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 endedDecember 31, 20072008 Commission File Number:1-5415
A. M. CASTLE & CO.
 
(Exact name of registrant as specified in its charter)
   
Maryland 36-0879160
   
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer Identification No.)
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.
Yeso Noþ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yeso Noþ
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.
Yesþ Noo
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 Acceleratedaccelerated filer oAccelerated filer þ
Non-accelerated filer o		Smaller reporting company o

(Do not check if a smaller reporting company)		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.
Yeso Noþ
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter is $568,838,639.$462,553,234.
The number of shares outstanding of the registrant’s common stock on March 7, 20086, 2009 was 22,102,36722,865,212 shares.
DOCUMENTS INCORPORATED BY REFERENCE
   
Documents Incorporated by Reference Applicable Part of Form 10-K
   
Proxy Statement furnished to Stockholders in connection
with registrant’s Annual Meeting of Stockholders to be held April 23, 2009.		 Part III
 
 

 

 

Disclosure Regarding Forward-Looking Statements
Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and the Company assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “predict,” “plan,” or similar expressions. These statements are not guarantees of performance or results, and they involve risks, uncertainties, and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements, including those risk factors identified in Item 1A “Risk Factors” of this report. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
PART I
ITEM 1 —Business
In this annual report on Form 10-K, “the Company,” “we” or “our” refer to A. M. Castle & Co., a Maryland corporation, and its subsidiaries included in the consolidated financial statements, except as otherwise indicated or as the context otherwise requires.
Business and Markets
Company Overview
The Company is a specialty metals (92% of net sales) and plastics (8% of net sales) distribution company serving principally the North American market, but withcustomers on a significantly growing global presence.basis. The Company provides a broad range of product inventories as well asproducts and value-added processing and supply chain services to a wide array of customers, principally within the producer durable equipment sector of the global economy. Particular focus is placed on the aerospace and defense, oil and gas, power generation, mining, and heavy earth moving equipment manufacturing, industries as well asmarine, office furniture and fixtures, transportation and general engineering applications.manufacturing industries.
     In September 2006, the Company acquired Transtar Intermediate Holdings #2, Inc. (“Transtar”), a wholly owned subsidiary of H.I.G. Transtar Inc. Transtar is a leading supplier of high performance aluminum alloys to the aerospaceThe Company’s primary metals service center and defense industries, supporting the on-going requirements of those markets with a broad range of inventory, processing and supply chain services. As a result of the acquisition, thecorporate headquarters are located in Franklin Park, Illinois. The Company has increased its access51 service centers located throughout North America (45), Europe (5) and Asia (1). The Company’s service centers hold inventory, process and distribute products to aerospace customers and avenues to cross-sell its other products into this growth market.local geographic markets. The acquisition also provides the Company the benefits of deeper access to certain inventories and purchasing synergies, as well as provides the Company an existing platform to sell to markets in Europe and other international markets.
     The Company purchasesCompany’s metals and plastics from many producers. Satisfactory alternative sourcesservice centers are available for all inventory purchased by the Company and the business of the Company would not be adversely affected in a material way by the loss of any one supplier.
     Purchases are made in large lots and held in distribution centers until sold, usually in smaller quantities and oftenseparate operations, with some value-added processing services performed. The Company’s ability to provide quick delivery, frequently overnight, of a wide variety of specialty metals and plastic products, along with its processing capabilities, allow customers to lower their own inventory investment by reducing their need to order the large quantities required by producing mills or their need to perform additional material processing services. In connection with certain customer programs, principally in the aerospace and defense market, the Company’s sales and purchases are covered by long-term contracts and commitments.
     Approximately 90% of 2007’s consolidated net sales included materials shipped from Company stock. The materials required to fill the balance of sales were obtained from other sources, such as direct mill shipments to customers or purchases from other distributors. Thousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization. Deliveries are made principally by leased trucks. Common carrier delivery is used in areas not serviced directly by the Company’s fleet.
     The Company encounters strong competitionno facilities serving both from other metals and plastics distributorscustomers.

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Industry and from large distribution organizations, some of which have substantially greater resources.Markets
     Metal serviceService centers act as supply chain intermediaries between primary metal producers, which necessarily deal in bulk quantities of metals in order to achieve economies of scale, and end-users in a variety of industries that require specialized metal products in significantly smaller quantities.quantities and forms. Service centers also manage the differences in lead times that exist in the supply chain. While OEMs and other customers often demand delivery within hours, the lead time required by primary metal producers can be as long as several months. Metal serviceService centers also provide value to their customers by aggregating purchasing, providing warehousing and distribution services, and by processing metalsmaterial to meet specific customer needs often with little or no further modification.needs.
     According to Purchasing.com, metal servicea May 2008 article in Purchasing magazine, “service centers buy, hold, processcomprise the largest single customer group for North American mills, buying and resell about 35%reselling more than 40% of all the metals usedcarbon, alloy, stainless and specialty steels, aluminum, copper, brass and bronze, and super alloys produced in the U.S. and Canada each year. The U.S. and Canadian metals distribution industry generated $126.5record revenues of $143 billion in 2006 sales, 10% higher than2007,” reflecting 13% growth from 2006.
     The principal markets served by the $115 billionCompany are highly competitive. Competition is based on price, service, quality, processing capabilities, inventory availability, timely delivery and ability to provide supply chain solutions. The Company competes in 2005a highly fragmented industry. Competition in the various markets in which the Company participates comes from a large number of value-added metals processors and 49% higher thanservice 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 $85 billionlocal 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 2004.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.

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This process of outsourcing allows them to work with a relatively small number of intermediaries rather than many end customers. As a result, metals service centers are now providing a range of services for their customers, including metal purchasing, processing and supply chain management services. According
Recent Acquisitions and Expansions
In January 2008, the Company acquired Metals U.K. Group (“Metals U.K.”). Metals U.K. is a distributor and processor of specialty metals primarily serving the oil and gas, aerospace, petrochemical and power generation markets worldwide. Metals U.K. has distribution and processing facilities in Blackburn, England, Hoddesdon, England and Bilbao, Spain. The acquisition of Metals U.K. is expected to Purchasing.com,allow the Company to expand its global reach and service certain potential high growth industries.
     In September 2006, the Company acquired Transtar Intermediate Holdings #2, Inc. (“Transtar”), a wholly owned subsidiary of H.I.G. Transtar Inc. Transtar is a leading supplier of high performance aluminum alloys to the aerospace and defense industries, supporting those markets with a broad range of inventory, processing and supply chain services. As a result of the acquisition, the Company has increased its access to aerospace customers and avenues to cross-sell its other products into this market. The acquisition also provides the Company the benefits of deeper access to certain inventories and purchasing synergies, as of May 2006, over 360,000 North American OEMs, contractorswell as platforms to sell to markets in Europe, Asia and fabricators purchase some or all of their metal requirements from metals service centers.other international markets.
     These end usersRefer toNote 8to the consolidated financial statements for goodwill impairment discussion related to the above acquisitions.

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In January 2008, the Company obtained a business license for the opening of metal products benefita new service center in Shanghai, China. The 45,700 square foot facility became fully operational in the second quarter of 2008. The Shanghai service center provides the Company the ability to serve new customers in China, as well as existing customers, which previously received processed specialty aerospace grade metals from the inventory managementCompany’s U.S. based aerospace operations.
Procurement
The Company purchases metals and just-in-time delivery capabilitiesplastics from many producers. The Company’s operations would not be adversely affected in a material way by the loss of metalsany one supplier, as satisfactory alternative sources are available.
     The Company purchases material in large lots and stocks material at its service centers until sold, usually in smaller quantities and typically with some value-added processing services performed. The Company’s ability to provide quick delivery, frequently same-day or overnight, of a wide variety of specialty metals and plastic products, along with its processing capabilities, allows customers to lower their own inventory investment by reducing their need to order the large quantities required by producing mills or their need to perform additional material processing services. Some of the Company’s purchases are covered by long-term contracts and commitments, which enable themhave corresponding customer sales agreements.
     Orders are primarily filled with materials shipped from Company stock. The materials required to reduce inventory and labor costs andfill non-stock orders are obtained from other sources, such as direct mill shipments to decrease capital requirements. These services, which help end users optimize production,customers or purchases from other distributors. Thousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization. Deliveries are made principally by Company-leased trucks. Common carrier delivery is used in areas not generally providedserviced directly by the primary producers.Company’s fleet.
Employees
At December 31, 2007,2008, the Company had 1,9451,923 full-time employees in its operations throughout the United States, Canada, Mexico, France, andSpain, the United Kingdom.Kingdom and China. Of these, 289258 are represented by collective bargaining units, principally the United Steelworkers of America.America and Teamsters.
Business Segments
The Company distributes and performs processing on both metals and plastics. Although the distribution processes are similar, different customer markets, supplier bases and types of products exist. Additionally, our Chief Executive Officer reviews and manages these two businesses separately. As such, these businesses are considered reportable segments according to the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information” and are reported accordingly in the Company’s various public filings. Neither of the Company’s reportable segments has any unusual working capital requirements.
     In 2007, the Metals segment accounted for approximately 92% of the Company’s revenues, and its Plastics segment the remaining 8%. The Company’s customer base is well diversified and therefore, the Company does not have dependence upon any single customer, or a few customers. In the last three years, the percentages of total sales of the two segments were approximately as follows:
                        
 2007 2006 2005 2008 2007 2006
Metals  92%  90%  89%  92%  92%  90%
Plastics  8%  10%  11%  8%  8%  10%
  100%  100%  100%  100%  100%  100%
Metals Segment
In its Metals business,segment, the Company’s market strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very tight specifications.services. Core products include nickel alloys,alloy, aluminum, stainless, steelsnickel, titanium and carbon. Inventories of these products assume many forms such as plate, sheet, extrusions, round bar, hexagon bar, square and flat bars,bar, tubing and coil. Depending on the size of the facility and the nature of the markets it serves,

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distribution centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, water-jet cutting equipment, stress relieving and annealing furnaces, surface grinding equipment, cut-to-length levelers and sheet shearing equipment.
     The Company’s primary metals distribution centercustomer base is well diversified and corporate headquarters is located in Franklin Park, Illinois. This center serves metropolitan Chicago andtherefore, the Company does not have dependence upon any single customer, or a nine-state area. In addition, there are 51 distribution centers in various other cities in North America and Europe (see Item 2).
     Ourfew customers. The customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms.
     The coast-to-coastCompany’s broad network of metal service centerslocations within North America provides next-day delivery to most of the segment’s markets, and two-day delivery to virtually all of the rest.
Plastics Segment
The Company’s Plastics segment consists exclusively of Total Plastics, Inc. (“TPI”), a wholly-owned subsidiary headquartered in Kalamazoo, Michigan. This segment stocks and distributes a wide variety of plastics in forms that include plate, rod, tube, clear sheet, tape, gaskets and fittings. Processing activities within this segment include cut-to-length, cut-to-shape, bending and forming according to customer specifications.
     The Plastics segment’s diverse customer base consists of companies in the retail (point-of-

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purchase)(point-of-purchase), marine, office furniture and fixtures, transportation and general manufacturing industries. TPI has locations throughout the upper Northeast and Midwest portions of the U.S. and one facility in Florida from which it services a wide variety of users of industrial plastics.Florida.
Joint Venture
The Company holds a 50% joint venture interest in Kreher Steel Co., a Midwest metals distributor, focusing on customers whose primary need is for immediate, reliable delivery of large quantities of alloy, special bar quality and stainless bars. The Company’s equity in the earnings from this joint venture is reported separately in the Company’s consolidated statementstatements of operations.
Access to SEC Filings
The Company makes available free of charge on or through its Web site at www.amcastle.com the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). Information on our website does not constitute part of this annual report on Form 10-K.
Certifications
Certification statements by the President and CEO and the Vice President and CFO of the Company required to be filed with the SEC pursuant to Section 302 of the Sarbanes-Oxley Act are included as Exhibits 31.1 and 31.2 to this Annual Report. In addition, an annual CEO certification regarding compliance with the New York Stock Exchange’s (“NYSE”) Corporate Governance listing standards was submitted by our President and CEO to the NYSE on May 12, 2008.
ITEM 1A —Risk Factors
Our business, operations and financial condition are subject to various risks and uncertainties. Current or potential investors should carefully consider the risks and uncertainties described below, together with all other information in this annual report on Form 10-K and other documents filed with the SEC, before making any investment decisions with respect to the Company’s securities.
Our future operating results depend on a number of factors beyond our control, such as the prices forof 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, not in our control, including general economic conditions (both domestic and international), competition, production levels, import duties and other trade restrictions and currency fluctuations. To the extent metals prices decline, we would generally expect lower sales and possibly

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lower net income, depending on the timing of the price changes. To the extent we are not able to pass on to our customers any increases in our raw materials prices, our results of operations may be adversely affected. In addition, because we maintain substantial inventories of metals in order to meet the just-in-time delivery requirements of our customers, a reduction in our selling prices could result in lower profit margins or, in some cases, losses, either of which would reduce our profitability.
We service industries that are highly cyclical, and any downturn in our customers’ industries could reduce our revenue and profitability.
Many of our products are sold to customers in industries that experience significant fluctuations in demand based on economic conditions, energy prices, consumer demand and other factors beyond our control. As a result of this volatility in the industries we serve, when one or more of our customers’ industries experiences a decline, we may have difficulty increasing or maintaining our level of sales or profitability if we are not able to divert sales of our products to customers in other industries. We have made a strategic decision to focus sales resources on certain industries, specifically the aerospace and oil and gas industries. As a result, there is some risk that adverse business conditions in these industries could be detrimental to our sales. We are also particularly sensitive to market trends in the manufacturing sector of the North American economy.
We may not be able to realize the benefits we anticipate from our acquisitions.
We may not be able to realize the benefits we anticipate from our acquisitions. Achieving those benefits depends on the timely, efficient and successful execution of a number of post-acquisition events, including our integration of the acquired businesses. Factors that could affect our ability to achieve these benefits include:
difficulties in integrating and managing personnel, financial reporting and other systems used by the acquired businesses;

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•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 failure of the acquired businesses to perform in accordance with our expectations;
failure to achieve anticipated synergies between our business units and the acquired businesses; and
the loss of the acquired businesses’ customers.
The presence of any of the above factors individually or in combination could result in future impairment charges against the assets of the acquired business.businesses.
If the acquired businesses do not operate as we anticipate, it could adversely affect our business, financial condition and results of operations. As a result, there can be no assurance that the acquisitions will be successful or will not, in fact, adversely affect our business.
A substantial portion of our sales are concentrated in the aerospace and oil and gas industries, and thus our financial performance is highly dependent on the conditions of those industries.
A substantial portion of our sales are concentrated with customers in the aerospace and oil and gas industries. The aerospace and oil and gas industries tend to be highly cyclical, and capital spending by airlines, aircraft manufacturers, governmental agencies and defense contractors may be influenced by a variety of factors including current and predicted traffic levels, aircraft fuel pricing, labor issues, competition, the retirement of older aircraft, regulatory changes, the issuance of contracts, terrorism and related safety concerns, general economic conditions, worldwide airline profits and backlog levels. Additionally, a significant amount of work that we perform under contract in these industries tends to be for a few large customers. A reduction in capital spending in the aerospace or defense industries could have a significant effect on the demand for our products, which could have an adverse effect on our financial performance or results of operations.
We are vulnerable to interest rate fluctuations on our indebtedness, which could hurt our operating results.
We are exposed to various interest rate risks that arise in the normal course of business. We finance our operations with fixed and variable rate borrowings. Market risk arises from changes in variable interest rates. Under our revolving credit facility, our interest rate on borrowings is subject to changes based on fluctuations in the LIBOR and prime rates of interest.
The current global economic crisis has had and may continue to have an adverse impact on our business, results of operations and financial condition.
The potential effects of the current global economic and financial market crises are difficult to forecast and mitigate. There can be no assurance as to the timing or nature of any recovery. Many of our customers and the industries we serve have been significantly impacted by the deteriorating economic conditions. As a result, the current global economic downturn has had and may continue to have an adverse impact on our business, results of operations and our financial condition. Continued negative economic conditions, as well as a slow recovery period, could lead to reduced demand for our products, increased price competition for our products, reduced gross margins, increased risk of excess and obsolete inventories and higher operating costs as a percentage of revenue. Credit risk

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associated with our customers may also increase.
Due to the current credit crisis, it has been increasingly difficult for businesses to secure financing. These conditions could persist for a prolonged period of time or worsen in the future. Although we do not anticipate needing additional capital in the near term, our ability to access the capital markets may be restricted at a time when we would like, or need, to access those markets. The resulting lack of available credit could have a negative impact on our liquidity. In addition, due to the current volatile state of the credit markets, there is a risk that our lenders could fail or refuse to honor their debt commitments under our existing credit facilities. While this would be highly unusual, if our lenders fail to honor their legal commitments under our credit facilities, it could be difficult in the current environment to replace our credit agreements on similar terms. Although we believe that our operating cash flow, access to capital markets and existing credit facilities will give us the ability to satisfy our anticipated liquidity needs in the near term, the failure of any of the lenders to honor their commitments under our credit facilities may impact our ability to finance our operations.
Disruptions in the supply of raw materials could adversely affect our ability to meet our customer demands and our revenues and profitability.
The Company generally does not enter into long-term contracts to purchase metals. Accordingly, ifIf for any reason our primary suppliers of metals should curtail or discontinue their delivery of raw materials to us at competitive prices and in a timely manner, our business could suffer. Unforeseen disruptions in our supply bases could materially impact our ability to deliver products to customers. The number of available suppliers could be reduced by factors such as industry consolidation and bankruptcies affecting steel, metals and plastics producers. If we are unable to obtain sufficient amounts of raw materials from our traditional suppliers, we may not be able to obtain such raw materials from alternative sources at competitive prices to meet our delivery schedules, which could have an adverse impact on our revenues and profitability.
Our industry is highly competitive, which may force us to lower our prices and may have an adverse effect on net income.
The principal markets that we serve are highly competitive. Competition is based principally on price, service, quality, processing capabilities, inventory availability and timely delivery. We compete in a highly fragmented industry. Competition in the various markets in which we participate comes from a large number of value-added metals processors and service centers on a regional and local basis, some of which have greater financial resources than we do and some of which have more established brand names in the local markets we serve. We also compete to a lesser extent with primary metals producers who typically sell to very large customers requiring shipments of large volumes of metal. Increased competition could force us to lower our prices or to offer increased services at a higher cost to us, which could reduce our operating profit and net income.

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Our business could be adversely affected by a disruption to our primary distribution hub.
Our largest facility, in Franklin Park, Illinois, serves as a primary distribution center that ships product to our other facilities as well as external customers. This same facility also serves as our headquarters and houses our primary information systems. Our business could be adversely impacted by a major disruption at this facility in the event of:
damage to or inoperability of our warehouse or related systems;
a prolonged power or telecommunication failure;
a natural disaster such as fire, tornado or flood;
a work stoppage; or
an airplane crash or act of war or terrorism on-site or nearby as the facility is located within seven miles of O’Hare International Airport (a major U.S. airport) and lies below certain take-off and landing flight patterns.
•damage to or inoperability of our warehouse or related systems;
•a prolonged power or telecommunication failure;
•a natural disaster such as fire, tornado or flood;
•a work stoppage; or
•an airplane crash or act of war or terrorism on-site or nearby as the facility is located within seven miles of O’Hare International Airport (a major U.S. airport) and lies below certain take-off and landing flight patterns.
We have data storage and retrieval procedures that include off-site system capabilities. However, a prolonged disruption of the services and capabilities of our Franklin Park facility and operation could adversely impact our financial performance.

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A disruption in our information technology systems could impact our ability to conduct business and/or report our financial performance.
We are in the process of implementing new ERP systems and any significant disruption relating to our current or new information technology systems may have an adverse affect on the Company’s ability to conduct business in its normal course or report its financial performance in a timely manner.
We operate in international markets, which expose us to a number of risks.
We serve and operate in certain international markets, which expose us to political, economic and currency related risks. We operate in Canada, Mexico, France, and the United Kingdom, with limited operations in Singapore.Spain, Singapore and China. An act of war or terrorism could disrupt international shipping schedules, cause additional delays in importing our products into the United States or increase the costs required to do so. Fluctuations in the value of the U.S. dollar versus foreign currencies could reduce the value of these assets as reported in our financial statements, which could reduce our stockholders’ equity. If we do not adequately anticipate and respond to these risks and the other risks inherent in international operations, it could have a material adverse effect on our operating results.
A portion of our workforce is represented by collective bargaining units, which may lead to work stoppages.
289Approximately 258 of our employees are unionized, which represented 14.9%13% of our employees at December 31, 2007,2008, including those employed at our primary distribution center in Franklin Park.Park, Illinois. We cannot predict how stable our relationships with these labor organizations will be or whether we will be able to meet union requirements without impacting our financial condition. The unions may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our union relationships could negatively impact the timely processing and shipment of our products, which could strain relationships with customers and cause a loss of revenues that would adversely affect our results of operations.
We could incur substantial costs in order to comply with, or to address any violations under, environmental and employee health and safety laws, which could significantly increase our operating expenses and reduce our operating income.
Our operations are subject to various environmental statutes and regulations, including laws and regulations governing materials we use. In addition, certain of our operations are subject to international, federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. Our operations are also subject to various employee safety and health laws and regulations, including those concerning occupational injury and illness, employee exposure to hazardous materials and employee complaints. Certain of our facilities are located in industrial areas, have a history of heavy industrial use and have been in operation for many years and, over time, we and other predecessor operators of these facilities have generated, used, handled and

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disposed of hazardous and other regulated wastes. Currently unknown cleanup obligations at these facilities, or at off-site locations at which materials from our operations were disposed, could result in future expenditures that cannot be currently quantified but which could have an adverse effect on our financial position, results of operations or cash flows.
Antidumping and other duties could be imposed on us, our suppliers and our products.
The imposition of an antidumping or other increased duty on any products that we import could have an adverse effect on our financial condition. For example, under United States law, an antidumping duty may be imposed on any imports if two conditions are met. First, the Department of Commerce must decide that the imports are being sold in the United States at less than fair value. Second, the International Trade Commission (the “ITC”), must determine that a United States industry is materially injured or threatened with material injury by reason of the imports. The ITC’s determination of injury involves a two-pronged inquiry: first, whether the industry is materially injured and second, whether the dumping, and not other factors, caused the injury. The ITC is required to analyze the volume of imports, the effect of imports on United States prices for like merchandise, and the effects the imports have on United States producers of like products, taking into account many factors, including lost sales, market share, profits, productivity, return on investment and utilization of production capacity.

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Increases in energy prices would increase our operating costs and we may be unable to pass these increases on to our customers in the form of higher prices, which may reduce our profitability.
We use energy to process and transport our products. Our operating costs increase if energy costs, including electricity, gasoline and natural gas, rise. During periods of higher energy costs, we may not be able to recover our operating cost increases through price increases without reducing demand for our products. In addition, we do not hedge our exposure to higher prices via energy futures contracts. Increases in energy prices will increase our operating costs and may reduce our profitability if we are unable to pass the increases on to our customers.
We may not be able to retain or expand our customer base if the United States manufacturing industry continues to relocate production operations outside the U.S.internationally.
Our customer base primarily includes manufacturing and industrial firms in the United States, some of which are, or have considered, relocating production operations outside the United States or outsourcing particular functions to locations outside the United States. Some customers have closed their businesses as they were unable to compete successfully with foreign competitors. Although we have facilities in Canada, Mexico, France, Spain, the United Kingdom, Singapore and Singapore,China, the majority of our facilities are located in the United States. To the extent our customers close or relocate operations to locations where we do not have a presence, we could lose all or a portion of their business.
Any prolonged disruption of our processing centers could adversely affect our business.
We have dedicated processing centers that permit us to produce standardized products in large volumes while maintaining low operating costs. Any prolonged disruption in the operations of any of our facilities, whether due to labor or technical difficulties, destruction or damage to any of the facilities or otherwise, could adversely affect our business and results of operations.
Our operating results are subject to the seasonal nature of our customers’ businesses.
A portion of our customers experience seasonal slowdowns. Our revenues in the months of July, November and December traditionally have been lower than in other months because of a reduced number of shipping days and holiday or vacation closures for some customers. Consequently, our sales in the first two quarters of the year are usually higher than in the third and fourth quarters. As a result, analysts and investors may inaccurately estimate the effects of seasonality on our results of operations in one or more future quarters and, consequently, our operating results may fall below expectations.
We may face product liability claims that are costly and create adverse publicity.
If any of the products we sell cause harm to any of our customers, we could be exposed to product liability lawsuits. If we were found liable under product liability claims, we could be required to pay substantial monetary damages. Further, even if we successfully defended ourselves against this type of claim, we could be forced to spend a substantial amount of money in litigation expenses, our

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management could be required to spend valuable time in the defense against these claims and our reputation could suffer, any of which could adversely affect our business.
ITEM 1B —Unresolved SEC Staff Comments
     NoneNone.

9

ITEM 2 —Properties
The Company’s principal executive offices are located in its Franklin Park, Illinois facility near Chicago, Illinois. All properties and equipment are sufficient for the Company’s current level of activities. Distribution centers and sales offices are maintained at each of the following locations, somemost of which are owned,leased, except as indicated:
        
 Approximate Approximate 
 Floor Area in Floor Area in 
Locations Square Feet Square Feet 
Metals Segment  
Arlington, Texas 74,880 
Bedford Heights, Ohio 374,400   374,400(1)
Birmingham, Alabama 76,000   76,000(1)
Charlotte, North Carolina 116,500   116,500(1)
Dallas, Texas 78,000   78,000(1)
Edmonton, Alberta  38,300(1) 38,300 
Fairfield, Ohio  166,000(1) 166,000 
Franklin Park, Illinois 522,600   522,600(1)
Gardena, California 150,435 
Hammond, Indiana (H-A Industries)  243,000(1) 243,000 
Houston, Texas 109,100   109,100(1)
Houston, Texas (Administrative location) 1,961 
Kansas City, Missouri  118,000(1) 118,000 
Kennesaw, Georgia 87,500 
Kent, Washington  31,100(1) 53,000 
Minneapolis, Minnesota 65,200   65,200(1)
Mississauga, Ontario  60,000(1) 60,000 
Monterrey, Mexico  55,000(1) 55,000 
Montreal, Quebec  38,760(1) 38,760 
Orange, Connecticut 57,389 
Paramount, California  155,500(1) 155,500 
Philadelphia, Pennsylvania 71,600   71,600(1)
Riverdale, Illinois  115,000(1)
Saskatoon, Saskatchewan  15,000(1) 15,000 
Stockton, California  60,000(1) 60,000 
Torrance, California (Administrative location) 15,028 
Twinsburg, Ohio  120,000(1) 120,000 
Wichita, Kansas  58,800(1) 148,800 
Winnipeg, Manitoba 50,000   50,000(1)
Worcester, Massachusetts 56,000   56,000(1)
Kennesaw, Georgia  87,500(1)
Orange, Connecticut  32,144(1)
Orange, Connecticut  25,245(1)
Dallas, Texas  74,880(1)
Torrance, California  12,171(1)
Gardena, California  33,435(1)
Gardena, California  117,000(1)
Wichita, Kansas  42,000(1)
Wichita, Kansas  48,000(1)
Kent, Washington  65,000(1)
 
Sales Offices 
Cincinnati, Ohio(Intentionally left blank) 
Milwaukee, Wisconsin 
Phoenix, Arizona 
Tulsa, Oklahoma 

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 Approximate Approximate 
 Floor Area in Floor Area in 
Locations Square Feet Square Feet 
  
Europe  
Montoir de Bretagne, France  25,600(1)
Blackburn, England 62,139 
Hoddesdon, England 9,472 
Bilbao, Spain 10,000 
Due Pre’ Cadeau, France 25,600 
Letchworth, England  40,000(1) 40,000 
  
China  
Shanghai, China  45,700(1) 45,700 
 
Sales Offices (1) 
Cincinnati, Ohio 
Milwaukee, Wisconsin 
Phoenix, Arizona 
Tulsa, Oklahoma 
  
Total Metals Segment 3,442,535  3,370,864 
      
  
Plastics Segment  
Baltimore, Maryland  24,000(1) 24,000 
Cleveland, Ohio  8,600(1) 8,600 
Cranston, Rhode Island  14,990(1) 14,990 
Detroit, Michigan  22,000(1) 22,000 
Elk Grove Village, Illinois  22,500(1) 22,500 
Fort Wayne, Indiana  9,600(1) 17,600 
Grand Rapids, Michigan 42,500   42,500(1)
Harrisburg, Pennsylvania  13,900(1) 13,900 
Indianapolis, Indiana  13,500(1) 13,500 
Kalamazoo, Michigan  81,000(1) 81,000 
Knoxville, Tennessee  16,530(1) 16,530 
Maple Shade, New Jersey 12,480 
Mt. Vernon, New York  30,000(1) 30,000 
New Philadelphia, Ohio  15,700(1) 15,700 
Pittsburgh, Pennsylvania  8,500(1) 12,800 
Rockford, Michigan  53,600(1) 53,600 
Tampa, Florida  17,700(1) 17,700 
Trenton, New Jersey  6,000(1)
Worcester, Massachusetts 11,000   11,000(1)
      
  
Total Plastics Segment 411,620  430,400 
      
  
GRAND TOTAL
 3,854,155  3,801,264 
      
 
(1) Leased: See Note 4 to the Company’s accompanying consolidated financial statements for information regarding lease agreements.Represents owned facility.

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ITEM 3 —Legal Proceedings
The Company is a defendant inparty to several lawsuits arising fromin the operationnormal course of itsthe Company’s business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of the Company’s in-house counsel,management, based on current knowledge, that no uninsured liability will result from the outcome of this litigation that would have a material adverse effect on the consolidated results of operations, financial condition or cash flows of the Company.
ITEM 4 —Submission of Matters to a Vote of Security Holders
No items were submitted to a vote of security holders during the fourth quarter of fiscal 2007.None.
PART II
ITEM 5 — Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock trades on the New York Stock Exchange under the ticker symbol “CAS”. As of March 3, 20082, 2009 there were approximately 1,1241,054 shareholders of record and an estimated 4,205 beneficial shareholders.record. The Company paidused cash of $5.4 million and $4.7 million and $4.1 million into pay quarterly cash dividends of $0.06 per share on its common stock in 2008 and 2007, respectively. The payment of dividends, if any, is at the discretion of the Board of Directors and 2006, respectively.will depend on the Company’s earnings, capital requirements and financial condition and such other factors as the Board of Directors may consider.
See Part III, Item 11, “Executive Compensation” for information regarding comparison of five year cumulative total return.
See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management”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 2007.2008.
Directors of the company who are not employees may elect to defer receipt of up to 100% of his or her cash retainer and meeting fees. A director who defers board compensation may select either an interest or a stock equivalent investment option for amounts in the director’s deferred compensation account. Disbursement of the stock equivalent unit account may be in shares of Company common stock or in cash as designated by the director. If payment from the stock equivalent unit account is made in shares of the Company’s common stock, the number of shares to be distributed will equal the number of full stock equivalent units held in the director’s account. For the period covered by this report, receipt of approximately 3,972 shares was deferred as payment for the 2008 board compensation. In each case, the shares were acquired at prices ranging from $6.29 to $32.35 per share, which represented the closing price of the Company’s common stock on the day as of which such fees would otherwise have been paid to the director. Exemption from registration of the shares is claimed by the company under Section 4(2) of the Securities Act of 1933, as amended.
The following table sets forth for the periods indicated the range of the high and low sales prices of shares of the Company’s common stock price:for the periods indicated:
                                
 2007 2006 2008 2007
 Low High Low High Low High Low High
    
First Quarter $22.72 $30.85 $22.16 $31.31  $16.70 $29.65 $22.72 $30.85 
Second Quarter $28.64 $38.10 $23.61 $44.25  $26.08 $34.20 $28.64 $38.10 
Third Quarter $26.23 $37.22 $25.34 $34.86  $16.16 $28.46 $26.23 $37.22 
Fourth Quarter $23.66 $37.18 $24.15 $34.20  $6.12 $17.41 $23.66 $37.18 

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ITEM 6 —Selected Financial Data
                     
(dollars in millions, except per share data) 2007 2006 2005 2004 2003
 
For the year ended December 31,:                    
Net sales $1,420.4  $1,177.6  $959.0  $761.0  $543.0 
Net income (loss) (continuing operations)  51.8   55.1   38.9   15.4   (19.9)
Earnings (loss) per diluted share (continuing operations)  2.41   2.89   2.11   0.82   (1.32)
Cash dividends paid per common share  0.24   0.24   —   —   — 
As of December 31:
                    
Total assets  677.0   655.1   423.7   383.0   338.9 
Long-term debt, less current portion  60.7   90.1   73.8   89.8   100.0 
Total debt  86.5   226.1   80.1   101.4   108.3 
Stockholders’ equity  385.1   215.9   175.5   130.4   113.7 
The Selected Financial Data in the table below includes the results of the September 2006 and January 2008 acquisitions of Transtar and Metals U.K., respectively, and the October 2007 divestiture of Metal Express.
                     
(dollars in millions, except per share data) 2008 2007 2006 2005 2004
 
For the year ended December 31:
                    
Net sales $1,501.0  $1,420.4  $1,177.6  $959.0  $761.0 
Net (loss) income from continuing operations  (17.1)  51.8   55.1   38.9   15.4 
Basic earnings (loss) per common share from continuing operations  (0.76)  2.49   2.95   2.37   0.92 
Diluted earnings (loss) per common share from continuing operations  (0.76)  2.41   2.89   2.11   0.82 
Cash dividends declared per common share  0.24   0.24   0.24   —   — 
As of December 31:
                    
Total assets  679.0   677.0   655.1   423.7   383.0 
Long-term debt, less current portion  75.0   60.7   90.1   73.8   89.8 
Total debt  117.1   86.5   226.1   80.1   101.4 
Total stockholders’ equity  347.3   385.1   215.9   175.5   130.4 

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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.A. M. Castle & Co. and its subsidiaries (the “Company”), including its reportable segments, is included in ITEMItem 1 “Business” of this annual report onForm 10-K.10-K
This section may contain statements that constitute “forward-looking statements” pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are identified by words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, predict”, or “project” and similar expressions. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those presented. In addition, certain risk factors identified in ITEM 1A of this document may affect the Company’s businesses. As a result, past financial results may not be a reliable indicator of future performance..
The following discussion should be read in conjunction with ITEMItem 6 “Selected Financial Data” and the Company’s consolidated financial statements and related notes thereto in ITEMItem 8 “Financial Statements and Supplementary Data”.
EXECUTIVE OVERVIEW
2007 marked a number of major accomplishments for the Company including 1) record sales and second highest net income in the Company’s history, 2) completion of a secondary public equity offering, 3) a concurrent move to the New York Stock Exchange (“NYSE”), 4) the continuing integration of Transtar Metals (“Transtar”), acquired in late 2006, and 5) realignment of the commercial leadership within our Metals segment into four end-market focused teams — Castle Metals, Castle Metals Aerospace, Castle Metals Oil and Gas, and Castle Metals Plate. In addition, the Company embarked upon an Oracle Enterprise Resource Planning (“ERP”) system implementation, as well as completed a lean engineering initiative at its flagship Franklin Park, Illinois facility. Finally, in January 2008 the Company completed a strategic acquisition of Metals UK Group, a distributor and processor of specialty metals with 2007 revenues of $72 million.
The Company achieved record sales of $1,420.4 million in 2007, which was an increase of $242.8 million, or 20.6% versus 2006. The acquisition of Transtar contributed $191.7 million of the total net sales increase. Excluding Transtar, the Company experienced increased material prices, accounting for 13.1% of the sales growth, while overall volume declined 8.4%. Softer market conditions in certain markets resulted in reduced volumes and increased competitive pressure on pricing and margins, especially in the second half of the year. Regardless of these market dynamics, the Company achieved its second highest net income in its 117 year history, just falling short of its record net income performance in 2006.
     In May, 2007, the Company completed a secondary public offering of 5,000,000 shares of its common stock at $33.00 per share. Of these shares, the Company sold 2,347,826 plus an additional 652,174 to cover over-allotments. Selling stockholders sold 2,000,000 shares. The Company realized net proceeds from the equity offering of $92.9 million, which were used to accelerate the repayment of debt incurred to fund the acquisition of Transtar in late 2006. The equity offering proceeds combined with strong cash earnings drove the debt to total capital ratio to pre-Transtar acquisition levels. At December 31, 2007, the Company’s debt to total capital ratio was 18.3% compared to 51.2% at the end of 2006, providing an excellent capital structure to continue to fund its growth plans for the future.
     Concurrent with the equity offering, the Company moved to the NYSE which resulted in enhanced independent research analyst coverage and increased investor interest. The combination of the equity offering and the move to the NYSE resulted in average daily trading volume of the Company’s common stock nearly doubling, creating additional investment and trading opportunities that were not previously available to existing shareholders or other interested investors.
     In 2007, the Company continued to move forward in its integration of Transtar, creating a commercial team and product focus specifically for the needs of the aerospace and defense industry. Approximately one-third of the Company’s total revenue base is now in direct strategic alignment with this global industry which is believed to have continued strong growth potential into the future.

11

     In late 2007, the Company aligned the balance of its Metals business commercial leadership into other targeted end-market focused teams. In addition to aerospace (Castle Metals Aerospace) there are commercial organizations focused on the oil and gas business (Castle Metals Oil and Gas); the carbon, alloy and stainless plate business (Castle Metals Plate) with a focus on the heavy equipment and infrastructure markets and the bar and tubing business (Castle Metals) with a focus on the application of highly engineered products into the broad manufacturing markets. The Company believes that having a deep, focused understanding of certain key markets and the products, processing and services that those markets demand will help differentiate the Company and accelerate its growth. These commercial organizations will be supported by shared corporate services, and most significantly, a new Oracle ERP system.
     As the Company increasingly began to expand its international presence and capabilities, it became clear that it needed to upgrade its business technology. Hence, in 2007, the Company embarked upon an Oracle ERP business project to install this powerful platform across its entire Metals segment. By the end of 2007, the design phase of the project was completed and the testing and training were well advanced. The Company anticipates having the system installed across most of its Metals business by the end of 2008. The system will improve the Company’s ability to manage large OEM and program customer and supply chain requirements. The Company also expects further integration of the back office support functions of its previously acquired entities once the system implementation is completed.
     Finally, late in 2007, the Company completed a significant “lean engineering” project at its largest service center located in Franklin Park, Illinois. The changes within this key distribution hub are expected to improve employee safety, productivity and overall service levels to customers and meet the inventory management and material processing needs of the Company’s other facilities within the internal supply chain network The project successfully freed up valuable floor space allowing the Company to transfer the complete inventory and management of a nearby tubing facility, resulting in the full closure of that operation in early 2008.
     All of these initiatives were part of the early execution of the Company’s long-term strategy is to become the foremost global provider of specialty metals products and services and specialized supply chain solutions to targeted global industries.
   During 2008, the following significant events occurred which impacted the Company’s operating results:
•Record sales of $1,501.0 million and third highest operating income in the Company’s history of $63.0 million (before non-cash goodwill impairment charge of $58.9 million in the fourth quarter of 2008);
•Non-cash goodwill impairment charge of $58.9 million in the fourth quarter of 2008;
•Acquisition of Metals U.K. in the first quarter of 2008;
•Amendment to the Company’s Amended Senior Credit Facility during the first quarter 2008; and
•Completion of the first scheduled phase of the Metals segment ERP implementation during the second quarter of 2008 and completion of implementation of a stand alone ERP system in the Plastics segment during the third quarter of 2008.
     The Company achieved record sales of $1,501.0 million in 2008, which was an increase of $80.6 million, or 5.7% versus 2007. Excluding the impact of the Metals U.K. acquisition, sales were $31.9 million or 2.3% higher than 2007 primarily due to an increase in Metals segment sales. For the full year 2008, excluding the impact of the Metals U.K. acquisition, Metals segment sales were $31.3 million or 2.4% higher than 2007 sales on sales volume that was 2.1% higher than 2007. Metals segment sales volume growth in 2008 was driven by strength in plate and alloy bar products sold into energy, mining and power generation markets. The Company experienced higher prices in 2008 for its carbon-related products; however, those price increases were somewhat mitigated by a changing sales mix that included lower sales levels on higher-priced aluminum, stainless and nickel based products as compared to 2007.
     During the fourth quarter, the Company determined that the weakening of the U.S. economy and the global credit crisis resulted in a reduction of the Company’s market capitalization below its total shareholder’s equity value for a sustained period of time, which was an indication that its goodwill may be impaired. As a result, the Company performed an interim goodwill impairment analysis as of December 31, 2008 and a non-cash charge of $58.9 million for goodwill impairment was recorded in 2008. The charge is non-deductible for tax purposes.
     On January 3, 2008, the Company acquired 100 percent of the outstanding capital stock of Metals U.K. The acquisition of Metals U.K. was accounted for using the purchase method in accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”). Metals U.K. is a distributor and processor of specialty metals primarily serving the oil and gas, aerospace, petrochemical and power generation markets worldwide. Metals U.K. has processing facilities in Blackburn, England, Hoddesdon, England and Bilbao, Spain. The acquisition of Metals U.K. is expected to allow the Company to expand its global reach and service potential high growth industries.

14

     In conjunction with the January 2008 acquisition of Metals U.K., the Company amended its existing revolving line of credit, expanding it to $230 million, which includes a $50 million multi-currency facility to fund the Metals U.K. acquisition and provide for future working capital needs of European operations. The multi-currency facility allows for funding in either British pounds or euros.
     The first scheduled phase of the Metals segment ERP implementation occurred in the second quarter of 2008 at certain of the Company’s domestic aerospace locations. The facilities included in the initial ERP implementation represent less than 20% of the Company’s consolidated net sales. During the second quarter of 2008, the majority of the legacy operating systems and financial systems of these locations were migrated to the new ERP system. The Company also implemented the human resource functionality of the new ERP system company-wide at that time. Total capital expenditures for this ERP implementation through the end of 2008 were $17.8 million. The Company plans to replace its legacy systems with the new ERP system functionality across many of its remaining locations and business operations in fiscal 2009, allowing the Metals business to operate under a common technology platform. This integrated system will provide the opportunity to improve decision-making, provide support for doing business globally, and support future acquisitions, which are all critical components in executing the Company’s strategy.
     During the third quarter of 2008, the Plastics business completed the implementation of its stand alone ERP system. The ERP system is designed to support make-to-order and mixed-mode manufacturing companies and has built-in workflow processes that enable companies to manage the entire order cycle. The new ERP system provided the capability for the Plastics business to build a tool to manage the many dimensional sizes of plastic sheet stock in its inventory and build executive and management level dashboards to manage daily operations. Total capital expenditures for this ERP implementation through the end of 2008 were $1.9 million.
Recent Market and Pricing Trends
In 2007,During 2008, average market prices for the Company experienced softer overall demand, but material prices remained at historically higher levels in most product lines. AerospaceCompany’s products, primarily carbon-based, significantly increased during the first three quarters and oil and gas demand remained at high levels in comparison, but the balance of the Metals business exhibited softer demand coming off record high levels of activity in 2006. On average, material pricing was higher than in 2006, but there were some volatile swings throughout the year, especially in nickel and stainless products Operating margins were impacted by the softer market conditions resulting in lower demand and increased competitive pricing pressure as the year progressed.
     Even though the build rates for commercial aircraft were strong, demand and margins for specialty aerospace grade aluminum plate were compressed, especiallydeclined considerably in the second half offourth quarter.
     Changes in pricing can have a more direct impact on the year. This wasCompany’s operating results than changes in volume due to an over supply of the product throughout the entire supply chain. Aerospace aluminum plate was in short supply in 2006 and many manufacturers purchased as much product as they could obtain. In 2007, and more specifically the second half, the product was in oversupply due to the increased production capacity at the mills, the announced production delays of the Airbus 380 (“A 380”) and Joint Strike Fighter (“JSF”) programs and the excess inventories being held throughout the supply chain. Margins will remain depressed until these excess inventories are utilized,certain factors including but subsequently could increase as build rates in the A 380, JSF, and other programs increase.not limited to:
     The Company’s Plastics segment reported 0.5% sales growth in 2007. Volume decreased 2.3%, but material price increases more than offset the volume decline resulting in the year-over-year sales growth.
•Changes in volume typically result in corresponding changes to the Company’s variable costs. However, as pricing changes occur, variable expenses are not impacted.
•If surcharges are passed through to the customer without a mark-up, gross material margins will decrease.
•The ability to pass surcharges on to customers immediately is limited due to contractual provisions with certain customers. Therefore, a lag exists between when the surcharge impacts net sales and cost-of-sales.
Current Business Outlook
Historically, management has usedManagement 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. Table 1The table below shows PMI trends from the first quarter of 20052006 through the fourth quarter of 2007.2008. Generally it is considered thatspeaking, an index above 50.0 indicates continuing growth in the manufacturing sector of the U.S. economy.economy, while readings under 50.0 indicate contraction. As the data indicates, the index experienced a slight decline insignificant decrease from the fourththird quarter 2007.of 2008 and has been below 50 for the last five quarters.
                 
YEAR Qtr 1 Qtr 2 Qtr 3 Qtr 4
 
2006  54.7   54.1   52.9   50.8 
2007  50.5   53.0   51.3   49.6 
2008  49.2   49.5   47.8   36.1 

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Table 1
                 
YEAR Qtr 1 Qtr 2 Qtr 3 Qtr 4
 
2005  55.3   52.1   54.3   56.0 
2006  54.7   54.1   52.9   50.8 
2007  50.5   53.0   51.3   49.6 
     An unfavorable 2007 year-end PMI trend suggests that demand for some of the Company’s products and services, in particular those that are sold to the general manufacturing customer base in the U.S., could potentially be at a lower level in the near-term. AlthoughThe Company believes that its revenue trends typically correlate to the changes in PMI does offer some insight,on a lag basis. Therefore, management typically relies on its relationships with the Company’s supplier and customer base to assess continuing demand trends. As of December 31, 2007, these other indicators generally pointforecasts a decline in 2009 net sales due to a reasonably healthycombination of demand forand pricing uncertainties that the Company’s specialty products in 2008. In particular, products utilizedindustry is expected to experience in the aerospace, oil and gas, and mining industries continued to exhibit strong levels of demand in 2007 and management believes these industries will remain strong in 2008. These specific markets now represent more than half of the Company’s total revenue stream.upcoming year. The long-term outlook on demand for the balance of the Company’s end marketsend-markets is less predictable. However, the Company continued to expandexpanded its international presence with the recent acquisition of Metals UK GroupU.K. in early 2008 and announced the early second quarter 2008 start-up of its Shanghai, China service center. Ascenter, which reduces the Company expands internationally, it becomes less reliant upondependency of results on the North American manufacturingU.S. economy.
     Average metals pricing, in the aggregate, for the products the Company sells increased 14.2% versus 2006. Management believes that the ongoing consolidation of metal producers has resulted in better material price discipline through enhanced matching of material supply with global demand. The Company believes that this will result in more stable metal pricing throughout the steel industry
     Material pricing and demand in both the metalsMetals and plasticsPlastics segments of the Company’s business have historically proven to be difficult to predict with any degree of accuracy. However, two of the areas of the U.S. economy which are currently experiencing significant decline, the automotive and residential construction markets, are areas in which the Company’s market presence is minimal. The Company has also not seen any effect of the recent credit market squeeze resulting from the residential mortgage lending crisis in its demand for products and services or in its own credit or lending structure.
RESULTS OF OPERATIONS: YEAR-TO-YEAR COMPARISONS AND COMMENTARY
Our discussion of comparative period results is based upon the following components of the Company’s consolidated statements of operations.
Net Sales —The Company derives its revenuessales from the saleprocessing and processingdelivery 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-timetime to time the Company willmay enter into long-term fixed price arrangements with a customercustomers while simultaneously obtaining a similar agreementagreements with its suppliers. Such long-term fixed price arrangements are more typical of customers in the aerospace and defense markets.
Cost of Materials— Cost of materials consists of the costs we pay suppliers for metals, plastics and related inbound freight charges. It excludescharges, excluding depreciation and amortization which are included in other operating costs and expenses discussed below. The Company accounts for inventory primarily on a last-in-first-out (“LIFO”) basis. LIFO adjustments are calculated as of December 31 of each year. Interim estimates of the year-end LIFO charge or credit are determined based on inflationary or deflationary purchase cost trends, estimated year-end inventory levels and projected inventory mix. Interim LIFO estimates may require significant year-end adjustment.
Other Operating Costs and Expenses—Other operatingOperating costs and expenses primarily consist of (1) warehouse, processing and delivery expenses, which include occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs; (2) selling expenses, which include compensation and employee benefits for sales personnel, (3) general and administrative expenses, which include compensation for executive officers and general management, expenses for professional services primarily attributableof:
•Warehouse, processing and delivery expenses, including occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs;
•Sales expenses, including compensation and employee benefits for sales personnel;
•General and administrative expenses, including compensation for executive officers and general management, expenses for professional services primarily related to accounting and legal advisory services, data communication and computer hardware and maintenance; and
•Depreciation and amortization expenses, including depreciation for all owned property and equipment, and amortization of various intangible assets.

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communication
2008 Results Compared to 2007
Consolidated results by business segment are summarized in the following table for years 2008 and computer hardware2007.
Operating Results by Segment
                 
  Year Ended December 31, Fav / (Unfav)
  2008 2007 $ Change % Change
   
Net Sales                
Metals $1,384.8  $1,304.8  $80.0   6.1%
Plastics  116.2   115.6   0.6   0.5%
   
Total Net Sales $1,501.0  $1,420.4  $80.6   5.7%
Cost of Materials                
Metals $1,044.4  $954.4  $(90.0)  (9.4)%
% of Metals Sales
  75.4%  73.1%      (2.3)%
Plastics  79.6   78.0   (1.6)  (2.1)%
% of Plastics Sales
  68.5%  67.5%      (1.0)%
   
Total Cost of Materials $1,124.0  $1,032.4  $(91.6)  (8.9)%
% of Total Sales
  74.9%  72.7%      (2.2)%
                 
Operating Costs and Expenses                
Metals $328.9  $256.0  $(72.9)  (28.5)%
Plastics  33.4   32.7   (0.7)  (2.1)%
Other  10.6   8.6   (2.0)  (23.3)%
   
Total Operating Costs & Expenses $372.9  $297.3  $(75.6)  (25.4)%
% of Total Sales
  24.8%  20.9%      (3.9)%
                 
Operating Income                
Metals $11.5  $94.4  $(82.9)  (87.8)%
% of Metals Sales
  0.8%  7.2%      (6.4)%
Plastics  3.2   4.9   (1.7)  (34.7)%
% of Plastics Sales
  2.8%  4.2%      (1.4)%
Other  (10.6)  (8.6)  (2.0)  (23.3)%
   
Total Operating Income $4.1  $90.7  $(86.6)  (95.5)%
% of Total Sales
  0.3%  6.4%      (6.1)%
“Other” includes costs of executive, legal and maintenance;finance departments which are shared by both segments of the Company.
Net Sales:
The Company achieved record sales of $1,501.0 million in 2008, which was an increase of $80.6 million, or 5.7%, versus 2007. Excluding the impact of the Metals U.K. acquisition, sales were $31.9 million or 2.3% higher than 2007 primarily due to an increase in Metals segment sales.
     Metals segment sales during 2008 of $1,384.8 million were $80.0 million, or 6.1%, higher than 2007. Excluding the impact of the Metals U.K. acquisition, Metals segment sales were $31.3 million or 2.4% higher than 2007 sales on sales volume that was 2.1% higher than 2007. Metals segment sales volume growth in 2008 was driven by strength in plate and (4)alloy bar products sold into energy, mining and power generation markets. The Company experienced higher prices in 2008 for its carbon-related products; however, those price increases were somewhat mitigated by a changing sales mix that included lower sales levels on higher-priced aluminum, stainless and nickel based products as compared to 2007.
     Plastics segment sales during 2008 of $116.2 million were $0.6 million, or 0.5%, higher than 2007. Higher overall pricing contributed a 5.5% increase, which was offset by a 5.0% decline in sales volume compared to last year. Decreased sales volume was primarily a result of softer demand in the marine and boat builder and automotive industries during the second half of 2008.
Cost of Materials:
Cost of materials (exclusive of depreciation and amortizationamortization) were $1,124.0 million, an increase of $91.6 million, or 8.9%, compared to 2007. Material costs for the Metals segment were 75.4% of sales in 2008 as compared to 73.1% in 2007. Higher material costs in carbon-based products were the primary driver of increased Metals segment material costs as a percent of sales.
     Material costs for the Plastics segment were 68.5% of sales in 2008 as compared to 67.5% in 2007. Higher material costs in the Plastics segment were primarily driven by increased acrylic prices, due to rising resin prices, in 2008 as compared to 2007.

17

Operating Expenses and Operating Income:
On a consolidated basis, operating costs and expenses increased $75.6 million, or 25.4%, compared to last year. Operating costs and expenses in 2008 were $372.9 million, or 24.8% of sales compared to $297.3 million, or 20.9% of sales last year. The results for 2008 include a $58.9 million non-cash goodwill impairment charge, $6.2 million of incremental operating expenses (excluding goodwill impairment charge) associated with the January 2008 acquisition of Metals U.K. (net of the Metal Express divestiture), as well as $2.2 million for costs related to the Transtar acquisition arbitration settlement during the third quarter of 2008. The remaining 2008 operating expense increase was $8.3 million, primarily related to $7.2 million of higher plant, transportation and selling costs associated with higher sales volumes, as well as $5.1 million for higher Oracle ERP implementation costs in 2008. Cost increases described above were partially offset by decreases primarily related to long-term incentive compensation and pension expense during 2008.
     During the fourth quarter of 2008, the Company determined that the weakening of the U.S. economy and the global credit crisis resulted in a reduction of the Company’s market capitalization below its total shareholder’s equity value for a sustained period of time, which include depreciationwas an indication that its goodwill may be impaired. As a result, the Company performed an interim goodwill impairment analysis as of December 31, 2008 and a non-cash charge of $58.9 million for all owned propertygoodwill impairment was recorded in the fourth quarter of 2008. The charge is non-deductible for tax purposes. Of this amount, $49.8 million and equipment,$9.1 million relates to the Aerospace and amortizationMetals U.K. reporting units, respectively, within the Metals segment. See further discussion inCritical Accounting Policies andNote 8to the consolidated financial statements.
     Consolidated operating income for 2008 of various intangible assets.$4.1 million was $86.6 million, or 95.5%, lower than last year. The Company’s 2008 operating income as a percent of net sales decreased to 0.3% from 6.4% in 2007, primarily due to higher cost of materials (discussed above) and the goodwill impairment charge.
Other Income and Expense, Income Taxes and Net Income:
Interest expense was $9.4 million in 2008, a decrease of $3.5 million versus 2007. The decrease in interest expense in 2008 is a result of lower weighted average interest rates in 2008 compared to 2007 and lower debt levels since the pay down of debt following the secondary equity offering on May 24, 2007.
     Income tax expense decreased to $20.7 million from $31.3 million in 2007 primarily due to lower taxable earnings. Excluding the impact of the $58.9 million goodwill impairment charge, the effective tax rate was 38.6% in 2008 and 40.2% in 2007. The Company’s tax rate is affected by tax rates in foreign jurisdictions and the relative amount of income it earns in these jurisdictions, which has become a much larger percentage of the Company’s overall income as the Company expands internationally. The effective tax rate is also affected by discrete items that may occur in any given year. The Company’s calculation of its effective tax rate includes the tax expense on the equity in earnings of the Company’s joint venture. The decrease in the effective tax rate from 2007 to 2008 is primarily attributed to two factors. First, the income tax rate differential on foreign income decreased the effective tax rate from the statutory rate of 35% by 1.2% in 2008 compared to a decrease of 0.3% in 2007. This additional decrease in 2008 was the result of a shift in the geographic distribution of income between domestic and foreign locations and reductions in tax rates in Canada and the United Kingdom. Second, state income taxes, net of the federal income tax benefit, only increased the effective tax rate from the statutory rate of 35% by 0.2% in 2008 compared to 3.9% 2007. The lower state tax rate in 2008 is primarily the result of a change in the geographic distribution of income amongst states and favorable state tax rate changes that occurred in 2008.
     Equity in earnings of the Company’s joint venture was $8.8 million in 2008, $3.5 million higher than 2007, reflecting the results of the joint venture’s acquisition of a metal distribution company in April 2007 as well as improved operating results associated with higher metal price levels in 2008.
     Consolidated net loss for 2008 was $17.1 million, a loss of $0.76 per diluted share, versus net income of $51.2 million, or $2.41 per diluted share, for 2007. Weighted average diluted shares outstanding increased 4.7% to 22.5 million for the year-ended December 31, 2008 as compared to 21.5 million shares for the same period in 2007. The increase in average diluted shares outstanding is primarily due to the additional shares issued during the Company’s secondary equity offering in May 2007.

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2007 Results Compared to 2006
Consolidated results by business segment are summarized in the following table for years 2007 and 2006.
Operating Results by Segment(dollars in millions)
                                
 Year Ended December 31, Fav / (Unfav) Year Ended December 31, Fav / (Unfav)
 2007 2006 $ Change % Change 2007 2006 $ Change % Change
    
Net Sales  
Metals $1,304.8 $1,062.6 $242.2  22.8% $1,304.8 $1,062.6 $242.2  22.8%
Plastics 115.6 115.0 0.6  0.5% 115.6 115.0 0.6  0.5%
    
Total Net Sales $1,420.4 $1,177.6 $242.8  20.6% $1,420.4 $1,177.6 $242.8  20.6%
 
Cost of Materials  
Metals $954.4 $762.3 $192.1  25.2% $954.4 $762.3 $(192.1)  (25.2)%
% of Metals Sales
  73.1%  71.7%  (1.4)%  73.1%  71.7%  (1.4)%
Plastics 78.0 76.9 1.1  1.4% 78.0 76.9  (1.1)  (1.4)%
% of Plastics Sales
  67.5%  66.9%  (0.6)%  67.5%  66.9%  (0.6)%
    
Total Cost of Materials $1,032.4 $839.2 $193.2  23.0% $1,032.4 $839.2 $(193.2)  (23.0)%
% of Total Sales
  72.7%  71.3%  (1.4)%  72.7%  71.3%  (1.4)%
  
Other Operating Costs and Expenses 
Operating Costs and Expenses 
Metals $256.0 $205.3 $50.7  24.7% $256.0 $205.3 $(50.7)  (24.7)%
Plastics 32.7 30.8 1.9  6.2% 32.7 30.8  (1.9)  (6.2)%
Other 8.6 9.8  (1.2)  (12.2)% 8.6 9.8 1.2  12.2%
    
Total Other Operating Costs & Expenses $297.3 $245.9 $51.4  20.9%
Total Operating Costs & Expenses $297.3 $245.9 $(51.4)  (20.9)%
% of Total Sales
  20.9%  20.9%  0.0%  20.9%  20.9%  0.0%
  
Operating Income  
Metals $94.4 $95.0 $(0.6)  (0.6)% $94.4 $95.0 $(0.6)  (0.6)%
% of Metals Sales
  7.2%  8.9%  (1.7)%  7.2%  8.9%  (1.7)%
Plastics 4.9 7.3  (2.4)  (32.9)% 4.9 7.3  (2.4)  (32.9)%
% of Plastics Sales
  4.2%  6.3%  (2.1)%  4.2%  6.3%  (2.1)%
Other  (8.6)  (9.8) 1.2  12.2%  (8.6)  (9.8) 1.2  12.2%
    
Total Operating Income $90.7 $92.5 $(1.8)  (1.9)% $90.7 $92.5 $(1.8)  (1.9)%
% of Total Sales
  6.4%  7.9%  (1.5)%  6.4%  7.9%  (1.5)%
“Other” includes costs of executive, legal and finance departments which are shared by both segments of the Company.
Net Sales:
Consolidated 2007 net sales for the Company were a record $1,420.4 million, an increase of $242.8 million, or 20.6%, versus 2006. The acquisition of Transtar, in September 2006, contributed $191.7 million of the total net sales increase. Material price increases accounted for 13.1% of the growth, excluding Transtar, withoffset by 7.5% lower sales volume accounting for a 7.5% reduction in year-over-year sales volume.compared to 2006.
     Metals segment sales during 2007 of $1,304.8 million were 22.8% or $242.2 million higher than 2006. Transtar accounted for $191.7 million or 79.1% of the increase. Material price increases accounted for 14.2% of the growth, excluding Transtar, with volume and product mix accounting for the balance of the year-over-year sales change.

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

14

Cost of Materials:
Consolidated 2007 cost of materials (exclusive of depreciation and amortization) increased $193.2 million, or 23.0%, to $1,032.4 million. The acquisition of Transtar contributed $139.3 million of the material cost increase. The balance of the increase reflected higher metal costs from suppliers and mix of products sold. Cost of materials was 72.7% of sales for 2007 versus 71.3% in 2006, reflecting a more competitive pricing environment due to lower demand levels across most markets.
Other Operating Expenses and Operating Income:
On a consolidated basis, other operating costs and expenses increased $51.4 million, or 20.9%, over 2006 due to the inclusion of Transtar’s incremental operating2006. Operating expenses of $43.9 million andassociated with the Transtar acquisition were the primary factor in support ofhigher overall expenses in 2007. Costs associated with the Company’s ERP implementation accounted for $2.0 million of the increase and itsthe remaining increase reflected the Company’s lean operations initiatives. However, other operatingOperating expense remained unchanged as a percent of sales at 20.9% for both 2007 and 2006.
     2007 operating income of $90.7 million was $1.8 million, or 1.9%, lower than last year.2006. The Company’s 2007 operating profit margin (definedincome as operating income divided bya percentage of net sales)sales decreased to 6.4% from 7.9% in 2006, largely due to competitive market pricing and softer demand.
Other Income and Expense, Income Taxes and Net Income:
Interest expense was $12.9 million in 2007, an increase of $4.6 million versus 2006, primarily due to the debt financing of the Transtar acquisition. The acquisition debt incurred remained on the Company’s financial statements until June, 2007 when it was repaid with proceeds from the Company’s secondary public equity offering. (See “Liquidity and Capital Resources” discussion below).
     Income tax expense decreased to $31.3 million from $33.3 million in 2006 due to lower taxable earnings. The effective tax rate was 40.2% in 2007 and 39.6% in 2006.
     Equity in earnings of the Company’s joint venture Kreher Steel, was $5.3 million in 2007, $1.0 million higher than 2006, due largely to the joint venture’san acquisition of an Oklahoma-based metal distribution companythat occurred in April 2007.
     Consolidated net income (after preferred dividends of $0.6 million) was $51.2 million, or $2.41 per diluted share, versus $54.2 million, or $2.89 per diluted share, for the same period in 2006. Weighted average diluted shares outstanding increased 13.0% to 21.5 million for the year-ended December 31, 2007 as compared to 19.1 million shares for the same period in 2006. The increase in average diluted shares outstanding is primarily due to the additional shares issued during the Company’s secondary equity offering in May 2007. The equity offering had a $0.30 per share dilutive impact on fiscal year 2007 earnings.

15

2006 Results Compared to 2005
Consolidated results by business segment are summarized in the following table for years 2006 and 2005.
Operating Results by Segment(dollars in millions)
                 
  Year Ended December 31, Fav / (Unfav)
   
  2006 2005 $ Change % Change
   
Net Sales                
Metals $1,062.6  $851.3  $211.3   24.8%
Plastics  115.0   107.7   7.3   6.8 
   
Total Net Sales $1,177.6  $959.0  $218.6   22.8%
                 
Cost of Materials                
Metals $762.3  $603.9  $(158.4)  (26.2)%
% of Metals Sales
  71.7%  70.9%      (0.8)%
Plastics  76.9   73.3   (3.6)  (4.9)%
% of Plastics Sales
  66.9%  68.1%      1.2%
   
Total Cost of Materials $839.2  $677.2  $(162.0)  (23.9)%
% of Total Sales
  71.3%  70.6%      (0.7)%
                 
Other Operating Costs and Expenses                
Metals $205.3  $172.0  $(33.3)  (19.4)%
Plastics  30.8   28.9   (1.9)  (6.5)
Other  9.8   9.7   (0.1)  — 
   
Total Other Operating Costs & Expenses $245.9  $210.6  $(35.3)  (16.8)%
% of Total Sales
  20.9%  22.0%      1.1%
                 
Operating Income                
Metals $95.0  $75.3  $19.7   26.2%
% of Metals Sales
  8.9%  8.8%      0.1%
Plastics  7.3   5.6   1.7   30.4%
% of Plastics Sales
  6.3%  5.2%      1.1%
Other  (9.8)  (9.7)  (0.1)  (1.0)%
   
Total Operating Income $92.5  $71.2  $21.3   29.9%
% of Total Sales
  7.9%  7.4%      0.5%
“Other” includes costs of executive, legal and finance departments which are shared by both segments of the Company.
Net Sales:
Consolidated 2006 net sales for the Company of $1,177.6 million increased $218.6 million, or 22.8%, versus 2005. The acquisition of Transtar contributed $77.9 million of the total net sales increase. Material price increases accounted for 8.0% of the growth with volume and product mix accounting for the balance of the year-over-year sales growth.
     Metals segment sales during 2006 of $1,062.6 million were 24.8% or $211.3 million higher than 2005. Material price increases accounted for 8.8% of the growth with volume and product mix accounting for the balance of the year-over-year sales growth. The aerospace, oil and gas, mining and heavy equipment sectors were especially robust.
     Plastics segment sales during 2006 of $115.0 million were 6.8% or $7.3 million higher than 2005. Volume increased approximately 3.9% during 2006, while material price increases contributed to the balance of the year-over-year sales growth.
Cost of Materials:
Consolidated 2006 cost of materials (exclusive of depreciation) increased $162.0 million, or 23.9%, to $839.2 million. The acquisition of Transtar contributed $55.4 million.

16

Other Operating Expenses and Operating Income:
On a consolidated basis, other operating costs and expenses increased $35.3 million, or 16.8%, over 2005 due to the inclusion of $19.4 million of Transtar’s other operating expenses and in support of higher overall customer demand. However, other operating expense declined as a percent of sales from 22.0% in 2005 to 20.9% in 2006 as the Company was able to leverage its expenses over higher sales.
     2006 operating income of $92.5 million was $21.3 million, or 29.9%, ahead of 2005. Solid underlying demand strengthened the Company’s operating income. The Company’s 2006 operating profit margin (defined as operating income divided by net sales) increased to 7.9% from 7.4% in 2005.
Other Income and Expense, Income Taxes and Net Income:
Interest expense of $8.3 million in 2006 increased $1.0 million versus 2005 on increased borrowings necessitated by the acquisition of Transtar. (See “Liquidity and Capital Resources” discussion below).
     Income tax expense increased to $33.3 million from $23.2 million in 2005. The effective tax rate was 39.6% in 2006 and 40.1% in 2005.
     Equity in earnings of the Company’s joint venture, Kreher Steel, was $4.3 million in 2006, the same as 2005.
     Consolidated net income applicable to common stock of $54.2 million, or $2.89 earnings per diluted share in 2006 compared favorably to $37.9 million, or $2.11 earnings per diluted share in 2005.
Liquidity and Capital Resources
The Company’s primary sources of liquidity include cash generatedearnings from operations, and the usemanagement of new equityworking capital and available borrowing capacity to fund working capital needs and growth initiatives.
     Net cash from operating activities in 20072008 was $21.7 million, as cash generated by net income (excluding the $58.9 million non-cash goodwill impairment charge) was consumed by working capital required by the substantial increases in metal prices throughout 2008. Net cash from operating activities was $78.7 million driven by strong earnings and decreased working capital requirements, and is significantly higher than the $31.4 million generated in 2006.2007.
     In May, 2007, the Company completed a public offering of 5,000,000 shares of its common stock at $33.00 per share. Of these shares, the Company sold 2,347,826 plus an additional 652,174 to cover over-allotments. Selling stockholders sold 2,000,000 shares.
     The Company realized net proceeds from the equity offering of $92.9 million. All of the proceeds were used to repay the $27.0 million outstanding balance on the U.S. Term Loan and to reduce current outstanding borrowings and accrued interest under its U.S. Revolver by $66.2 million. The Company did not receive any proceeds from the sale of shares by the selling stockholders.
     ReceivableAverage receivable days outstanding were 45.9was 47.6 days at December 31, 2007for 2008 as compared to 47.345.1 days at December 31, 2006,for 2007, reflecting betterslower collections associated with a higher mix of international business and receivable mix.overall economic downturn. Average Inventory DSI (daysdays sales in inventory)inventory was 129.7 days for 2008 versus 132.4 days for 2007 versus 116.7 days for 2006.2007. The increaseweakening global economy which may impact many of our customers may hinder our ability to generate improvement in 2007 inventory levels are primarilythese turn rates in the Company’s aluminum and nickel products that support growth in the aerospace and oil and gas sectors. Since June 2007, the Company has aggressively reduced its inventory by $40.0 million and continues to seek improvements in its turn rate on this investment.2009.

20

     Available revolving credit capacity is primarily used to fund working capital needs. Available credit capacity consisted of the following:
             
  Outstanding     Weighted Average
Debt type Borrowings Availability Interest Rate
 
U.S. Revolver A $18.0  $143.4   4.33%
U.S. Revolver B  24.0   26.0   6.41%
Canadian facility  —   10.0   — 
Trade acceptances (a)  10.0   n/a   4.41%
(a)A trade acceptance is a form of debt instrument having a definite maturity and obligation to pay and which has been accepted by an acknowledgement by the company upon whom it is drawn.
As of December 31, 2007,2008, the Company had outstanding borrowings$31.2 million of $4.3short-term debt which includes the $10 million under its U.S. Revolverin trade acceptances, the $18 million revolver, and had availability of $158.8 million. The Company’s Canadian subsidiary had no outstanding borrowings under the Canadian Facility and had availability of $9.9 million.$3.2 million in foreign debt.
     As of December 31, 2007,2008, the Company remained in compliance with the covenants of its credit agreements, which require it to maintain certain funded debt-to-capital and working capital-to-debt ratios, and a minimum adjusted consolidated net worth, as defined in the Company’s credit agreements.
     As of December 31, 2007, the Company had $12.1 million in outstanding trade acceptances with varying maturity dates ranging up to 120 days. The weighted average interest rate was 6.35%. A trade acceptance is a form of debt instrument having a definite maturity and obligation to pay and which has been accepted by an acknowledgement by the company upon whom it is drawn. As of December 31, 2007, the Company had $18.7 million of short-term debt which includes the $12.1 million in trade acceptances, the $4.3 million revolver, and $2.3 million in Transtar foreign debt. See Note 9 to the accompanying consolidated financial statements for more information.
     In 2007, the Company paid $5.0 million in cash for preferred and common stock dividends. The Company also paid $0.3 million of preferred dividends in common stock. The preferred stock was voluntarily converted to common stock and the common stock was subsequently sold by the stockholders as part of the secondary equity offering in May 2007.

17

     In addition to its available borrowing capacity, management believes the Company will be able to generate sufficient cash from operations and planned working capital improvements (principally from reduced inventories) to fund its ongoing capital expenditure programs, fund future dividend payments and meet its debt obligations.
     Current economic conditions have caused significant disruption in the financial markets resulting in reduced availability of debt and equity capital in the U.S. market as a whole. These conditions could persist for a prolonged period of time. The Company currently does not anticipate having the need to raise additional equity or secure additional debt. However, our ability to access the capital markets may be restricted at a time when we would like to pursue those markets which could have an impact on our ability to react to changing economic and business conditions. In addition, the cost of debt financing and the proceeds of equity may be materially adversely impacted by these market conditions. Further, in the current volatile state of the credit markets, there is risk that lenders, even with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum permitted by a credit facility, allowing access to additional credit features and otherwise accessing capital and/or honoring loan commitments.
Capital Expenditures
Capital expenditures for 20072008 were $20.2$26.3 million as compared to $12.9$20.2 million in 2006.2007. During 2007,2008, the expenditures included $11.1 million of spending associated with the Company’s Oracle ERP implementation ($7.8 million), the lean operations re-engineering at the Company’s Franklin Park, Illinois facility ($1.0 million),implementations, $2.7 million for expansion and the consolidationredesign projects and $2.1 million for other information technology related enhancements. The remaining capital expenditures resulted from a sizable investment in new saws, sideloaders and other capital equipment and projects. The Company expects 2009 capital expenditures to decline significantly to less than half of the Company’s Riverdale plant into Franklin Park ($0.8 million), along with routine equipment replacement and upgrades.2008 amount.
Contractual Obligations and Other Commitments:Commitments
The following table includes information about the Company’s contractual obligations that impact its short-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.

21

     At December 31, 2007,2008, the Company’s contractual obligations, including estimated payments by period, were as follows:(dollars in thousands)
                    
 Less One to More
 Than One Three Three to Than Five                    
Payments Due In Total Year Years Five Years Years Total Less
Than One
Year		 One to
Three
Years		 Three to
Five Years		 More
Than Five
Years
Long-Term Debt Obligations (excluding capital lease obligations) $66,828 $6,412 $17,580 $15,678 $27,158  $84.3 $10.3 $14.8 $40.6 $18.6 
Interest Payments on Debt Obligations (a) 21,115 4,627 7,462 5,284 3,742  26.6 6.1 10.4 8.2 1.9 
Capital Lease Obligations 921 625 188 108 —  1.5 0.5 0.8 0.2 — 
Operating Lease Obligations 57,101 14,193 20,588 15,311 7,009  56.4 12.3 20.4 17.1 6.6 
Purchase Obligations (b) 335,867 253,528 52,339 30,000 —  384.5 265.2 87.3 32.0 — 
Other (c) 5,521 5,029 492 — —  5.9 4.4 1.5 — — 
    
Total $487,353 $284,414 $98,649 $66,381 $37,909  $559.2 $298.8 $135.2 $98.1 $27.1 
    
 
(a)a) Interest payments on debt obligations represent interest on all Company debt outstanding as of December 31, 2007.2008. 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, 2007.2008. Future interest rates may change, and therefore, actual interest payments could differ from those disclosed in the table above.
 
(b)b) Purchase obligations consist of raw material purchases made in the normal course of business. The Company has a number of long-term contracts to purchase certainminimum quantities of material with certain suppliers. InFor each case of such a long-term contractual purchase obligation, the Company generally has an irrevocable purchase agreement from its customer for the same amount of material over the same time period.
 
(c)c) “Other” is comprised of 1) deferred revenues that represent commitments to deliver products, and 2) obligations which are to be disclosed according to FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). and 3) earnout related to Metals U.K. acquisition to be paid based on the achievement of performance targets related to fiscal year’s 2008, 2009 and 2010. The FIN 48 obligations in the table above represent uncertain tax positions related to temporary differences.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. In addition to the FIN 48 obligations in the table above, approximately $1.3$1.5 million of unrecognized tax benefits have been recorded as liabilities in accordance with FIN 48, and we are uncertain as to if or when such amounts

18

may be settled. Related to the unrecognized tax benefits not included in the table above, the Company has also recorded a liability for interest of $0.1 million.
The table and corresponding footnotes above table doesdo not include $15.7$11.2 million of other non-current liabilities recorded on the Consolidated Balance Sheets, as summarized in Notes 4 and 5 to the accompanying consolidated financial statements.balance sheets. These non-current liabilities consist of liabilities related to the Company’s non-funded supplemental pension plan and postretirement benefit plans for which payment periods cannot be determined. Non-current liabilities also include the deferred gain on the sale of assets, which are principally theresulted from previous sale-leaseback transactions disclosed in Note 4 to the consolidated financial statements.transactions. The cash outflows associated with these transactions are included in the operating lease obligations above.
Pension Funding
The Company’s funding policy on its defined benefit pension planplans 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, 2007,2008, the Company does not anticipate making any significant cash contributions to the pension plans in 2008.2009.
     Effective July 1, 2008, the Company-sponsored pension plans and supplemental pension plan were frozen. In conjunction with the decision to freeze the pension plans, the Company modified its investment portfolio target allocation for the pension plans’ funds. The revised investment target

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portfolio allocation focuses primarily on corporate fixed income securities that match the overall duration and term of the Company’s pension liability structure. Refer to“Retirement Plans” within Critical Accounting PoliciesandNote 5to the consolidated financial statements for additional details regarding the decision to freeze the pension plans.
Off-Balance Sheet Arrangements
With the exception of letters of credit and operating lease financing on certain equipment used in the operation of the business, it is not the Company’s general practice to use off-balance sheet arrangements, such as third-party special-purpose entities or guarantees to third parties.
     Obligations of the Company associated with its leased equipment are disclosed under the “Contractual Obligations and Other Commitments” section above.
     See Note 12 to the accompanying consolidated financial statements for more details on the Company’s outstanding letters of credit.
Critical Accounting Policies
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include amounts that are based on management’s estimates, judgments and assumptions that affect the reported amounts of assets and liabilities revenuesand disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented.reporting period. The following is a description of the Company’s accounting policies that management believes require the most significant judgments and estimates when preparing the Company’s consolidated financial statements:
Revenue Recognition and Accounts Receivable— Revenue from the sales of products is recognized when the earnings process is complete and when the risk and rewards of ownership have passed to the customer, which is primarily at the time of shipment. Revenue from shipping and handling charges is recorded in net sales. Provisions for allowances related to sales discounts and rebates are recorded based on terms of the sale in the period that the sale is recorded. Management utilizes historical information and the current sales trends of the business to estimate such provisions. Actual results could differ from these estimates.
     The Company also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance is maintained at a level considered appropriate based on historical experience and specific customer collection issues that we have identified. Estimations are based upon the application of a historical collection rate to the outstanding accounts receivable balance, which remains fairly levelconsistent from year to year, and judgments about the probable effects of economic conditions on certain customers, which can fluctuate significantly from year to year. The Company cannot be certain that the rate of future credit losses will be similar to past experience.
InventoryInventories— Over ninetyeighty percent of the Company’s inventories are valued using the LIFO method. Under this method, the current value of materials sold is recorded as Cost of Materials rather than the actual cost in the order in which it was purchased. This means that older costs are included in inventory, which may be higher or lower than current replacement costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals or plastics industries.industries and the quantities and mix of inventory on hand. The use of LIFO for inventory valuation was

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chosen selected to better match replacement cost of inventory with the current pricing used to bill customers. On-hand inventory is reviewed on a regular basis and provisions for slow-moving inventory are adjusted based on historical and current sales trends. The Company’s product demand and customer base may affect the value of inventory on-hand, which could require higher provisions for slow-moving inventory.
Income Taxes— The Company’s income tax expense, deferred tax assets and liabilities and reserve for uncertain tax positions reflect management’s best estimate of estimated taxes to be paid. The Company is subject to income taxes in the U.S. and several foreign jurisdictions. The determination of the consolidated income tax expense requires significant judgment and estimation by management. It is possible that actual results could differ from the estimates that management has used to determine its consolidated income tax expense.

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The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
     The Company records valuation allowances against its deferred tax assets when it is more likely than not that the amounts will not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event a determination wasis made that the Company would notwill be able to realize its deferred income tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance wouldwill be made which wouldwill reduce the provision for income taxes.
     Effective January 1, 2007, theThe Company adopted FIN 48. Under this interpretation,48 effective January 1, 2007. In accordance with FIN 48, the Company recognizedrecognizes the tax benefits of an uncertain tax positionpositions only if those benefits have a greaterare more likely than 50% likelihood of beingnot to be sustained upon examination by the relevant taxingtax authorities. Unrecognized tax benefits are subsequently recognized at the time the more-likely-than-not recognition threshold is met, the tax matter is effectively settled or the statute of limitations expires for the relevant taxing authority to examine and challengereturn containing the tax position, has expired, whichever is earlier. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate. These differences will be reflected in the Company’s income tax expense in the period in which they are determined. Due to the potential for resolution of the current IRS examination of its 2005 and 2006 income tax returns, the Company believes that it is reasonably possible for its gross unrecognized tax benefits to potentially decrease by the end of 2009 by a range of approximately $1 million to $1.5 million.
Retirement Plans— The Company values retirement plan assets and liabilities based on assumptions and valuations established by management following consultation with the Company’s independent actuary. Future valuations are subject to market changes, which are not in the control of the Company and could differ materially from the amounts currently reported. The Company evaluates the discount rate and expected return on assets at least annually and evaluates other assumptions involving demographic factors, such as retirement age, mortality and turnover periodically, and updates them to reflect actual experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
     Accumulated and projected benefit obligations are expressed as the present value of future cash payments which are discounted using the weighted average of market-observed yields for high quality fixed income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and subsequent-year pension expense; higher discount rates decrease present values and subsequent-year pension expense. To reflect market interest rate conditions, discountDiscount rates for retirement plans were increased6.25% at December 31, 2007, from 5.75%2008 and 2007.
     The Company utilizes observable market data to 6.25%.
value approximately 90% of the assets (i.e., primarily the fixed income securities) in its pension plans. Assets in the Company’s pension plans have earned approximately 12% since inception in 1979. During 2008, in conjunction with its decision to freeze its pension plans, the Company modified the target investment asset allocation for the pension plans’ funds. The revised asset allocation focuses primarily on corporate fixed income securities that match the overall duration and term of the Company’s pension liability structure. To determine the expected long-term rate of return on the pension planplans’ assets, consideration is made of the current and expected asset allocations are considered, as well as historical and expected returns on various categories of plan assets. Assets in the Company’s pension plans have earned approximately 12% since inception. The Company believes historical results and the current and expected asset allocations support the assumed long-term return of 8.75% on those assets. Note 5 to the accompanying consolidated financial statements disclose the assumptions used by management.
Goodwill and Other Intangible Assets Impairment—SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), establishes accounting and reporting standards for goodwill and other intangible assets. Under SFAS 142, goodwill is subject to an annual impairment test.test using a two-step process. The carrying value of the Company’s goodwill is evaluated annually in the first quarter of each fiscal year or when certain triggering events occur which require a more current valuation.

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

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process.     The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in the amount equal to the excess.
     The majority of the Company’s recorded intangible assets were acquired as part of the Transtar acquisitionand Metals U.K. acquisitions in September 2006 and January 2008, respectively, and consist primarily of customer relationships.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, as estimated by management, which are generally4 — 11 years for customer relationships.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 and ifperformed. If the intangible asset is deemed to be impaired, such asset will be written down to its fair value.
     SeeNote 8to the consolidated financial statements for detailed information on goodwill and intangible assets.
Long-Lived Assets —The Company reviews the recoverability of its long-lived assets asAs required by SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and must make assumptions regarding estimatedused is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and other factorswithout interest charges) expected to determinebe 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 respective assets. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. The Company derives the required undiscounted cash flow estimates from historical experience and internal business plans. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available.available information. The Company derives the required undiscounted cash flowuses an income approach, which estimates from historical experience and internal business plans. To determine fair value the Company uses internalbased on estimates of future cash flow estimatesflows discounted at an appropriate interest rate.

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Stock-BasedShare-Based Compensation —The Company offers stock-basedshare-based compensation to executive and other key employees, as well as its directors. Stock-basedShare-based compensation expense is recorded over the vesting period based on the grant date fair value of the stock award. ForStock options are granted with an exercise price equal to the market price of the Company’s stock option grants, the Company determineson the grant date and have a contractual life of ten years. Options and restricted stock generally vest in one to five years for executives and employees and one year for directors. The Company generally issues new shares upon share option exercise. The fair value of awards utilizingoptions granted was estimated using the Black-Scholes valuation model based onfollowing assumptions of the risk-free interest rate, expected term of the option, volatility and expected dividend yield. See Note 10 to the accompanying consolidated financial statements for a discussion of the specific assumptions made by management. Stock-basedin 2006:
     
  2006
Risk free interest rate  4.72%
Expected dividend yield  0.85%
Expected option term 10 Yrs
Expected volatility  50%
The estimated weighted average fair value on the date granted based on the above assumptions $16.93 
There were no options granted during 2007 or 2008.
Share-based compensation expense for the Company’s long-term incentive planperformance plans is recorded using the fair value based on the grant date market price of the Company’s common stock. In recording stock-based compensation expense forstock on the grant date adjusted to reflect that the participants in the long-term incentive plan, management also must estimateperformance plans do not participate in dividends during the vesting period. Management estimates the probable number of shares which will ultimately vest.vest when calculating the share-based compensation expense for the long-term incentive plans. The actual number of shares that will vest may differ from management’s estimate.
RecentFair Value of Financial Instruments— The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. Effective January 1, 2008, the Company adopted Statement of Financial Accounting Pronouncements:Standards No. 157, “Fair Value Measurements” (“SFAS 157”) for measurement and disclosure with respect to financial assets and liabilities. SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
A description of recent accounting pronouncements isLevel 1— Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2— Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3— Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
The Company adopted the measurement provisions of SFAS 157 to value its pension plans assets as of December 31, 2008 (seeNote 1 5to the accompanying consolidated financial statements understatements). In addition, SFAS No. 157 was applied in determining the caption “Basisfair value disclosures for debt (seeNote 9to the consolidated financial statements).
FASB Staff Position FAS 157-2, “Effective date of PresentationFASB Statement No. 157”, provides a one year deferral of SFAS 157’s effective date for nonfinancial assets and Significant Accounting Policies”.liabilities. Accordingly, for nonfinancial assets and liabilities, SFAS 157 will become effective for the Company as of January 1, 2009, and may impact the determination of goodwill, intangible assets and other long-lived assets’ fair values recorded in conjunction with business combinations and as part of impairment reviews for goodwill and long-lived assets.

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ITEM 7a —Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to interest rate, commodity price, and foreign exchange rate risks that arise in the normal course of business.
     Interest Rate Risk — The Company finances its operations with fixed and variable rate borrowings. Market risk arises from changes in variable interest rates. Under its U.S. Revolver and Canadian Facility, theThe 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 fluctuations.rate. Based on the Company’s variable rate debt instruments at December 31, 2007,2008, if interest rates were to increase hypothetically by 25100 basis points, 20072008 interest expense would have increased by approximately $0.3$0.6 million.
     Commodity Price Risk — The Company’s raw material costs are comprised primarily of engineered metals and plastics. Market risk arises from changes in the price of steel, other metals and plastics. Although average selling prices generally increase or decrease as material costs increase or decrease, the impact of a change in the purchase price of materials is more immediately reflected in the Company’s cost of materials than in its selling prices. The ability to pass surcharges on to customers immediately can be limited due to contractual provisions with those customers. Therefore, a lag may exist between when the surcharge impacts net sales and cost of materials, respectively, which could result in a higher or lower operating profit or gross material margin.
     Foreign Currency Risk — The Company conducts the majority of its business in the United States with limitedbut also has operations in Canada, Mexico, France, the United Kingdom, Spain, China and Singapore. The Company’s results of operations are not materially affected by fluctuations in these foreign currencies

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

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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, Year Ended December 31,
(Dollars in thousands, except per share data) 2007 2006 2005
 2008 2007 2006
Net sales $1,420,353 $1,177,600 $958,978  $1,501,036 $1,420,353 $1,177,600 
  
Costs and expenses:  
Cost of materials (exclusive of depreciation and amortization) 1,032,355 839,234 677,186  1,123,977 1,032,355 839,234 
Warehouse, processing and delivery expense 139,993 123,204 108,427  154,189 139,993 123,204 
Sales, general and administrative expense 137,153 109,407 92,848  136,551 137,153 109,407 
Depreciation and amortization expense 20,177 13,290 9,340  23,327 20,177 13,290 
Impairment of goodwill 58,860 — — 
    
Operating income 90,675 92,465 71,177  4,132 90,675 92,465 
Interest expense, net  (12,899)  (8,302)  (7,348)  (9,373)  (12,899)  (8,302)
Discount on sale of accounts receivable — —  (1,127)
Loss on extinguishment of debt — —  (4,904)
    
Income before income taxes and equity in earnings of joint venture 77,776 84,163 57,798 
(Loss) income before income taxes and equity in earnings of joint venture  (5,241) 77,776 84,163 
  
Income taxes  (31,294)  (33,330)  (23,191)  (20,690)  (31,294)  (33,330)
    
  
Income before equity in earnings of joint venture 46,482 50,833 34,607 
(Loss) income before equity in earnings of joint venture  (25,931) 46,482 50,833 
Equity in earnings of joint venture 5,324 4,286 4,302  8,849 5,324 4,286 
    
Net income 51,806 55,119 38,909 
Net (loss) income  (17,082) 51,806 55,119 
  
Preferred stock dividends  (593)  (963)  (961) —  (593)  (963)
    
Net income applicable to common stock $51,213 $54,156 $37,948 
Net (loss) income applicable to common stock $(17,082) $51,213 $54,156 
    
  
Basic earnings per share $2.49 $2.95 $2.37 
Basic (loss) earnings per share $(0.76) $2.49 $2.95 
    
  
Diluted earnings per share $2.41 $2.89 $2.11 
Diluted (loss) earnings per share $(0.76) $2.41 $2.89 
    
  
    
Dividends paid per common share $0.24 $0.24 —  $0.24 $0.24 $0.24 
    
The accompanying notes to consolidated financial statements are an integral part of these statements.

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Consolidated Balance Sheets
                
 As of As of
 December 31, December 31,
(Dollars in thousands, except share and par value data) 2007 2006
   2008 2007
Assets
  
Current assets  
Cash and cash equivalents $22,970 $9,526  $15,277 $22,970 
Accounts receivable, less allowances of $3,220 in 2007 and $3,112 in 2006 146,675 160,999 
Inventories, principally on last-in, first-out basis (replacement cost higher by $142,118 in 2007 and $128,404 in 2006) 207,284 202,394 
Accounts receivable, less allowances of $3,318 in 2008 and $3,220 in 2007 159,613 146,675 
Inventories, principally on last-in, first-out basis (replacement cost higher by $133,748 in 2008 and $142,118 in 2007) 240,673 207,284 
Other current assets 13,462 18,743  12,860 13,462 
    
Total current assets 390,391 391,662  428,423 390,391 
Investment in joint venture 17,419 13,577  23,340 17,419 
Goodwill 101,540 101,783  51,321 101,540 
Intangible assets 59,602 66,169  55,742 59,602 
Prepaid pension cost 25,426 5,681  26,615 25,426 
Other assets 7,516 5,850  5,303 7,516 
Property, plant and equipment, at cost  
Land 5,196 5,221  5,184 5,196 
Building 48,727 49,017  50,069 48,727 
Machinery and equipment 155,950 141,090  172,500 155,950 
    
 209,873 195,328  227,753 209,873 
Less — accumulated depreciation  (134,763)  (124,930)  (139,463)  (134,763)
    
 75,110 70,398  88,290 75,110 
    
Total assets $677,004 $655,120  $679,034 $677,004 
    
Liabilities and Stockholders’ Equity
  
Current liabilities  
Accounts payable $109,055 $117,561  $126,490 $109,055 
Accrued payroll and employee benefits 14,757 15,168  16,622 14,757 
Accrued liabilities 18,386 14,984  11,307 18,386 
Income taxes payable 2,497 931  6,451 2,497 
Deferred income taxes — current 7,298 16,339  — 7,298 
Current portion of long-term debt 7,037 12,834  10,838 7,037 
Short-term debt 18,739 123,261  31,197 18,739 
    
Total current liabilities 177,769 301,078  202,905 177,769 
Long-term debt, less current portion 60,712 90,051  75,018 60,712 
Deferred income taxes 37,760 31,782  38,743 37,760 
Other non-current liabilities 6,585 5,666  7,535 6,585 
Pension and postretirement benefit obligations 9,103 10,636  7,533 9,103 
Commitments and contingencies 
Stockholders’ equity 
Preferred stock, $0.01 par value — 10,000,000 shares authorized; no shares issued at December 31, 2007 and 12,000 shares issued and outstanding at December 31, 2006 — 11,239 
Common stock, $0.01 par value — 30,000,000 shares authorized; 22,330,946 shares issued and 22,097,869 outstanding at December 31, 2007; and 17,085,091 shares issued and 16,722,977 shares outstanding at December 31, 2006 223 170 
Commitments and contingencies Stockholders’ equity 
Common stock, $0.01 par value — 30,000 shares authorized; 22,850 shares issued and 22,654 outstanding at December 31, 2008 and 22,331 shares issued and 22,098 outstanding at December 31, 2007 228 223 
Additional paid-in capital 179,707 69,775  176,653 179,707 
Retained earnings 207,134 160,625  184,651 207,134 
Accumulated other comprehensive income (loss) 1,498  (18,504)
Deferred unearned compensation —  (1,392)
Treasury stock, at cost — 233,077 shares in 2007 and 362,114 shares in 2006  (3,487)  (6,006)
Accumulated other comprehensive (loss) income  (11,462) 1,498 
Treasury stock, at cost — 197 shares in 2008 and 233 shares in 2007  (2,770)  (3,487)
    
Total stockholders’ equity 385,075 215,907  347,300 385,075 
    
Total liabilities and stockholders’ equity $677,004 $655,120  $679,034 $677,004 
    
The accompanying notes to consolidated financial statements are an integral part of these statements.

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Consolidated Statements of Cash FlowsFlow
                        
 For the Years Ended December 31,
 Year Ended December 31, 2008 2007 2006
(Dollars in thousands) 2007 2006 2005
Cash flows from operating activities: 
Net income $51,806 $55,119 $38,909 
Operating activities: 
Net (loss) income $(17,082) $51,806 $55,119 
Adjustments to reconcile net income to net cash from operating activities:  
Depreciation and amortization 20,177 13,290 9,340  23,327 20,177 13,290 
Amortization of deferred gain  (907)  (760)  (498)  (1,128)  (907)  (760)
Loss on sale of fixed assets 1,293 94 73  363 1,293 94 
Loss on sale of subsidiary 425 — —  — 425 — 
Impairment of long-lived asset 589 — — 
Impairment of goodwill and long-lived asset 58,860 589 — 
Equity in earnings of joint venture  (5,324)  (4,286)  (4,302)  (8,849)  (5,324)  (4,286)
Dividends from joint venture 1,545 1,623 1,915  2,955 1,545 1,623 
Deferred tax provision (benefit)  (13,148) 4,537  (2,046)
Deferred tax (benefit) provision  (13,578)  (13,148) 4,537 
Share-based compensation expense 5,018 4,485 4,174  454 5,018 4,485 
Loss on pension curtailment 284 — — 
Pension curtailment  (472) 284 — 
Excess tax benefits from share-based payment arrangements  (993)  (1,186)  (793)  (2,881)  (993)  (1,186)
Increase (decrease) from changes, net of acquisitions, in:  
Accounts receivable 14,700  (19,678)  (26,217)  (7,736) 14,700  (19,678)
Inventories  (6,275)  (22,521) 16,742   (32,418)  (6,275)  (22,521)
Other current assets 1,639  (2,570) 2,186  4,182 1,639  (2,570)
Other assets 879 722  (398) 3,364 879 722 
Prepaid pension costs 6,074 1,920 316   (92) 6,074 1,920 
Accounts payable  (11,008) 7,882 9,702  13,844  (11,008) 7,882 
Accrued payroll and employee benefits 3,085  (1,350) 2,319  1,889 3,085  (1,350)
Income taxes payable 7,007  (10,090) 7,594  6,985 7,007  (10,090)
Accrued liabilities 1,507 2,044 506   (7,900) 1,507 2,044 
Postretirement benefit obligations and other liabilities 293 2,165 271   (2,340) 293 2,165 
    
Net cash from operating activities 78,666 31,440 59,793   21,747  78,666  31,440 
  
Investing activities:  
Investments and acquisitions, net of cash acquired  (280)  (175,583)  (236)  (26,857)  (280)  (175,583)
Capital expenditures  (20,183)  (12,935)  (8,685)  (26,302)  (20,183)  (12,935)
Proceeds from sale of fixed assets 823 124 33  358 823 124 
Proceeds from sale of subsidiary 5,707 — —  645 5,707 — 
Collection of note receivable — — 2,465 
    
Net cash from (used in) investing activities  (13,933)  (188,394)  (6,423)
Net cash used in investing activities  (52,156)  (13,933)  (188,394)
  
Financing activities:  
Short-term borrowings (repayments), net  (104,690) 110,919 —  12,636  (104,690) 110,919 
Proceeds from issuance of long-term debt — 30,000 75,000  29,496 — 30,000 
Repayments of long-term debt  (35,337)  (7,832)  (96,271)  (6,967)  (35,337)  (7,832)
Payment of debt issuance fees  (173)  (3,156) —   (524)  (173)  (3,156)
Preferred stock dividends  (345)  (963)  (961) —  (345)  (963)
Common stock dividends  (4,704)  (4,061) —   (5,401)  (4,704)  (4,061)
Proceeds from issuance of common stock, net 92,883 — —  — 92,883 — 
Exercise of stock options and other 552 2,840 2,227  450 552 2,840 
Payment of withholding taxes from share-based incentive issuance  (6,000) — — 
Excess tax benefits from share-based payment arrangements 993 1,186 793  2,881 993 1,186 
    
Net cash from (used in) financing activities  (50,821) 128,933  (19,212) 26,571  (50,821) 128,933 
Effect of exchange rate changes on cash and cash equivalents  (468) 155 128   (3,855)  (468) 155 
Net (decrease) increase in cash and cash equivalents  (7,693) 13,444  (27,866)
    
Net increase (decrease) in cash and cash equivalents 13,444  (27,866) 34,286 
Cash and cash equivalents — beginning of year 9,526 37,392 3,106  22,970 9,526 37,392 
    
Cash and cash equivalents — end of year $22,970 $9,526 $37,392  $15,277 $22,970 $9,526 
    
See Note 1 to the consolidated financial statements for supplemental cash flow disclosures.
The accompanying notes to consolidated financial statements are an integral part of these statements.

2430

 

Consolidated Statement of Stockholders’ Equity
                                                                                
 Additional Deferred Accum. Other    Additional Deferred Accumulated
Accum. Other		  
 Common Treasury Preferred Common Treasury Paid-in Retained Unearned Comprehensive    Common Treasury Preferred Common Treasury Paid-in Retained Unearned Comprehensive  
(Dollars and shares in thousands) Shares Shares Stock Stock Stock Capital Earnings Compensation Income Total 
Balance at January 1, 2005 15,806  (62) $11,239 $159  $(245) $45,052 $72,582  $(2) $1,616 $130,401 
 Shares Shares Stock Stock Stock Capital Earnings Compensation Income (Loss) Total
 
Comprehensive Income: 
Net income 38,909 38,909 
Foreign currency translation 1,151 1,151 
Minimum pension liability, net of tax benefit of $254  (397)  (397)
   
Total comprehensive income 39,663 
Preferred stock dividend  (961)  (961)
Long-term incentive plan expense 2,143 2,143 
Exercise of stock options and other 800  (484) 7  (9,471) 13,721 2 4,259 
Balance at December 31, 2005 16,606  (546) $11,239 $166  $(9,716) $60,916 $110,530 $— $2,370 $175,505 
Balance at January 1, 2006 16,606  (546) $11,239 $166 $(9,716) $60,916 $110,530 $— $2,370 $175,505 
  
Comprehensive Income:  
Net income 55,119 55,119  55,119 55,119 
Foreign currency translation 66 66  66 66 
Minimum pension liability, net of tax expense of $206 322 322  322 322 
      
Total comprehensive income 55,507  55,507 
Adjustment to initially apply SFAS No. 158, net of tax benefit of $13,611  (21,262)  (21,262)  (21,262)  (21,262)
Preferred stock dividend  (963)  (963)  (963)  (963)
Common stock dividend  (4,061)  (4,061)  (4,061)  (4,061)
Long-term incentive plan expense 3,209 3,209  3,209 3,209 
Exercise of stock options and other 479 184 4 3,710 5,650  (1,392) 7,972  479 184 4 3,710 5,650  (1,392) 7,972 
Balance at December 31, 2006 17,085  (362) $11,239 $170  $(6,006) $69,775 $160,625  $(1,392)  $(18,504) $215,907  17,085  (362) $11,239 $170 $(6,006) $69,775 $160,625 $(1,392) $(18,504) $215,907 
  
Comprehensive Income:  
Net income 51,806 51,806  51,806 51,806 
Foreign currency translation 4,268 4,268  4,268 4,268 
Defined benefit pension liability adjustments, net of tax expense of $10,085 15,734 15,734  15,734 15,734 
      
Total comprehensive income 71,808  71,808 
Preferred stock dividend  (593)  (593)  (593)  (593)
Common stock dividend  (4,704)  (4,704)  (4,704)  (4,704)
Long-term incentive plan expense 4,016 4,016  4,016 4,016 
Conversion of preferred stock and issuance of common stock 4,801  (11,239) 53 104,069 92,883  4,801  (11,239) 53 104,069 92,883 
Exercise of stock options and other 445 129 2,519 1,847 1,392 5,758  445 129 2,519 1,847 1,392 5,758 
Balance at December 31, 2007 22,331  (233) $— $223  $(3,487) $179,707 $207,134 $— $1,498 $385,075  22,331  (233) $— $223 $(3,487) $179,707 $207,134 $— $1,498 $385,075 
 
Comprehensive Loss: 
Net loss  (17,082)  (17,082)
Foreign currency translation  (13,630)  (13,630)
Defined benefit pension liability adjustments, net of tax expense of $428 670 670 
   
Total comprehensive loss  (30,042)
Common stock dividend  (5,401)  (5,401)
Long-term incentive plan income  (728)  (728)
Exercise of stock options and other 519 36 5 717  (2,326)  (1,604)
Balance at December 31, 2008 22,850  (197) $— $228 $(2,770) $176,653 $184,651 $— $(11,462) $347,300 
The accompanying notes to consolidated financial statements are an integral part of these statements.

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A. M. Castle & Co.
Notes to Consolidated Financial Statements
December 31, 2007Amounts in thousands except per share data
(1) Basis of Presentation and Significant Accounting Policies
Nature of operations— A.M. Castle & Co. and its subsidiaries (the “Company”) distributeis a specialty metals and plastics to customers globally fromdistribution company serving principally the North American market, but with a significantly growing global presence. The Company has operations in North America,the United States, Canada, Mexico, France, and the United Kingdom, with limited operations inSpain, China and Singapore. The Company provides a broad range of product inventories as well as value-added processing and supply chain services to a wide array of customers, principally within the producer durable equipment sector of the global economy. Particular focus is placed on the aerospace and defense, oil and gas, power generation, mining and heavy equipment manufacturing industries as well as general engineering applications.
The Company’s primary metals distribution center and corporate headquarters are located in Franklin Park, Illinois. The Company has 51 distribution centers located throughout North America (45), Europe (5) and Asia (1).
The Company purchases metals and plastics from many producers. Purchases are made in large lots and held in distribution centers until sold, usually in smaller quantities and often with some value-added processing services performed. Orders are primarily filled with materials shipped from Company stock. The materials required to fill the balance of sales are obtained from other sources, such as direct mill shipments to customers or purchases from other distributors. Thousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization.
Basis of presentation— The consolidated financial statements include the accounts of A. M. Castle & Co. and its subsidiaries over which the Company exhibits a controlling interest. The equity method of accounting is used for the Company’s 50% owned joint venture, Kreher Steel Company, LLC. All inter-company accounts and transactions have been eliminated.
Use of estimates— The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and judgmentsassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of estimation reflected in the consolidated financial statements are sales returns andaccounts receivable allowances, inventory reserves, goodwill and intangible assets, income taxes, contingencies and litigation, defined benefit retirement obligations,pension and other post-employment benefits, share-based compensation, and self-insurance reserves.
Revenue recognition— Revenue from the sales of products is recognized when the earnings process is complete and when the title and risk and rewards of ownership have passed to the customer, which is primarily at the time of shipment. Revenue from shipping and handling charges is recorded in net sales. ProvisionProvisions for allowances related to sales discounts and rebates are recorded based on terms of the sale in the period that the sale is recorded. Management utilizes historical information and the current sales trends of the business to estimate such provisions.
The Company also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is maintained at a level considered appropriate based on historical experience and specific customer collection issues that the Company has identified. Estimations are based upon the application of a historical collection rate to the outstanding accounts receivable balance, which remains fairly consistent from year to year, and judgments about the probable effects of economic conditions on certain customers, which can fluctuate significantly from year to year.

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Cost of materials— Cost of materials consists of the costs the Company pays for metals, plastics and related inbound freight charges. It excludes depreciation and amortization which are discussed below. The Company accounts for the majority of its inventory on a last-in, first-out (“LIFO”) basis and LIFO adjustments are recorded toin cost of materials. LIFO adjustments are calculated as of December 31 of each year.
Other operatingOperating expenses—Other operatingOperating costs and expenses primarily consist of (1) warehousing, processing and delivery expenses, which include occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs; (2) selling expenses, which include compensation and employee benefits for sales personnel, (3) general and administrative expenses, which include compensation for executive officers and general management, expenses for professional services primarily attributable to accounting and legal advisory services, data communication and computer hardware and maintenance; and (4) depreciation and amortization expenses, which includeof:
•Warehouse, processing and delivery expenses, including occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs;
•Sales expenses, including compensation and employee benefits for sales personnel;
•General and administrative expenses, including compensation for executive officers and general management, expenses for professional services primarily attributable to accounting and legal advisory services, data communication and computer hardware and maintenance; and
•Depreciation and amortization expenses, including depreciation for all owned property and equipment, and amortization of various intangible assets.
Cash and cash equivalents— Short-term investments that have an original maturity at the time of purchase, of 90 days or less are considered cash and cash equivalents.
Statement of cash flows —The Company had non-cash financing activities for the years ended December 31,in 2006, and 2005, which included the receipt of shares of the Company’s common stock tendered in lieu of cash by employees exercising stock options. There were no shares tendered in 2008 or 2007. In 2006, the

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tendered shares had a value of less than $0.1 million (1,620 shares) and in 2005, the tendered shares had a value of $9.4 million (509,218 shares).$100. All tendered shares were recorded as treasury stock. In 2007 and 2006, the Company also contributed shares of treasury stock to its profit sharing plan totaling $3.0 million$2,958 and $2.7 million, respectively, and$2,670, respectively. In 2007, the Company paid $0.3 million$248 in preferred dividends in shares of common stock.
     Following are theNon-cash investing activities and supplemental disclosures of consolidated cash flow information (dollars in millions):are as follows:
             
  Year Ended December 31,
  2007 2006 2005
 
Cash paid during the year for:            
Interest $13.4  $9.0  $8.4 
Income taxes $36.7  $38.9  $16.9 
      The Company had non-cash capital obligations in accounts payable of $2.2 million at December 31, 2007. The amount of non-cash capital obligations in 2006 and 2005 were immaterial.
      Subsequent to the issuance of the Company’s 2006 consolidated financial statements, the Company determined that dividends from joint venture previously reported as cash flows from investing activities in the consolidated statements of cash flows for the years ended December 31, 2006 and 2005 of $1.6 million and $1.9 million, respectively, should have been reported as cash flows from operating activities. As a result, the consolidated statements of cash flows have been corrected to reduce cash inflows from investing activities and increase cash flows from operating activities by $1.6 million for the year ended December 31, 2006 and $1.9 million for the year ended December 31, 2005, respectively, from amounts previously reported to properly present dividends from joint venture.
             
  Year Ended December 31,
  2008 2007 2006
 
Non-cash investing activities:            
Capital expenditures financed by accounts payable $1,490  $883   — 
Capital obligation for Metals U.K. Group acquisition  —  $1,298   — 
Cash paid during the year for:            
Interest $7,544  $13,423  $9,041 
Income taxes $29,153  $36,675  $38,871 
Inventories— Inventories consist primarily of finished goods. Over eighty percent of the Company’s inventories are stated at the lower of LIFO cost or market. Final inventory determination under the last-in, first-out (LIFO)LIFO method can only beis made at the end of each fiscal year based on the actual inventory levels and costs at that time. Over 90 percent of the Company’s inventories are stated at the lower of LIFO cost or market. The Company values its LIFO increments using the cost of its latest purchases during the years reported. Current replacement cost of inventories exceeded book value by $142.1 million$133,748 and $128.4 million$142,118 at December 31, 20072008 and December 31, 2006,2007, respectively. Income taxes would become payable on any realization of this excess from reductions in the level of inventories.
Insurance plans —The Company is self-insured for a portion of its worker’s compensation, automobile insurance and general liability. Self-insurance amounts are capped, for individual claims and in the aggregate, for each policy year by an insurance company. Self-insurance reserves are based on unpaid, known claims (including related administrative fees assessed by the insurance company for claims processing) and a reserve for incurred but not reported claims based on the Company’s historical claims experience and development.

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Property, plant and equipment— Property, plant and equipment are stated at cost and include assets held under capital leases. Major renewals and bettermentsimprovements are capitalized, while maintenance and repairs that do not substantially improve or extend the useful lives of the respective assets are expensed currently. When items are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income.
The Company provides for depreciation of plant and equipment sufficient to amortize the cost of properties over their estimated useful lives (buildings and building improvements — 12 to 40 years; machinery and equipment — 5 to 20 years). For assets classified as machinery and equipment, lives used for calculating depreciation expense are from 10 to 20 years for manufacturing equipment, 10 years for furniture and fixtures, and 5 years for vehicles and office equipment.follows:
Buildings and building improvements12 - 40 years
Plant equipment3 - 25 years
Furniture and fixtures3 - 10 years
Vehicles and office equipment3 - 7 years
     Leasehold improvements are depreciated over the shorter of their useful lives or the remaining term of the lease. Depreciation is recorded using the straight-line method and depreciation expense for 2008, 2007 and 2006 was $15,056, $13,584 and 2005 was $13.6 million, $11.1 million and $9.3 million,$11,066, respectively.

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Long-lived assets— TheAs required by SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognizedcharge is measured bycalculated as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. The Company derives the required undiscounted cash flow estimates from historical experience and internal business plans. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available.available information. The Company derives the required undiscounted cash flowuses an income approach, which estimates from historical experience and internal business plans. To determine fair value the Company uses internalbased on estimates of future cash flow estimatesflows discounted at an appropriate interest rate.
Goodwill and intangible assets —GoodwillSFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), establishes accounting and reporting standards for goodwill and other intangible assets. Under SFAS 142, goodwill is subject to an annual impairment test or more frequently if certain triggering events occur.using a two-step process. The Company performs an annual impairment test oncarrying value of the Company’s goodwill is evaluated annually in the first quarter of each fiscal year. Intangibleyear or when certain triggering events occur which require a more current valuation.
     The first step of the goodwill impairment test is used to identify potential impairment. The evaluation is based on the comparison of each reporting unit’s fair value to its carrying value. Fair value is determined using a combination of an income approach, which estimates fair value based on a discounted cash flow analysis using historical data and management estimates of future cash flows, and a market approach, which estimates fair value using market multiples of various financial measures of comparable companies. If the carrying value exceeds the fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be made by management. These judgments include, but are not limited to, long-term projections of future financial performance and the selection of appropriate discount rates used to present value the estimated future cash flows of the Company. The long-term projections used are developed as part of the Company’s annual budgeting and forecasting process. The discount rates used for each of the reporting units are those of a hypothetical market participant which are developed based upon an analysis of comparable companies and include adjustments made to account for any individual reporting unit specific attributes such as, size and industry.

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     The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in the amount equal to the excess.
     The majority of the Company’s recorded intangible assets were acquired as part of the Transtar and Metals U.K. acquisitions in September 2006 and January 2008, respectively, and consist primarily of customer relationships and non-compete agreements. The initial values of the intangible assets were based on a discounted cash flow valuation using assumptions made by management as to future revenues from select customers, the level and pace of attrition in such revenues over time and assumed operating income amounts generated from such revenues. These intangible assets are amortized over their useful lives, as estimated by management, which are generally4 — 11 years for customer relationships and 3 years for non-compete agreements. Useful lives are estimated by management and determined based on the timeframe over which a significant portion of the estimated future cash flows are expected to be realized from the respective intangible assets. Furthermore, when certain conditions or certain triggering events occur, a separate test of impairment, similar to the impairment test for long-lived assets, is performed. If the intangible asset is deemed to be impaired, such asset will be written down to its fair value.
Income taxes— The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
     The Company records valuation allowances against its net deferred tax assets when it is more likely than not that the amounts will not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event a determination wasis made that the Company wouldwill not be able to realize its deferred income tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance wouldwill be made which wouldwill reduce the provision for income taxes. No valuation allowance has been recorded as of December 31, 2007 and 2006.
     The Company adopted the provisions of FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”)48), on January 1, 2007. No changeincrease in liability for unrecognized tax benefits was recorded as a result of the adoption.adoption of FIN 48. In accordance with FIN 48, clarifies the accounting for uncertainty in income taxes recognized inCompany recognizes the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 provides that a tax benefit from anbenefits of uncertain tax position may be recognized when it is more-likely-than-not that the positionpositions only if those benefits will more likely than not be sustained upon examination including resolutionsby 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 any related appeals or litigation processes, based onlimitations expires for the technical merits.return containing the tax position, whichever is earlier. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate. These differences will be reflected in the Company’s income tax expense in the period in which they are determined.
     Approximately $740 of unrecognized tax benefits recorded as of December 31, 2008 relate to tax positions of acquired entities taken prior to their acquisition by the Company. To the extent the amounts of these uncertain tax positions change, the impact will be recorded to income tax expense as opposed to goodwill as a result of the January 1, 2009 adoption of SFAS No. 141R, “Business Combinations.” The Company is entitled to indemnification for all amounts that may become due as a result of an audit.
     Income tax expense includes provisions for amounts that are currently payable, and changes in deferred tax assets and liabilities. The Company does not provide for deferred income taxes on undistributed earnings considered permanently reinvested in its foreign subsidiaries. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Accrued interest and penalties are included within other long-term liabilities in the consolidated balance sheets.

35

Foreign currency translation— For the majority of all non-U.S. operations, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates, and income and expenses are translated using the average exchange rates for the reporting period. In accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”)SFAS No. 52, “Foreign Currency Translation”, the currency effects of translating financial statements of the Company’s non-U.S. operations which operate in local currency environments are recorded in accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Gains or losses resulting from foreign currency transactions amounted to $800 in 2008 and were not material in 2007 2006 or 2005.2006.

28

Earnings per share— The Company determined earnings per share in accordance with SFAS No. 128, “Earnings per Share” (“SFAS 128”). For the periods presented through the conversion of the preferred stock in connection with the secondary offering in May 2007, the Company’s preferred stockholders participated in dividends paid on the Company’s common stock on an “if converted” basis. In accordance with Emerging Issues Task Force Issue No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share”,” basic earnings per share is computed by applying the two-class method to compute earnings per share. The two-class method is an earnings allocation method under which earnings per share is calculated for each class of common stock and participating security considering both dividends declared and participation rights in undistributed earnings as if all such earnings had been distributed during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock plus common stock equivalents. Common stock equivalents consist of stock options, restricted stock awards, convertible preferred stock shares and other share-based payment awards, which have been included in the calculation of weighted average shares outstanding using the treasury stock method. In accordance with SFAS 128, theThe following table is a reconciliation of the basic and diluted earnings per share calculations for 2007, 2006 and 2005:calculations:
                        
(dollars and shares in thousands,      
except per share data) 2007 2006 2005
 2008 2007 2006
    
  
Numerator:  
Net income $51,806 $55,119 $38,909 
Net (loss) income $(17,082) $51,806 $55,119 
Preferred dividends distributed  (593)  (963)  (961) —  (593)  (963)
    
Undistributed earnings $51,213 $54,156 $37,948 
Undistributed (losses) earnings $(17,082) $51,213 $54,156 
    
  
Undistributed earnings attributable to: 
Undistributed (losses) earnings attributable to: 
Common stockholders $49,981 $49,831 $37,948  $(17,082) $49,981 $49,831 
Preferred stockholders, as if converted 1,232 4,325 —  — 1,232 4,325 
    
Total undistributed earnings $51,213 $54,156 $37,948 
Total undistributed (losses) earnings $(17,082) $51,213 $54,156 
    
  
Denominator:  
Denominator for basic earnings per share:  
Weighted average common shares outstanding 20,060 16,907 16,033  22,528 20,060 16,907 
  
Effect of dilutive securities:  
Outstanding employee and directors’ common stock options and restricted stock 756 360 593 
Outstanding employee and directors’ common stock options, restricted stock and share-based awards — 756 360 
Convertible preferred stock 732 1,794 1,794  — 732 1,794 
    
  
Denominator for diluted earnings per share 21,548 19,061 18,420  22,528 21,548 19,061 
    
  
Basic earnings per share $2.49 $2.95 $2.37 
Basic earnings (loss) per share $(0.76) $2.49 $2.95 
    
  
Diluted earnings per share $2.41 $2.89 $2.11 
Diluted earnings (loss) per share $(0.76) $2.41 $2.89 
    
Outstanding employees and directors common stock options, restricted shares and convertible preferred stock shares having no dilutive effect — 20 53 
Outstanding common stock options and convertible preferred stock having an anti-dilutive effect 246 — 20 
    

36

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

29

Approximately 88%82% of the Company’s business is conducted from locations in the United States with the remainder of the sales generated by the Company’s operations in Canada, Mexico, France, the United Kingdom and Singapore.States.
Share-based compensation —The Company records share-based compensation expense ratably over the award vesting period based on the grant date fair value of share-based compensation awards. Share-based compensation expense for the Company’s long-term incentive plans is recorded using the fair value based on the market price of the Company’s common stock on the grant date adjusted to reflect that the participants in the long-term incentive plan do not participate in dividends during the vesting period.
New Accounting Standards —Issued Not Yet Adopted:
In September 2006Standards Adopted
Effective January 1, 2008, the FASB issuedCompany adopted SFAS No. 157, “Fair Value Measurement”Measurements” (“SFAS 157”) for measurement and in February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsdisclosure with respect to financial assets and Financial Liabilities” (“SFAS 159”).liabilities. SFAS 157 was issued to eliminateclarifies the diversity in practice that exists due to the different definitionsdefinition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.
The Company adopted the measurement provisions of SFAS 157 to value its pension plans assets as of December 31, 2008 (seeNote 5to the consolidated financial statements). In addition, SFAS No. 157 was applied in determining the fair value disclosures for debt (seeNote 9to the consolidated financial statements). The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values.
FASB Staff Position FAS 157-2, “Effective Date of FASB Statement No. 157”, provides a one year deferral of SFAS 157’s effective date for nonfinancial assets and liabilities. Accordingly, for nonfinancial assets and liabilities, SFAS 157 will become effective for the Company as of January 1, 2009, and may impact the determination of goodwill, intangible assets and other long-lived assets’ fair values recorded in conjunction with business combinations and as part of impairment reviews for goodwill and long-lived assets.
Effective November 13, 2008, the Company adopted SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the limited guidanceframework for selecting the principles used in applying these definitions.the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. The previous U.S. GAAP hierarchy existed within the American Institute of Certified Public Accountants’ statements on auditing standards, which are directed to the auditor rather than the reporting entity. SFAS 157 encourages162 moves the U.S. GAAP hierarchy to the accounting literature, thereby directing it to reporting entities to combine fair value information disclosed under SFAS 157 with otherwhich are responsible for selecting accounting pronouncements, including SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, where applicable. SFAS 157 is effectiveprinciples for financial statements issued for fiscal years beginning after November 15, 2007. Additionally, SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value.that are presented in conformity with U.S. GAAP. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not expect the adoption of these statements to materially affect itsthis statement did not have an impact on the Company’s consolidated financial position, results of operations or cash flows or its financial position.flows.

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Standards Issued Not Yet Adopted
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statementSFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Accordingly, any business combinations the Company engages in will be recorded and disclosed following existing generally accepted accounting principles until January 1, 2009. It is expected that SFAS 141R will have an impact on the Company’s consolidated financial statements, when effective, but the nature and magnitude of the specific effects will depend uponbe dependant on the nature, termssize and sizeterms of the acquisitions that the Company consummates after the effective date. The Company is still assessing the full impact of this standard on the Company’s future consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 5151” (“SFAS 160”). SFAS 160 requires that accounting and reporting for minority interests will be re-characterized as non-controlling interests and classified as a component of equity. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. This statementSFAS 160 is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 is not expected to have a material impact on the Company’s financial condition,position, results of operations and cash flows.
In May 2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. This FSP is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other U.S. GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008. FSP 142-3 will have an impact on the Company’s consolidated financial statements, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions the Company consummates after the effective date.
(2) Acquisitions and Divestitures
Acquisitions
Metals U.K. Group
On October 2, 2007,January 3, 2008, the Company completedacquired 100 percent of the saleoutstanding capital stock of Metal Mart LLC doing business as Metal Express, a wholly owned subsidiary, to Metal Supermarkets (Chicago) Ltd., a unitMetals U.K. Group (“Metals U.K.”). The acquisition of Metal Supermarkets Corp.Metals U.K. was accounted for approximately $6.3 million. Metal Expressusing the purchase method in accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”). Accordingly, the Company recorded the net assets acquired at their estimated fair values. The results and the assets of Metals U.K. are included in the Company’s Metals segment.
     Metals U.K. is a small orderdistributor and processor of specialty metals primarily serving the oil and gas, aerospace, petrochemical and power generation markets worldwide. Metals U.K. has distribution business whichand processing facilities in Blackburn, England, Hoddesdon, England and Bilbao, Spain. The acquisition of Metals U.K. is expected to allow the Company to expand its global reach and service potential high growth industries.
     The aggregate purchase price was approximately $29,693, or $28,854, net of cash acquired, and represents the aggregate cash purchase price, contingent consideration probable of payment, debt paid off at closing, and direct transaction costs. There was also the potential for $12,000 of additional purchase price to be paid based on the achievement of performance targets related to fiscal year 2008. Based on the performance of Metals U.K during 2008, no additional purchase price will be paid. The premium paid in excess of the fair value of the net assets acquired was primarily for the ability to expand the Company’s global reach, as well as to obtain Metals U.K.’s skilled, established workforce.

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served     In conjunction with the general manufacturing industry fromacquisition of Metals U.K., the Company amended its networkexisting revolving line of 15 locations throughoutcredit, expanding it to $230,000, which includes a $50,000 multi-currency facility to fund the U.S. Metal Express was includedacquisition and provide for future working capital needs of its European operations (seeNote 9). The multi-currency facility allows for funding in either British pounds or euros to reduce the Company’s Metals segment for historical reporting purposes. Forimpact of foreign exchange rate volatility.
     The following allocation of the fiscal year ended December 31, 2006, Metal Express’ revenues were $16.6 million.purchase price is final:
Purchase Price Allocation
     
Current assets $25,903 
Property, plant and equipment, net  3,876 
Trade name  516 
Customer relationships — contractual  893 
Customer relationships — non-contractual  2,421 
Non-compete agreements  1,705 
Goodwill  12,404 
    
Total assets  47,718 
     
Current liabilities  13,726 
Long-term liabilities  4,299 
    
Total liabilities  18,025 
    
     
Total purchase price $29,693 
    
     The Company recordedacquired intangible assets have a lossweighted average useful life of approximately $0.5 million on4.4 years. Useful lives by intangible asset category are as follows: trade name — 1 year, customer relationships — contractual — 10 years, customer relationships — non-contractual — 4 years and non-compete agreements — 3 years. The goodwill and intangible assets acquired are non-deductible for tax purposes. SeeNote 8for discussion regarding the divestiture. The net proceeds from the sale were used to repay a portionimpairment of the Company’s outstanding debt.Metals U.K.’s goodwill.
Transtar Intermediate Holdings #2, Inc.
In September 2006, the Company acquired all100 percent of the issued and outstanding capital stock of Transtar Intermediate Holdings #2, Inc. (“Transtar”), a wholly owned subsidiary of H.I.G. Transtar Inc. The results of Transtar’s operations have been included in the consolidated financial statements since that date. These results and the assets of Transtar are included in the Company’s Metals segment. The aggregate purchase price, net of cash acquired, was $175.6 million. An escrow account in the amount of $18 million funded from the purchase price was established to satisfy H.I.G. Transtar Inc.’s indemnification obligations under the stock purchase agreement.
The following table summarizes the preliminary allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed at the date of the Transtar acquisition. In accordance with the purchase agreement, the determination of the final purchase price iswas subject to a working capital adjustment. The final determination and agreement on the adjustment has not yet been completed, but the Company is pursuing a conclusion, the result of which is not expected to be material to the purchase price. The purchase price adjustment will impact the final allocation of purchase price to the acquired assets and liabilities. The Company has established the valuation of certain intangible assets and the allocationIn accordance with provisions of the purchase priceagreement, these matters were submitted to arbitration. On August 21, 2008, the arbitrator issued a final award on all pending matters with respect to the Transtar acquisition.
As a result of the arbitrator’s final award, the Company paid approximately $352 to the seller, which reflects the $1,261 of working capital adjustment and miscellaneous costs awarded to the Company, offset by legal fees and other costs of $1,613 awarded to the seller. The finalization of the working capital adjustment decreased goodwill by $244. For the year ended December 31, 2008, the net impact to income before income taxes and equity in earnings of joint venture was $2,470.
Divestiture
Metal Mart LLC
On October 2, 2007, the Company completed the sale of Metal Mart LLC, a wholly owned subsidiary, doing business as Metal Express, to Metal Supermarkets (Chicago) Ltd., a unit of Metal Supermarkets Corp. for approximately $6,300. Metal Express is as follows (dollarsa small order metals distribution business which served the general manufacturing industry from its network of 15 locations throughout the U.S. Metal Express was included in thousands):the Company’s Metals segment. For the year ended December 31, 2006, Metal Express’ revenues were $16,586.
     
Current assets $99,746 
Property, plant & equipment, net  4,274 
Intangible assets  68,324 
Goodwill  70,025 
Other long-term assets  300 
    
Total assets  242,669 
     
Current liabilities  38,424 
Long-term liabilities  25,950 
    
Total liabilities  64,374 
    
     
Net assets $178,295 
    
The acquired intangible assets haveCompany recorded a weighted average useful lifeloss of approximately 10.8 years and include $66.8 million for$500 on the acquired customer relationships withdivestiture. The net proceeds from the sale were used to repay a useful lifeportion of 11 years and $1.5 million of non-compete agreements with a useful life of 3 years. The goodwill and intangible assets are not deductible for tax purposes.the Company’s outstanding debt.

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(3) Segment Reporting
The Company distributes and performs processing on both metals and plastics. Although the distribution processes are similar, different customer markets, supplier bases and types of products exist. Additionally, the Company’s Chief Executive Officer, the chief operating decision-maker, reviews and manages these two businesses separately. As such, these businesses are considered reportable segments according toin accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” and are reported accordingly.
     In its Metals segment, the Company’s marketmarketing strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very tightprecise specifications. Core products include nickel alloys,alloy, aluminum, stainless, steelsnickel, titanium and carbon. Inventories of these products assume many forms such as plate, sheet, round bar,

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hexagon bar, square and flat bars;bar, tubing and coil. Depending on the size of the facility and the nature of the markets it serves, service centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, water-jet cutting, stress relieving and annealing furnaces, surface grinding equipment and sheet shearing equipment. This segment also performs various specialized fabrications for its customers through pre-qualified subcontractors that thermally processes, turns, polishesprocess, turn, polish and straightensstraighten alloy and carbon bar.
     The Company’s Plastics segment consists exclusively of Total Plastics, Inc. (“TPI”) headquartered in Kalamazoo, Michigan. The Plastics segment stocks and distributes a wide variety of plastics in forms that include plate, rod, tube, clear sheet, tape, gaskets and fittings. Processing activities within this segment include cut to length, cut to shape, bending and forming according to customer specifications. The Plastics segment’s diverse customer base consists of companies in the retail (point-of-purchase), marine, office furniture and fixtures, transportation and general manufacturing industries. TPI has locations throughout the upper Northeastnortheast and Midwest portionsmidwest regions of the U.S. and one facility in Florida from which it services a wide variety of users of industrial plastics.
     The accounting policies of all segments are the same as described in Note 1. Management evaluates the performance of its business segments based on operating income.
     The Company operates locations in the United States, Canada, Mexico, France, the United Kingdom, Spain, China and Singapore. No activity from any individual country outside the United States is material, and therefore, foreign activity is reported on an aggregate basis. Net sales are attributed to countries based on the location of the Company’s subsidiary that is selling direct to the customer. Company-wide geographic data as of and for the years ended December 31, 2008, 2007 2006 and 20052006 are as follows (dollars in millions):follows:
                        
 2007 2006 2005 2008 2007 2006
Net sales  
United States $1,246.0 $1,069.9 $871.7  $1,236,355 $1,245,943 $1,069,888 
All other countries 174.4 107.7 87.3  264,681 174,410 107,712 
    
Total $1,420.4 $1,177.6 $959.0  $1,501,036 $1,420,353 $1,177,600 
    
  
Long-lived assets  
United States $68.6 $65.3 $59.5  $78,911 $68,621 
All other countries 6.5 5.1 4.9  9,379 6,489 
     
Total $75.1 $70.4 $64.4  $88,290 $75,110 
     

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     Segment information as of and for the years ended December 31, 2008, 2007 2006 and 20052006 is as follows (dollars in millions):follows:
                                        
 Net Operating Total Depreciation & Net Operating Total Depreciation &
 Sales Income (Loss) Assets Capital Expenditures Amortization
  
2008 
Metals segment $1,384,859 $11,554 $602,897 $24,218 $22,040 
Plastics segment 116,177 3,182 52,797 2,084 1,287 
Other —  (10,604) 23,340 — — 
  
Consolidated $1,501,036 $4,132 $679,034 $26,302 $23,327 
 Sales Income (Loss) Assets Capital Expenditures Amortization  
   
2007  
Metals segment $1,304.8 $94.4 $608.0 $17.6 $19.0  $1,304,713 $94,235 $607,993 $17,537 $18,988 
Plastics segment 115.6 4.9 51.6 2.6 1.2  115,640 4,989 51,592 2,646 1,189 
Other —  (8.6) 17.4 — —  —  (8,549) 17,419 — — 
    
Consolidated $1,420.4 $90.7 $677.0 $20.2 $20.2  $1,420,353 $90,675 $677,004 $20,183 $20,177 
    
  
2006  
Metals segment $1,062.6 $95.0 $593.7 $11.8 $12.2  $1,062,620 $94,915 $593,730 $11,941 $12,170 
Plastics segment 115.0 7.3 47.8 1.1 1.1  114,980 7,301 47,813 994 1,120 
Other —  (9.8) 13.6 — —  —  (9,751) 13,577 — — 
    
Consolidated $1,177.6 $92.5 $655.1 $12.9 $13.3  $1,177,600 $92,465 $655,120 $12,935 $13,290 
    
 
2005 
Metals segment $851.3 $75.3 $362.8 $7.1 $8.3 
Plastics segment 107.7 5.6 49.8 1.6 1.0 
Other —  (9.7) 11.1 — — 
  
Consolidated $959.0 $71.2 $423.7 $8.7 $9.3 
  

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“Other” — Operating loss includes the costs of executive, legal and finance departments, which are shared by both the Metals and Plastics segments. The “Other” category’s total assets consist of the Company’s investment in joint venture.
(4) Lease Agreements
The Company has operating and capital leases covering certain warehouse facilities, equipment, automobiles and trucks, with lapse of time as the basis for all rental payments, and with a mileage factor included in the truck leases.
     Future minimum rental payments under operating and capital leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2007,2008, are as follows(dollars in thousands):follows:
                
 Capital Operating Capital Operating
2008 $625 $14,193 
2009 121 11,510  $548 $12,259 
2010 67 9,078  498 10,554 
2011 62 8,240  325 9,868 
2012 46 7,071  133 9,483 
2013 18 7,653 
Later years — 7,009  — 6,576 
    
Total future minimum rental payments $921 $57,101  $1,522 $56,393 
    
     Total rental payments charged to expense were $14.9 million$13,049 in 2008, $14,895 in 2007, $13.1 millionand $13,055 in 2006,2006.
     Total gross value of property, plant and $10.4 millionequipment under capital leases was $2,259 and $665 in 2005.2008 and 2007, respectively.
     In July 2003, the Company sold its Los Angeles land and building for $10.5 million.$10,538. Under the agreement, the Company has a ten-year lease for 59% of the property. In October 2003, the Company also sold its Kansas City land and building for $3.4 million$3,464 and is leasing back approximately 68% of the property from the purchaser for ten years. These transactions are being accounted for as operating leases. The two transactions generated a total net gain of $8.5 million,$8,495, which has been deferred and is being amortized to income ratably over the term of the leases. At December 31, 2008 and 2007, and 2006, the remainingnon-current portion of the deferred gain in the amount of $4.8 million$3,393 and $5.7 million,$4,761, respectively, is included in “Other non-current liabilities” withon the consolidated balance sheets.

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Additionally, the current portion $0.9 million and $0.9 million, respectively,in the amount of $852 is included in “Accrued liabilities” in the consolidated balance sheets.sheets at December 31, 2008 and 2007. The leases require the Company to pay customary operating and repair expenses and contain renewal options. The total rental expense for these leases for 2008, 2007 and 2006 was $1,525, $1,466 and 2005 was $1.5 million, $1.4 million and $1.3 million,$1,372, respectively.
(5) Pension and PostretirementEmployee Benefit Plans
Pension Plans
During December 2007, certain of the pension plans were amended and as a result, a curtailment charge of $284 was recognized in 2007. During March 2008, the supplemental pension plan was amended and as a result, a curtailment gain of $472 was recognized at that time. Effective July 1, 2008, the Company-sponsored pension plans and supplemental pension plan (collectively, the “pension plans”) were frozen.
Substantially all employees who meet certain requirements of age, length of service and hours worked per year are covered by Company-sponsored pension plans. These pension plans are defined benefit, noncontributory plans. Benefits paid to retirees are based upon age at retirement, years of credited service and average earnings. The Company also has a supplemental pension plan, which is a non-qualified, unfunded plan. The Company uses a December 31 measurement date for itsthe pension plans. The Company adopted SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, which was an amendment of SFAS No. 87, 88, 106 and 132(R) (“SFAS 158”), effective December 31, 2006.
     Effective July 1, 2008,In conjunction with the Company-sponsoreddecision to freeze the pension plans, the Company modified its investment portfolio target allocation for the pension plans’ funds. The revised investment target portfolio allocation focuses primarily on corporate fixed income securities that match the overall duration and supplemental pension plan will be frozen. During December 2007, certainterm of the Company-sponsoredCompany’s pension plans were amended and asliability structure. The Company’s decision to change the investment portfolio target allocation will result in a reduction to the expected long-term rate of return in 2009, which will, absent other changes, result a curtailment loss of $0.3 million was recognized in 2007.an increase to the Company’s future net periodic pension cost. The assets of the Company-

33

sponsoredCompany-sponsored pension plans are maintained in a single trust account. The majority of the trust assets are invested in common stock mutual funds, insurance contracts, real estate funds and corporate bonds.
     The Company’s funding policy is to satisfy the minimum funding requirements of the Employee Retirement Income Security Act of 1974, commonly called ERISA.
     Components of net periodic pension benefit cost for 2007, 2006 and 2005 are as follows (dollars in thousands):
                        
 2007 2006 2005 2008 2007 2006
    
Service cost $3,562 $3,485 $2,744  $2,057 $3,562 $3,485 
Interest cost 7,424 7,011 6,193  7,216 7,424 7,011 
Expected return on assets  (10,080)  (9,696)  (9,577)  (11,124)  (10,080)  (9,696)
Amortization of prior service cost 58 58 63  245 58 58 
Amortization of actuarial loss 3,153 3,756 2,459  351 3,153 3,756 
    
Net periodic pension benefit cost $4,117 $4,614 $1,882 
Net periodic pension (credit) cost, excluding impact of curtailment $(1,255) $4,117 $4,614 
    
     The expected 20082009 amortization of pension prior service cost and actuarial loss is $0.1 million$240 and $0.3 million,$152, respectively.
     StatusThe status of the plans at December 31, 20072008 and 20062007 are as follows(dollars in thousands):
         
  2007 2006
   
Change in projected benefit obligation:        
Projected benefit obligation at beginning of year $132,025  $130,251 
Service cost  3,562   3,485 
Interest cost  7,424   7,011 
Curtailments  (13,291)  — 
Benefit payments  (5,709)  (5,444)
Actuarial (gain) loss  (6,062)  (3,278)
   
Projected benefit obligation at end of year $117,949  $132,025 
   
         
Change in plan assets:        
Fair value of plan assets at beginning of year $130,377  $118,509 
Actual return on assets  12,332   16,940 
Employer contributions  314   372 
Benefit payments  (5,709)  (5,444)
   
Fair value of plan assets at end of year $137,314  $130,377 
   
         
   
Funded status — net prepaid (liability) $19,365  $(1,648)
   
         
Amounts recognized in the consolidated balance sheets consist of:        
Prepaid pension cost $25,426  $5,681 
Accrued liabilities  (164)  (369)
Pension and postretirement benefit obligations  (5,897)  (6,960)
   
Net amount recognized $19,365  $(1,648)
   
         
Pre-tax components of accumulated other comprehensive income (loss):        
Unrecognized actuarial loss $(10,692) $(35,449)
Unrecognized prior service cost  (133)  (475)
   
Total $(10,825) $(35,924)
   
         
Accumulated benefit obligation $115,764  $115,889 
         
  2008 2007
   
Change in projected benefit obligation:        
Projected benefit obligation at beginning of year $117,949  $132,025 
Service cost  2,057   3,562 
Interest cost  7,216   7,424 
Curtailments  (1,962)  (13,291)
Plan change  1,891   — 
Benefit payments  (5,562)  (5,709)

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  2008 2007
   
Actuarial (gain) loss  1,619   (6,062)
   
Projected benefit obligation at end of year $123,208  $117,949 
   
         
Change in plan assets:        
Fair value of plan assets at beginning of year $137,314  $130,377 
Actual return on assets  13,655   12,332 
Employer contributions  165   314 
Benefit payments  (5,562)  (5,709)
   
Fair value of plan assets at end of year $145,572  $137,314 
   
         
Funded status — net prepaid $22,364  $19,365 
   
         
Amounts recognized in the consolidated balance sheets consist of:        
Prepaid pension cost $26,615  $25,426 
Accrued liabilities  (216)  (164)
Pension and postretirement benefit obligations  (4,035)  (5,897)
   
Net amount recognized $22,364  $19,365 
   
         
Pre-tax components of accumulated other comprehensive income (loss):        
Unrecognized actuarial loss $(7,799) $(10,692)
Unrecognized prior service cost  (1,918)  (133)
   
Total $(9,717) $(10,825)
   
         
Accumulated benefit obligation $123,085  $115,764 
     For plans with an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets was $6.1 million, $3.9 millionwere $4,251, $4,251 and $0.0 million,$0, respectively, at December 31, 2007,2008; and $6.7 million, $5.2 million$6,060, $3,941 and $0.0 million,$0, respectively, at December 31, 2006.2007.
     The assumptions used to measure the projected benefit obligations for the Company’s defined benefit pension plans are as follows:
                
 2007 2006 2008 2007
    
Discount rate  6.25%  5.75%  6.25%  6.25%
Projected annual salary increases 4.00 4.00  — 4.00 
Expected long-term rate of return on plan assets 8.75 8.75 
Measurement date 12/31/07 12/31/06 
The assumptions used to determine net periodic pension benefit costs are as follows:
                        
 2007 2006 2005 2008 2007 2006
    
Discount rate  5.75%  5.50%  5.75%  6.25%  5.75%  5.50%
Expected long-term rate of return on plan assets 8.75 8.75 9.00  8.75 8.75 8.75 
Projected annual salary increases 4.00 4.00 4.00  4.00 4.00 4.00 
Measurement date 12/31/06 12/31/05 12/31/04 
     The assumption on expected long-term rate of return on plan assets for all years was based on a building block approach. The expected long-term rate of inflation and risk premiums for the various asset categories are based on the current investment environment. General historical market returns are used in the development of the long-term expected inflation rates and risk premiums. The target allocations of assets are used to develop a composite rate of return assumption.

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The Company’s pension plan weighted average asset allocations at December 31, 20072008 and 2006,2007, by asset category, are as follows:
                
 2007 2006 2008 2007
    
Equity securities  73.4%  69.8% —  73.4%
Company stock —  6.0%
Debt securities  6.8%  6.5%  86.7%  6.8%
Real estate  5.8%  5.4%  5.0%  5.8%
Other  14.0%  12.3%  8.3%  14.0%
    
  100.0%  100.0%  100.0%  100.0%
    
     The Company’s pension planplans’ funds are managed in accordance with investment policies recommended by its investment advisor and approved by the Board of Directors. TheBeginning in 2008, the overall target portfolio allocation is 70-80% equities; 10-20%100% fixed income; and 5-15% real estate.income securities. Non-readily marketable investments comprise approximatelyless than 10% of the portfolio as of both December 31, 20072008 and 2006. Within2007. The Company utilizes observable market data to value approximately 90% of the equity allocation,assets (i.e., primarily the style distribution is 35% value, 35% growth, 15% small cap growth, and 15% international.fixed income securities) in its pension plans. These funds’ conformance with style profiles and performance is monitored regularly by management, with the assistance of the Company’s investment advisor. Adjustments are typically made in the subsequent quarters when investment allocations deviate from the target range. The investment advisor makesprovides quarterly reports to management and the Human Resource Committee of the Board of Directors.
     The estimated future pension benefit payments are(dollars in thousands):

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2008 $6,114 
2009  6,199 
2010  6,469 
2011  6,648 
2012  6,775 
2013 — 2017  40,367 
are:
     
2009 $6,280 
2010  6,544 
2011  6,722 
2012  7,024 
2013  7,427 
2014 — 2018  43,256 
Postretirement Plan
The Company also provides declining value life insurance to its retirees and a maximum of three years of medical coverage to qualified individuals who retire between the ages of 62 and 65. The Company does not fund these benefits in advance, and uses a December 31 measurement date.
Components of net periodic postretirement benefit costscost for 2008, 2007 2006 and 20052006 were as follows(dollars in thousands):
                        
 2007 2006 2005 2008 2007 2006
    
Service cost $176 $186 $138  $151 $176 $186 
Interest cost 220 213 179  207 220 213 
Amortization of prior service cost 47 47 47  47 47 47 
Amortization of actuarial loss (gain)  (5) 27 —   (18)  (5) 27 
    
Net periodic postretirement benefit cost $438 $473 $364  $387 $438 $473 
    
The expected 20082009 amortization of postretirement prior service cost and actuarial gain are each less than $0.1 million.$50.

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The status of the postretirement benefit plans at December 31, 20072008 and 20062007 were as follows (dollars in thousands):
                
 2007 2006 2008 2007 
    
Change in accumulated postretirement benefit obligations:  
Accumulated postretirement benefit obligation at beginning of year $3,867 $3,928  $3,416 $3,867 
Service cost 175 186  151 175 
Interest cost 220 213  207 220 
Benefit payments  (170)  (86)  (126)  (170)
Actuarial loss (gains)  (676)  (374)
Actuarial loss (gain) 39  (676)
    
Accumulated postretirement benefit obligation at end of year $3,416 $3,867  $3,687 $3,416 
    
 
Funded status — net liability $(3,416) $(3,867) $(3,687) $(3,416)
  
   
Amounts recognized in the consolidated balance sheets consist of:  
Accrued liabilities $(210) $(190) $(189) $(210)
Pension and postretirement benefit obligations  (3,206)  (3,677)  (3,498)  (3,206)
    
Net amount recognized $(3,416) $(3,867) $(3,687) $(3,416)
    
 
Pre-tax components of accumulated other comprehensive income (loss):  
Unrecognized actuarial gain (loss) $556 $(115)
Unrecognized actuarial gain $499 $556 
Unrecognized prior service cost  (123)  (171)  (76)  (123)
    
Total $433 $(286) $423 $433 
    
     Future benefit costs were estimated assuming medical costs would increase at a 5.75%10% annual rate for 2007.2008. A 1% increase in the health care cost trend rate assumptions would have increased the accumulated postretirement benefit obligation at December 31, 20072008 by $0.2 million$260 with no significant effectimpact on the annual periodic postretirement benefit cost. A 1% decrease in the health care cost trend rate assumptions would have decreased the accumulated postretirement benefit obligation at December 31,

36

2007 2008 by $0.2 million$233 with no significant effectimpact on the annual periodic postretirement benefit cost. The weighted average discount rate used in determiningto determine the accumulated postretirement benefit obligation was 6.25% in 20072008 and 5.75% in 2006.2007. The weighted average discount rate used in determining net periodic postretirement benefit costs were 6.25% in 2008, 5.75% in 2007 and 5.5% in 20062006.
Retirement Savings Plan
     Effective July 1, 2008, the Company revised the provisions of its retirement savings plan for the benefit of salaried and 5.75%other eligible employees (including officers). The Company’s plan includes features under Section 401(k) of the Internal Revenue Code. The plan includes a provision whereby the Company makes a partial matching contribution on the first 6% of considered earnings that each employee contributes. The plan also includes a supplemental contribution feature whereby a fixed contribution of considered earnings is deposited into each employee’s 401(k) account each pay period, regardless of whether the employee participates in 2005.the plan. Company contributions cliff vest after two years of employment.
     ThePrior to July 1, 2008, the Company hasmaintained profit sharing plansplan for the benefit of salaried and other eligible employees (including officers). The Company’s profit sharing plans includealso included features under Section 401(k) of the Internal Revenue Code. The plans includeincluded a provision whereby the Company partially matchesmatched employee contributions up to a maximum ofon the first 6% of the employees’ salary.contribution. The plans also includeincluded a supplemental contribution feature whereby a Company contribution would bewas made to all eligible employees upon achievement of specific return on investment goals as defined by the plan.
     The Company also has a management incentive plan for the benefit of its officers and key employees, which is not a retirement plan. Incentives are paid to line managers based on performance against objectives for their respective operating units. Incentives are paid to corporate officers on the basis of total Company performance against objectives. Amounts accrued and expensed under each plan are included as part of accrued payroll and employee benefits. The amounts expensed are summarized below(dollars in thousands):below:
             
  2007 2006 2005
   
Profit sharing and 401(k) $3,939  $3,977  $4,077 
Management incentive $3,423  $4,226  $4,261 
             
  2008 2007 2006
   
Supplemental contributions and 401(k) match $3,161  $3,939  $3,977 

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(6) Joint Venture
Kreher Steel Co,Co., LLC is a 50% owned joint venture of the Company. It is a Midwestern U.S. metals distributor of bulk quantities of alloy, special bar quality and stainless steel bars.
     The following information summarizes the Company’s participation in the joint venture (dollars in millions):as of and for the year ended December 31:
                        
For the Years Ended December 31, 2007 2006 2005
 2008 2007 2006
Equity in earnings of joint venture $5.3 $4.3 $4.3  $8,849 $5,324 $4,286 
Investment in joint venture 17.4 13.6 10.8  23,340 17,419 13,577 
Sales to joint venture 0.7 0.6 0.3  568 642 626 
Purchases from joint venture 0.6 0.1 0.2  1,040 565 133 
     SummarizedThe following information summarizes financial data for this joint venture is as follows (of and for the year ended December 31dollars in millions):
                        
For the Years Ended December 31, 2007 2006 2005
 2008 2007 2006
Revenues $164.3 $131.0 $130.9  $221,753 $164,297 $130,973 
Net income 10.6 8.6 8.6  17,698 10,647 8,572 
Current assets 56.1 41.4 40.0  64,550 56,149 41,420 
Non-current assets 18.2 12.7 9.9  19,184 18,137 12,705 
Current liabilities 37.4 22.9 25.9  34,864 37,354 22,894 
Non-current liabilities 3.3 3.6 1.7  3,428 3,275 3,615 
Members’ equity 33.7 27.6 22.3  45,442 33,657 27,616 
Capital expenditures (a) 8.0 1.1 0.8  2,628 7,999 1,143 
Depreciation 1.2 1.0 1.0 
Depreciation and amortization 1,597 1,236 1,008 
 
(a) Includes purchase of Special Metals Inc. for $4.3 million$4,312 on April 2, 20072007.

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(7) Income Taxes
Income before income taxes and equity in income of joint venture generated by ourthe Company’s U.S. and non-U.S. operations were as follows(dollars in thousands):follows:
                        
 2007 2006 2005 2008 2007 2006
    
U.S. $65,516 $74,226 $51,236  $(13,425) $65,516 $74,226 
Non-U.S. 12,260 9,937 6,562  8,184 12,260 9,937 
The Company’s income tax expense (benefit) is comprised of the following (dollars in thousands):following:
                        
 2007 2006 2005 2008 2007 2006
    
Federal — current $34,082 $21,701 $23,652  $25,943 $34,082 $21,701 
— deferred  (11,515) 4,443  (4,639)  (11,025)  (11,515) 4,443 
State — current 5,194 3,914 242  2,827 5,194 3,914 
— deferred  (527)  (123) 2,144   (2,381)  (527)  (123)
Foreign — current 5,166 3,178 1,343  5,498 5,166 3,178 
— deferred  (1,106) 217 449   (172)  (1,106) 217 
    
Total income tax expense $20,690 $31,294 $33,330 
 $31,294 $33,330 $23,191   
  

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The reconciliation between the Company’s effective tax rate on income and the U.S. federal income tax rate of 35% is as follows(dollars in thousands):follows:
                        
 2007 2006 2005 2008 2007 2006
    
Federal income tax at statutory rates $27,220 $29,456 $20,229  $(1,834) $27,220 $29,456 
State income taxes, net of federal income tax benefits 2,825 2,412 1,551  95 3,050 2,412 
Federal and state income tax on joint ventures 2,071 1,672 1,687 
Federal and state income tax on joint venture 3,460 2,071 1,672 
Impairment of goodwill 20,601 — — 
Rate differential on foreign income  (1,253)  (231)  (83)
Other  (822)  (210)  (276)  (379)  (816)  (127)
    
Income tax expense $31,294 $33,330 $23,191  $20,690 $31,294 $33,330 
    
Effective income tax expense rate  40.2%  39.6%  40.1%  (394.8%)  40.2%  39.6%
    
Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2007 and 2006 are as follows(dollars in thousands):follows:
                
 2007 2006 2008 2007
    
Deferred tax liabilities:  
Depreciation $6,444 $7,950  $6,783 $6,444 
Inventory 12,639 20,623  — 12,639 
Pension 4,701 —  10,259 4,701 
Intangibles and goodwill 28,069 29,739 
Intangible assets and goodwill 25,895 28,069 
Postretirement benefits 1,498 —  — 1,498 
    
Total deferred tax liabilities $53,351 $58,312  $42,937 $53,351 
  
Deferred tax assets:  
Postretirement benefits $— $1,431  $2,945 $— 
Inventory 275 — 
Deferred compensation 1,468 2,320  2,267 1,468 
Deferred gain 2,280 3,108  1,314 2,280 
Impairments 1,283 1,218  1,918 1,283 
Pension — 755 
Other, net 3,262 1,359  720 3,262 
    
Total deferred tax assets $8,293 $10,191  $9,439 $8,293 
    
Net deferred tax liabilities $45,058 $48,121  $33,498 $45,058 
  

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The following table shows the net change in the Company’s unrecognized tax benefits during 2007 (dollars in thousands):benefits:
     
Balance as of January 1, 2007 $931 
     
Increases(decreases) in unrecognized tax benefits:    
Due to tax positions taken in prior years  563 
Due to tax positions taken during the current year  260 
Due to settlement with taxing authorities  — 
Due to lapsing of applicable statute of limitations  — 
    
Balance as of December 31, 2007 $1,754 
    
         
  2008  2007 
   
Balance as of January 1, 2008 $1,754  $931 
         
Increases (decreases) in unrecognized tax benefits:        
Due to tax positions taken in prior years  169   563 
Due to tax positions taken during the current year  350   260 
   
Balance as of December 31, 2008 $2,273  $1,754 
   
As of December 31, 2007, $0.6 million2008, $1,775 of unrecognized tax benefits would impact the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. At December 31, 2007,2008, the Company had accrued interest and penalties related to unrecognized tax benefits of $0.1 million.$263.
     The Company or its subsidiaries files income tax returns in the U.S., 28 states and five5 foreign jurisdictions. The 2005 U.S. federal income tax return andDuring 2008, the audit of the 2002 through 2004 Canadian income tax returns for 2002 through 2004 are currently under audit.
     Due to the potential for resolution of the IRS and Canadian examinations, it is reasonably possible that our gross unrecognized tax benefits may change within the next 12 months by a range of zero to $1 million.was finalized with no material adjustment. The tax years 2004-20072005-2007 remain open to examination by the major taxing jurisdictions to which wethe Company is subject. The 2005 and 2006 U.S. federal income tax returns are subject.currently under audit. To date, several adjustments have been proposed, and the Company is evaluating the appropriateness of these potential adjustments.
     Due to the potential for resolution of the IRS examination, it is reasonably possible that the gross unrecognized tax benefits may potentially decrease within the next 12 months by a range of approximately $1,000 to $1,500.

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(8) Goodwill and Intangible Assets
Acquisition of TranstarMetals U.K.
As discussed in Note 2, the Company acquired all of the issued and outstanding capital stock of Transtar in September 2006. Transtar’sMetals U.K. on January 3, 2008. Metals U.K.’s results and assets are included in the Company’s Metals segment. In accordance withsegment from the purchase agreement, the determinationdate of the final purchase price is subject to a working capital adjustment. The final determination and agreement on the adjustment has not yet been completed, but the Company is pursuing a conclusion, the result of which is not expected to be material to the purchase price. The purchase price adjustment will impact the final allocation of purchase price to the acquired assets and liabilities.acquisition.
     The changes in carrying amounts of goodwill during the year ended December 31, 2008 were as follows (dollars in thousands):follows:
                        
 Metals Plastics   Metals Plastics  
 Segment Segment Total Segment Segment Total
    
Balance as of January 1, 2006 $19,249 $12,973 $32,222 
Balance as of January 1, 2007 $88,810 $12,973 $101,783 
    
Transtar acquisition (see Note 2) 69,564 — 69,564 
Currency valuation  (3) —  (3)
  
Balance as of December 31, 2006 $88,810 $12,973 $101,783 
Transtar purchase price adjustments 462 — 462  462 — 462 
Sale of Metal Express  (825) —  (825)  (825) —  (825)
Currency valuation 120 — 120  120 — 120 
    
Balance as of December 31, 2007 $88,567 $12,973 $101,540  $88,567 $12,973 $101,540 
    
Acquisition of Metals U.K. 12,404 — 12,404 
Transtar purchase price adjustment  (244) —  (244)
Impairment charge  (58,860) —  (58,860)
Currency valuation  (3,519) —  (3,519)
  
Balance as of December 31, 2008 $38,348 $12,973 $51,321 
  
     During 2007, the Company finalized its valuation of deferred taxes associated with the Transtar

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acquisition.     The Company performs an annual impairment test onof goodwill in the first quarter of each fiscal year.year or at an interim date whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Based on the goodwill impairment test performed during the first quarter of 2007,2008, the Company has determined that there iswas no impairment of goodwill.
     During the fourth quarter of 2008, the Company determined that the weakening of the U.S. economy and the global credit crisis resulted in a reduction of the Company’s market capitalization below its total shareholder’s equity value for a sustained period of time, which was an indication that its goodwill may be impaired. As a result, the Company performed an interim goodwill impairment analysis as of December 31, 2008. With the assistance of a third-party valuation specialist, the Company determined the fair value of its reporting units using the income and market comparable valuation methodologies. The valuation methodologies and underlying financial information that are used to determine fair value require significant judgments to be made by management. These judgments include, but are not limited to, long-term projections of future financial performance and the selection of appropriate discount rates used to present value the estimated future cash flows of the Company. The long-term projections used in the valuation are developed as part of the Company’s annual budgeting and forecasting process. The discount rates used to determine the fair values of the reporting units are those of a hypothetical market participant which are developed based upon an analysis of comparable companies and include adjustments made to account for any individual reporting unit specific attributes such as, size and industry.
     The carrying value of the Aerospace and Metals U.K. reporting units within the Metals Segment exceeded their respective fair values. The Company compared the implied fair value of the goodwill in each of these reporting units with the carrying value of the goodwill and a non-cash charge of $58,860 for goodwill impairment was recorded in the fourth quarter of 2008. The charge is non-deductible for tax purposes. Of this amount, $49,823 and $9,037 relates to the Aerospace and Metals U.K. reporting units, respectively, within the Metals segment.

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     The following summarizes the components of intangible assets at December 31, 20072008 and December 31, 2006 (dollars in thousands):2007:
                
 2007 2006                
 Gross Gross   2008 2007
 Carrying Accumulated Carrying Accumulated Gross Carrying Accumulated Gross Carrying Accumulated
 Amount Amortization Amount Amortization Amount Amortization Amount Amortization
    
Customer relationships $66,867 $8,131 $66,851 $2,061  $69,292 $14,729 $66,867 $8,131 
Non-Compete agreements 1,557 691 1,557 178 
Non-compete agreements 2,805 1,626 1,557 691 
Trade name 378 378 — — 
    
Total $68,424 $8,822 $68,408 $2,239  $72,475 $16,733 $68,424 $8,822 
    
     The weighted-average amortization period for the intangible assets is 10.810.5 years, 1110.8 years for customer relationships and 3 years for non-compete agreements. Substantially all of the Company’s intangible assets were acquired as part of the acquisitionacquisitions of Transtar on September 5, 2006.2006 and Metals U.K. on January 3, 2008.
     For the year-endedyears ended December 31, 2008, 2007, 2006, and 2005,2006, the aggregate amortization expense was $6.6 million, $2.2 million$8,271, $6,587 and less than $0.1 million,$2,224, respectively.
     The following is a summary of the estimated aggregateannual amortization expense for each of the next five years (dollars in thousands):5 years:
        
2008 $6,609 
2009 6,436  $7,361 
2010 6,086  7,015 
2011 6,075  6,578 
2012 6,072  6,135 
2013 6,135 
9) Debt
Short-term and long-term debt consisted of the following at December 31, 20072008 and 20062007(dollars in thousands):
                
 2007 2006  2008 2007
    
SHORT-TERM DEBT  
U.S. Revolver (a) $4,300 $108,000 
U.S. Revolver A (a) $18,000 $4,300 
Mexico — 1,863  1,700 — 
Transtar 2,312 1,383 
Other foreign 1,500 2,312 
Trade acceptances (c) 12,127 12,015  9,997 12,127 
    
Total short-term debt 18,739 123,261  31,197 18,739 
  
LONG-TERM DEBT  
U.S. Term Loan due in scheduled installments from 2006 through 2011 at a 7.25% weighted average rate (e) — 28,500 
6.76% insurance company loan due in scheduled installments from 2007 through 2015 (b) 63,228 69,283  56,816 63,228 
Industrial development revenue bonds at a 3.91% weighted average rate, due in varying amounts through 2009 (d) 3,600 3,600 
U.S. Revolver B (a) 24,018 — 
Industrial development revenue bonds at a 3.22% weighted average rate, due in varying amounts through 2009 (d) 3,500 3,600 
Other, primarily capital leases 921 1,502  1,522 921 
    
Total long-term debt 67,749 102,885  85,856 67,749 
Less-current portion  (7,037)  (12,834)
Less current portion  (10,838)  (7,037)
    
Total long-term portion 60,712 90,051  75,018 60,712 
TOTAL SHORT-TERM AND LONG-TERM DEBT $86,488 $226,146  $117,053 $86,488 
    

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(a) On September 5, 2006January 2, 2008, the Company and its Canadian, subsidiaryU.K. and material domestic subsidiaries entered into a $210.0 million five-year securedFirst Amendment to its Amended and Restated Credit Agreement (the “Amended“2008 Senior Credit Facility”) dated as of September 5, 2006 with its lending syndicate. The Amended Senior Credit Facility amendedFirst Amendment to the Company’s and the Canadian Subsidiary’s outstanding senior credit facility that had originally been entered into in July 2005 (the “2005 Revolver”).
The Amended Senior Credit Facility provides fora $230,000 five-year secured revolver. The facility consists of (i) a $170.0 million$170,000 revolving “A” loan (the “U.S. Revolver”Revolver A”) to be drawn on by the Company from time to time, (ii) a $30.0 million term$50,000 multicurrency

49

revolving “B” loan ( the(the “U.S. Term Loan”Revolver B” and with the U.S. Revolver A, the “U.S. Facility”), to be drawn by the Company or its U.K. subsidiary from time to time, and (iii) a Cdn. $11.1 million$9,800 revolving loan (approximately $9.9 million(corresponding to $10,000 in U.S. dollars),dollars as of the amendment closing date) (the “Canadian Revolver”Facility”) to be drawn on by the Company’s Canadian subsidiary from time to time. In addition, the maturity date of the 2008 Senior Credit Facility was extended to January 2, 2013. The Canadianobligations of the U.K. subsidiary under the U.S. Revolver can be drawn in either U.S. dollars or Canadian dollars. The revolving loans and term loan will mature in 2011. As of December 31, 2007,B are guaranteed by the Company had outstanding borrowings of $4.3 million underand its material domestic subsidiaries (the “Guarantee Subsidiaries”) pursuant to a U.K. Guarantee Agreement entered into by the Company and the Guarantee Subsidiaries on January 2, 2008 (the “U.K. Guarantee Agreement”). The U.S. Revolver and had availabilityA letter of $158.8 million.credit sub-facility was increased from $15,000 to $20,000. The Company’s CanadianU.K. subsidiary had no outstanding borrowingsdrew £14,900 (or $29,600) of the amount available under the Canadian Facility and had availabilityU.S. Revolver B to finance the acquisition of $9.9 million.Metals U.K. Group on January 3, 2008 (seeNote 2).
  The U.S. Facility is guaranteed by the material domestic subsidiaries of the Company and is secured by substantially all of the assets of the Company and its domestic subsidiaries. The obligations of the Company rank pari passu in right of payment with the Company’s long-term notes. The U.S. Facility provides for a swing line sub-facility in an aggregate amount up to $15.0 million and forcontains a letter of credit sub-facility providing for the issuance of letters of credit up to $15.0 million.$20,000. Depending on the type of borrowing selected by the Company, the applicable interest rate for loans under the U.S. Facility is calculated as a per annum rate equal to (i) LIBOR plus a variable margin or (ii) “Base Rate”, which is the greater of the U.S. prime rate or the federal funds effective rate plus 0.5%, plus a variable margin. The margin on LIBOR andor Base Rate loans may fall or rise as set forth in the Amended2008 Senior Credit AgreementFacility depending on the Company’s debt-to-capital ratio as calculated on a quarterly basis. As of December 31, 2007 the Company’s weighted average interest rate was 7.16%.
 
  The Canadian RevolverFacility is guaranteed by the Company and is secured by substantially all of the assets of the Canadian subsidiary. The Canadian RevolverFacility provides for a letter of credit sub-facility providing for the issuance of letters of credit in an aggregate amount of up to Cdn. $2.0 million.$2,000. Depending on the type of borrowing selected by the Canadian subsidiary, the applicable interest rate for loans under the Canadian RevolverFacility is calculated as a per annum rate equal to (i) for loans drawn in U.S. dollars, the rate plus a variable margin is the same as the U.S. Facility and (ii) for loans drawn in Canadian dollars, the applicable CDOR rate for banker’s acceptances of the applicable face value and tenor or the greater of (a) the Canadian prime rate or (b) the one-month CDOR rate plus 0.5%. The margin on the loans drawn under the Canadian RevolverFacility may fall or rise as set forth in the agreement depending on the Company’s debt-to-total capital ratio as calculated on a quarterly basis.
 
  The U.S. Facility and the Canadian RevolverFacility are each an asset-based loan with a borrowing base that fluctuates primarily with the Company’s and the Canadian subsidiary’s receivable and inventory levels. The covenants contained in the Amended2008 Senior Credit Facility, including financial covenants, match those set forth in the Company’s long-term note agreements. These covenants limit certain matters, including the incurrence of liens, the sale of assets, and mergers and consolidations, and include a maximum debt-to-working capital ratio, a maximum debt-to-total capital ratio and a minimum net worth provision. There is also a provision to release liens on the assets of the Company and all of its subsidiaries should the Company achieve an investment grade credit rating. The Company was in compliance with all debt covenants at December 31, 2007.
 
  In 2006,The Company has classified U.S. Revolver A as short-term based on its ability and intent to repay amounts outstanding under this instrument within the next 12 months. U.S. Revolver B is classified as long-term as the Company’s cash projections indicate that amounts outstanding under this instrument are not expected to be repaid within the next 12 months. As of December 31, 2008, the Company used the proceeds from the $30.0 millionhad availability of $143,367 under its U.S. Term LoanRevolver A and drew $117.0 million$25,982 under its U.S. Revolver B. The Company’s Canadian subsidiary had availability of the amount available$10,000. The weighted average interest rate for borrowings under the U.S. Revolver along with cash on hand to finance the acquisitionA and U.S. Revolver B as of Transtar.December 31, 2008 was 4.33% and 6.41%, respectively.
(b) On November 17, 2005, the Company entered into a ten year note agreement (the “Note Agreement”) with an insurance company and its affiliate pursuant to which the Company issued and sold $75 million$75,000 aggregate principal amount of the Company’s 6.26% senior secured notes due in scheduled installments through November 17, 2015 (the “Notes”). On January 2, 2008, the Company and its material domestic subsidiaries entered into a Second Amendment with its insurance company and affiliate to amend the covenants on the Notes so as to be substantially the same as the 2008 Senior Credit Facility.

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Interest on the Notes accruedaccrues at the rate of 6.26% annually, payable semi-

41

annually beginning on May 15, 2006.semi-annually. Per the agreement,Note Agreement, the interest rate on the Notes increased by 0.5% per annum to 6.76% on December 1, 2006. This rate will remain in effect until the Company achieves an investment grade credit rating on its senior indebtedness, at which time the interest rate on the Notes reverts back to 6.26%.
 
  The Company’s annual debt service requirements under the Notes, including annual interest payments, will equal approximately $10.2$10,223 to $10.7 million$10,631 per year. The Notes may not be prepaid without a premium.
 
  The Notes are senior secured obligations of the Company and are pari passu in right of payment with the Company’s other senior secured obligations, including the Amended2008 Senior Credit Facility. The notesNotes are secured, on an equal and ratable basis with the Company’s obligations under the Amended2008 Senior Credit Facility, by first priority liens on all of the Company’s and its U.S. subsidiaries’ material assets and a pledge of all of the Company’s equity interests in certain of its subsidiaries. The Notes are guaranteed by all of the Company’s material U.S. subsidiaries.
 
  The covenants and events of default contained in the note agreement,Note Agreement, including the financial covenants, are substantially the same as those contained in the Amended2008 Senior Credit Facility. The events of default include the failure to pay principal or interest on the Notes when due, failure to comply with covenants and other agreements contained in the note agreement,Note Agreement, defaults under other material debt instruments of the Company or its subsidiaries, certain judgments against the Company or its subsidiaries or events of bankruptcy involving the Company or its subsidiaries, the failure of the guarantees or security documents to be in full force and effect or a default under those agreements, or the Company’s entry into a receivables securitization facility. Upon the occurrence of an event of default, the Company’s obligations under the Notes may be accelerated.
 
  The Company used the proceeds of the Notes, together with cash on hand, to prepay in full all of its obligations under its former long-term senior secured notes.
(c)c) At December 31, 2007,2008, the Company had $12.1 million$9,997 in outstanding trade acceptances with varying maturity dates ranging up to 120 days. The weighted average interest rate was 6.35%4.41% for 2007.2008.
 
(d)d) The industrial revenue bonds are based on an adjustable rate bond structure and are backed by a letter of credit.
(e)The Company used proceeds from the secondary equity offering in May 2007 to repay the $27.0 million outstanding balance on the U.S. Term Loan.
     Aggregate annual principal payments required on the Company’s total long-term debt for each of the next five years and beyond are as follows(dollars in thousands):follows:
        
Year ending December 31,
 
2008 $7,037 
2009 10,511  $10,838 
2010 7,257  7,688 
2011 7,676  7,939 
2012 8,110  8,197 
2013 and beyond 27,158 
2013 32,575 
2014 and beyond 18,619 
      
Total debt $67,749  $85,856 
      
     Net interest expense reported on the consolidated statements of operations was reduced by interest income from investment of excess cash balances of $0.4 million$841 in 2008, $400 in 2007, $1.1 millionand $1,089 in 2006 and $0.3 million in 2005.2006.
     The fair value of the Company’s fixed rate debt as of December 31, 2007,2008, including current maturities, was estimated to be $60.4 millionbetween $43,200 and $49,300, compared to a carrying value of $63.2 million.$56,816. The fair value of the fixed rate debt was determined using a market approach, which estimates fair value based on companies with similar debt ratings and size of debt issuances. The carrying value of the Company’s variable rate debt approximates fair value as of December 31, 2008 and 2007.
     As of December 31, 2007,2008, the Company remains in compliance with the covenants of its financial agreements, which requires it to maintain certain funded debt-to-capital ratios, working capital-to-debt ratios and a minimum adjusted consolidated net worth as defined withwithin the agreements.

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(10) Share-based Compensation
     The Company accounts for its share-based compensation programsarrangements by recognizing compensation expense for the fair value of the share awards granted ratably over their vesting period in accordance with SFAS No. 123R.123R, “Share-Based Payment.” The consolidated compensation cost that has been charged against incomerecorded for the Company’s share-based compensation arrangements was $5.0 million, $4.4 million$454, $5,018 and $3.5 million$4,485 for 2008, 2007 2006 and 2005,2006, respectively. The total income tax benefit recognized in the consolidated statements of operations for share-based compensation arrangements was $2.0 million, $1.7 million$177, $1,957, and $1.4 million$1,749 in 2008, 2007 2006 and 2005,2006, respectively. All compensation expense related to share-based compensation plansarrangements is recorded in selling,sales, general and administrative expense. The unrecognized compensation cost as of December 31, 20072008 associated with all share-based payment arrangements is $2.4 million$666 and the weighted average period over which it is to be expensed is 1.51.2 years.
     Restricted Stock, and Stock Option and Equity Compensation Plans-— The Company maintains certain long-term stock incentive and stock option plans for the benefit of officers, directors and other key management employees. A summary of the authorized shares under these plans is a follows:detailed below:
     
Plan Description Authorized Shares
1995 Directors Stock Option Plan  187,500188 
1996 Restricted Stock and Stock Option Plan  937,500938 
2000 Restricted Stock and Stock Option Plan  1,200,0001,200 
2004 Restricted Stock, Stock Option and Equity Compensation Plan  1,350,0001,350
2008 Restricted Stock, Stock Option and Equity Compensation Plan2,000 
     In 2005, option grants were made only2006, the Company began to non-employee directors. Commencing in 2006,utilize restricted stock is granted to allcompensate non-employee directors in lieu of stock options. It isand non-vested shares issued under the Company’s intention to use the Long-Term Incentive Performance Planslong-term incentive performance plans (“LTIP Plans”) as its long termlong-term incentive compensation method for executivesofficers and other key employees, rather than annual stock option grants, although stock option grantsmanagement employees. During 2008, the Company had LTIP Plans in effect for years 2007 and 2008. Stock options may be madegranted in the future inunder certain circumstances when deemed appropriate by management and the Board of Directors.
Stock Options
     The Company’s stock options have been granted with an exercise price equal to the market price of the Company’s stock on the date of the grant and have a contractual life of 10 years. Options and restricted stock grants generally vest in one to five years for executive and employee option grants and one year for options and restricted stock grants granted to directors. The Company generally issues new shares upon share option exercise.the exercise of stock options. A summary of the stock option activity under the Company’s share-based compensation plansarrangements is shown below:
         
      Weighted Average 
      Exercise 
  Shares  Price 
   
Outstanding at January 1, 2007  369,638  $10.65 
         
Granted  —   — 
Forfeitures  (3,000) $21.88 
Exercised  (82,518) $6.69 
Outstanding at December 31, 2007  284,120  $11.68 
        
Vested or expected to vest as of December 31, 2007  284,120  $11.68 
        
         
      Weighted Average 
      Exercise 
  Shares  Price 
   
Outstanding at January 1, 2008  284  $11.68 
         
Granted  —   — 
Expired  (2) $20.25 
Exercised  (36) $12.31 
        
Outstanding at December 31, 2008  246  $11.49 
        
Vested or expected to vest as of December 31, 2008  246     
        
     As of December 31, 2007,2008, all of the options outstanding were exercisable and had a weighted average contractual life of 4.6 years. The total intrinsic value of options exercised during the years ended

43

December 31, 2008, 2007 and 2006, was $677, $2,083 and 2005, was $2.1 million, $6.6 million, and $11.5 million,$6,552, respectively. The total intrinsic value of options outstanding at December 31, 2008 is $453. There was no unrecognized compensation cost related to stock option compensation arrangements.

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     There were no stock option grants during 2007 is $4.1 million.or 2008. The fair value of the options granted during 2006 was estimated using the Black-Scholes option pricing model using the following assumptions:
     
  2006
Risk free interest rate  4.72%
Expected dividend yield  0.85%
Expected option term 10 Yrs
Expected volatility  50%
The estimated weighted average fair value on the date granted based on the above assumptions $16.93 
Restricted Stock
     As of December 31, 2008, there was no unrecognized compensation cost related to non-vested restricted stock-option compensation arrangements. The total fair value of shares vested during the years ended December 31, 2008, 2007 and 2006 was $665, $602 and $1,385, respectively.
     The fair value of the non-performance based restricted stock awards is established as the stock market price on the date of grant. The fair value of the options granted is estimated using the Black-Scholes option pricing model using the following assumptions:
         
  2006 2005
   
Risk free interest rate  4.72%  4.06—4.20%
Expected dividend yield  0.85%  N/A 
Expected option term 10 Yrs 10 Yrs
Expected volatility  50%  50%
The estimated weighted average fair value on the date granted based on the above assumptions $16.93  $9.45 
     As of December 31, 2007, there was no unrecognized compensation cost related to non-vested stock-option compensation arrangements granted under the Plans. The total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was $0.6 million, $1.4 million and $1.4 million, respectively.
A summary of the restricted stock activity under the Company’s share-based compensation planarrangements is shown:shown below:
         
      Weighted-Average
    Grant Date
Restricted Stock Shares Fair Value
 
Non-vested at January 1, 2007  61,684  $26.82 
Granted  13,014  $34.58 
Less vested shares  (21,984) $27.37 
         
Non-vested at December 31, 2007  52,714  $28.51 
         
         
      Weighted-Average
      Grant Date
Restricted Stock Shares Fair Value
 
Non-vested shares outstanding at January 1, 2008  53  $28.51 
Granted  41  $25.77 
Forfeited  (5) $25.87 
Vested  (21) $31.77 
         
Non-vested shares outstanding at December 31, 2008  68  $26.23 
         
Deferred Compensation Plan—
The Company also hasmaintains a Board of Director’s Deferred Compensation Plan for directors who are not officers of the Company. Under this plan, directors have the option to defer payment of their retainer and meeting fees into either a stock equivalent unit account or an interest account. Disbursement of the interest account and the stock equivalent unit account can be made only upon a director’s resignation, retirement or death, andor otherwise as a lump sum or in installments on one or more distribution dates at the directors election made at the time of the election to defer compensation. Disbursement is generally made in cash, but the stock equivalent unit account disbursement may be made in common shares at the director’s option. Fees deferred into the stock equivalent unit account are a form of share-based payment and representare accounted for as a liability award which is re-measured at fair value at each reporting date. As of December 31, 2007, an aggregate 23,2792008, a total of 27 common share equivalent units are included in the director stock equivalent unit accounts. Compensation expense (benefit) related to the fair value re-measurement associated with this plan at December 31, 2008, 2007 2006 and 20052006 was approximately $0.1 million, $0.1 million$(396), $41 and $0.6 million,$80, respectively.
Long-Term Incentive Performance Plans
Long-Term Incentive Performance Plans —The Company maintains the 2005 Performance Stock Equity Plan (the “2005 Plan”)LTIP Plans for officers and the 2007 Long-Term Incentive Plan (the “2007 Plan”) (collectively referred to as the “LTIP Plans”).other key management employees. Under the LTIP Plans, selected executivesofficers and other key management employees are eligible to receive share-based awards. Final award vesting and distribution of awards granted under the LTIP Plans isare determined based on the

53

Company’s actual performance versus the target goals for a three-year consecutive period (as defined in the 2005, Plan2007 and 2007 Plan,2008 Plans, respectively). Partial awards can be earned for performance less than the target goal, but in excess of minimum goals; and award distributions twice the target can be achieved if the maximum goals are met or exceeded. The performance goals are three-year cumulative net income and average return on total capital for the same three year period. IndividualsUnless covered by a specific change-in-control or severance arrangement, individuals to whom performance sharesawards have been granted under the LTIP Plans

44

must be employed by the Company at the end of the performance period or the award will be forfeited, unlessforfeited. Compensation expense recognized is based on management’s expectation of future performance compared to the termination of employment was due to death, disability or retirement.
2005 Plan Performance SharesShares
Allocated at January 1, 2007371,525
Allocated during 2007—
Issued—
Forfeitures/Cancellations(9,391)
Allocated at December 31, 2007362,134
     The fair-value ofpre-established performance goals. If the performance awards granted under the goals are not met, no compensation expense is recognized and any previously recognized compensation expense would be reversed.
2005 Plan was $11.75 per share and was established using the market price of the Company’s stock on the date of grant.— Based on the actual results of the Company for the three-year period ended December 31, 2007, it was determined that the maximum amountnumber of shares would be awarded(724) was earned under the 2005 Plan. InDuring the first quarter of 2008, 483 shares were issued to participants at a market price of $25.13 per share. The remaining 241 shares were withheld to fund required withholding taxes. The excess tax benefit recorded to additional paid-in capital as a result of the total number of shares to be issued is 724,268.share issuance was $2,665.
2007 Plan Performance SharesShares
Allocated at January 1, 20072007 Plan—
Allocated during 2007125,200
Issued—
Forfeitures/Cancellations(3,367)
Allocated at December 31, 2007121,833
The fair value of the awards granted under the 2007 Plan ranged from $25.45 to $34.33 per share and was established using the market price of the Company’s stock on the dates of grant. As of December 31, 2008, based on its current projections, the Company estimates that no shares will be issued under the 2007 Plan. The maximum number of shares that could potentially be issued under the 2007 Plan is 243,666.197. The shares associated with the 2007 Plan will be distributed in 2010, contingent upon the Company meeting performance goals over the three yearthree-year period ending December 31, 2009. Compensation expense recognized during 2007 related
2008 Plan— The fair value of the awards granted under the 2008 Plan ranged from $22.90 to $28.17 per share and was established using the 2007market price of the Company’s stock on the dates of grant. As of December 31, 2008, based on its current projections, the Company estimates that no shares will be issued under the 2008 Plan. The maximum number of shares that could potentially be issued under the 2008 Plan is based on management’s expectation of future performance compared to417. The shares associated with the pre-established performance goals. If2008 Plan will be distributed in 2011, contingent upon the Company meeting performance goals are not met, no compensation expense would be recognized and any previously recognized compensation expense would be reversed.over the three-year period ending December 31, 2010.
(11) Common and Preferred Stock
In November 2002, the Company’s largest stockholder purchased through a private placement $12.0 million$12,000 of eight-percenteight percent cumulative convertible preferred stock. The initial conversion price of the preferred stock was $6.69 per share. At the time of the purchase, the shareholder, on an as-converted basis, increased its holdings and voting power in the Company by approximately 5%.five percent. The terms of the preferred stock included: the participation in any dividends on the common stock, subject to a minimum eight-percent dividend; voting rights on an as-converted basis and customary anti-dilution and preemptive rights.
     In May 2007, the Company completed a secondary public offering of 5,000,0005,000 shares of its common stock at $33.00 per share. Of these shares, the Company sold 2,347,8262,348 plus an additional 652,174652 to cover over-allotments. Selling stockholders sold 2,000,0002,000 shares. Concurrent with the secondary equity offering, the selling preferred stockholder opted to convert preferred stock into common stock and the converted common stock was subsequently included in the secondary offering by the selling preferred stockholder.

45

     The Company realized net proceeds from the equity offering of $92.9 million.$92,883. The Company did not receive any proceeds from the sale of shares by the selling stockholders.
(12) Commitments and Contingent Liabilities
As of December 31, 20072008, the Company had $6.9 million$6,933 of irrevocable letters of credit outstanding which primarily consisted of $3.6 million$3,500 in support of the outstanding industrial revenue bonds and $2.1 million$1,900 for compliance with the insurance reserve requirements of its workers’ compensation insurance carrier (see Note 9).carrier.

54

     The Company is a defendant in several lawsuits arising from the operation of its business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of the Company’s in-house counsel,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.
(13) Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) as reported in the consolidated balance sheets as of December 31, 20072008 and 20062007 was comprised of the following (dollars in thousands):following:
         
  2007  2006 
   
Foreign currency translation gains $7,837  $3,569 
Unrecognized pension and postretirement benefit costs, net of tax  (6,339)  (22,073)
   
Total accumulated other comprehensive income (loss) $1,498  $(18,504)
   
     Upon the adoption of SFAS No. 158, the concept of minimum pension liability no longer exists. Accordingly, the minimum pension liability, net of tax, as of December 31, 2006 of $(0.8) million is included in unrecognized pension and postretirement benefit costs as of December 31, 2007. The amount of the pension adjustment to initially apply SFAS No. 158, net of tax, was $21.3 million.
         
  2008  2007 
   
Foreign currency translation (losses) gains $(5,793) $7,837 
Unrecognized pension and postretirement benefit costs, net of tax  (5,669)  (6,339)
   
Total accumulated other comprehensive (loss) income $(11,462) $1,498 
   
(14) Selected Quarterly Data (Unaudited)(dollars in thousands, except per share data)
                                
 First Second Third Fourth First Second Third Fourth
 Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
2008 
Net sales $393,479 $397,115 $388,898 $321,544 
Gross profit (a) 57,799 53,761 55,004 32,979 
Net income (loss) 13,814 11,251 11,478  (53,625)
Basic earnings (loss) per share $0.62 $0.50 $0.51 $(2.37)
Diluted earnings (loss) per share $0.62 $0.49 $0.50 $(2.37)
Common stock dividends declared $0.06 $0.06 $0.06 $0.06 
   
2007  
Net sales $375,351 $372,608 $350,319 $322,075  $375,351 $372,608 $350,319 $322,075 
Gross profit (a) 65,435 63,075 57,159 42,159  65,435 63,075 57,159 42,159 
Net income 15,835 16,362 12,910 6,699  15,835 16,362 12,910 6,699 
Preferred dividends 243 350 — —  243 350 — — 
Net income applicable to common stock 15,592 16,012 12,910 6,699  15,592 16,012 12,910 6,699 
Basic earnings per share $0.84 $0.81 $0.58 $0.30  $0.84 $0.81 $0.58 $0.30 
Diluted earnings per share $0.81 $0.78 $0.57 $0.29  $0.81 $0.78 $0.57 $0.29 
Common stock dividends declared $0.06 $0.06 $0.06 $0.06  $0.06 $0.06 $0.06 $0.06 
 
2006 
Net sales $279,193 $275,607 $300,809 $321,991 
Gross profit (a) 51,024 48,728 52,675 49,440 
Net income 16,049 14,357 15,492 9,221 
Preferred dividends 242 244 235 242 
Net income applicable to common stock 15,807 14,113 15,257 8,979 
Basic earnings per share $0.95 $0.83 $0.82 $0.49 
Diluted earnings per share $0.86 $0.76 $0.82 $0.47 
Common stock dividends declared $0.06 $0.06 $0.06 $0.06 
 
(a) Gross profit equals net sales minus cost of materials, warehouse, processing, and delivery costs and less depreciation and amortization expense.

46

     Fourth quarter 2006 includes approximately $0.7 million in tax benefits, principally contingency reserve reversals, recorded in connection with the completion of an IRS audit and the impact of changes in certain state tax laws.
(15) Subsequent EventsEvent
On January 3, 2008March 5, 2009 the Company acquired the outstanding capital stockBoard of Metals UK Group,directors declared a distributor and processorregular quarterly cash dividend of specialty metals primarily serving the oil and gas, aerospace, petrochemical and power generation markets worldwide for approximately $32 million, plus the potential for contingent payments$0.06 per share of upcommon stock. The dividend is payable April 2, 2009 to $12.0 million based on the achievementshareholders of performance targets predominantly over the next one year. Metals UK Group has four processing facilities; two in Blackburn, England, including its headquarters, one in Hoddesdon North East of London and one in Bilbao, Spain. Metals UK Group had 2007 net sales of $72 million. The Company is currently in process of preparing valuations of certain tangible and intangible assets, thus the allocation of the purchase price to major tangible and intangible assets and liabilities is currently being completed.
     In anticipation of the acquisition, on January 2, 2008, the Company and its Canadian, UK and material domestic subsidiaries entered into a First Amendment to its Amended and Restated Credit Agreement dated as of September 5, 2006 with its lending syndicate. The amended senior credit facility provides a $230 million five-year secured revolver. The facility consists of (i) a $170.0 million revolving “A” loan (the “U.S. A Revolver”) to be drawn by the Company from time to time. (ii) a $50.0 million multicurrency revolving “B” loan (the “U.S. B Revolver “ and with the U.S. A Revolver, the “U.S. Facility”) to be drawn by the Company or its UK subsidiary from time to time, and (iii) a Cdn. $9.8 million revolving loan (corresponding to $10.0 million in U.S. dollars as of the amendment closing date) (the “Canadian Facility”) to be drawn by the Canadian Subsidiary from time to time. The maturity date of the facility is extended to January 2, 2013. The obligations of the UK Subsidiary under the U.S. B Revolver are guaranteed by the Company and its material domestic subsidiaries (the “Guarantee Subsidiaries”) pursuant to a U.K. Guarantee Agreement entered into by the Company and the Guarantee Subsidiaries on January 2, 2008 (the “U.K. Guarantee Agreement”). The U.S. A Revolver letter of credit sub-facility was increased from $15 million to $20 million. The Company’s UK subsidiary drew £14.9 million (or $29.6 million) of the amount available under the U.S. B Revolver to finance the acquisition of Metals UK Group on January 3, 2008. Also, on January 2, 2008 the Company and its material domestic subsidiaries entered into an Amendment No. 2 with its insurance company and affiliate to amend the covenants on the Notes so as to be substantially the same as the amended senior credit facility.record March 19, 2009.

4755

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of A.M. Castle & Co.
Franklin Park, Illinois
We have audited the accompanying consolidated balance sheets of A.M. Castle & Co. and subsidiaries (the “Company”) as of December 31, 20072008 and 2006,2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007.2008. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statementstatements and financial statement schedule based on our audits.
     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
     In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of A.M. Castle & Co. and subsidiaries as of December 31, 20072008 and 2006,2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007,2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presentpresents fairly, in all material respects, the information set forth therein.
     As discussed in Note 5, effective December 31, 2006, the Company adopted Statement of Financial Accounting Standards No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.herein.
     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007,2008, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2008,11, 2009, expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP  
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 10, 200811, 2009

4856

 

MANAGEMENT’S ASSESSMENT ONOF INTERNAL CONTROL OVER FINANCIAL REPORTING
     The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in the Securities Exchange Act of 1934 rule 240.13a-15(f). The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
     Internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.
     The Company, under the direction of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 20072008 based upon the framework published by the Committee of Sponsoring Organizations of the Treadway Commission, referred to as theInternal Control — Integrated Framework.
     Based on our evaluation under the framework inInternal Control — Integrated Framework,the Company’s management has concluded that our internal control over financial reporting was effective as of December 31, 2007.2008.
     In September 2006, the Company acquired Transtar Intermediate Holdings #2, Inc. (“Transtar”).     In accordance with SEC regulations, management has included Transtar inexcluded from its 2007 assessment of and report onthe internal control over financial reporting.reporting at Metals U.K. Group, which was acquired on January 3, 2008 and whose financial statements constitute 4% of total assets and of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2008.
     The effectiveness of the Company’s internal control over financial reporting as of December 31, 20072008 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein.
March 10, 200811, 2009

4957

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of A.M. Castle & Co.
Franklin Park, Illinois
We have audited the internal control over financial reporting of A.M. Castle & Co. and subsidiaries (the “Company”) as of December 31, 2007,2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Assessment of Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Metals U.K. Group, which was acquired on January 3, 2008 and whose financial statements constitute 4% of total assets and of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2008. Accordingly, our audit did not include the internal control over financial reporting at Metals U.K. Group. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment onof Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
     A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
     Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2008, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 20072008 of the Company and our report dated March 10, 2008,11, 2009, expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP  
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 10, 200811, 2009

5058

 

ITEM 9 —Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
     None.
ITEM 9A —Controls & Procedures
Disclosure Controls and Procedures
     A review and evaluation was performed by the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Security Exchange Act of 1934). Based upon that review and evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2007.2008.
Management’s Annual Report on Internal Control Over Financial Reporting
     Management’s report on internal control over financial reporting is included in Part II of this report and incorporated in this Item 9A by reference.
Change in Internal Control Over Financial Reporting
     An evaluation was performed by the Company’s management, including the CEO and CFO, of any changes in internal controls over financial reporting that occurred during the last fiscal quarter and that materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. That evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

51

Item 9B —Other Information
     NoneNone.

59

PART III
ITEM 10 —Directors, and Executive Officers of the Registrant as of March 10, 2008and Corporate Governance
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 11, 2009.
       
Name and Title Age Business Experience
Michael H. Goldberg
President & Chief Executive Officer		  5455  Mr. Goldberg was elected President and Chief Executive Officer on January 26,in 2006. Prior to joining the Registrant, he was Executive Vice President of Integris Metals (an aluminum and metals service center) from November 2001 to January 2005. From August 1998 to November 2001, Mr. Goldberg was Executive Vice President of North American Metals Distribution Group, a division of Rio Algom LTD.
       
Stephen V. Hooks
Executive Vice President and President, Castle Metals		  5657  Mr. Hooks began his employment with the registrant in 1972. He was elected to the position of Vice President — Midwest Region in 1993, Vice President - Merchandising in 1998, Senior Vice President—Sales & Merchandising in 2002 and Executive Vice President of the registrant and Chief Operating Officer of Castle Metals in January 2004. In 2005, Mr. Hooks was appointed President of Castle Metals.
       
Lawrence A. BoikScott F. Stephens
Vice President, Chief Financial Officer and Treasurer		  4839  Mr. BoikStephens began his employment with the registrant in September 2003July 2008 and was appointed to the position of Vice President-Controller, Treasurer as well as Chief Accounting Officer. In October 2004, he was elected to the position of Vice President-Finance,President, Chief Financial Officer, and Treasurer. Formerly, he served as the CFO of Meridan RailLawson Products, Inc. (a distributor of services, systems and products to the MRO and OEM marketplace) since 2004, and CFO of The Wormser Company from January 20022001 to September 2003. Prior employment included Vice President-Controller of ABC-NACO since July 2000, and Assistant Corporate Controller of US Can Co. back to October 1997.2004.
       
Kevin Coughlin
Vice President,
Operations		  5758  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.
       
Sherry L. HollandRobert J. Perna
Vice President General Counsel and Secretary		  5945  Ms. HollandMr. Perna began herhis employment with the registrant in May 2007, when sheNovember 2008 and was elected to the position of Vice President, GeneralPresident-General Counsel and Secretary. Prior to joining the registrant shehe was Senior Finance, Real EstateGeneral Counsel, North America, CNH America, LLC (a manufacturer of agricultural and Transaction Counsel for Kimball Hill, Inc. from 2004 to 2006. Prior employment included Seniorconstruction equipment) since 2007, and he also served as Associate General Counsel and AssistantCorporate Secretary for Navistar International Corporation (a manufacturer of IMC Global, Inc. from 1999commercial trucks and diesel engines) back to 2004 and Senior Counsel, Assistant Secretary and Manager of Regulator Training, Education and Administration of Phelps Dodge Corporation from 1994 to 1998.April 2001.
       
Paul J. Winsauer,Kevin P. Fitzpatrick
Vice President, Human Resources		  5644  Mr. WinsauerFitzpatrick began his employment with the registrant in 1981. In 1996, heJanuary 2009 and was elected to the position of Vice President,President-Human Resources. Prior to joining the registrant he was Vice President-North American Human Resources.Resources and Administration for UPM-Kymmene Corporation (a forest industry company) since 2001.

5260

 

       
Name and Title Age Business Experience
       
Patrick R. Anderson
Vice President, Corporate Controller and Chief Accounting Officer		  3637  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 where he was employed from 1994 to 2007.
       
Curtis M. Samford
Vice President and President, Castle Metals Oil & Gas		  4748  Mr. Samford began his employment in March 2008 as Vice President of the registrant and President of Castle Metals Oil & Gas. Mr. Samford formerly was a Vice President with Alcoa, Inc. (an aluminum producer) from 2005 through 2007 and Vice President, Commercial Operations with UniPure Corporation (an energy technology company) through 2001.
       
Blain A. Tiffany
Vice President and President, Castle Metals PlateAerospace		  4950  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 Positionposition of Vice President — Sales. In 2007 Mr. Tiffany was appointed to the Positionposition of Vice President of the registrant and President of Castle Metals Plate.
Michael Zundel
Vice President and President, Castle Metals Aerospace		60 In January 2009 Mr. Zundel began his employment with Transtar in 1993 andTiffany was appointedelected to the position of Executive Vice, Commercial. In 2007, Mr. Zundel was appointed to the position of President, Transtar Metals and subsequently was appointed to the positionPosition of Vice President of the registrant and President of Castle Metals Aerospace.
       
Thomas L. Garrett
Vice President and President, Total Plastics, Inc.		  4546  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.
     All additional information required to be filed in Part III, Item 10, Form 10-K, has been included in the Definitive Proxy Statement dated March 20, 20082009 to be filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled “Information Concerning Nominees for Directors”“Proposal 1- Election of Directors,” “Certain Governance Matters,” and “Meetings and Committees of the Board”“Section 16(A) Beneficial Ownership Reporting Compliance,” and is hereby incorporated by this specific reference.
ITEM 11 —Executive Compensation
All information required to be filed in Part III, Item 11, Form 10-K, has been included in the Definitive Proxy Statement dated March 20, 2008,2009 to be filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled “Management Remuneration”“Compensation Discussion and Analysis,” “Report of the Human Resources Committee,” “Compensation Committee Interlocks and Insider Participation,” “Non-Employee Director Compensation,” and “Executive Compensation and Other Information” and is hereby incorporated by this specific reference.

53

ITEM 12 —Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be filed in Part III, Item 2,12, Form 10-K, has been included in the Definitive Proxy Statement dated March 20, 2008,2009 to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, entitled “Information Concerning Nominees for Directors” and “Stock Ownership of Certain Beneficial OwnersNominees, Management and Management”Principal Stockholders” and “Equity Compensation Plan Information” is hereby incorporated by this specific reference.
     Other than the information provided above, Part III has been omitted pursuant to General Instruction G for Form 10-K and Rule 12b-23 since the Company will file a Definitive Proxy Statement not later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A, which involves the election of Directors.
Equity Plan Disclosures:
     The following table includes information regarding the Company’s equity compensation plans:
             
          (c)
          Number of
          securities
          remaining available
      (b) for future
  (a) Weighted-average issuances under
  Number of securities to be exercise price of equity compensation
  issued upon exercise of outstanding plans [excluding
  outstanding options, warrants options, warrants securities
Plan category and rights and rights reflected in column (a)]
 
Equity compensation plans approved by security holders Options284,120  $11.68   36,653 
 Performance846,101** $0.00*   
Equity compensation plans not approved by security holders  —   —   — 
   
Total  1,130,221  $2.94*  36,653 
   
*Performance shares were, at the time target grants were established, valued at market price. The weighted average market price of performance shares at date of grant is $14.17.
**Represents total number of securities that may be issued under the Company’s Long-Term Incentive Performance Plans based on actual performance compared to target goals..

5461

 

The following graph compares the cumulative total stockholder return on our common stock for the five-year period ended December 31, 2007,2008, with the cumulative total return of the Standard and Poor’s 500 Index and to a peer group of metals distributors. The comparison in the graph assumes the investment of $100 on December 31, 2002.2003. Cumulative total stockholder return means share price increases or decreases plus dividends paid, with the dividends reinvested.
 
* $100 invested on 12/31/0203 in stock or index including reinvestment of dividends. Fiscal year ending December 31.
Copyright © 20082009 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
                                            
 12/02 12/03 12/04 12/05 12/06 12/07 12/04 12/05 12/06 12/07 12/08 
    
A. M. Castle & Co. 100.00 160.44 262.42 480.00 563.64 607.26  163.56 299.18 351.31 378.50 152.61 
S & P 500 100.00 128.68 142.69 149.70 173.34 182.87  110.88 116.33 134.70 142.10 89.53 
Peer Group* 100.00 165.53 219.10 322.21 403.45 560.19  132.36 194.65 243.73 338.42 133.39 
 
* Peer Group consists of 1) Olympic Steel, Inc., 2) and Reliance Steel & Aluminum Co., and 3) Central Steel & Wire Company. Ryerson was dropped from the peer group as they are no longer a publicly traded company.

55

ITEM 13 —Certain Relationships and Related Transactions, and Director Independence
All information required to be filed in Part III, Item 13, Form-10K, has been included in the Definitive Proxy Statement dated March 20, 2008,2009 to be filed with the Securities and Exchange Commission pursuant to Regulation 14A entitled “Related Party Transactions” and “Director Independence; Financial Experts” is hereby incorporated by this specific reference.

62

ITEM 14 —Principal Accountant Fees and Services
All information required to be filed in Part III, Item 14, Form 10-K, has been included in the Definitive Proxy Statement dated March 20, 2008,2009 to be filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled “Audit Committee Report to Stockholders”and Non-audit Fees” and “Pre-approval Policy for Audit and Non-audit Services” is hereby incorporated by this specific reference.

5663

 

PART IV
ITEM 15 —Exhibits and Financial Statement Schedules
A. M. Castle & Co.
Index To Financial Statements and Schedules
     
  Page 
 
Consolidated Statements of Operations — For the years ended December 31, 2008, 2007 2006 and 20052006
  2228 
     
Consolidated Balance Sheets — December 31, 20072008 and 20062007
  2329 
     
Consolidated Statements of Cash Flows — For the years ended December 31, 2008, 2007 2006 and 20052006
  2430 
     
Consolidated Statements of Stockholders’ Equity — For the years ended December 31, 2008, 2007 2006 and 20052006
  2531 
     
Notes to Consolidated Financial Statements
  26-4732-55 
     
Report of Independent Registered Public Accounting Firm
  4856 
     
Management’s Assessment of Internal ControlsControl Over Financial Reporting
  4957 
     
Report of Independent Registered Public Accounting Firm
  5058 
     
Valuation and Qualifying Accounts — Schedule II
  6068 

5764

 

The following exhibits are filed herewith or incorporated by reference.
   
Exhibit  
Number Description of Exhibit
   
2.1 Stock Purchase Agreement dated as of August 12, 2006 by and among A. M. Castle & Co. and Transtar Holdings #2, LLC. (4)Filed as Exhibit2.1 to Form 8-K filed August 17, 2006. Commission File No. 1-5415.
   
3.1 Articles of Incorporation of the Company (1)Company. Filed as Appendix D to Proxy Statement filed March 23, 2001. Commission File No. 1-5415.
   
3.2 By-Laws of the CompanyCompany. Filed as Exhibit 3.2 to Annual Report on Form 10-K for the period ended December 31, 2007, which was filed on March 10, 2008. Commission File No. 1-5415.
   
4.1 Note Agreement dated November 17, 2005 for 6.26% Senior Secured Note Due November 17, 2005 between the Company as issuer and the Prudential Insurance Company of American and Prudential Retirement Insurance and Annuity Company as Purchasers. (3)Filed as Exhibit 10 to Form 8-K filed November 21, 2005. Commission File No. 1-5415.
   
4.2 Amendment No. 1 to Note Agreement, dated September 5, 2006, between the Company and The Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company Amendment. (5)Filed as Exhibit 10.16 to Form 8-K filed September 8, 2006. Commission File No. 1-5415.
   
4.3Amendment No. 2 to Note Agreement, dated January 2, 2008, between the Company and The Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company Amendment. Filed as Exhibit 10.14 to Form 8-K filed January 4, 2008. Commission File No. 1-5415.
4.4 Amended and Restated Credit Agreement, dated September 5, 2006, by and between A. M. Castle & Co. and Bank of America, N.A., as U.S. Agent, Bank of America, N.A., Canada Branch, as Canadian Agent, JPMorgan Chase Bank, N.A. as Syndication Agent and LaSalle Business Credit, LLC as Documentation Agent. (5)Filed as Exhibit 10.11 to Form 8-K filed September 8, 2006. Commission File No. 1-5415.
   
4.44.5First Amendment to Credit Agreement, dated January 2, 2008, by and between A. M. Castle & Co., A.M. Castle & Co. (Canada) Inc., A.M. Castle Metals UK, Limited, certain subsidiaries of the Company, the lenders party thereto, Bank of America, N.A.. as U.S. Agent and Bank of America, N.A., Canada Branch, as Canadian Agent. Filed as Exhibit 10.11 to Form 8-K filed January 4, 2008. Commission File No. 1-5415.
4.6 Guarantee Agreement, dated September 5, 2006, by and between the Company and the Guarantee Subsidiaries. (5)Filed as Exhibit 10.12 to Form 8-K filed September 8, 2006. Commission File No. 1-5415.
   
4.54.7U.K. Guarantee Agreement, dated January 2, 2008, by the Company and the Guarantee Subsidiaries. Filed as Exhibit 10.12 to Form 8-K filed January 4, 2008. Commission File No. 1-5415.
4.8 Amended and Restated Collateral Agency and Intercreditor Agreement, dated September 5, 2006 by and among A.M. Castle & Co., Bank of America, N.A., as Collateral Agent, The Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company and The Northern Trust Company. (5)Filed as Exhibit 10.13 to Form 8-K filed September 8, 2006. Commission File No. 1-5415.

65

Exhibit
NumberDescription of Exhibit
   
4.64.9First Amendment to Amended and Restated Collateral Agency and Intercreditor Agreement, dated January 2, 2008 by and among A.M. Castle & Co., Bank of America, N.A., as Collateral Agent, The Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company and The Northern Trust Company. Filed as Exhibit 10.13 to Form 8-K filed January 4, 2008. Commission File No. 1-5415.
4.10 Amended and Restated Security Agreement, dated September 5, 2006, among the Company and the Guarantee Subsidiaries. (5)Filed as Exhibit 10.14 to Form 8-K filed September 8, 2006. Commission File No. 1-5415.
   
4.74.11 Guarantee Agreement, dated September 5, 2006, by and between the Company and Canadian Lenders and Bank of America, N.A. Canadian Branch, as Canadian Agent. (5)Filed as Exhibit 10.15 to Form 8-K filed September 8, 2006. Commission File No. 1-5415.
   
10.1Instruments defining the rights of holders of other unregistered long-term debt of A.M. Castle & Co. and its subsidiaries have been omitted from this exhibit index because the amount of debt authorized under any such instrument does not exceed 10% of the total assets of the Registrant and its consolidated subsidiaries. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request.
10.1* A. M. Castle & Co. 2004 Restricted Stock, Stock Option and Equity Compensation Plan (1)Plan. Filed as Appendix D to Proxy Statement filed March 12, 2004. Commission File No. 1-5415.
   
10.210.2* EmploymentEmployment/Non-Competition Agreement with Company’s President and CEO dated January 26, 2006 (6)2006. Filed as Exhibit 10.4 to Annual Report on Form 10-K for the period ended December 31, 2005, which was filed on March 31, 2006. Commission File No. 1-5415.
   
10.310.3* Change ofin Control Agreement with Senior Executives of the Company (2)Company’s President and CEO dated January 26, 2006.
   
10.410.4* Management Incentive Plan* (2)Form of Severance Agreement which is executed with all executive officers, except the CEO.
   
10.510.5* DescriptionForm of Director’s Deferred Compensation Plan (2)Change of Control Agreement which is executed with all executive officers.
   
10.610.6* Employment Agreement with Company’s Chairman of the Board dated January 26, 2006 (6)A. M. Castle & Co. 1995 Director Stock Option Plan. Filed as Exhibit A to Proxy Statement filed March 7, 1995. Commission File No. 1-5415.
   
10.710.7* Executive Agreement with Company’s Executive Vice President dated January 26, 2006 (6)A. M. Castle & Co. 1996 Restricted Stock and Stock Option Plan. Filed as Exhibit A to Proxy Statement filed March 8, 2006. Commission File No. 1-5415.
   
10.810.8* Executive Agreement with Company’s Chief Financial Officer dated July 2, 2003 (6)A. M. Castle & Co. 2000 Restricted Stock and Stock Option Plan. Filed as Appendix B to Proxy Statement filed March 23, 2001. Commission File No. 1-5415.
   
14.110.9* Code of Ethics for Officers and Directors of A.M.A. M. Castle & Co. (2)2004 Restricted Stock, Stock Option Plan and Equity Compensation Plan. Filed as Exhibit D to Proxy Statement filed March 12, 2004. Commission File No. 1-5415.
10.10*A. M. Castle & Co. 2008 Restricted Stock, Stock Option Plan and Equity Compensation Plan as amended and restated as of March 5, 2009.

5866

 

   
Exhibit  
Number Description of Exhibit
10.11*Form of Restricted Stock Award Agreement under A. M. Castle & Co. 2008 Restricted Stock, Stock Option Plan and Equity Compensation Plan.
10.12*Form of Performance Share Award Agreement under A. M. Castle & Co. 2008 Restricted Stock, Stock Option Plan and Equity Compensation Plan.
10.13*A. M. Castle & Co. Directors Deferred Compensation Plan, as amended and restated as of October 22, 2008.
10.14*A. M. Castle & Co. Supplemental 401(k) Savings and Retirement Plan, as amended and restated, effective as of January 1, 2009.
10.15*A. M. Castle & Co. Supplemental Pension Plan, as amended and restated, effective as of January 1, 2009.
   
21.1 Subsidiaries of Registrant
   
23.1 Consent of Independent Registered Public Accounting Firm
   
31.1 Certification by Michael H. Goldberg, President and Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
   
31.2 Certification by Lawrence A. Boik,Scott F. Stephens, Vice President and Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
   
32.1 Certification by Michael H. Goldberg, President and Chief Executive Officer, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
   
32.2 Certification by Lawrence A. Boik,Scott F. Stephens, Vice President and Chief Financial Officer, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
 
* These agreements are considered a compensatory plan or arrangement.
(1)Incorporated by reference to the Company’s Definitive Proxy Statement filed with the SEC on March 12, 2004.
(2)Incorporated by reference to the Company’s Definitive Proxy Statement filed with the SEC on March 20, 2008.
(3)Incorporated by reference to the Form 8-K filed with the SEC on November 21, 2005.
(4)Incorporated by reference to the Form 8-K filed with the SEC on August 17, 2006.
(5)Incorporated by reference to the Form 8-K filed with the SEC on September 8, 2006.
(6)Incorporated by reference to the Company’s Annual Report for 2005 and Form 10-K filed with the SEC dated March 31, 2006.

5967

 

SCHEDULE II
A. M. Castle & Co.
Accounts Receivable — Allowance for Doubtful Accounts
Valuation and Qualifying Accounts
For The Years Ended December 31, 2008, 2007 2006 and 20052006
(Dollars in thousands)
             
  2007  2006  2005 
 
Balance, beginning of year $3,112  $1,763  $1,760 
             
Add — Provision charged to expense  647   1,095   356 
   — Transtar allowance at date of acquisition  —   1,229   — 
   — Recoveries  262   567   173 
             
Less — Uncollectible accounts charged against allowance  (801)  (1,542)  (526)
   
             
Balance, end of year $3,220  $3,112  $1,763 
   
                
    2008 2007 2006
 
Balance, beginning of year $3,220  $3,112  $1,763 
             
Add— Provision charged to expense  1,600   647   1,095 
 — Transtar allowance at date of acquisition  —   —   1,229 
 — Metals U.K. allowance at date of acquisition  523   —   — 
 — Recoveries  132   262   567 
             
Less — Uncollectible accounts charged against allowance  (2,157)  (801)  (1,542)
     
             
Balance, end of year $3,318  $3,220  $3,112 
     

6068

 

SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
     
A. M. Castle & Co.   
   (Registrant) 
 
   
 (Registrant)
By:  /s/ Patrick R. Anderson
  
  Patrick R. Anderson, Vice President —  Controller and Chief Accounting Officer 
  Controller and Chief Accounting Officer
(Principal Accounting Officer)		  
Date: March 10, 2008
Date: March 11, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities as shown following their name on the dates indicated on this 10th11th day of March, 2008.2009.
     
/s/ Brian P. Anderson /s/ Thomas A. Donahoe /s/ Ann M. Drake
     
Brian P. Anderson, Director and Thomas A. Donahoe, Director and Ann M. Drake,
Chairman, Audit CommitteeMember, Audit Committee
Director
     
/s/ Michael H. Goldberg /s/ William K. Hall /s/ Robert S. Hamada
     
Michael H. Goldberg, President,William K. HallRobert S. Hamada

Chief Executive Officer and
Director		Director
Director

(Principal Executive Officer)		 William K. Hall,
Director		 Robert S. Hamada,
Director
     
/s/ Patrick J. Herbert, III /s/ Terrence J. Keating /s/ Pamela Forbes Lieberman
     
Patrick J. Herbert, III,
Director		 Terrence J. Keating,
Director		 Pamela Forbes Lieberman,

Director		Director and Member,Director and Member,
Audit CommitteeAudit Committee
     
/s/ John W. McCartney /s/ Michael Simpson /s/ Lawrence A. BoikScott F. Stephens
     
John W. McCartney,Michael SimpsonLawrence A. Boik

Chairman of the Board		 Michael Simpson,
Director		 Scott F. Stephens,
Vice President and

Chief Financial Officer

(Principal Financial Officer)

6169