.6			$	959.0			$	761.0
Net (loss) income from continuing operations			(17.1	)			51.8				55.1				38.9				15.4
Basic earnings (loss) per common share from continuing operations			(0.76	)			2.49				2.95				2.37				0.92
Diluted earnings (loss) per common share from continuing operations			(0.76	)			2.41				2.89				2.11				0.82
Cash dividends declared per common share			0.24				0.24				0.24				—				—
As of December 31:
Total assets			679.0				677.0				655.1				423.7				383.0
Long-term debt, less current portion			75.0				60.7				90.1				73.8				89.8
Total debt			117.1				86.5				226.1				80.1				101.4
Total stockholders’ equity			347.3				385.1				215.9				175.5				130.4

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

                Amounts in millions except per share data

EXECUTIVE OVERVIEW

The Company’s long-term strategy is to become the foremost global provider of specialty metals products and services and specialized supply chain solutions to targeted global industries.

   During 2008, the following significant events occurred which impacted the Company’s operating results:

	•		Record sales of $1,501.0 million and third highest operating income in the Company’s history of $63.0 million (before non-cash goodwill impairment charge of $58.9 million in the fourth quarter of 2008);
	•		Non-cash goodwill impairment charge of $58.9 million in the fourth quarter of 2008;
	•		Acquisition of Metals U.K. in the first quarter of 2008;
	•		Amendment to the Company’s Amended Senior Credit Facility during the first quarter 2008; and
	•		Completion of the first scheduled phase of the Metals segment ERP implementation during the second quarter of 2008 and completion of implementation of a stand alone ERP system in the Plastics segment during the third quarter of 2008.

     The Company achieved record sales of $1,501.0 million in 2008, which was an increase of $80.6 million, or 5.7% versus 2007. Excluding the impact of the Metals U.K. acquisition, sales were $31.9 million or 2.3% higher than 2007 primarily due to an increase in Metals segment sales. For the full year 2008, excluding the impact of the Metals U.K. acquisition, Metals segment sales were $31.3 million or 2.4% higher than 2007 sales on sales volume that was 2.1% higher than 2007. Metals segment sales volume growth in 2008 was driven by strength in plate and alloy bar products sold into energy, mining and power generation markets. The Company experienced higher prices in 2008 for its carbon-related products; however, those price increases were somewhat mitigated by a changing sales mix that included lower sales levels on higher-priced aluminum, stainless and nickel based products as compared to 2007.

     During the fourth quarter, the Company determined that the weakening of the U.S. economy and the global credit crisis resulted in a reduction of the Company’s market capitalization below its total shareholder’s equity value for a sustained period of time, which was an indication that its goodwill may be impaired. As a result, the Company performed an interim goodwill impairment analysis as of December 31, 2008 and a non-cash charge of $58.9 million for goodwill impairment was recorded in 2008. The charge is non-deductible for tax purposes.

     On January 3, 2008, the Company acquired 100 percent of the outstanding capital stock of Metals U.K. The acquisition of Metals U.K. was accounted for using the purchase method in accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”). Metals U.K. is a distributor and processor of specialty metals primarily serving the oil and gas, aerospace, petrochemical and power generation markets worldwide. Metals U.K. has processing facilities in Blackburn, England, Hoddesdon, England and Bilbao, Spain. The acquisition of Metals U.K. is expected to allow the Company to expand its global reach and service potential high growth industries.

     In conjunction with the January 2008 acquisition of Metals U.K., the Company amended its existing revolving line of credit, expanding it to $230 million, which includes a $50 million multi-currency facility to fund the Metals U.K. acquisition and provide for future working capital needs of European operations. The multi-currency facility allows for funding in either British pounds or euros.

     The first scheduled phase of the Metals segment ERP implementation occurred in the second quarter of 2008 at certain of the Company’s domestic aerospace locations. The facilities included in the initial ERP implementation represent less than 20% of the Company’s consolidated net sales. During the second quarter of 2008, the majority of the legacy operating systems and financial systems of these locations were migrated to the new ERP system. The Company also implemented the human resource functionality of the new ERP system company-wide at that time. Total capital expenditures for this ERP implementation through the end of 2008 were $17.8 million. The Company plans to replace its legacy systems with the new ERP system functionality across many of its remaining locations and business operations in fiscal 2009, allowing the Metals business to operate under a common technology platform. This integrated system will provide the opportunity to improve decision-making, provide support for doing business globally, and support future acquisitions, which are all critical components in executing the Company’s strategy.

     During the third quarter of 2008, the Plastics business completed the implementation of its stand alone ERP system. The ERP system is designed to support make-to-order and mixed-mode manufacturing companies and has built-in workflow processes that enable companies to manage the entire order cycle. The new ERP system provided the capability for the Plastics business to build a tool to manage the many dimensional sizes of plastic sheet stock in its inventory and build executive and management level dashboards to manage daily operations. Total capital expenditures for this ERP implementation through the end of 2008 were $1.9 million.

Recent Market and Pricing Trends

During 2008, average market prices for the Company’s products, primarily carbon-based, significantly increased during the first three quarters and declined considerably in the fourth quarter.

     Changes in pricing can have a more direct impact on the Company’s operating results than changes in volume due to certain factors including but not limited to:

	•		Changes in volume typically result in corresponding changes to the Company’s variable costs. However, as pricing changes occur, variable expenses are not impacted.
	•		If surcharges are passed through to the customer without a mark-up, gross material margins will decrease.
	•		The ability to pass surcharges on to customers immediately is limited due to contractual provisions with certain customers. Therefore, a lag exists between when the surcharge impacts net sales and cost-of-sales.

Current Business Outlook

Management uses 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. The table below shows PMI trends from the first quarter of 2006 through the fourth quarter of 2008. Generally speaking, an index above 50.0 indicates growth in the manufacturing sector of the U.S. economy, while readings under 50.0 indicate contraction. As the data indicates, the index experienced a significant decrease from the third quarter of 2008 and has been below 50 for the last five quarters.

YEAR		Qtr 1				Qtr 2				Qtr 3				Qtr 4
2006			54.7				54.1				52.9				50.8
2007			50.5				53.0				51.3				49.6
2008			49.2				49.5				47.8				36.1

     An unfavorable 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. The Company believes that its revenue trends typically correlate to the changes in PMI on a lag basis. Therefore, management forecasts a decline in 2009 net sales due to a combination of demand and pricing uncertainties that the industry is expected to experience in the upcoming year. The long-term outlook on demand for the Company’s end-markets is less predictable. However, the Company expanded its international presence with the acquisition of Metals U.K. in early 2008 and the early second quarter 2008 start-up of its Shanghai, China service center, which reduces the dependency of results on the U.S. economy.

     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 sales from the processing and delivery 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 may enter into fixed price arrangements with customers while simultaneously obtaining similar agreements with its suppliers.

Cost of Materials — Cost of materials consists of the costs we pay suppliers for metals, plastics and related inbound freight charges, excluding depreciation and amortization which are included in 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.

Operating Costs and Expenses — Operating costs and expenses primarily consist of:

	•		Warehouse, processing and delivery expenses, including occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs;
	•		Sales expenses, including compensation and employee benefits for sales personnel;
	•		General and administrative expenses, including compensation for executive officers and general management, expenses for professional services primarily related to accounting and legal advisory services, data communication and computer hardware and maintenance; and
	•		Depreciation and amortization expenses, including depreciation for all owned property and equipment, and amortization of various intangible assets.

2008 Results Compared to 2007

Consolidated results by business segment are summarized in the following table for years 2008 and 2007.

Operating Results by Segment

		Year Ended December 31,								Fav / (Unfav)
		2008				2007				$ Change				% Change
Net Sales
Metals		$	1,384.8			$	1,304.8			$	80.0				6.1	%
Plastics			116.2				115.6				0.6				0.5	%
Total Net Sales		$	1,501.0			$	1,420.4			$	80.6				5.7	%
Cost of Materials
Metals		$	1,044.4			$	954.4			$	(90.0	)			(9.4	)%
% of Metals Sales			75.4	%			73.1	%							(2.3	)%
Plastics			79.6				78.0				(1.6	)			(2.1	)%
% of Plastics Sales			68.5	%			67.5	%							(1.0	)%
Total Cost of Materials		$	1,124.0			$	1,032.4			$	(91.6	)			(8.9	)%
% of Total Sales			74.9	%			72.7	%							(2.2	)%
Operating Costs and Expenses
Metals		$	328.9			$	256.0			$	(72.9	)			(28.5	)%
Plastics			33.4				32.7				(0.7	)			(2.1	)%
Other			10.6				8.6				(2.0	)			(23.3	)%
Total Operating Costs & Expenses		$	372.9			$	297.3			$	(75.6	)			(25.4	)%
% of Total Sales			24.8	%			20.9	%							(3.9	)%
Operating Income
Metals		$	11.5			$	94.4			$	(82.9	)			(87.8	)%
% of Metals Sales			0.8	%			7.2	%							(6.4	)%
Plastics			3.2				4.9				(1.7	)			(34.7	)%
% of Plastics Sales			2.8	%			4.2	%							(1.4	)%
Other			(10.6	)			(8.6	)			(2.0	)			(23.3	)%
Total Operating Income		$	4.1			$	90.7			$	(86.6	)			(95.5	)%
% of Total Sales			0.3	%			6.4	%							(6.1	)%

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

Net Sales:

The Company achieved record sales of $1,501.0 million in 2008, which was an increase of $80.6 million, or 5.7%, versus 2007. Excluding the impact of the Metals U.K. acquisition, sales were $31.9 million or 2.3% higher than 2007 primarily due to an increase in Metals segment sales.

     Metals segment sales during 2008 of $1,384.8 million were $80.0 million, or 6.1%, higher than 2007. Excluding the impact of the Metals U.K. acquisition, Metals segment sales were $31.3 million or 2.4% higher than 2007 sales on sales volume that was 2.1% higher than 2007. Metals segment sales volume growth in 2008 was driven by strength in plate and alloy bar products sold into energy, mining and power generation markets. The Company experienced higher prices in 2008 for its carbon-related products; however, those price increases were somewhat mitigated by a changing sales mix that included lower sales levels on higher-priced aluminum, stainless and nickel based products as compared to 2007.

     Plastics segment sales during 2008 of $116.2 million were $0.6 million, or 0.5%, higher than 2007. Higher overall pricing contributed a 5.5% increase, which was offset by a 5.0% decline in sales volume compared to last year. Decreased sales volume was primarily a result of softer demand in the marine and boat builder and automotive industries during the second half of 2008.

Cost of Materials:

Cost of materials (exclusive of depreciation and amortization) were $1,124.0 million, an increase of $91.6 million, or 8.9%, compared to 2007. Material costs for the Metals segment were 75.4% of sales in 2008 as compared to 73.1% in 2007. Higher material costs in carbon-based products were the primary driver of increased Metals segment material costs as a percent of sales.

     Material costs for the Plastics segment were 68.5% of sales in 2008 as compared to 67.5% in 2007. Higher material costs in the Plastics segment were primarily driven by increased acrylic prices, due to rising resin prices, in 2008 as compared to 2007.

Operating Expenses and Operating Income:

On a consolidated basis, operating costs and expenses increased $75.6 million, or 25.4%, compared to last year. Operating costs and expenses in 2008 were $372.9 million, or 24.8% of sales compared to $297.3 million, or 20.9% of sales last year. The results for 2008 include a $58.9 million non-cash goodwill impairment charge, $6.2 million of incremental operating expenses (excluding goodwill impairment charge) associated with the January 2008 acquisition of Metals U.K. (net of the Metal Express divestiture), as well as $2.2 million for costs related to the Transtar acquisition arbitration settlement during the third quarter of 2008. The remaining 2008 operating expense increase was $8.3 million, primarily related to $7.2 million of higher plant, transportation and selling costs associated with higher sales volumes, as well as $5.1 million for higher Oracle ERP implementation costs in 2008. Cost increases described above were partially offset by decreases primarily related to long-term incentive compensation and pension expense during 2008.

     During the fourth quarter of 2008, the Company determined that the weakening of the U.S. economy and the global credit crisis resulted in a reduction of the Company’s market capitalization below its total shareholder’s equity value for a sustained period of time, which was an indication that its goodwill may be impaired. As a result, the Company performed an interim goodwill impairment analysis as of December 31, 2008 and a non-cash charge of $58.9 million for goodwill impairment was recorded in the fourth quarter of 2008. The charge is non-deductible for tax purposes. Of this amount, $49.8 million and $9.1 million relates to the Aerospace and Metals U.K. reporting units, respectively, within the Metals segment. See further discussion in Critical Accounting Policies and Note 8 to the consolidated financial statements.

     Consolidated operating income for 2008 of $4.1 million was $86.6 million, or 95.5%, lower than last year. The Company’s 2008 operating income as a percent of net sales decreased to 0.3% from 6.4% in 2007, primarily due to higher cost of materials (discussed above) and the goodwill impairment charge.

Other Income and Expense, Income Taxes and Net Income:

Interest expense was $9.4 million in 2008, a decrease of $3.5 million versus 2007. The decrease in interest expense in 2008 is a result of lower weighted average interest rates in 2008 compared to 2007 and lower debt levels since the pay down of debt following the secondary equity offering on May 24, 2007.

     Income tax expense decreased to $20.7 million from $31.3 million in 2007 primarily due to lower taxable earnings. Excluding the impact of the $58.9 million goodwill impairment charge, the effective tax rate was 38.6% in 2008 and 40.2% in 2007. The Company’s tax rate is affected by tax rates in foreign jurisdictions and the relative amount of income it earns in these jurisdictions, which has become a much larger percentage of the Company’s overall income as the Company expands internationally. The effective tax rate is also affected by discrete items that may occur in any given year. The Company’s calculation of its effective tax rate includes the tax expense on the equity in earnings of the Company’s joint venture. The decrease in the effective tax rate from 2007 to 2008 is primarily attributed to two factors. First, the income tax rate differential on foreign income decreased the effective tax rate from the statutory rate of 35% by 1.2% in 2008 compared to a decrease of 0.3% in 2007. This additional decrease in 2008 was the result of a shift in the geographic distribution of income between domestic and foreign locations and reductions in tax rates in Canada and the United Kingdom. Second, state income taxes, net of the federal income tax benefit, only increased the effective tax rate from the statutory rate of 35% by 0.2% in 2008 compared to 3.9% 2007. The lower state tax rate in 2008 is primarily the result of a change in the geographic distribution of income amongst states and favorable state tax rate changes that occurred in 2008.

     Equity in earnings of the Company’s joint venture was $8.8 million in 2008, $3.5 million higher than 2007, reflecting the results of the joint venture’s acquisition of a metal distribution company in April 2007 as well as improved operating results associated with higher metal price levels in 2008.

     Consolidated net loss for 2008 was $17.1 million, a loss of $0.76 per diluted share, versus net income of $51.2 million, or $2.41 per diluted share, for 2007. Weighted average diluted shares outstanding increased 4.7% to 22.5 million for the year-ended December 31, 2008 as compared to 21.5 million shares for the same period in 2007. 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.

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

		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	)%
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 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 $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, offset by 7.5% lower sales volume compared to 2006.

     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 and resulted in slightly higher sales overall compared to 2006.

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.

Operating Expenses and Operating Income:

On a consolidated basis, operating costs and expenses increased $51.4 million, or 20.9%, over 2006. Operating expenses of $43.9 million associated with the Transtar acquisition were the primary factor in higher overall expenses in 2007. Costs associated with the Company’s ERP implementation accounted for $2.0 million of the increase and the remaining increase reflected the Company’s lean operations initiatives. 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 2006. The Company’s 2007 operating income as a percentage of 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.

     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 was $5.3 million in 2007, $1.0 million higher than 2006, due largely to an acquisition that occurred 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.

Liquidity and Capital Resources

The Company’s primary sources of liquidity include earnings from operations, management of working capital and available borrowing capacity to fund working capital needs and growth initiatives.

     Net cash from operating activities in 2008 was $21.7 million, as cash generated by net income (excluding the $58.9 million non-cash goodwill impairment charge) was consumed by working capital required by the substantial increases in metal prices throughout 2008. Net cash from operating activities was $78.7 million in 2007.

     Average receivable days outstanding was 47.6 days for 2008 as compared to 45.1 days for 2007, reflecting slower collections associated with a higher mix of international business and overall economic downturn. Average days sales in inventory was 129.7 days for 2008 versus 132.4 days for 2007. The weakening global economy which may impact many of our customers may hinder our ability to generate improvement in these turn rates in 2009.

     Available revolving credit capacity is primarily used to fund working capital needs. Available credit capacity consisted of the following:

		Outstanding								Weighted Average
Debt type		Borrowings				Availability				Interest Rate
U.S. Revolver A		$	18.0			$	143.4				4.33	%
U.S. Revolver B			24.0				26.0				6.41	%
Canadian facility			—				10.0				—
Trade acceptances (a)			10.0				n/a				4.41	%

     As of December 31, 2008, the Company had $31.2 million of short-term debt which includes the $10 million in trade acceptances, the $18 million revolver, and $3.2 million in foreign debt.

     As of December 31, 2008, 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.

     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.

     Current economic conditions have caused significant disruption in the financial markets resulting in reduced availability of debt and equity capital in the U.S. market as a whole. These conditions could persist for a prolonged period of time. The Company currently does not anticipate having the need to raise additional equity or secure additional debt. However, our ability to access the capital markets may be restricted at a time when we would like to pursue those markets which could have an impact on our ability to react to changing economic and business conditions. In addition, the cost of debt financing and the proceeds of equity may be materially adversely impacted by these market conditions. Further, in the current volatile state of the credit markets, there is risk that lenders, even with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum permitted by a credit facility, allowing access to additional credit features and otherwise accessing capital and/or honoring loan commitments.

Capital Expenditures

Capital expenditures for 2008 were $26.3 million as compared to $20.2 million in 2007. During 2008, the expenditures included $11.1 million of spending associated with the Company’s ERP implementations, $2.7 million for expansion and redesign projects and $2.1 million for other information technology related enhancements. The remaining capital expenditures resulted from a sizable investment in new saws, sideloaders and other capital equipment and projects. The Company expects 2009 capital expenditures to decline significantly to less than half of the 2008 amount.

Contractual Obligations and Other Commitments

The following table includes information about the Company’s contractual obligations that impact its short-term 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, 2008, the Company’s contractual obligations, including estimated payments by period, were as follows:

Payments Due In		Total				Less Than One Year				One to Three Years				Three to Five Years				More Than Five Years
Long-Term Debt Obligations (excluding capital lease obligations)		$	84.3			$	10.3			$	14.8			$	40.6			$	18.6
Interest Payments on Debt Obligations (a)			26.6				6.1				10.4				8.2				1.9
Capital Lease Obligations			1.5				0.5				0.8				0.2				—
Operating Lease Obligations			56.4				12.3				20.4				17.1				6.6
Purchase Obligations (b)			384.5				265.2				87.3				32.0				—
Other (c)			5.9				4.4				1.5				—				—
Total		$	559.2			$	298.8			$	135.2			$	98.1			$	27.1

The table and corresponding footnotes above do not include $11.2 million of other non-current liabilities recorded on the consolidated balance sheets. 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 resulted from previous sale-leaseback transactions. 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 plans is to satisfy the minimum funding requirements of the 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, 2008, the Company does not anticipate making any significant cash contributions to the pension plans in 2009.

     Effective July 1, 2008, the Company-sponsored pension plans and supplemental pension plan were frozen. In conjunction with the decision to freeze the pension plans, the Company modified its investment portfolio target allocation for the pension plans’ funds. The revised investment target

portfolio allocation focuses primarily on corporate fixed income securities that match the overall duration and term of the Company’s pension liability structure. Refer to “Retirement Plans” within Critical Accounting Policies and Note 5 to the consolidated financial statements for additional details regarding the decision to freeze the pension plans.

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.

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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. 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. Revenue from shipping and handling charges is recorded in net sales. 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. Actual results could differ from these estimates.

     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 consistent 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.

Inventories — Over eighty 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 cost in the order in which it was purchased. 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 and the quantities and mix of inventory on hand. The use of LIFO for inventory valuation was selected 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’s income tax expense, deferred tax assets and liabilities and reserve for uncertain tax positions reflect management’s best estimate of estimated taxes to be paid. The Company is subject to income taxes in the U.S. and several foreign jurisdictions. The determination of the consolidated income tax expense requires significant judgment and estimation by management. It is possible that actual results could differ from the estimates that management has used to determine its consolidated income tax expense.

     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 the 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 is made that the Company will 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 will be made which will reduce the provision for income taxes.

     The Company adopted FIN 48 effective January 1, 2007. In accordance with FIN 48, the Company recognizes the tax benefits of uncertain tax positions only if those benefits are more likely than not to be sustained upon examination by the relevant tax authorities. Unrecognized tax benefits are subsequently recognized at the time the recognition threshold is met, the tax matter is effectively settled or the statute of limitations expires for the return containing the tax position, whichever is earlier. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate. These differences will be reflected in the Company’s income tax expense in the period in which they are determined. Due to the potential for resolution of the current IRS examination of its 2005 and 2006 income tax returns, the Company believes that it is reasonably possible for its gross unrecognized tax benefits to potentially decrease by the end of 2009 by a range of approximately $1 million to $1.5 million.

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. Discount rates for retirement plans were 6.25% at December 31, 2008 and 2007.

     The Company utilizes observable market data to value approximately 90% of the assets (i.e., primarily the fixed income securities) in its pension plans. Assets in the Company’s pension plans have earned approximately 12% since inception in 1979. During 2008, in conjunction with its decision to freeze its pension plans, the Company modified the target investment asset allocation for the pension plans’ funds. The revised asset allocation focuses primarily on corporate fixed income securities that match the overall duration and term of the Company’s pension liability structure. To determine the expected long-term rate of return on the pension plans’ assets, current and expected asset allocations are considered, as well as historical and expected returns on various categories of plan assets.

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 using a two-step process. 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 first step of the goodwill impairment test is used to identify potential impairment. The evaluation is based on the comparison of each reporting unit’s fair value to its carrying value. Fair value is determined using a combination of an income approach, which estimates fair value based on a discounted cash flow analysis using historical data and management estimates of future cash flows, and a market approach, which estimates fair value using market multiples of various financial measures of comparable public companies. If the carrying value exceeds the fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be made by management. These judgments include, but are not limited to, long-term projections of future financial performance and the selection of appropriate discount rates used to present value the estimated future cash flows of the Company. The long-term projections used in the valuation are developed as part of the Company’s annual budgeting and forecasting process. The discount rates used to determine the fair values of the reporting units are those of a hypothetical market participant which are developed based upon an analysis of comparable companies and include adjustments made to account for any individual reporting unit specific attributes such as, size and industry.

     The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in the amount equal to the excess.

     The majority of the Company’s recorded intangible assets were acquired as part of the Transtar and Metals U.K. acquisitions in September 2006 and January 2008, respectively, and consist primarily of customer relationships and non-compete agreements. 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, which are 4 — 11 years for customer relationships and 3 years for non-compete agreements. Useful lives are estimated by management and determined based on the timeframe over which a significant portion of the estimated future cash flows are expected to be realized from the respective intangible assets. Furthermore, when certain conditions or certain triggering events occur, a separate test of impairment, similar to the impairment test for long-lived assets discussed below, is performed. If the intangible asset is deemed to be impaired, such asset will be written down to its fair value.

     See Note 8 to the consolidated financial statements for detailed information on goodwill and intangible assets.

Long-Lived Assets — As required by SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), 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 impaired, the impairment charge is calculated as 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. The Company derives the required undiscounted cash flow estimates from historical experience and internal business plans. In turn, measurement of an impairment loss requires a determination of fair value, which is based on available information. The Company uses an income approach, which estimates fair value based on estimates of future cash flows discounted at an appropriate interest rate.

Share-Based Compensation — The Company offers share-based compensation to executive and other key employees, as well as its directors. Share-based compensation expense is recorded over the vesting period based on the grant date fair value of the stock award. Stock options are granted with an exercise price equal to the market price of the Company’s stock on the grant date and have a contractual life of ten years. Options and restricted stock generally vest in one to five years for executives and employees and one year for directors. The Company generally issues new shares upon share option exercise. The fair value of options granted was estimated using the following assumptions in 2006:

		2006
Risk free interest rate			4.72	%
Expected dividend yield			0.85	%
Expected option term		10 Yrs
Expected volatility			50	%
The estimated weighted average fair value on the date granted based on the above assumptions		$	16.93

There were no options granted during 2007 or 2008.

Share-based compensation expense for the Company’s long-term incentive performance plans is recorded using the fair value based on the market price of the Company’s common stock on the grant date adjusted to reflect that the participants in the long-term incentive performance plans do not participate in dividends during the vesting period. Management estimates the probable number of shares which will ultimately vest when calculating the share-based compensation expense for the long-term incentive plans. The actual number of shares that will vest may differ from management’s estimate.

Fair Value of Financial Instruments — The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) for measurement and disclosure with respect to financial assets and liabilities. SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

The Company adopted the measurement provisions of SFAS 157 to value its pension plans assets as of December 31, 2008 (see Note 5 to the consolidated financial statements). In addition, SFAS No. 157 was applied in determining the fair value disclosures for debt (see Note 9 to the consolidated financial statements).

FASB Staff Position FAS 157-2, “Effective date of FASB Statement No. 157”, provides a one year deferral of SFAS 157’s effective date for nonfinancial assets and liabilities. Accordingly, for nonfinancial assets and liabilities, SFAS 157 will become effective for the Company as of January 1, 2009, and may impact the determination of goodwill, intangible assets and other long-lived assets’ fair values recorded in conjunction with business combinations and as part of impairment reviews for goodwill and long-lived assets.

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. The Company’s interest rate on borrowings under the $230 million five-year secured revolver is subject to changes in the LIBOR and Prime interest rate. Based on the Company’s variable rate debt instruments at December 31, 2008, if interest rates were to increase hypothetically by 100 basis points, 2008 interest expense would have increased by approximately $0.6 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. The ability to pass surcharges on to customers immediately can be limited due to contractual provisions with those customers. Therefore, a lag may exist between when the surcharge impacts net sales and cost of materials, respectively, which could result in a higher or lower operating profit or gross material margin.

     Foreign Currency Risk — The Company conducts the majority of its business in the United States but also has operations in Canada, Mexico, France, the United Kingdom, Spain, China 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 to foreign currency exchange rates.

ITEM 8 — Financial Statements and Supplementary Data

Amounts in thousands, except par value and per share data

Consolidated Statements of Operations

		Year Ended December 31,
		2008				2007				2006
Net sales		$	1,501,036			$	1,420,353			$	1,177,600
Costs and expenses:
Cost of materials (exclusive of depreciation and amortization)			1,123,977				1,032,355				839,234
Warehouse, processing and delivery expense			154,189				139,993				123,204
Sales, general and administrative expense			136,551				137,153				109,407
Depreciation and amortization expense			23,327				20,177				13,290
Impairment of goodwill			58,860				—				—
Operating income			4,132				90,675				92,465
Interest expense, net			(9,373	)			(12,899	)			(8,302	)
(Loss) income before income taxes and equity in earnings of joint venture			(5,241	)			77,776				84,163
Income taxes			(20,690	)			(31,294	)			(33,330	)
(Loss) income before equity in earnings of joint venture			(25,931	)			46,482				50,833
Equity in earnings of joint venture			8,849				5,324				4,286
Net (loss) income			(17,082	)			51,806				55,119
Preferred stock dividends			—				(593	)			(963	)
Net (loss) income applicable to common stock		$	(17,082	)		$	51,213			$	54,156
Basic (loss) earnings per share		$	(0.76	)		$	2.49			$	2.95
Diluted (loss) earnings per share		$	(0.76	)		$	2.41			$	2.89
Dividends paid per common share		$	0.24			$	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,
		2008				2007
Assets
Current assets
Cash and cash equivalents		$	15,277			$	22,970
Accounts receivable, less allowances of $3,318 in 2008 and $3,220 in 2007			159,613				146,675
Inventories, principally on last-in, first-out basis (replacement cost higher by $133,748 in 2008 and $142,118 in 2007)			240,673				207,284
Other current assets			12,860				13,462
Total current assets			428,423				390,391
Investment in joint venture			23,340				17,419
Goodwill			51,321				101,540
Intangible assets			55,742				59,602
Prepaid pension cost			26,615				25,426
Other assets			5,303				7,516
Property, plant and equipment, at cost
Land			5,184				5,196
Building			50,069				48,727
Machinery and equipment			172,500				155,950
			227,753				209,873
Less — accumulated depreciation			(139,463	)			(134,763	)
			88,290				75,110
Total assets		$	679,034			$	677,004
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	126,490			$	109,055
Accrued payroll and employee benefits			16,622				14,757
Accrued liabilities			11,307				18,386
Income taxes payable			6,451				2,497
Deferred income taxes — current			—				7,298
Current portion of long-term debt			10,838				7,037
Short-term debt			31,197				18,739
Total current liabilities			202,905				177,769
Long-term debt, less current portion			75,018				60,712
Deferred income taxes			38,743				37,760
Other non-current liabilities			7,535				6,585
Pension and postretirement benefit obligations			7,533				9,103
Commitments and contingencies Stockholders’ equity
Common stock, $0.01 par value — 30,000 shares authorized; 22,850 shares issued and 22,654 outstanding at December 31, 2008 and 22,331 shares issued and 22,098 outstanding at December 31, 2007			228				223
Additional paid-in capital			176,653				179,707
Retained earnings			184,651				207,134
Accumulated other comprehensive (loss) income			(11,462	)			1,498
Treasury stock, at cost — 197 shares in 2008 and 233 shares in 2007			(2,770	)			(3,487	)
Total stockholders’ equity			347,300				385,075
Total liabilities and stockholders’ equity		$	679,034			$	677,004

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

Consolidated Statements of Cash Flow

		Years Ended December 31,
		2008				2007				2006
Operating activities:
Net (loss) income		$	(17,082	)		$	51,806			$	55,119
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			23,327				20,177				13,290
Amortization of deferred gain			(1,128	)			(907	)			(760	)
Loss on sale of fixed assets			363				1,293				94
Loss on sale of subsidiary			—				425				—
Impairment of goodwill and long-lived asset			58,860				589				—
Equity in earnings of joint venture			(8,849	)			(5,324	)			(4,286	)
Dividends from joint venture			2,955				1,545				1,623
Deferred tax (benefit) provision			(13,578	)			(13,148	)			4,537
Share-based compensation expense			454				5,018				4,485
Pension curtailment			(472	)			284				—
Excess tax benefits from share-based payment arrangements			(2,881	)			(993	)			(1,186	)
Increase (decrease) from changes, net of acquisitions, in:
Accounts receivable			(7,736	)			14,700				(19,678	)
Inventories			(32,418	)			(6,275	)			(22,521	)
Other current assets			4,182				1,639				(2,570	)
Other assets			3,364				879				722
Prepaid pension costs			(92	)			6,074				1,920
Accounts payable			13,844				(11,008	)			7,882
Accrued payroll and employee benefits			1,889				3,085				(1,350	)
Income taxes payable			6,985				7,007				(10,090	)
Accrued liabilities			(7,900	)			1,507				2,044
Postretirement benefit obligations and other liabilities			(2,340	)			293				2,165
Net cash from operating activities			21,747				78,666				31,440
Investing activities:
Investments and acquisitions, net of cash acquired			(26,857	)			(280	)			(175,583	)
Capital expenditures			(26,302	)			(20,183	)			(12,935	)
Proceeds from sale of fixed assets			358				823				124
Proceeds from sale of subsidiary			645				5,707				—
Net cash used in investing activities			(52,156	)			(13,933	)			(188,394	)
Financing activities:
Short-term borrowings (repayments), net			12,636				(104,690	)			110,919
Proceeds from issuance of long-term debt			29,496				—				30,000
Repayments of long-term debt			(6,967	)			(35,337	)			(7,832	)
Payment of debt issuance fees			(524	)			(173	)			(3,156	)
Preferred stock dividends			—				(345	)			(963	)
Common stock dividends			(5,401	)			(4,704	)			(4,061	)
Proceeds from issuance of common stock, net			—				92,883				—
Exercise of stock options and other			450				552				2,840
Payment of withholding taxes from share-based incentive issuance			(6,000	)			—				—
Excess tax benefits from share-based payment arrangements			2,881				993				1,186
Net cash from (used in) financing activities			26,571				(50,821	)			128,933
Effect of exchange rate changes on cash and cash equivalents			(3,855	)			(468	)			155
Net (decrease) increase in cash and cash equivalents			(7,693	)			13,444				(27,866	)
Cash and cash equivalents — beginning of year			22,970				9,526				37,392
Cash and cash equivalents — end of year		$	15,277			$	22,970			$	9,526

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				Accumulated Accum. Other
		Common				Treasury				Preferred				Common				Treasury				Paid-in				Retained				Unearned				Comprehensive
		Shares				Shares				Stock				Stock				Stock				Capital				Earnings				Compensation				Income (Loss)				Total
Balance at January 1, 2006			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
Comprehensive Loss:
Net loss																											(17,082	)											(17,082	)
Foreign currency translation																																			(13,630	)			(13,630	)
Defined benefit pension liability adjustments, net of tax expense of $428																																			670				670
Total comprehensive loss																																							(30,042	)
Common stock dividend																											(5,401	)											(5,401	)
Long-term incentive plan income																							(728	)															(728	)
Exercise of stock options and other			519				36								5				717				(2,326	)															(1,604	)
Balance at December 31, 2008			22,850				(197	)		$	—			$	228			$	(2,770	)		$	176,653			$	184,651			$	—			$	(11,462	)		$	347,300

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

A. M. Castle & Co.
Notes to Consolidated Financial Statements
Amounts in thousands except per share data

(1) Basis of Presentation and Significant Accounting Policies

Nature of operations — A.M. Castle & Co. and its subsidiaries (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 has operations in the United States, Canada, Mexico, France, the United Kingdom, Spain, China and Singapore. 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 equipment manufacturing industries as well as general engineering applications.

The Company’s primary metals distribution center and corporate headquarters are located in Franklin Park, Illinois. The Company has 51 distribution centers located throughout North America (45), Europe (5) and Asia (1).

The Company purchases metals and plastics from many producers. 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. Orders are primarily filled with materials shipped from Company stock. The materials required to fill the balance of sales are 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.

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 of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the 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 accounts receivable allowances, inventory reserves, goodwill and intangible assets, income taxes, contingencies and litigation, pension and other post-employment benefits, 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 title and 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. 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 its customers to make required payments. The allowance is maintained at a level considered appropriate based on historical experience and specific customer collection issues that the Company has identified. Estimations are based upon the application of a historical collection rate to the outstanding accounts receivable balance, which remains fairly consistent from year to year, and judgments about the probable effects of economic conditions on certain customers, which can fluctuate significantly from year to year.

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 in cost of materials.

Operating expenses — Operating costs and expenses primarily consist of:

	•		Warehouse, processing and delivery expenses, including occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs;
	•		Sales expenses, including compensation and employee benefits for sales personnel;
	•		General and administrative expenses, including 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
	•		Depreciation and amortization expenses, including 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 of 90 days or less are considered cash and cash equivalents.

Statement of cash flows —The Company had non-cash financing activities in 2006, 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 2008 or 2007. In 2006, the tendered shares had a value of less than $100. 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 $2,958 and $2,670, respectively. In 2007, the Company paid $248 in preferred dividends in shares of common stock.

     Non-cash investing activities and supplemental disclosures of consolidated cash flow information are as follows:

		Year Ended December 31,
		2008				2007				2006
Non-cash investing activities:
Capital expenditures financed by accounts payable		$	1,490			$	883				—
Capital obligation for Metals U.K. Group acquisition			—			$	1,298				—
Cash paid during the year for:
Interest		$	7,544			$	13,423			$	9,041
Income taxes		$	29,153			$	36,675			$	38,871

Inventories — Inventories consist primarily of finished goods. Over eighty percent of the Company’s inventories are stated at the lower of LIFO cost or market. Final inventory determination under the LIFO method is made at the end of each fiscal year based on the actual inventory levels and costs at that time. 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 $133,748 and $142,118 at December 31, 2008 and 2007, 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 improvements 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 over their estimated useful lives as follows:

Buildings and building improvements		12 - 40 years
Plant equipment		3 - 25 years
Furniture and fixtures		3 - 10 years
Vehicles and office equipment		3 - 7 years

     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 2008, 2007 and 2006 was $15,056, $13,584 and $11,066, respectively.

Long-lived assets — As required by SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), 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 impaired, the impairment charge is calculated as 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. The Company derives the required undiscounted cash flow estimates from historical experience and internal business plans. In turn, measurement of an impairment loss requires a determination of fair value, which is based on available information. The Company uses an income approach, which estimates fair value based on estimates of future cash flows discounted at an appropriate interest rate.

Goodwill and intangible assets — 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 using a two-step process. 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 first step of the goodwill impairment test is used to identify potential impairment. The evaluation is based on the comparison of each reporting unit’s fair value to its carrying value. Fair value is determined using a combination of an income approach, which estimates fair value based on a discounted cash flow analysis using historical data and management estimates of future cash flows, and a market approach, which estimates fair value using market multiples of various financial measures of comparable companies. If the carrying value exceeds the fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be made by management. These judgments include, but are not limited to, long-term projections of future financial performance and the selection of appropriate discount rates used to present value the estimated future cash flows of the Company. The long-term projections used are developed as part of the Company’s annual budgeting and forecasting process. The discount rates used for each of the reporting units are those of a hypothetical market participant which are developed based upon an analysis of comparable companies and include adjustments made to account for any individual reporting unit specific attributes such as, size and industry.

     The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in the amount equal to the excess.

     The majority of the Company’s recorded intangible assets were acquired as part of the Transtar and Metals U.K. acquisitions in September 2006 and January 2008, respectively, and consist primarily of customer relationships and non-compete agreements. 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, which are 4 — 11 years for customer relationships and 3 years for non-compete agreements. Useful lives are estimated by management and determined based on the timeframe over which a significant portion of the estimated future cash flows are expected to be realized from the respective intangible assets. 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. If the intangible asset is deemed to be impaired, such asset will be written down to its fair value.

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 the 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 net 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 is made that the Company will 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 will be made which will reduce the provision for income taxes.

     The Company adopted FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48), on January 1, 2007. No increase in liability for unrecognized tax benefits was recorded as a result of the adoption of FIN 48. In accordance with FIN 48, the Company recognizes the tax benefits of uncertain tax positions only if those benefits will more likely than not be sustained upon examination by the relevant tax authorities. Unrecognized tax benefits are subsequently recognized at the time the recognition threshold is met, the tax matter is effectively settled or the statute of limitations expires for the return containing the tax position, whichever is earlier. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate. These differences will be reflected in the Company’s income tax expense in the period in which they are determined.

     Approximately $740 of unrecognized tax benefits recorded as of December 31, 2008 relate to tax positions of acquired entities taken prior to their acquisition by the Company. To the extent the amounts of these uncertain tax positions change, the impact will be recorded to income tax expense as opposed to goodwill as a result of the January 1, 2009 adoption of SFAS No. 141R, “Business Combinations.” The Company is entitled to indemnification for all amounts that may become due as a result of an audit.

     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. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Accrued interest and penalties are included within other long-term liabilities in the consolidated balance sheets.

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 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 resulting from foreign currency transactions amounted to $800 in 2008 and were not material in 2007 or 2006.

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,” 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. The following table is a reconciliation of the basic and diluted earnings per share calculations:

		2008				2007				2006
Numerator:
Net (loss) income		$	(17,082	)		$	51,806			$	55,119
Preferred dividends distributed			—				(593	)			(963	)
Undistributed (losses) earnings		$	(17,082	)		$	51,213			$	54,156
Undistributed (losses) earnings attributable to:
Common stockholders		$	(17,082	)		$	49,981			$	49,831
Preferred stockholders, as if converted			—				1,232				4,325
Total undistributed (losses) earnings		$	(17,082	)		$	51,213			$	54,156
Denominator:
Denominator for basic earnings per share:
Weighted average common shares outstanding			22,528				20,060				16,907
Effect of dilutive securities:
Outstanding employee and directors’ common stock options, restricted stock and share-based awards			—				756				360
Convertible preferred stock			—				732				1,794
Denominator for diluted earnings per share			22,528				21,548				19,061
Basic earnings (loss) per share		$	(0.76	)		$	2.49			$	2.95
Diluted earnings (loss) per share		$	(0.76	)		$	2.41			$	2.89
Outstanding common stock options and convertible preferred stock having an anti-dilutive effect			246				—				20