A. M. Castle & Co. - Annual Report: 2009 (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

A. M. CASTLE & CO.

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code (847) 455-7111

Securities registered pursuant to Section 12(b) of the Act:

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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. þ

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

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Smaller Reporting Company o

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 $199,926,525.

The number of shares outstanding of the registrant’s common stock on March 5, 2010 was 22,907,290 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 22, 2010.		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.

INDUSTRY AND MARKET DATA

In this report, we rely on and refer to information and statistics regarding the metal service center industry and general manufacturing markets. We obtained this information and these statistics from sources other than us, such as Purchasing magazine and the Institute of Supply Management, which we have supplemented where necessary with information from publicly available sources and our own internal estimates. We have used these sources and estimates and believe them to be reliable.

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 (89% of net sales) and plastics (11% 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, oil and gas, commercial aircraft, heavy equipment, industrial goods, construction equipment, retail, marine and automotive sectors 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 and process and distribute products to local geographic and select export markets.

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 original equipment manufacturers (“OEM”) 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 an April 2009 article in Purchasing magazine, “service centers comprise the largest single customer group for North American mills, buying and reselling more than 43% of all the carbon, alloy, stainless and specialty steels, aluminum, copper, brass and bronze, and superalloys produced in the U.S. and Canada last year. The U.S. and Canadian metals distribution industry generated $153 billion in 2008 net sales, or about 7% more than the $143 billion generated in 2007.”

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, including the Company, are now providing a range of services for their customers, including metal purchasing, processing and supply chain management services.

Recent Acquisitions and Expansions

In March 2009, the Company expanded its oil and gas presence through the Company’s existing Singapore operations with the addition of a sales office. The expansion will enable the Company to grow its oil and gas customer base by supporting customers’ international strategies through improved supply chain solutions to local customers throughout Asia, including Southeast Asia, China and India.

In 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 a sales office in Bilbao, Spain. The acquisition of Metals U.K. has allowed the Company to expand its global reach.

In 2008, the Company opened 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 United States (“U.S.”) based aerospace operations.

Procurement

The Company purchases metals and plastics from many producers. Material is purchased in large lots and stocked 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 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 producers or their need to perform additional material processing services. Some of the Company’s purchases are covered by long-term contracts and commitments, which generally 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, 2009, the Company had 1,576 full-time employees in its operations throughout the United States, Canada, Mexico, France, Spain, the United Kingdom, China and Singapore. Of these, 256 are represented by collective bargaining units, principally the United Steelworkers of America and International Brotherhood of Teamsters.

Business Segments

The Company distributes and performs processing for 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 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:

		2009				2008				2007
Metals			89	%			92	%			92	%
Plastics			11	%			8	%			8	%
			100	%			100	%			100	%

Metals Segment

In its Metals segment, the Company’s market strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services. 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. Our customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms.

The Company’s broad network of locations 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. (“Kreher”), a metals distributor headquartered in the Midwest, 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. Kreher is considered a significant subsidiary under Rule 3-09 of Regulation S-X. Therefore, its stand-alone financial statements are included in this filing.

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.

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 the volatility of 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 and the ability to pass price changes onto our customers. To the extent we are not able to pass on to our customers any increases in our raw materials prices, our gross margins and operating results may be adversely affected. In addition, because we maintain substantial inventories of metals in order to meet short lead-times and 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 and could adversely impact our ability to remain in compliance with certain financial covenants in our loan facilities, as well as result in us incurring impairment charges.

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 availability of adequate credit and financing, customer inventory levels 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 defense and oil and gas industries. A downturn in these industries has had, and may in the future continue to have, an adverse effect on our operating results. 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.

Some of our growth has been through acquisitions, and we intend to continue to seek attractive opportunities to acquire businesses in the future. Achieving the benefits of these acquisitions depends on the timely, efficient and successful execution of a number of post-acquisition events, including our integration of the acquired businesses. We may not be able to realize the benefits we anticipate from our acquisitions. 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 operating results and financial condition. 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. If interest rates significantly increase, we could be unable to service our debt which could have an adverse effect on our operating results.

The current global recession and financial crisis have had and are likely to continue to have an adverse impact on our business, operating results and financial condition.

The current global economic recession has, since the beginning of the fourth quarter of 2008, had an adverse effect on demand for our products and consequently the operating results, financial condition and cash flows. Operating results may remain at depressed levels until economic conditions improve and demand increases. 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 current global recession and are experiencing extremely challenging market conditions. As a result, the current global recession may continue to have an adverse impact on our business, operating results and financial condition. Continued negative economic conditions, as well as a slow recovery period, could lead to reduced demand for our products, increased price competition, reduced gross margins, increased risk of obsolete inventories and higher operating costs as a percentage of revenue.

Due to the current financial 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. Our existing $230 million revolving credit facility matures on January 2, 2013. Continued uncertainty in the capital and credit markets may negatively impact our business, including our ability to access additional financing at a time when we would like, or need, to access those markets to run or expand our business. These events may also make it more costly for us to raise capital through the issuance of our equity securities and could reduce our net income by increasing our interest expense and other costs of capital. The diminished availability of credit and other capital is also affecting the industries we serve. Further volatility in worldwide capital and credit markets may continue to significantly impact the industries we serve and could result in further reduction in sales volumes, increased credit and collection risks and may have other adverse effects on our business.

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

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 operating results 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 operating results.

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

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 have an adverse effect on our operating results.

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. 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.

A prolonged disruption of the services and capabilities of our Franklin Park facility and operation could adversely impact our operating results.

Damage to or 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 enterprise-wide resources planning (“ERP”) systems. In 2009, we completed the conversions of substantially all of the Company’s North American locations onto a new ERP system. However, we can provide no assurance that the continued phased-implementation at the Company’s remaining facilities will be successful or will occur as planned. Difficulties associated with the design and implementation of the new ERP system could adversely affect our business, our customer service and our operating results.

We rely on information technology systems to provide inventory availability to our sales and operating personnel, improve customer service through better order and product reference data and monitor operating results. Difficulties associated with upgrades or integration with new systems could lead to business interruption that could harm our reputation, increase our operating costs and decrease profitability. In addition, any significant disruption relating to our current or new information technology systems, whether due from such things as fire, flood, tornado and other natural disasters, power loss, network failures, loss of data, security breaches and computer viruses, or otherwise, may have an adverse effect on our business, our operating results and our ability to report our financial performance in a timely manner.

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

Although a substantial majority of our business activity takes place in the United States, we serve and operate in certain international markets, which expose us to political, economic and currency related risks, including the potential for adverse change in the local political climate or in government policies, laws and regulations, difficulty staffing and managing geographically diverse operations, restrictions on imports and exports or sources of supply, and change in duties and taxes. 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 256 of our employees are unionized, which represented approximately 16% of our employees at December 31, 2009, including those employed at our primary distribution center in Franklin Park, Illinois. A collective bargaining agreement covering approximately 199 hourly plant personnel at our Franklin Park, Cleveland and Kansas City facilities expires on October 1, 2010. Although we believe that we will be able to successfully negotiate a new collective bargaining agreement when the existing agreement expires, the negotiations:

•

may not be successful;

•

may result in a significant increase in the cost of labor; or

•

may break down and result in the disruption of our operations.

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 operating results and 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 adversely affect our operating results.

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 adversely affect our operating results.

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 operating results.

Increases in freight and 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 adversely affect our operating results.

We use energy to process and transport our products. The prices for and availability of energy resources are subject to volatile market conditions, which are affected by political and economic factors beyond our control. Our operating costs increase if energy costs, including electricity, diesel fuel and natural gas, rise. During periods of higher freight and 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.

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 operating results in one or more future quarters and, consequently, our operating results may fall below expectations.

We may face risks associated with current or future litigation and claims.

From time to time, we are involved in a variety of lawsuits, claims and other proceedings relating to the conduct of our business. These suits concern issues including contract disputes, employee-related matters, employee benefits, taxes, environmental, health and safety, personal injury and product liability matters. Due to the uncertainties of litigation, we can give no assurance that we will prevail on all claims made against us in the lawsuits that we currently face or that additional claims will not be made against us in the future. While it is not feasible to predict the outcome of all pending lawsuits and claims, we do not believe that the disposition of any such pending matters is likely to have an adverse effect on our financial condition or liquidity, although the resolution in any reporting period of one of more of these matters could have an adverse effect on our operating results for that period. Also, we can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating results.

Market volatility could result in future asset impairments, which could have an adverse effect on our operating results.

We review the recoverability of goodwill annually or whenever significant events or changes occur which might impair the recovery of recorded costs, making certain assumptions regarding future operating performance. We review the recoverability of definite lived intangible assets and other long-lived assets whenever significant events or changes occur which might impair the recovery of recorded costs, making certain assumptions regarding future operating performance. The results of these calculations may be affected by the current or further declines in the market conditions for our products, as well as interest rates and general economic conditions. If impairment is determined to exist, we will incur impairment losses, which will have an adverse effect on our operating results and our ability to remain in compliance with certain financial covenants in our loan facilities.

Ownership of our stock is concentrated, which may limit stockholders’ ability to influence corporate matters.

Patrick J. Herbert, III, one of our directors, may be deemed to beneficially own approximately 23% of our common stock. Accordingly, Mr. Herbert and his affiliates may have the voting power to substantially control the outcome of matters requiring a stockholder vote including the election of directors and the approval of significant corporate matters. Such a concentration of control could adversely affect the market price of our common stock or prevent a change in control or other business combinations that might be beneficial to the Company.

We have various mechanisms in place that may prevent a change in control that stockholders may otherwise consider favorable.

In addition to the high concentration of insider ownership described above, our charter and by-laws and the Maryland General Corporation Law, or the MGCL, include provisions that may be deemed to have antitakeover effects and may delay, defer or prevent a takeover attempt that stockholders might consider to be in their best interests. For example, the MGCL, our charter and bylaws require the approval of the holders of two-thirds of the votes entitled to be cast on the matter to amend our charter (unless our Board of Directors has unanimously approved the amendment, in which case the approval of the holders of a majority of such votes is required), contain certain advance notice procedures for nominating candidates for election to our Board of Directors, and permit our Board of Directors to issue up to 10,000,000 shares of preferred stock.

Furthermore, we are subject to the anti-takeover provisions of the MGCL that prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of five years after the date of the transaction in which the person first becomes an “interested stockholder,” unless the business combination or stockholder interest is approved in a prescribed manner. The application of these and certain other provisions of our charter could have the effect of delaying or preventing a change of control of the Company, which could adversely affect the market price of our common stock.

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
North America
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
Edmonton, Alberta			50,553
Fairfield, Ohio			166,000
Franklin Park, Illinois			522,600	(1)
Gardena, California			117,000
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
Twinsburg, Ohio			120,000
Wichita, Kansas			148,800
Winnipeg, Manitoba			50,000	(1)
Worcester, Massachusetts			53,500	(1)
Europe
Blackburn, England			62,139
Hoddesdon, England			9,472
Montoir de Bretagne, France			38,944
Letchworth, England			40,000
Asia
Shanghai, China			45,700
Sales Offices
Milwaukee, Wisconsin		(Intentionally left blank)
Phoenix, Arizona
Tulsa, Oklahoma
Lafayette, Louisiana
Bilbao, Spain
Singapore
Total Metals Segment			3,373,798

		Approximate
		Floor Area in
Locations		Square Feet
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			2,500
Total Plastics Segment			421,900
GRAND TOTAL			3,795,698

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 — [Reserved]

Executive Officers of The Registrant

The following selected information for each of our current executive officers (as defined by regulations of the SEC) was prepared as of March 12, 2010.

Name and Title		Age				Business Experience
Michael H. Goldberg President & Chief Executive Officer			56			Mr. Goldberg was elected President and Chief Executive Officer in 2006. Prior to joining the Registrant, he was Executive Vice President of Integris Metals (an aluminum and metals service center) from 2001 to 2005. From 1998 to November 2001, Mr. Goldberg was Executive Vice President of North American Metals Distribution Group, a division of Rio Algom LTD.
Stephen V. Hooks Executive Vice President and President, Castle Metals			58			Mr. Hooks began his employment with the registrant in 1972. He was elected to the position of Vice President — Midwest Region in 1993, Vice President - Merchandising in 1998, Senior Vice President—Sales & Merchandising in 2002 and Executive Vice President of the registrant and Chief Operating Officer of Castle Metals in January 2004. In 2005, Mr. Hooks was appointed President of Castle Metals.
Scott F. Stephens Vice President, Chief Financial Officer, Treasurer, and interim President, Castle Metals Oil and Gas			40			Mr. Stephens began his employment with the registrant in July 2008 and was elected to the position of Vice President, Chief Financial Officer, and Treasurer. Formerly, he served as the CFO of Lawson Products, Inc. (a distributor of services, systems and products to the MRO and OEM marketplace) since 2004, and CFO of The Wormser Company from 2001 to 2004. In February of 2010 Mr. Stephens was appointed interim President of Castle Metals Oil & Gas.
Kevin Coughlin Vice President, Operations			59			Mr. Coughlin began his employment with the registrant in 2005 and was appointed to the position of Vice President-Operations. Prior to joining the registrant he was Director of Commercial Vehicle Electronics and Automotive Starter Motor Groups for Robert Bosch-North America from 2001 to 2004 and Vice President of Logistics and Services for the Skill-Bosch Power Tool Company from 1997 to 2000.
Robert J. Perna Vice President General Counsel and Secretary			46			Mr. Perna began his employment with the registrant in November 2008 and was elected to the position of Vice President-General Counsel and Secretary. Prior to joining the registrant he was General Counsel, North America, CNH America, LLC (a manufacturer of agricultural and construction equipment) since 2007, and he also served as Associate General Counsel and Corporate Secretary for Navistar International Corporation (a manufacturer of commercial trucks and diesel engines) back to April 2001.
Kevin P. Fitzpatrick Vice President, Human Resources			45			Mr. Fitzpatrick began his employment with the registrant in January 2009 and was elected to the position of Vice President-Human Resources. Prior to joining the registrant he was Vice President-North American Human Resources and Administration for UPM-Kymmene Corporation (a forest industry company) since 2001.

Name and Title		Age				Business Experience
Patrick R. Anderson Vice President, Corporate Controller and Chief Accounting Officer			38			Mr. Anderson began his employment with the registrant in 2007 and was appointed to the position of Vice President, Corporate Controller and Chief Accounting Officer. Prior to joining the registrant, he was employed with Deloitte & Touche LLP from 1994 to 2007.
Blain A. Tiffany Vice President and President, Castle Metals Aerospace			51			Mr. Tiffany began his employment with the registrant in 2000 and was appointed to the position of District Manager. He was appointed Eastern Region Manager in 2003, Vice President — Regional Manager in 2005 and in 2006 was appointed to the position of Vice President — Sales. In 2007, Mr. Tiffany was appointed to the position of Vice President of the registrant and President of Castle Metals Plate. In January 2009, Mr. Tiffany was elected to the Position of Vice President of the registrant and President of Castle Metals Aerospace.
Thomas L. Garrett Vice President and President, Total Plastics, Inc.			47			Mr. Garrett began his employment with Total Plastics, Inc., a wholly owned subsidiary of the registrant, in 1988 and was appointed to the position of Controller. In 1996, he was elected to the position of Vice President and in 2001 was appointed to the position of Vice President of the registrant and President of Total Plastics, Inc.

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 1, 2010 there were approximately 1,129 shareholders of record. The Company used cash of $1.4 million and $5.4 million to pay cash dividends of $0.06 and $0.24 per share on its common stock in 2009 and 2008, respectively. The 2009 dividend payments of $1.4 million were paid during the second quarter of 2009 and the Company subsequently suspended the payment of dividends until further notice. 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 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 2009.

Directors of the Company who are not employees may elect to defer receipt of up to 100% of their 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 2,388 shares was deferred as payment for the 2009 board compensation. In each case, the shares were acquired at prices ranging from $5.89 to $12.87 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:

		2009								2008
		Low				High				Low				High
First Quarter		$	5.29			$	13.09			$	16.70			$	29.65
Second Quarter		$	8.25			$	12.87			$	26.08			$	34.20
Third Quarter		$	9.45			$	13.48			$	16.16			$	28.46
Fourth Quarter		$	8.74			$	14.41			$	6.12			$	17.41

The following graph compares the cumulative total stockholder return on our common stock for the five-year period ended December 31, 2009, with the cumulative total return of the Standard and Poor’s 500 Index and to a peer group of metals distributors. The comparison in the graph assumes the investment of $100 on December 31, 2004. Cumulative total stockholder return means share price increases or decreases plus dividends paid, with the dividends reinvested. The graph does not forecast future performance of our common stock.

Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. www.researchdatagroup.com/S&P.htm

		12/04				12/05				12/06				12/07				12/08				12/09
A.M. Castle & Co.			100.00				182.91				214.79				231.41				93.30				118.71
S&P 500			100.00				104.91				121.48				128.16				80.74				102.11
Peer Group			100.00				147.06				184.14				255.68				100.77				213.36

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, the October 2007 divestiture of Metal Express.

(dollars in millions, except per share data)		2009				2008				2007				2006				2005
For the year ended December 31:
Net sales		$	812.6			$	1,501.0			$	1,420.4			$	1,177.6			$	959.0
Net (loss) income from continuing operations			(26.9	)			(17.1	)			51.8				55.1				38.9
Basic (loss) earnings per common share from continuing operations			(1.18	)			(0.76	)			2.49				2.95				2.37
Diluted (loss) earnings per common share from continuing operations			(1.18	)			(0.76	)			2.41				2.89				2.11
Cash dividends declared per common share			0.06				0.24				0.24				0.24				—
As of December 31:
Total assets			558.0				679.0				677.0				655.1				423.7
Long-term debt, less current portion			67.7				75.0				60.7				90.1				73.8
Total debt			89.2				117.1				86.5				226.1				80.1
Total stockholders’ equity			318.2				347.3				385.1				215.9				175.5

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

Amounts in millions except per share data

Information regarding the business and markets of A.M. Castle & Co. and its subsidiaries (the “Company”), including its reportable segments, is included in Item 1 “Business” of this annual report on Form 10-K.

The following discussion should be read in conjunction with Item 6 “Selected Financial Data” and the Company’s consolidated financial statements and related notes thereto in Item 8 “Financial Statements and Supplementary 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 2009, the following significant events occurred which impacted the Company’s operations and financial results:

	•		Completion of the three phases of the Metals segment ERP implementation during 2009, bringing nearly all of the Company’s North American locations onto the new system; and
	•		A change in the Company’s LIFO inventory accounting method for tax purposes, resulting in a $14.8 million federal and state tax refund.

During 2009, the Company completed the conversion of nearly all of the North America Metals business locations that remained on the Company’s legacy system to the new Oracle ERP system. Total capital expenditures for this ERP implementation from inception in 2006 through the end of 2009 were $19.9 million. The new ERP system will allow the Metals business to operate under a common technology platform and 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 2009, the Company filed a change of accounting with its 2008 federal income tax return related to its LIFO inventory accounting method for tax. This change resulted in a $14.8 million reduction in the Company’s current tax liability and a corresponding increase in its deferred income tax liability. The change in the LIFO inventory accounting method for tax purposes resulted in a $14.8 million federal and state tax refund.

Recent Market and Pricing Trends

The Company experienced lower demand from its customer base during 2009 in both the Metals and Plastics segments, reflecting the declines in the overall global economy compared to 2008 volume levels. Industry data indicates that U.S. service center steel and aluminum shipments were down between 35% and 40% during 2009. Key end-use markets that experienced significant declines in demand in the Company’s Metals segment include oil and gas, commercial aircraft, heavy equipment, industrial goods and construction equipment. The Plastics segment experienced softer demand across its primary end-use markets including retail, marine and automotive compared to 2008.

Average market prices for the Company’s products declined considerably from 2008 levels primarily due to the economic downturn, which resulted in increased pricing pressure in the industry. The combination of factors above negatively impacted the Company’s operating results during 2009.

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.

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 2007 through the fourth quarter of 2009. 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. Based on the data below, the index rose above 50.0 during the third quarter and continued to increase during the fourth quarter of 2009. The increase in the index indicates growth in the manufacturing sector of the economy for the first time since the third quarter of 2007.

YEAR		Qtr 1				Qtr 2				Qtr 3				Qtr 4
2007			50.5				53.0				51.3				49.6
2008			49.2				49.5				47.8				36.1
2009			35.9				42.6				51.5				54.6

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. A favorable 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 higher level in the near-term. The Company believes that its revenue trends typically correlate to the changes in PMI on a six to twelve month lag basis. Therefore, management forecasts an increase in 2010 net sales due to a combination of demand and pricing increases, which the PMI index suggests 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.

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, computer hardware and maintenance and foreign currency gain or loss; and

•

Depreciation and amortization expenses, including depreciation for all owned property and equipment, and amortization of various intangible assets.

2009 Results Compared to 2008

Consolidated results by business segment are summarized in the following table for years 2009 and 2008.

Operating Results by Segment

		Year Ended December 31,								Fav / (Unfav)
		2009				2008				$ Change				% Change
Net Sales
Metals		$	726.2			$	1,384.8			$	(658.6	)			(47.6	)%
Plastics			86.4				116.2				(29.8	)			(25.6	)%
Total Net Sales		$	812.6			$	1,501.0			$	(688.4	)			(45.9	)%
Cost of Materials
Metals		$	551.9			$	1,044.4			$	492.5				47.2	%
% of Metals Sales			76.0	%			75.4	%
Plastics			59.4				79.6				20.2				25.4	%
% of Plastics Sales			68.8	%			68.5	%
Total Cost of Materials		$	611.3			$	1,124.0			$	512.7				45.6	%
% of Total Sales			75.2	%			74.9	%
Operating Costs and Expenses Metals		$	206.4			$	328.9			$	122.5				37.2	%
Plastics			26.7				33.4				6.7				20.1	%
Other			5.3				10.6				5.3				50.0	%
Total Operating Costs & Expenses		$	238.4			$	372.9			$	134.5				36.1	%
% of Total Sales			29.3	%			24.8	%
Operating (Loss) Income
Metals		$	(32.1	)		$	11.5			$	(43.6	)			(379.1	)%
% of Metals Sales			(4.4	)%			0.8	%
Plastics			0.3				3.2				(2.9	)			(90.6	)%
% of Plastics Sales			0.3	%			2.8	%
Other			(5.3	)			(10.6	)			5.3				50.0	%
Total Operating (Loss) Income		$	(37.1	)		$	4.1			$	(41.2	)			(1,004.9	)%
% of Total Sales			(4.6	)%			0.3	%

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

Net Sales:

Consolidated net sales were $812.6 million in 2009, a decrease of $688.4 million, or 45.9%, versus 2008.

Metals segment net sales during 2009 of $726.2 million were $658.6 million, or 47.6%, lower than 2008. Decreased revenues were primarily the result of lower shipping volumes in light of continued challenges in the global economy and the metals and plastics markets. Average tons sold per day decreased 43.5% compared to the prior year. The softness experienced during 2009 was broad-based, impacting virtually all end-markets and products compared to 2008. The Company also experienced lower sales prices for its products during 2009; however, the impact of these price decreases on net sales was partially mitigated by a changing sales mix as compared to 2008.

Plastics segment net sales during 2009 of $86.4 million were $29.8 million, or 25.6%, lower than 2008 due to lower sales volume. The Plastics business also experienced softer demand during 2009 across its primary end markets including retail, marine and automotive when compared to 2008.

Cost of Materials:

Cost of materials (exclusive of depreciation and amortization) were $611.3 million, a decrease of $512.7 million, or 45.6%, compared to 2008. Material costs for the Metals segment were 76.0% as a percent of net sales in 2009, an increase of 0.6% as a percent of net sales, from 2008. In 2009, cost of materials included obsolete inventory charges of approximately $6.8 million, an increase of $6.6 million compared to 2008. Approximately $4.3 million of the 2009 obsolete inventory charges were recorded during the fourth quarter. The low-demand business environment in 2009 created intense competitive pricing pressures throughout much of 2009, which was also a factor that increased material costs as a percent of net sales in 2009 compared to 2008 and compared to the Company’s historical range for material costs as a percent of net sales of 71% to 75%.

Material costs for the Plastics segment were 68.8% as a percent of net sales in 2009 as compared to 68.5% for the same period last year. The slight increase in material costs as a percent of net sales in 2009 was primarily due to the Plastics segment lowering their prices given the competitive pricing in the marketplace.

For 2009, the Company experienced LIFO income of approximately $16.9 million, with LIFO income of approximately $25.6 million being recorded for the first three quarters of 2009, reduced by LIFO expense of approximately $8.7 million recorded in the fourth quarter of 2009. The LIFO income of approximately $16.9 million for the full-year 2009 was primarily a result of a reduction in inventory costs and quantities in 2009 compared to 2008.

Operating Expenses and Operating (Loss) Income:

Operating costs and expenses decreased $134.5 million, or 36.1%, compared to last year. Operating costs and expenses for 2009 were $238.4 million, or 29.3% as a percent of net sales, compared to $372.9 million, or 24.8% as a percent of net sales last year. The decrease in operating costs and expenses was $77 million excluding goodwill impairment charges of $1.4 million and $58.9 million in 2009 and 2008, respectively.

In response to lower sales activity resulting from the decline in the global economy and the metals and plastics markets, the Company implemented several initiatives during 2009 to align its cost structure with lower activity levels. The cost reduction actions primarily focused on payroll related costs, the Company’s largest operating expense category, resulting in reduced work weeks and furloughs, suspension of the Company’s 401(k) contributions and executive salary reductions of 10 percent.

The $77 million decrease in operating expenses for 2009 compared to 2008, excluding goodwill impairment charges, primarily relates to the following:

•

Warehouse, processing and delivery costs decreased by $44.6 million of which $24.4 million is the result of lower sales volume and $20.2 million is due to decreased payroll costs associated with workforce reductions, reduced workweeks and suspension of the Company 401(k) contributions;

•

Sales, general and administrative costs decreased by $30.4 million primarily due to lower ERP implementation costs of $5.9 million and decreased payroll related costs of $15.2 million associated with workforce reductions and reduced workweeks, reduced incentive compensation and suspension of Company 401(k) contributions; and

•

Depreciation and amortization expense was $2.0 million lower due to a decrease in capital expenditures across the Company and certain intangible assets of Metals U.K. and Transtar becoming fully amortized in 2008 and the third quarter of 2009, respectively.

Operating costs and expenses included goodwill impairment charges of $1.4 million during 2009 and $58.9 million during 2008.

Consolidated operating loss for 2009 was $37.1 million compared to operating income of $4.1 million in 2008. The Company’s 2009 operating (loss) income as a percentage of net sales decreased to (4.6)% from 0.3% in 2008, primarily due to decreased sales volume in light of the current business environment.

Other Income and Expense, Income Taxes and Net Income:

Interest expense was $6.4 million in 2009, a decrease of $2.9 million versus 2008. The decrease in interest expense in 2009 is a result of reduced borrowings and lower weighted average interest rates in 2009 compared to 2008.

The Company recorded a $16.3 million tax benefit and a $20.7 million tax provision during 2009 and 2008, respectively. The effective tax rate for 2009 and 2008 was 37.3% and (394.8)%, respectively. The effective tax rate, excluding goodwill impairment charges for 2009 and 2008, was 38.5% and 38.6%, respectively. The effective tax rate, excluding goodwill impairment charges, compared to 2008 remained relatively unchanged as decreases in the effective rate due to lower tax on joint-venture income were offset by increases in the rate for state taxes and the rate differential on foreign income (loss).

Equity in earnings of the Company’s joint venture was $0.4 million in 2009, $8.4 million lower than 2008, reflecting overall weaker demand for Kreher’s products due to the economic decline over the past year.

Consolidated net loss for 2009 was $26.9 million, or $1.18 per diluted share, versus $17.1 million, or $0.76 per diluted share, for 2008.

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	%
Plastics			79.6				78.0				(1.6	)			(2.1	)%
% of Plastics Sales			68.5	%			67.5	%
Total Cost of Materials		$	1,124.0			$	1,032.4			$	(91.6	)			(8.9	)%
% of Total Sales			74.9	%			72.7	%
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	%
Operating Income
Metals		$	11.5			$	94.4			$	(82.9	)			(87.8	)%
% of Metals Sales			0.8	%			7.2	%
Plastics			3.2				4.9				(1.7	)			(34.7	)%
% of Plastics Sales			2.8	%			4.2	%
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	%

“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 it was more likely than not that goodwill was 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.

Liquidity and Capital Resources

The Company’s principal sources of liquidity are 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 2009 was $53.1 million compared to $21.7 million in 2008 due primarily to changes in working capital as described below.

During 2009, cash receipts from customers exceeded net sales. The resulting reduction in receivables generated $57.0 million in cash for the year-ended December 31, 2009 compared to a $7.7 million cash outflow in 2008. Net sales declined 45.9% from 2008 levels. Average receivable days outstanding was 54.8 days for 2009 as compared to 47.6 days for 2008, reflecting slower collections primarily due to the impact of the economic downturn on our customers. During 2009, the Company also experienced a higher mix of international business, in which customers have longer payment terms. The Company continually assesses customer credit worthiness taking various economic factors, as well as customer specific information such as industry, leverage and past payment performance into consideration. Changes to customer credit limits throughout the year were a result of the Company’s normal review process and management does not believe that these credit limit changes increased the Company’s overall credit risk. The Company’s account receivable write-offs were $1.8 million in 2009 compared to $2.2 million in 2008.

During 2009, sales of inventory exceeded inventory purchases. The resulting reduction in inventories generated a cash inflow of $74.0 million for the year-ended December 31, 2009 compared to a cash outflow of $32.4 million in 2008. Average days sales in inventory was 189.3 days for 2009 versus 129.7 days for 2008. There was a 17 day reduction in average inventory days outstanding during the fourth quarter as compared to the third quarter of 2009 primarily resulting from the Company’s inventory reduction efforts. Management remains committed to improving these turn rates in 2010.

During 2009, cash paid for inventories and other goods and services exceeded purchases. The resulting decrease in accounts payable and accrued liabilities generated a cash outflow $60.8 million during 2009 compared to a cash inflow of $5.9 million in 2008.

The Company received its 2008 federal income tax refund of approximately $15.8 million, as well as a portion of its refunds from various states totaling $1.4 million during the fourth quarter of 2009. Approximately $14.8 million of the federal and state income tax refunds is a result of the Company changing its LIFO inventory accounting method for tax. These funds were used to pay down outstanding debt.

The tight credit market which was evident in 2009 appears to be easing gradually. However, the cost of debt financing remains elevated and deal structures are more restrictive which could have an impact on the Company’s operating results and our ability to access these markets.

On November 5, 2009 the Company filed a universal shelf registration statement with the Securities and Exchange Commission, which was declared effective on November 23, 2009. The registration statement gives the Company the flexibility to offer and sell from time to time in the future up to $100 million of equity, debt or other types of securities as described in the registration statement, or any combination of such securities. If securities are issued, the Company may use the proceeds for general corporate purposes, including acquisitions, capital expenditures, working capital and repayment of debt.

Available revolving credit capacity is primarily used to fund working capital needs. Taking into consideration the most recent borrowing base calculation as of December 31, 2009, which reflects trade receivables, inventory, letters of credit and other outstanding secured indebtedness, available credit capacity consisted of the following:

										Weighted Average
		Outstanding								Interest Rate for the
		Borrowings as of				Availability as of				Year Ended
Debt type		December 31, 2009				December 31, 2009				December 31, 2009
U.S. Revolver A		$	5.0			$	54.3				2.07	%
U.S. Revolver B			24.2				25.8				1.78	%
Canadian facility			—				9.4				3.46	%
Trade acceptances (a)			8.7				n/a				2.28	%

As of December 31, 2009, the Company had $13.7 million of short-term debt which includes trade acceptances of $8.7 million and $5.0 million related to the U.S. Revolver A. The Company has classified U.S. Revolver A as short-term based on its ability and intent to repay amounts outstanding under this instrument within the next 12 months.

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 and meet its debt obligations. In addition, the Company has available borrowing capacity, as discussed above.

As of December 31, 2009 the Company remained in compliance with the covenants as defined by 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 and outlined in the table below:

		Requirement per		Actual at
Covenant Description		Credit Agreement		December 31, 2009
Funded debt-to-capital ratio		less than 0.55			0.19
Working capital-to-debt ratio		greater than 1.0			3.49
Minimum adjusted consolidated net worth		$261.6			$328.5

Capital Expenditures

Capital expenditures for 2009 were $8.7 million as compared to $26.3 million in 2008. In order to strengthen the Company’s liquidity position during 2009, management reduced the routine capital expenditure budget from the initially planned $10 million. Total capital expenditures, excluding capital expenditures associated with the ERP implementation and remodeling of the Company’s home office due to flood damage, were $4.8 million during 2009. Management believes that annual capital expenditures will approximate $10 million in 2010.

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, 2009, the Company’s contractual obligations, including estimated payments by period, were as follows:

						Less				One to								More
						Than One				Three				Three to				Than Five
Payments Due In		Total				Year				Years				Five Years				Years
Long-term debt obligations (excluding capital lease obligations)		$	74.3			$	7.2			$	15.7			$	41.8			$	9.6
Interest payments on debt obligations (a)			15.4				4.2				6.8				3.8				0.6
Capital lease obligations			1.2				0.6				0.5				0.1				—
Operating lease obligations			67.0				12.1				22.7				15.2				17.0
Purchase obligations (b)			255.1				200.4				42.3				12.4				—
Other (c)			4.9				3.3				1.6				—				—
Total		$	417.9			$	227.8			$	89.6			$	73.3			$	27.2

The table and corresponding footnotes above do not include $10.9 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 certain assets, which resulted from previous sale-leaseback transactions.

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, 2009, the Company does not anticipate making significant cash contributions to the pension plans in 2010.

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 and commentary on other plan assumptions.

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 of third parties.

As of December 31, 2009, the Company had $2,791 of irrevocable letters of credit outstanding which primarily consisted of $2,141 for compliance with the insurance reserve requirements of its workers’ compensation insurance carrier.

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 recognized other than at the time of shipment represents less than 5% of the Company’s consolidated net sales. 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 provisions related to discounts and rebates due to customers are recorded as a reduction within net sales in the Company’s consolidated statements of operations.

The Company maintains an allowance for doubtful accounts resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is maintained at a level considered appropriate based on historical experience and specific identification of customer receivable balances for which collection is unlikely. The provisions for doubtful accounts are recorded in sales, general and administrative expense in the Company’s consolidated statements of operations. Estimations for the doubtful accounts are based upon historical write-off experience as a percentage of net sales 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.

The Company also maintains an allowance for credit memos for estimated credit memos to be issued against current sales. Credit memos are primarily issued to correct order entry and billing errors. Estimations for the allowance for credit memos are based upon the application of a historical issuance lag period to the average credit memos issued each month. If actual results differ from historical experience, there could be a negative impact on the Company’s operating results.

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.

The Company maintains allowances for obsolete inventory and physical inventory losses. The allowance for obsolete inventory is determined based on specific identification of material, adjusted for expected scrap value to be received, and the allowance for physical inventory losses is determined based on historical physical inventory experience. Material is specifically identified as obsolete based on an analysis of past sales history and projected future sales. Material in which there is no sales in the last year and no projected sales for the upcoming year is evaluated for obsolescence. The Company’s operating results could be impacted if sales projections or scrap value received differs from estimates.

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 has not provided deferred taxes relative to undistributed earnings of foreign subsidiaries as such undistributed earnings are considered to be indefinitely reinvested based on management’s overall business strategy. Undistributed earnings may become taxable upon their remittance as dividends or upon the sale or liquidation of foreign subsidiaries. It is not practicable to determine the amounts of net additional income tax that may be payable if such earnings were repatriated.

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 period a determination is made that the Company will not be able to realize its deferred income tax assets, an adjustment to the valuation allowance will be made which will increase the provision for income taxes. Based upon available evidence, including forecasted financial statements, the Company has determined that it is more likely than not that the deferred tax assets will be realized due to the fact that the Company believes it will either be able to carry its net operating losses back to prior years or have sufficient earnings in future years to use the carryforwards prior to expiration. As a result, the Company has not recorded a valuation allowance on its deferred tax assets as of December 31, 2009. As of December 31, 2009, the Company is in an overall net deferred tax liability position in most of its tax jurisdictions.

The Company recognizes the tax benefits for 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 expiration of statutes of limitations, it is reasonably possible that the gross unrecognized tax benefits may potentially decrease within the next 12 months by a range of approximately $0 to $0.1 million.

Retirement Plans — The Company values retirement plan liabilities based on assumptions and valuations established by management. 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 5.75% and 6.25% at December 31, 2009 and 2008.

The Company utilizes quoted market prices (Level 1 within the fair value hierarchy) to value approximately 96% 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. Since the change in asset allocation, the Company has maintained a funding surplus of approximately 18% on average. As of December 31, 2009, the funding surplus was approximately 12%. The decline in the surplus as of December 31, 2009 was due to the decrease in discount rates compared to prior periods. The Company estimates that a 0.5% change in its discount rate would change its net periodic pension cost by less than $0.5 million. 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 — Goodwill is subject to an annual impairment test using a two-step process. The carrying value of the Company’s goodwill is evaluated annually on January 1^st of each fiscal year or when certain triggering events occur which require a more current valuation. Based on the continued economic recession, the Company thoroughly reviewed its long-term forecasts as part of its annual budgeting process which took place during the fourth quarter of 2009. As a result of this process, the Company determined that it was more likely than not that goodwill was impaired. Therefore, the Company performed an interim goodwill impairment analysis as of December 31, 2009 and a non-cash charge of $1.4 million for goodwill impairment was recorded in 2009 related to the Oil & Gas reporting unit within the Metals segment.

A two-step method is used for determining goodwill impairment. The first step (“Step I”) 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. If the carrying value exceeds the fair value, the second step (“Step II”) of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. Step II 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. The allocation of fair value to reporting units requires several analyses to determine fair value of assets and liabilities including, among others, customer relationships, non-compete agreements, trade names and property, plant and equipment (valued at replacement cost). 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.

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.

The determination of the fair value of the reporting units requires significant estimates and assumptions to be made by management. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industry in which the Company competes; discount rates; terminal growth rates; long-term projections of future financial performance; and relative weighting of income and market approaches. The long-term projections used in the valuation are developed as part of the Company’s annual budgeting 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 estimated discount rate is a key assumption that impacts the estimated fair value of the reporting units. The discount rate for each reporting unit was estimated to be between 16% and 18% as of December 31, 2009. Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of the goodwill impairment charge, or both. Future declines in the overall market value of the Company’s equity may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.

One measure of the sensitivity of the amount of goodwill impairment charges to key assumptions is the amount by which each reporting unit “passed” (fair value exceeds the carrying amount) or “failed” (carrying amount exceeds the fair value) Step I of the goodwill impairment test. Based on the interim impairment test performed during the fourth quarter of 2009, a 10% decrease in the fair value estimates of the reporting units would have caused the Plate and Aerospace reporting units to fall below their respective carrying values. The Aerospace and Plate reporting unit fair values exceeded the carrying values by approximately 6% and 5%, respectively. The Company could be subject to an impairment charge in the Plate and Aerospace reporting units, which have approximately $9 million and $21 million in goodwill, respectively, as of December 31, 2009, in future periods if market conditions worsen or the economic recovery differs significantly from projections.

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 — 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. 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.

During the fourth quarter of 2009, the Company determined that the impact of the continued economic downturn indicated that the carrying amount certain assets may not be recoverable. The Company reviewed certain long-lived assets for recoverability and determined that they were not impaired nor was a revision to the remaining useful lives necessary.

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.

There were no options granted during 2007, 2008 or 2009.

Share-based compensation expense for restricted shares in the long-term incentive plans (“LTI Plans”) is recorded based on the fair value based on the market price of the Company’s common stock on the grant date. The fair value of performance units is based on the market price of the Company’s stock on the grant date adjusted to reflect that the participants in the performance units 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 LTI plans. As of December 31, 2009, the Company’s weighted average forfeiture rate is approximately 20%. The actual number of shares that vest may differ from management’s estimate. Final award vesting and distribution of performance awards granted under the LTI Plans are determined based on the Company’s actual performance versus the target goals for a three-year consecutive period as defined in each plan. Partial awards can be earned for performance less than the target goal, but in excess of minimum goals; and award distributions twice the target can be achieved if the maximum goals are met or exceeded. The performance goals are three-year cumulative net income and average return on total capital for the same three-year period. Unless covered by a specific change-in-control or severance arrangement, individuals to whom performance awards have been granted under the LTI Plans must be employed by the Company at the end of the performance period or the performance award will be forfeited, unless the termination of employment was due to death, disability or retirement. Compensation expense recognized is based on management’s expectation of future performance compared to the pre-established performance goals. If the performance goals are not expected to be met, no compensation expense is recognized and any previously recognized compensation expense is reversed. No share-based compensation expense was recorded during 2009 related to performance awards as performance goals are not expected to be met.

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. The three-tier value hierarchy the Company utilizes, 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.

Approximately 4% of the Company’s pension plan asset portfolio as of December 31, 2009 is invested in assets that fall within Level 2 and 3 of the fair value hierarchy. The Company utilizes quoted market prices to value the remaining 96% of the assets (i.e., primarily the fixed income securities which fall within Level 1 of the fair value hierarchy) in its pension plans. Fair value disclosures for debt were determined using a market approach, which estimates fair value based on companies with similar credit quality and size of debt issuances.

Recent Accounting Pronouncements

Effective December 31, 2009, the Company adopted new guidance, which is now part of Accounting Standards Codification (“ASC”) Topic 715, “Compensation — Retirement Benefits.”

Effective July 1, 2009, the Company adopted ASC Topic 105, “Generally Accepted Accounting Principles.”

Effective June 30, 2009, the Company adopted new guidance, which is now part of ASC Topic 825, “Financial Instruments,” related to the disclosure of the fair value of financial instruments.

Effective January 1, 2009, the Company adopted the following:

•

New guidance, which is now part of ASC Topic 805, “Business Combinations,” related to the accounting for business combinations.

•

New guidance, which is now part of ASC Topic 260, “Earnings per Share,” that addresses whether instruments granted in share-based payment transactions are participating securities.

See Note 1 to the consolidated financial statements for detailed information on recent accounting pronouncements.

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, 2009, if interest rates were to increase hypothetically by 100 basis points, 2009 interest expense would have increased by approximately $0.5 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,
		2009				2008				2007
Net sales		$	812,638			$	1,501,036			$	1,420,353
Costs and expenses:
Cost of materials (exclusive of depreciation and amortization)			611,352				1,123,977				1,032,355
Warehouse, processing and delivery expense			109,627				154,189				139,993
Sales, general and administrative expense			106,140				136,551				137,153
Depreciation and amortization expense			21,291				23,327				20,177
Impairment of goodwill			1,357				58,860				—
Operating (loss) income			(37,129	)			4,132				90,675
Interest expense, net			(6,440	)			(9,373	)			(12,899	)
(Loss) income before income taxes and equity in earnings of joint venture			(43,569	)			(5,241	)			77,776
Income taxes			16,264				(20,690	)			(31,294	)
(Loss) income before equity in earnings of joint venture			(27,305	)			(25,931	)			46,482
Equity in earnings of joint venture			402				8,849				5,324
Net (loss) income			(26,903	)			(17,082	)			51,806
Preferred stock dividends			—				—				(593	)
Net (loss) income applicable to common stock		$	(26,903	)		$	(17,082	)		$	51,213
Basic (loss) earnings per share		$	(1.18	)		$	(0.76	)		$	2.49
Diluted (loss) earnings per share		$	(1.18	)		$	(0.76	)		$	2.41
Dividends per common share		$	0.06			$	0.24			$	0.24

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

Consolidated Balance Sheets

		December 31,
		2009				2008
Assets
Current assets
Cash and cash equivalents		$	28,311			$	15,277
Accounts receivable, less allowances of $4,195 and $3,318			105,832				159,613
Inventories, principally on last-in first-out basis (replacement cost higher by $116,816 and $133,748)			170,960				240,673
Other current assets			5,241				12,220
Income tax receivable			18,970				640
Total current assets			329,314				428,423
Investment in joint venture			23,468				23,340
Goodwill			50,072				51,321
Intangible assets			48,575				55,742
Prepaid pension cost			19,913				26,615
Other assets			3,906				5,303
Property, plant and equipment, at cost
Land			5,192				5,184
Building			51,945				50,069
Machinery and equipment			178,545				172,500
			235,682				227,753
Less — accumulated depreciation			(152,929	)			(139,463	)
			82,753				88,290
Total assets		$	558,001			$	679,034
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	71,295			$	126,490
Accrued payroll and employee benefits			11,117				16,622
Accrued liabilities			11,302				11,307
Income taxes payable			1,848				6,451
Deferred income taxes			9,706				—
Current portion of long-term debt			7,778				10,838
Short-term debt			13,720				31,197
Total current liabilities			126,766				202,905
Long-term debt, less current portion			67,686				75,018
Deferred income taxes			32,032				38,743
Other non-current liabilities			5,281				7,535
Pension and post retirement benefit obligations			8,028				7,533
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value - 10,000 shares authorized; no shares issued and outstanding at December 31, 2009 and December 31, 2008			—				—
Common stock, $0.01 par value - 30,000 shares authorized; 23,115 shares issued and 22,906 outstanding at December 31, 2009 and 22,850 shares issued and 22,654 outstanding at December 31, 2008			230				228
Additional paid-in capital			178,129				176,653
Retained earnings			156,387				184,651
Accumulated other comprehensive loss			(13,528	)			(11,462	)
Treasury stock, at cost - 209 shares in 2009 and 197 shares in 2008			(3,010	)			(2,770	)
Total stockholders’ equity			318,208				347,300
Total liabilities and stockholders’ equity		$	558,001			$	679,034

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

Consolidated Statements of Cash Flow

		Years Ended December 31,
		2009				2008				2007
Operating activities:
Net (loss) income		$	(26,903	)		$	(17,082	)		$	51,806
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization			21,291				23,327				20,177
Amortization of deferred gain			(907	)			(1,128	)			(907	)
Loss on sale of fixed assets			2				363				1,293
Loss on sale of subsidiary			—				—				425
Impairment of goodwill and long-lived asset			1,357				58,860				589
Equity in earnings of joint venture			(402	)			(8,849	)			(5,324	)
Dividends from joint venture			485				2,955				1,545
Deferred tax provision (benefit)			11,208				(13,578	)			(13,148	)
Share-based compensation expense			1,370				454				5,018
Pension curtailment			—				(472	)			284
Excess tax deficiencies (benefits) from share-based payment arrangements			132				(2,881	)			(993	)
Increase from changes, net of acquisitions, in:
Accounts receivable			56,957				(7,736	)			14,700
Inventories			73,994				(32,418	)			(6,275	)
Other current assets			582				4,182				1,639
Other assets			(1,543	)			3,364				879
Prepaid pension costs			(913	)			(92	)			6,074
Accounts payable			(53,232	)			13,844				(11,008	)
Accrued payroll and employee benefits			968				1,889				3,085
Income taxes payable			(22,882	)			6,985				7,007
Accrued liabilities			(7,561	)			(7,900	)			1,507
Postretirement benefit obligations and other liabilities			(873	)			(2,340	)			293
Net cash from operating activities			53,130				21,747				78,666
Investing activities:
Investments and acquisitions, net of cash acquired			—				(26,857	)			(280	)
Capital expenditures			(8,749	)			(26,302	)			(20,183	)
Proceeds from sale of fixed assets			19				358				823
Insurance proceeds			1,093				—				—
Proceeds from sale of subsidiary			—				645				5,707
Net cash used in investing activities			(7,637	)			(52,156	)			(13,933	)
Financing activities:
Short-term (repayments) borrowings, net			(17,496	)			12,636				(104,690	)
Net (repayments) borrowings on long-term revolving lines of credit			(2,240	)			29,496				—
Repayments of long-term debt			(10,715	)			(6,967	)			(35,337	)
Payment of debt issuance fees			—				(524	)			(173	)
Preferred stock dividends			—				—				(345	)
Common stock dividends			(1,361	)			(5,401	)			(4,704	)
Proceeds from issuance of common stock, net			—				—				92,883
Exercise of stock options and other			—				450				552
Payment of withholding taxes from share-based incentive issuance			—				(6,000	)			—
Excess tax (benefits) deficiencies from share-based payment arrangements			(132	)			2,881				993
Net cash (used in) from financing activities			(31,944	)			26,571				(50,821	)
Effect of exchange rate changes on cash and cash equivalents			(515	)			(3,855	)			(468	)
Net increase (decrease) in cash and cash equivalents			13,034				(7,693	)			13,444
Cash and cash equivalents — beginning of year			15,277				22,970				9,526
Cash and cash equivalents — end of year		$	28,311			$	15,277			$	22,970

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

																																		Accumulated
																						Additional								Deferred				Other
		Common				Treasury				Preferred				Common				Treasury				Paid-in				Retained				Unearned				Comprehensive
		Shares				Shares				Stock				Stock				Stock				Capital				Earnings				Compensation				Income				Total
Balance at January 1, 2007			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
Comprehensive Loss:
Net loss																											(26,903	)											(26,903	)
Foreign currency translation																																			2,579				2,579
Defined benefit pension liability adjustments, net of tax benefit of $2,970																																			(4,645	)			(4,645	)
Total comprehensive loss																																							(28,969	)
Common stock dividend																											(1,361	)											(1,361	)
Other			265				(12	)							2				(240	)			1,476																1,238
Balance at December 31, 2009			23,115				(209	)		$	—			$	230			$	(3,010	)		$	178,129			$	156,387			$	—			$	(13,528	)		$	318,208