A. M. Castle & Co. - Annual Report: 2010 (Form 10-K)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2010		Commission File Number: 1-5415

A. M. CASTLE & CO.

(Exact name of registrant as specified in its charter)

Maryland		36-0879160
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

3400 North Wolf Road, Franklin Park, Illinois		60131
(Address of principal executive offices)		(Zip Code)

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

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

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

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

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

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

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

Indicate by check mark 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. o

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

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

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 $230,163,537.

The number of shares outstanding of the registrant’s common stock on March 1, 2011 was 22,979,410 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 28, 2011.		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, aerospace, heavy industrial 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 industrial equipment manufacturing, marine, office furniture and fixtures, safety products, life sciences applications, transportation and general manufacturing industries.

The Company’s primary metals service center and corporate headquarters are currently located in Franklin Park, Illinois. In January 2011, the Company executed a new lease agreement to move the Company’s corporate headquarters to Oakbrook, Illinois during the second quarter of 2011. The Company has 47 operational service centers located throughout North America (43), Europe (3) and Asia (1). The Company’s service centers hold inventory and process and distribute products to both local and export markets.

Industry and Markets

Service centers act as supply chain intermediaries between primary producers, which 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 customers by aggregating purchasing, providing warehousing and distribution services, and processing material to meet specific customer needs.

The principal markets served by the Company are highly competitive. Competition is based on service, quality, processing capabilities, inventory availability, timely delivery, ability to provide supply chain solutions and price. 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 solutions.

Recent Expansions and Consolidations

During May 2010, the Company opened a new branch in Lafayette, Louisiana to service the Company’s oil and gas customers in that region.

During the fourth quarter of 2010, the Company consolidated 3 of its facilities into nearby existing locations in order to effectively manage its operations, reduce operating costs and better serve its customers.

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. Deliveries are made principally by third party logistics providers. Common carrier delivery is used in areas not serviced directly by the Company’s fleet.

Employees

At December 31, 2010, the Company had 1,619 full-time employees. Of these, 284 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 on both metals and plastics. Although the distribution processes are similar, the customer markets, supplier bases and types of products are different. Additionally, the Company’s Chief Executive Officer, the chief operating decision-maker, reviews and manages these two businesses separately. As such, these businesses are considered reportable segments 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:

		2010				2009				2008
Metals			89	%			89	%			92	%
Plastics			11	%			11	%			8	%
			100	%			100	%			100	%

Metals Segment

In its Metals segment, the Company’s marketing strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very precise specifications. 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, a service center is 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, 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 same or 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 a wholly-owned subsidiary that operates as Total Plastics, Inc. (“TPI”), headquartered in Kalamazoo, Michigan, and its wholly-owned subsidiaries. The Plastics segment stocks and distributes a wide variety of plastics in forms that include plate, rod, tube, clear sheet, tape, gaskets and fittings. Processing activities within this segment include cut-to-length, cut-to-shape, bending and forming according to customer specifications.

The Plastics segment’s diverse customer base consists of companies in the retail (point-of-purchase), marine, office furniture and fixtures, safety products, life sciences applications, transportation and general manufacturing industries. TPI has locations throughout the upper northeast and midwest regions of the U.S. and one facility in Florida from which it services a wide variety of users of industrial plastics.

Joint Venture

The Company holds a 50% joint venture interest in Kreher Steel Co. (“Kreher”), a metals distributor of bulk quantities of alloy, special bar quality and stainless steel bars, headquartered in Melrose Park, Illinois. The Company’s equity in the earnings of this joint venture is reported separately in the Company’s consolidated statements of operations.

Access to SEC Filings

The Company makes available free of charge on or through its Web site at www.amcastle.com the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). Information on our website does not constitute part of this annual report on Form 10-K.

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 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 profitability or, in some cases, losses, either of which 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.

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

Our business requires materials that are sourced from third party suppliers. 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, or suppliers may be unwilling or unable to meet our demand due to industry supply conditions generally. 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. To the extent we have quoted prices to customers and accepted orders for products prior to purchasing necessary raw materials, or have existing contracts, we may be unable to raise the price of products to cover all or part of the increased cost of the raw materials to our customers.

In some cases the availability of raw materials requires long lead times. As a result, we may experience delays or shortages in the supply of raw materials. If unable to obtain adequate and timely deliveries of required raw materials, we may be unable to timely supply customers with sufficient quantities of products. This could cause us to lose sales, incur additional costs, or suffer harm to our reputation.

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, economic and regulatory 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 typically do not hedge our exposure to higher freight or energy prices.

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, changes in governmental policies (including those that would limit or reduce defense spending) 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.

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

A portion of our customers experience seasonal slowdowns. Historically, our revenues in the months of July, November and December 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 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, 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.

General global economic, credit and capital market conditions have had and could continue to have an adverse impact on our business, operating results and financial condition.

We are susceptible to macroeconomic downturns in the United States and abroad which has had, and in the future may continue to have, an adverse effect on demand for our products and consequently the operating results, financial condition and cash flows. Future 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.

Disruption of 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 could also affect the industries we serve and could result in reduction in sales volumes and increased credit and collection risks.

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.

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 or social 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 or major pandemic event could disrupt international shipping schedules, cause additional delays in importing our products into the United States or increase the costs required to do so. In addition, acts of crime or violence in these international markets could adversely affect our operating results. 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.

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.

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. Our business could be adversely impacted by a major disruption at this facility due to unforeseen developments occurring in or around the facility, such as:

•

damage to or inoperability of our warehouse or related systems;

•

a prolonged power or telecommunication failure;

•

a natural disaster, environmental or public health issue; 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 implementing new enterprise-wide resources planning (“ERP”) systems over a period of several years. While we have completed the conversions of substantially all of the Company’s North American locations onto the new ERP system, 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.

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

Approximately 18% of our U.S. employees are represented by unions under collective bargaining agreements, including hourly warehouse employees at our primary distribution center in Franklin Park, Illinois. As these agreements expire, there can be no assurance that we will succeed in concluding collective bargaining agreements with the union to replace those that expire. Although we believe that our labor relations have generally been satisfactory, 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.

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.

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.

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, employment actions, 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.

Increased regulation associated with climate change and greenhouse gas emissions could impose significant costs on the operations of our customers and suppliers, which could have a material adverse impact on our results of operations, financial condition and cash flows.

Climate change regulation or some form of legislation aimed at reducing greenhouse gas, or GHG, emissions is currently being considered in the United States as well as globally. As a metals and plastics distributor, our operations do not emit significant amounts of GHG. However, the manufacturing processes of many of our suppliers and customers are energy intensive and generate carbon dioxide and other GHG emissions. Any adopted future climate change and GHG regulations may impose significant costs on the operations of our customers and suppliers and indirectly impact our operations. Until the timing, scope and extent of any future regulation becomes known, we cannot predict the effect on our results of operations, financial condition and cash flows.

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 currently located in its Franklin Park, Illinois facility near Chicago, Illinois. During January 2011, the Company executed a new lease agreement to move the Company’s corporate headquarters to Oakbrook, Illinois during the second quarter of 2011. 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	(2)
Bedford Heights, Ohio			374,400	(1)
Birmingham, Alabama			76,000	(1)
Blaine, Minnesota			65,200	(1)
Charlotte, North Carolina			116,500	(1)
Edmonton, Alberta			50,553
Fairfield, Ohio			138,000	(2)
Fairless Hills, Pennsylvania			71,600	(1)
Franklin Park, Illinois			522,600	(1)
Gardena, California			117,000
Grand Prairie, Texas			78,000	(1)
Hammond, Indiana (H-A Industries)			243,000
Houston, Texas			109,100	(1)
Kansas City, Missouri			118,000
Kennesaw, Georgia			87,500
Kent, Washington			53,000
Lafayette, Louisiana			5,000	(1)
Mississauga, Ontario			60,000
Orange, Connecticut			57,389
Paramount, California			155,500
Point Claire, Quebec			38,760
Santa Cantarina, Nuevo Leon, Mexico			55,000
Saskatoon, Saskatchewan			15,000
Selkirk, Manitoba			50,000	(1)
Stockton, California			60,000
Twinsburg, Ohio			120,000
Wichita, Kansas			148,800
Worcester, Massachusetts			53,500	(1)
Europe (3)
Blackburn, England			62,139
Letchworth, England			40,000
Montoir de Bretagne, France			38,944
Asia
Shanghai, China			45,700
Sales Offices
Bilbao, Spain		(Intentionally left blank)
Fairfield, Ohio
Milwaukee, Wisconsin
Phoenix, Arizona
Singapore
Tulsa, Oklahoma
Total Metals Segment			3,301,065

		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			3,722,965

(1)		Represents owned facility.
(2)		During the fourth quarter of 2010, the Company consolidated these facilities into existing locations. Therefore, these locations were vacant at December 31, 2010.
(3)		Upon the termination of the lease for one of the Company’s facilities in England during the fourth quarter of 2010, such facility was consolidated into an existing location.

ITEM 3		— Legal Proceedings

The Company is a defendant in several lawsuits arising from the operation of its business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of 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		— [Removed and 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 7, 2011.

Name and Title		Age				Business Experience
Michael H. Goldberg President and Chief Executive Officer		57				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 stainless steel metal service center) from 2001 to 2005. From 1998 to 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		59				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 2004. In 2005, Mr. Hooks was appointed President of Castle Metals.
Scott F. Stephens Vice President, Chief Financial Officer and Treasurer		41				Mr. Stephens began his employment with the registrant in 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.
Patrick R. Anderson Vice President, Corporate Controller and Chief Accounting Officer		39				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 as a Senior Manager with Deloitte & Touche LLP (a global accounting firm) where he was employed from 1994 to 2007.
Albert J. Biemer Vice President, Corporate Supply Chain		49				Mr. Biemer began his employment with the registrant in 2001 and was appointed to the position of Vice President — Supply Chain. He was appointed Vice President, ERP Business Executive in 2007 and in 2010 was appointed as Vice President — Corporate Supply Chain. Prior to joining the registrant, he was employed as Vice President — Logistics for CSC, Ltd (a producer of carbon and alloy bar) since 2000.
Kevin B. Coughlin Vice President, Operations		60				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.

Name and Title		Age				Business Experience
Kevin P. Fitzpatrick Vice President, Human Resources		46				Mr. Fitzpatrick began his employment with the registrant in 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.
Thomas L. Garrett Vice President and President, Total Plastics, Inc.		48				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.
Kevin H. Glynn Vice President and Chief Information Officer		47				Mr. Glynn began his employment with the registrant in October 2010 as the Interim Chief Information Officer. In January 2011 he was appointed Vice President and Chief Information Officer. Prior to joining the registrant, he was employed as a Managing Principal at Laminar Group LLC (a management consulting company) from 2009 to 2010, Chief Operating Officer at IRON Solutions, Inc. (an information technology company specializing in data, software and media services for the agriculture equipment market) from 2008 to 2009 and as Senior Vice President and Chief Information Officer at CNH America, LLC (a manufacturer of agricultural and construction equipment) from 2006 to 2007.
G. Nicholas Jones Vice President and President, Castle Metals Oil & Gas		43				Mr. Jones began his employment with the registrant in December 2010 and was appointed to the position of Vice President, President Castle Metals Oil & Gas. Prior to beginning employment with the registrant, he was Vice President and GM — Eastern Hemisphere for Energy Alloys LLC (a global supplier of oilfield metals, services and solutions) since 2004.
Robert J. Perna Vice President, General Counsel and Secretary		47				Mr. Perna began his employment with the registrant in 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) since 2001.
Blain A. Tiffany Vice President and President, Castle Metals Aerospace		52				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 2009 Mr. Tiffany was elected to the Position of Vice President of the registrant and President of Castle Metals Aerospace.

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, 2011 there were approximately 1,081 shareholders of record. The Company used cash of $1.4 million to pay cash dividends of $0.06 per share on its common stock in 2009. 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. No cash dividends were paid on the Company’s common stock in 2010. 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 2010.

Directors of the Company who are not employees may elect to defer receipt of up to 100% of their cash retainer. 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 1,803 shares was deferred as payment for the 2010 board compensation. In each case, the shares were acquired at prices ranging from $12.75 to $17.14 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:

		2010								2009
		Low				High				Low				High
First Quarter		$	9.55			$	14.19			$	5.29			$	13.09
Second Quarter		$	12.17			$	19.29			$	8.25			$	12.87
Third Quarter		$	12.66			$	16.09			$	9.45			$	13.48
Fourth Quarter		$	13.11			$	19.20			$	8.74			$	14.41

The following graph compares the cumulative total stockholder return on our common stock for the five-year period ended December 31, 2010, with the cumulative total return of the Standard and Poor’s 500 Index and to a peer group index. The comparison in the graph assumes the investment of $100 on December 31, 2005. Cumulative total stockholder return means share price increases or decreases plus dividends paid, with the dividends reinvested, and reflect market capitalization weighting. The graph does not forecast future performance of our common stock. The Company moved to a new peer group index during 2010 in conjunction with the establishment of a relative total shareholder return performance measure under the Company’s long term compensation plan. The Company believes this new peer group provides a more meaningful comparison of our stock performance. The new peer group index is made up of companies in the metals industry or in the industrial products distribution business, although not all of the companies included in the new peer group index participate in all of the lines of business in which the Company is engaged and some of the companies included in the peer group index also engage in lines of business in which the Company does not participate. Additionally, the market capitalizations of many of the companies in the peer group are quite different from that of the Company.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among A.M. Castle & Co., the S&P 500 Index
and Two Peer Group Index

*		$100 invested on 12/31/05 in stock or index, including reinvestment of dividends.
		Fiscal year ending December 31.
		Copyright© 2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

		12/05				12/06				12/07				12/08				12/09				12/10
A. M. Castle & Co.		$	100.00			$	117.43			$	126.51			$	51.01			$	64.90			$	87.28
S&P 500			100.00				115.80				122.16				76.96				97.33				111.99
Old Peer Group Index (a)			100.00				125.21				173.86				68.53				145.09				168.58
Current Peer Group Index (b)			100.00				145.48				188.57				97.05				131.63				160.08

(a)		The Old Peer Group Index consists of Olympic Steel, Inc. and Reliance Steel & Aluminum Co.
(b)		The Current Peer Group Index consists of the following companies: AEP Industries Inc.; AK Steel Holding Corp.; Allegheny Technologies Inc.; Amcol International Corp.; Applied Industrial Technologies Inc.; Carpenter Technology Corp.; Cliffs Natural Resources Inc.; Commercial Metals Company; Fastenal Company; Gibraltar Industries Inc.; Haynes International Inc.; Kaman Corp.; Lawson Products Inc.; MSC Industrial Direct Company Inc.; Nucor Corp.; Olin Corp.; Olympic Steel, Inc.; Quanex Building Products Corp.; Reliance Steel & Aluminum Co.; RTI International Metals Inc.; Schnitzer Steel Industries Inc.; Steel Dynamics Inc.; Stillwater Mining Company; Texas Industries Inc.; United States Steel Corp.; and Worthington Industries Inc.

ITEM 6		— Selected Financial Data

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

(dollars in millions, except per share data)		2010				2009				2008				2007				2006
For the year ended December 31:
Net sales		$	943.7			$	812.6			$	1,501.0			$	1,420.4			$	1,177.6
Net (loss) income from continuing operations			(5.6	)			(26.9	)			(17.1	)			51.8				55.1
Basic (loss) earnings per common share from continuing operations			(0.25	)			(1.18	)			(0.76	)			2.49				2.95
Diluted (loss) earnings per common share from continuing operations			(0.25	)			(1.18	)			(0.76	)			2.41				2.89
Cash dividends declared per common share			—				0.06				0.24				0.24				0.24
As of December 31:
Total assets			529.4				558.0				679.0				677.0				655.1
Long-term debt, less current portion			61.1				67.7				75.0				60.7				90.1
Total debt			69.1				89.2				117.1				86.5				226.1
Total stockholders’ equity			313.5				318.2				347.3				385.1				215.9

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 2010, the following significant events occurred which impacted the Company’s operations and financial results:

	•		Demand for the Company’s products increased in light of improvements in the overall economy resulting in a 16.1% increase in sales over 2009.
	•		Successful management of working capital principally through reducing inventory and debt levels by approximately $40.0 million and $20.0 million, respectively, from 2009 to 2010.
	•		Reduction in average Days’ Sales in Inventories (“DSI”) of approximately 46 days from 2009 to 2010.
	•		Consolidation of 3 of the Company’s facilities into existing locations in order to effectively manage operations, reduce operating costs and better serve customers.

Recent Market and Pricing Trends

The Company experienced increased demand from its customer base during 2010 in both the Metals and Plastics segments, reflecting the improvement in the overall global economy compared to 2009. Industry data indicates that U.S. service center steel and aluminum shipments were up between 20% and 26% during 2010 compared to 2009 levels. Due to the late-cycle nature of the Company’s business, results typically lag the general economic cycle by twelve months. Key end-use markets that experienced significant increases in demand in the Company’s Metals segment include oil and gas, general equipment and heavy industrial equipment. The Plastics segment experienced increased demand across its primary end-use markets including office furniture, semiconductor, safety products, life sciences applications and automotive compared to 2009.

Pricing across the majority of the Company’s markets strengthened throughout the year, albeit with the usual volatility as a result of fluctuating commodity costs. The combination of factors above positively impacted the Company’s operating results during 2010.

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 directly impacted.

•

If surcharges are not passed through to the customer or are passed through without a mark-up, the Company’s profitability will be adversely impacted.

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 2008 through the fourth quarter of 2010. 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.

YEAR		Qtr 1				Qtr 2				Qtr 3				Qtr 4
2008			49.2				49.5				47.8				36.1
2009			35.9				42.6				51.5				54.6
2010			58.2				58.8				55.4				56.8

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.

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, bad debt expense, 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.

2010 Results Compared to 2009

Consolidated results by business segment are summarized in the following table for years 2010 and 2009.

Operating Results by Segment

		Year Ended December 31,								Fav / (Unfav)
		2010				2009				$ Change				% Change
Net Sales
Metals		$	841.1			$	726.2			$	114.9				15.8	%
Plastics			102.6				86.4				16.2				18.8	%
Total Net Sales		$	943.7			$	812.6			$	131.1				16.1	%
Cost of Materials
Metals		$	631.1			$	551.9			$	(79.2	)			(14.4	)%
% of Metals Sales			75.0	%			76.0	%
Plastics			69.8				59.4				(10.4	)			(17.5	)%
% of Plastics Sales			68.0	%			68.8	%
Total Cost of Materials		$	700.9			$	611.3			$	(89.6	)			(14.7	)%
% of Total Sales			74.3	%			75.2	%
Operating Costs and Expenses
Metals		$	215.5			$	206.4			$	(9.1	)			(4.4	)%
Plastics			29.3				26.7				(2.6	)			(9.7	)%
Other			7.4				5.3				(2.1	)			(39.6	)%
Total Operating Costs & Expenses		$	252.2			$	238.4			$	(13.8	)			(5.8	)%
% of Total Sales			26.7	%			29.3	%
Operating (Loss) Income
Metals		$	(5.5	)		$	(32.1	)		$	26.6				82.9	%
% of Metals Sales			(0.7	)%			(4.4	)%
Plastics			3.6				0.3				3.3				1100	%
% of Plastics Sales			3.5	%			0.3	%
Other			(7.4	)			(5.3	)			(2.1	)			(39.6	)%
Total Operating (Loss)		$	(9.3	)		$	(37.1	)		$	27.8				74.9	%
% of Total Sales			(1.0	)%			(4.6	)%

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

Net Sales:

Consolidated net sales were $943.7 million in 2010, an increase of $131.1 million, or 16.1%, versus 2009. Metals segment net sales during 2010 of $841.1 million were $114.9 million, or 15.8%, higher than 2009. Higher net sales were primarily the result of higher shipping volumes. Average tons sold per day increased 14.8% compared to the prior year. The increase in demand experienced in 2010 was driven primarily by alloy bar, carbon bar, SBQ bar and tubing products. Key end-use markets that experienced increased demand in 2010 compared to 2009 include oil and gas, general equipment and heavy industrial equipment.

Plastics segment net sales during 2010 of $102.6 million were $16.2 million, or 18.8%, higher than 2009 due to higher sales volume. The Plastics business also experienced increased sales volume during 2010 reflecting strength in the office furniture and semiconductor end-use markets compared to 2009.

Cost of Materials:

Cost of materials (exclusive of depreciation and amortization) were $700.9 million, an increase of $89.6 million, or 14.7%, compared to 2009. Material costs for the Metals segment were $631.1 million or 75.0% as a percent of net sales compared to $551.9 million or 76.0% as a percent of net sales in 2009. The demand environment in 2010 was better than 2009, reflecting the recovery in the global economic environment in 2010. The stronger demand experienced in 2010 provided an improved pricing environment compared to 2009. The Metals segment recorded LIFO expense of $7.7 million, which resulted in higher cost of materials in 2010, compared to a credit of $14.4 million, which resulted in lower cost of materials in 2009.

Material costs for the Plastics segment were 68.0% as a percent of net sales in 2010 as compared to 68.8% for the same period last year. The stronger demand experienced in 2010 provided an improved pricing environment compared to 2009.

During 2010 and 2009, a reduction in inventories resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior years. On a consolidated basis, cost of materials for 2010 and 2009 were lower by $12.5 million and $5.6 million, respectively, as a result of the liquidations.

Operating Expenses and Operating (Loss) Income:

Operating costs and expenses increased $13.8 million, or 5.8%, compared to last year. Operating costs and expenses for 2010 were $252.2 million, or 26.7% as a percent of net sales, compared to $238.4 million, or 29.3% as a percent of net sales last year. Operating costs and expenses included facility consolidation charges of $2.4 million for 2010 and goodwill impairment charges of $1.4 million during 2009.

In response to the declining demand for its products resulting from continued challenges in the global economy and the metals and plastics markets, the Company implemented numerous initiatives during 2009 to align its cost structure with activity levels. The cost reduction actions taken in 2009 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) matching contributions and executive salary reductions of at least 10 percent. Full workweeks and 401(k) matching contributions were reinstated in January and April 2010, respectively, resulting in overall increases in payroll related costs in 2010. Other factors that contributed to increased payroll related costs in 2010 compared to 2009 included merit increases and headcount increases, as well as higher incentive compensation earned in 2010.

The $13.8 million increase in operating expenses in 2010 compared to 2009 primarily relates to the following:

•

Warehouse, processing and delivery costs increased by $13.7 million of which $2.1 million is the result of higher payroll related expenses and facility consolidation charges contributed a $2.4 million increase. The balance of the cost increase is attributed to higher sales volumes as average tons sold per day increased 14.8% compared to the prior year;

•

Sales, general and administrative costs increased by $2.1 million. The increase is primarily comprised of $3.7 million of higher payroll related expenses, offset by a decrease of $1.6 million associated with improved customer credit experience in 2010 compared to the prior year; and

•

Depreciation and amortization and goodwill impairment charges decreased $0.6 million and $1.4 million, respectively.

Consolidated operating loss for 2010 was $9.3 million compared to operating loss of $37.1 million in 2009.

Other Income and Expense, Income Taxes and Net Income:

Interest expense was $5.0 million in 2010, a decrease of $1.5 million versus 2009 as a result of reduced borrowings.

The Company recorded a tax benefit of $3.1 million and $16.3 million during 2010 and 2009, respectively. The effective tax rate for 2010 and 2009 was 21.7% and 37.3%, respectively. The effective tax rate, excluding goodwill impairment charges for 2009, was 38.5%. Higher tax on joint venture income was offset by the rate differential on foreign income (loss), resulting in a decline in the effective tax rate compared to 2009.

Equity in earnings of the Company’s joint venture was $5.6 million in 2010 compared to $0.4 million in 2009. The increase is a result of higher demand in virtually all of the joint venture’s end-use markets, most notably the automotive and energy sectors, and higher pricing compared to last year.

Consolidated net loss for 2010 was $5.6 million, or $0.25 per diluted share, versus $26.9 million, or $1.18 per diluted share, for 2009.

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.

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.

During 2010 and 2009, the Company focused on reducing working capital, primarily inventories, resulting in net cash flow from operations of $34.4 million and $53.1 million, respectively.

During 2010, net sales exceeded cash receipts from customers. The resulting increase in receivables generated a cash outflow of $22.5 million compared to a $57.0 million cash inflow for 2009. Net sales increased 16.1% from 2009. Average receivable days outstanding was 49.9 days for 2010 compared to 54.8 days for 2009, reflecting faster collections.

During 2010, sales of inventory exceeded inventory purchases. The resulting reduction in inventories generated a cash inflow of $39.7 million compared to a $74.0 million cash inflow for 2009. Average DSI was 142.9 days for 2010 versus 189.3 days for 2009.

During 2010, cash paid for inventories and other goods and services exceeded purchases. The resulting decrease in accounts payable and accrued liabilities generated a cash outflow of $0.3 million compared to $60.8 million cash outflow in 2009.

The Company received its 2009 federal income tax refund of approximately $6.3 million during January 2011.

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, 2010, 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, 2010				December 31, 2010				December 31, 2010
U.S. Revolver A		$	—			$	72.7				2.78	%
U.S. Revolver B			25.7				24.3				1.55	%
Canadian facility			—				9.8				0.21	%

As of December 31, 2010, the Company had no short-term debt outstanding under its revolving credit facilities.

Management believes the Company will be able to generate sufficient cash from operations and planned working capital improvements to fund its ongoing capital expenditure programs and meet its debt obligations for at least the next twelve months. In addition, the Company has available borrowing capacity, as discussed above.

As of December 31, 2010 the Company remained in compliance with the covenants of its credit agreements, which require it to maintain certain funded debt-to-capital and working capital-to-debt ratios, and a minimum adjusted consolidated net worth, as defined in the Company’s credit agreements and outlined in the table below:

		Requirement per				Actual at
Covenant Description		Credit Agreement				December 31, 2010
Funded debt-to-capital ratio		less than 0.55					0.15
Working capital-to-debt ratio		greater than 1.0					4.26
Minimum adjusted consolidated net worth		$	261.6			$	325.5

As of December 31, 2010, the Company had $2.9 million of irrevocable letters of credit outstanding, which primarily consisted of $2.2 million for compliance with the insurance reserve requirements of its workers’ compensation insurance carriers.

Capital Expenditures

Capital expenditures for 2010 were $7.6 million compared to $8.7 million in 2009. The expenditures during 2010 were comprised of approximately $2.6 million of ERP and other information technology enhancements, with the balance resulting from normal equipment upgrades throughout the year. Management believes that capital expenditures will approximate $14 million in 2011.

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, 2010, 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)		$	68.5			$	7.6			$	42.3			$	18.6			$	—
Interest payments on debt obligations (a)			11.2				3.6				5.7				1.9				—
Capital lease obligations			0.6				0.4				0.2				—				—
Operating lease obligations			71.1				11.9				20.7				18.1				20.4
Purchase obligations (b)			329.6				302.2				27.4				—				—
Other (c)			4.9				4.1				0.8				—				—
Total		$	485.9			$	329.8			$	97.1			$	38.6			$	20.4

a)		Interest payments on debt obligations represent interest on all Company debt outstanding as of December 31, 2010. The interest payment amounts related to the variable rate component of the Company’s debt assume that interest will be paid at the rates prevailing at December 31, 2010. Future interest rates may change, and therefore, actual interest payments could differ from those disclosed in the table above.
b)		Purchase obligations consist of raw material purchases made in the normal course of business. The Company has contracts to purchase minimum quantities of material with certain suppliers. For each contractual purchase obligation, the Company generally has a purchase agreement from its customer for the same amount of material over the same time period.
c)		“Other” is comprised of i) deferred revenues that represent commitments to deliver products, ii) obligations related to recognizing and measuring tax positions taken or expected to be taken in a tax return that directly or indirectly affect amounts reported in financial statements and iii) contingent purchase price payable related to Metals U.K. acquisition which was paid in January 2011 based on the achievement of performance targets related to the three year period ended December 31, 2010. The uncertain tax positions included in the Company’s obligations are related to temporary differences and uncertain tax positions where the Company anticipates a high probability of settlement within a given timeframe. The years for which the temporary differences related to the uncertain tax positions will reverse have been estimated in scheduling the obligations within the table.

The table and corresponding footnotes above do not include $10.8 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 $26.8 million of deferred income taxes and the deferred gain on the sale of certain assets, resulting 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, 2010, the Company does not anticipate making significant cash contributions to the pension plans in 2011.

The investment target portfolio allocation for the Company-sponsored pension plans and supplemental pension plan 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 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, 2010, the Company had $2.9 million of irrevocable letters of credit outstanding which primarily consisted of $2.2 million for compliance with the insurance reserve requirements of its workers’ compensation insurance carriers.

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 — Approximately eighty percent of the Company’s inventories are valued using the last-in, first-out inventory costing 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 costing 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 excess and obsolete inventory and physical inventory losses. The excess and obsolete inventory allowance is determined based on specific identification of material, adjusted for expected scrap value to be received. The allowance for physical inventory losses is determined based on historical physical inventory experience. The Company’s operating results could be impacted if scrap value received or physical inventory experience 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 permanently 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, 2010. As of December 31, 2010, 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 $0.7 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 used for determining the Company’s projected benefit obligation for retirement plans were 5.25% and 5.75% at December 31, 2010 and 2009.

The Company’s pension plan asset portfolio as of December 31, 2010 is primarily invested in fixed income securities, which generally fall within Level 2 of the fair value hierarchy. Assets in the Company’s pension plans have earned approximately 12% since inception in 1979. The target investment asset allocation for the pension plans’ funds focuses primarily on corporate fixed income securities that match the overall duration and term of the Company’s pension liability structure. As of December 31, 2010 and 2009, the funding surplus was approximately 10% and 12%, respectively. The Company estimates that a 0.5% change in its discount rate would change its 2011 net periodic pension cost by less than $1.0 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. The Company assesses, at least quarterly, whether any triggering events have occurred.

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 and strategic planning 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 January 1, 2010. 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 impairment test performed on January 1, 2010, 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, 2010, 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.

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 when granted. Stock options have an exercise price equal to the market price of the Company’s stock on the grant date (options granted prior to 2010) or the average closing price of the Company’s stock for the ten trading days preceding the grant date (options granted in 2010) and have a contractual life of eight to ten years. Options and restricted stock generally vest in one to five years for executives and employees and one year for directors. The Company may either issue shares from treasury or new shares upon share option exercise.

Stock options are valued based on the market price of the Company’s stock on the grant date, using a Black-Scholes option-pricing model. The expense associated with stock option awards is recorded on a straight-line basis over the vesting period, net of estimated forfeitures.

The grant date fair value for stock options granted during 2010 was estimated using the Black-Scholes option-pricing model with the following assumptions:

		2010
Expected volatility			58.5	%
Risk-free interest rate			2.3	%
Expected life (in years)			5.5
Expected dividend yield			1.2	%

Share-based compensation expense for non-vested shares and restricted share units in the long-term incentive plans (“LTI Plans”) and long-term compensation plan (“LTC Plan”) is established using the market price of the Company’s common stock on the date of grant.

The fair value of performance units granted under the LTI Plans is based on the market price of the Company’s stock on the date of grant adjusted to reflect the fact that the participants do not participate in dividends during the vesting period. The grant date fair value of performance shares awarded under the LTC Plan was estimated using a Monte Carlo simulation with the following assumptions as the potential award is dependent upon a market condition:

		2010
Expected volatility			61.6	%
Risk-free interest rate			1.45	%
Expected life (in years)			2.8
Expected dividend yield			—

Management estimates the probable number of shares which will ultimately vest when calculating the share-based compensation expense for the LTI and LTC Plans. As of December 31, 2010, the Company’s weighted average forfeiture rate is approximately 21%. 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 and LTC 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 above the target can be achieved if the maximum goals are met or exceeded.

The performance goals for the 2008 and 2009 LTI Plans are three-year cumulative net income and average return on total capital for the same three-year period. If the performance goals are not expected to be met for the LTI Plans, no compensation expense is recognized and any previously recognized compensation expense is reversed. No share-based compensation expense was recorded during 2010 related to performance awards under the LTI Plans as performance goals are not expected to be met.

Under the 2010 LTC Plan, the potential award for the performance shares granted is dependent on the Company’s relative total shareholder return (“RTSR”), which represents a market condition. RTSR is measured against a group of peer companies either in the metals industry or in the industrial products distribution industry. Compensation expense for performance awards containing a market condition is recognized regardless of whether the market condition is achieved to the extent the requisite service period condition is met.

Unless covered by a specific change-in-control or severance arrangement, participants to whom restricted stock units, performance shares and other non-vested shares have been granted must be employed by the Company on the vesting date or at the end of the performance period, respectively, or the award will be forfeited.

Fair Value of Financial Instruments — 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.

The fair value of cash, accounts receivable and accounts payable approximate their carrying values. The fair value of cash equivalents are determined using the fair value hierarchy described above. Cash equivalents consisting of money market funds are valued based on quoted prices in active markets and as a result are classified as Level 1. The Company’s pension plan asset portfolio as of December 31, 2010 is primarily invested in fixed income securities, which generally fall within Level 2 of the fair value hierarchy. Fair value disclosures for fixed rate debt are 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 January 1, 2010, the Company adopted new consolidation guidance that applies to variable interest entities.

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, 2010, if interest rates were to increase hypothetically by 100 basis points, 2010 interest expense would have increased by approximately $0.3 million.

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

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, 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,
		2010				2009				2008
Net sales		$	943,706			$	812,638			$	1,501,036
Costs and expenses:
Cost of materials (exclusive of depreciation and amortization)			700,854				611,352				1,123,977
Warehouse, processing and delivery expense			123,318				109,627				154,189
Sales, general and administrative expense			108,223				106,140				136,551
Depreciation and amortization expense			20,649				21,291				23,327
Impairment of goodwill			—				1,357				58,860
Operating (loss) income			(9,338	)			(37,129	)			4,132
Interest expense, net			(4,988	)			(6,440	)			(9,373	)
Loss before income taxes and equity in earnings of joint venture			(14,326	)			(43,569	)			(5,241	)
Income taxes			3,101				16,264				(20,690	)
Loss before equity in earnings of joint venture			(11,225	)			(27,305	)			(25,931	)
Equity in earnings of joint venture			5,585				402				8,849
Net loss			(5,640	)			(26,903	)			(17,082	)
Basic loss per share		$	(0.25	)		$	(1.18	)		$	(0.76	)
Diluted loss per share		$	(0.25	)		$	(1.18	)		$	(0.76	)
Dividends per common share		$	—			$	0.06			$	0.24

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

Consolidated Balance Sheets

		December 31,
		2010				2009
Assets
Current assets
Cash and cash equivalents		$	36,716			$	28,311
Accounts receivable, less allowances of $3,848 and $4,195			128,365				105,832
Inventories, principally on last-in first-out basis (replacement cost higher by $122,340 and $116,816)			130,917				170,960
Other current assets			6,832				5,241
Income tax receivable			8,192				18,970
Total current assets			311,022				329,314
Investment in joint venture			27,879				23,468
Goodwill			50,110				50,072
Intangible assets			41,427				48,575
Prepaid pension cost			18,580				19,913
Other assets			3,619				3,906
Property, plant and equipment, at cost
Land			5,195				5,192
Building			52,277				51,945
Machinery and equipment			182,178				178,545
			239,650				235,682
Less — accumulated depreciation			(162,935	)			(152,929	)
			76,715				82,753
Total assets		$	529,352			$	558,001
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	71,764			$	71,295
Accrued payroll and employee benefits			16,984				11,117
Accrued liabilities			14,336				11,302
Income taxes payable			2,357				1,848
Deferred income taxes			2,461				9,706
Current portion of long-term debt			8,012				7,778
Short-term debt			—				13,720
Total current liabilities			115,914				126,766
Long-term debt, less current portion			61,127				67,686
Deferred income taxes			26,754				32,032
Other non-current liabilities			3,390				5,281
Pension and post retirement benefit obligations			8,708				8,028
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value - 10,000 shares authorized; no shares issued and outstanding at December 31, 2010 and December 31, 2009			—				—
Common stock, $0.01 par value - 30,000 shares authorized; 23,149 shares issued and 22,986 outstanding at December 31, 2010 and 23,115 shares issued and 22,906 outstanding at December 31, 2009			231				230
Additional paid-in capital			180,519				178,129
Retained earnings			150,747				156,387
Accumulated other comprehensive loss			(15,812	)			(13,528	)
Treasury stock, at cost - 163 shares in 2010 and 209 shares in 2009			(2,226	)			(3,010	)
Total stockholders’ equity			313,459				318,208
Total liabilities and stockholders’ equity		$	529,352			$	558,001

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

Consolidated Statements of Cash Flows

		Years Ended December 31,
		2010				2009				2008
Operating activities:
Net loss		$	(5,640	)		$	(26,903	)		$	(17,082	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization			20,649				21,291				23,327
Amortization of deferred gain			(890	)			(907	)			(1,128	)
Loss on sale of fixed assets			391				2				363
Impairment of goodwill			—				1,357				58,860
Equity in earnings of joint venture			(5,585	)			(402	)			(8,849	)
Dividends from joint venture			1,260				485				2,955
Deferred tax (benefit) provision			(11,386	)			11,208				(13,578	)
Share-based compensation expense			2,411				1,370				454
Pension curtailment			—				—				(472	)
Excess tax (benefits) deficiencies from share-based payment arrangements			(219	)			132				(2,881	)
Increase from changes, net of acquisitions, in:
Accounts receivable			(22,521	)			56,957				(7,736	)
Inventories			39,686				73,994				(32,418	)
Other current assets			(1,718	)			582				4,182
Other assets			1,084				(1,543	)			3,364
Prepaid pension costs			(1,530	)			(913	)			(92	)
Accounts payable			(1,866	)			(53,232	)			13,844
Accrued payroll and employee benefits			5,827				968				1,889
Income taxes payable			11,536				(22,882	)			6,985
Accrued liabilities			1,586				(7,561	)			(7,900	)
Postretirement benefit obligations and other liabilities			1,287				(873	)			(2,340	)
Net cash from operating activities			34,362				53,130				21,747
Investing activities:
Investments and acquisitions, net of cash acquired			—				—				(26,857	)
Capital expenditures			(7,572	)			(8,749	)			(26,302	)
Proceeds from sale of fixed assets			4				19				358
Insurance proceeds			125				1,093				—
Proceeds from sale of subsidiary			—				—				645
Net cash used in investing activities			(7,443	)			(7,637	)			(52,156	)
Financing activities:
Short-term (repayments) borrowings, net			(13,720	)			(17,496	)			12,636
Net (repayments) borrowings on long-term revolving lines of credit			2,324				(2,240	)			29,496
Repayments of long-term debt			(7,754	)			(10,715	)			(6,967	)
Payment of debt issuance fees			—				—				(524	)
Common stock dividends			—				(1,361	)			(5,401	)
Exercise of stock options and other			566				—				450
Payment of withholding taxes from share-based incentive issuance			—				—				(6,000	)
Excess tax deficiencies (benefits) from share-based payment arrangements			219				(132	)			2,881
Net cash (used in) from financing activities			(18,365	)			(31,944	)			26,571
Effect of exchange rate changes on cash and cash equivalents			(149	)			(515	)			(3,855	)
Net increase (decrease) in cash and cash equivalents			8,405				13,034				(7,693	)
Cash and cash equivalents — beginning of year			28,311				15,277				22,970
Cash and cash equivalents — end of year		$	36,716			$	28,311			$	15,277

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 Statements of Stockholders’ Equity

																														Accumulated
																						Additional								Other
		Common				Treasury				Preferred				Common				Treasury				Paid-in				Retained				Comprehensive
		Shares				Shares				Stock				Stock				Stock				Capital				Earnings				Income				Total
Balance at January 1, 2008			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
Comprehensive Loss:
Net loss																											(5,640	)							(5,640	)
Foreign currency translation																															(536	)			(536	)
Defined benefit pension liability adjustments, net of tax benefit of $1,116																															(1,748	)			(1,748	)
Total comprehensive loss																																			(7,924	)
Long-term incentive plan expense																							1,278												1,278
Other			34				46								1				784				1,112												1,897
Balance at December 31, 2010			23,149				(163	)		$	—			$	231			$	(2,226	)		$	180,519			$	150,747			$	(15,812	)		$	313,459