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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
           
For Quarterly Period Ended March 31,June 30, 2007 or,
     
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
                
For the transition period from   to  
       
      
Commission File Number 1-5415
   
A. M. Castle & Co.
 
(Exact name of registrant as specified in its charter)
   
Maryland 36-0879160
   
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)  
   
3400 North Wolf Road, Franklin Park, Illinois 60131
 
(Address of Principal Executive Offices) (Zip Code)
      
Registrant’s telephone, including area code 847/455-7111
   
None
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     X     No          
Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):
Large Accelerated Filer                              Accelerated Filer     X               Non-Accelerated Filer           
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
Yes                     No     X     
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
     
Class Outstanding at April 30,July 31, 2007
Common Stock, $0.01 Par Value 17,451,27222,037,535 shares
Preferred Stock, $0.01 Par Value12,000 shares
 
 

 

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25
A. M. CASTLE & CO.
Part I. FINANCIAL INFORMATION
       
  Page
    Page
Number
Part I. Financial Information    
       
Item 1. Condensed Consolidated Financial Statements (unaudited):    
       
  Condensed Consolidated Balance Sheets  3
Condensed Consolidated Statements of Income4
Condensed Consolidated Statements of Cash Flows5
Notes to Condensed Consolidated Financial Statements6-14
       
  Consolidated Statements of Income4
Consolidated Statements of Cash Flows5
Notes to Consolidated Financial Statements6-13
Item 2.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 13-1714-19
       
Item 3. Quantitative and Qualitative Disclosure About Market Risk  1719
       
Item 4. Controls and Procedures 17-1820
       
Part II. Other Information    
       
Item 1. Legal Proceedings  1821
       
Item 1A. Risk Factors  1821
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18-1921
       
Item 6. Exhibits  1921
 Certification Pursuant to Section 302 byCertification of CEO
 Certification Pursuant to Section 302 byCertification of CFO
 Certification Pursuant to Section 906 byCertification of CEO &and CFO

Page 3 of 2225
                
CONSOLIDATED BALANCE SHEETS   
(Dollars in thousands) As of 
CONDENSED CONSOLIDATED BALANCE SHEETS   
(Dollars in thousands, except per share data) As of
Unaudited March 31, Dec 31,  June 30, Dec 31, 
 2007 2006 
 2007 2006     
ASSETS  
Current assets  
Cash and cash equivalents $11,453 $9,526  $13,064 $9,526 
Accounts receivable, less allowances of $3,268 at March 31, 2007 and $3,112 at December 31, 2006 189,934 160,999 
Inventories (principally on last-in, first-out basis) (latest cost higher by $142,984 at March 31, 2007 and $128,404 at December 31, 2006) 237,525 202,394 
Accounts receivable, less allowances of $3,184 at June 30, 2007 and $3,112 at December 31, 2006 187,397 160,999 
Inventories (principally on last-in, first-out basis) (latest cost higher by $161,591 at June 30, 2007 and $128,404 at December 31, 2006) 247,313 202,394 
Other current assets 10,360 18,743  16,940 18,743 
          
Total current assets 449,272 391,662  464,714 391,662 
Investment in joint venture 14,152 13,577  15,223 13,577 
Goodwill 101,790 101,783  101,848 101,783 
Intangible assets 64,490 66,169  62,881 66,169 
Prepaid pension cost 5,657 5,681  5,632 5,681 
Other assets 5,955 5,850  5,564 5,850 
Property, plant and equipment, at cost  
Land 5,222 5,221  5,226 5,221 
Building 48,927 49,017  48,944 49,017 
Machinery and equipment 144,348 141,090  147,767 141,090 
          
 198,497 195,328  201,937 195,328 
Less — accumulated depreciation  (127,494)  (124,930)  (131,249)  (124,930)
          
 71,003 70,398  70,688 70,398 
          
Total assets $712,319 $655,120  $726,550 $655,120 
          
  
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities  
Accounts payable $152,822 $117,561  $123,726 $117,561 
Accrued liabilities 30,825 30,152  29,689 30,152 
Income taxes payable 2,748 931  — 931 
Deferred income taxes — current 15,746 16,339  18,516 16,339 
Short-term debt 125,749 123,261  83,840 123,261 
Current portion of long-term debt 12,844 12,834  6,823 12,834 
          
Total current liabilities 340,734 301,078  262,594 301,078 
          
Long-term debt, less current portion 88,338 90,051  67,185 90,051 
Deferred income taxes 34,341 31,782  30,809 31,782 
Deferred gain on sale of assets 5,419 5,666 
Pension and postretirement benefit obligations 10,948 10,636 
Other non-current liabilities 17,570 16,302 
Commitments and contingencies  
Stockholders’ equity  
Preferred stock, $0.01 par value - 10,000,000 shares authorized; 12,000 shares issued and outstanding 11,239 11,239 
Common stock, $0.01 par value — authorized 30,000,000 shares; issued and outstanding 17,085,091 at March 31, 2007 and 17,085,091 at December 31, 2006 170 170 
Preferred stock, $0.01 par value - 10,000,000 shares authorized; 0 shares outstanding at June 30, 2007 and 12,000 shares issued and outstanding at December 31, 2006 — 11,239 
Common stock, $0.01 par value — authorized 30,000,000 shares; 22,270,612 shares issued and 22,037,535 shares outstanding at June 30, 2007; and 17,447,205 shares issued and 17,085,091 shares outstanding at December 31, 2006 218 170 
Additional paid-in capital 70,994 69,775  177,666 69,775 
Retained earnings 175,194 160,625  190,173 160,625 
Accumulated other comprehensive loss  (17,895)  (18,504)  (14,845)  (18,504)
Deferred unearned compensation  (1,157)  (1,392)  (1,333)  (1,392)
Treasury stock, at cost - 362,114 shares at March 31, 2007 and 362,114 shares at December 31, 2006  (6,006)  (6,006)
Treasury stock, at cost - 233,077 shares at June 30, 2007 and 362,114 shares at December 31, 2006  (3,487)  (6,006)
          
Total stockholders’ equity 232,539 215,907  348,392 215,907 
          
Total liabilities and stockholders’ equity $712,319 $655,120  $726,550 $655,120 
          
The accompanying notes are an integral part of these statements

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CONSOLIDATED STATEMENTS OF INCOME For The Three 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the Three For the Six
(Dollars in thousands, except per share data) Months Ended  Months Ended Months Ended
Unaudited March 31,  June 30, June 30,
 2007 2006 2007 2006 
 2007 2006         
Net sales $375,351 $279,193  $372,608 $275,607 $747,959 $554,800 
Costs and expenses:  
Cost of materials (exclusive of depreciation) 269,450 196,100  270,263 195,244 539,713 391,343 
Warehouse, processing and delivery expense 35,570 29,625  34,293 28,981 69,863 58,605 
Sales, general, and administrative expense 36,394 24,885  33,947 25,071 70,341 49,957 
Depreciation and amortization expense 4,896 2,444  4,977 2,654 9,873 5,097 
              
Operating income 29,041 26,139  29,128 23,657 58,169 49,798 
Interest expense, net  (4,261)  (1,087)  (4,163)  (958)  (8,424)  (2,046)
              
Income before income taxes and equity earnings of joint venture 24,780 25,052  24,965 22,699 49,745 47,752 
Income taxes  (9,877)  (10,242)  (9,994)  (9,397)  (19,871)  (19,639)
              
Net income before equity in earnings of joint venture 14,903 14,810  14,971 13,302 29,874 28,113 
Equity in earnings of joint venture 932 1,239  1,391 1,056 2,323 2,295 
              
Net income 15,835 16,049  16,362 14,358 32,197 30,408 
Preferred stock dividends  (243)  (242)  (350)  (243)  (593)  (485)
              
Net income applicable to common stock $15,592 $15,807  $16,012 $14,115 $31,604 $29,923 
              
Basic earnings per share $0.84 $0.95  $0.81 $0.83 $1.65 $1.78 
              
Diluted earnings per share $0.81 $0.86  $0.78 $0.76 $1.59 $1.62 
              
Dividends per common share paid $0.06 $0.06  $0.06 $0.06 $0.12 $0.12 
              
The accompanying notes are an integral part of these statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   
(Dollars in thousands) For the Three Months  For the Six Month
Unaudited Ended Mar 31,  Ended June 30,
 2007 2006  2007 2006 
Cash flows from operating activities:  
Net income $15,835 $16,049  $32,197 $30,408 
Adjustments to reconcile net income to net cash from operating activities:  
Depreciation and amortization 4,896 2,444  9,873 5,097 
Amortization of deferred gain  (223)  (213)  (447)  (295)
Loss on disposal of fixed assets 1,340 —  1,327 — 
Impairment of long-lived asset 589 — 
Equity in earnings from joint venture  (932)  (1,239)  (2,323)  (2,295)
Dividends from joint venture 715 825 
Stock compensation expense 1,454 974  2,515 1,945 
Deferred tax provision 1,649  (1,117) 1,498  (1)
Excess tax benefits from stock-based payment arrangements —  (168)  (148)  (811)
Increase (decrease) from changes, net of acquisitions, in:  
Accounts receivable  (28,859)  (26,712)  (25,153)  (21,644)
Inventories  (35,012)  (1,846)  (43,611)  (20,089)
Prepaid pension costs 827 1,058  49 1,909 
Other current assets 2,216  (813) 2,762  (1,118)
Other assets  (67)  (32) 2,035  (755)
Accounts payable 32,325 10,100  5,741 20,210 
Accrued liabilities 694  (2,514) 2,454 1,471 
Income tax payable 8,055 4,395   (1,861)  (6,588)
Postretirement benefit obligations and other liabilities 288 252  626 482 
          
Net cash from operating activities 4,486 618 
Net cash (used in) provided by operating activities  (11,162) 8,751 
Cash flows from investing activities:  
Dividends from joint venture 358 354 
Capital expenditures  (2,179)  (4,999)  (8,371)  (7,804)
Proceeds from sale of equipment 9 —  23 — 
          
Net cash used in investing activities  (1,812)  (4,645)  (8,348)  (7,804)
Cash flows from financing activities:  
Proceeds from issuance of short-term debt 2,500 — 
Net repayments of short-term debt  (39,560) — 
Repayments of long-term debt  (1,703)  (129)  (28,899)  (258)
Payment of debt issuance fees  (21) —   (21) — 
Preferred stock dividend  (243)  (242)  (345)  (485)
Dividends paid  (1,023)  (1,004)  (2,056)  (2,018)
Net proceeds from issuance of common stock 93,196 
Exercise of stock options and other — 479  210 6,174 
Excess tax benefits from stock-based payment arrangements — 168  148 811 
          
Net cash used in financing activities  (490)  (728)
Net cash provided by financing activities 22,673 4,224 
Effect of exchange rate changes on cash and cash equivalents  (257) 67  375 419 
Net (decrease) increase in cash and cash equivalents 1,927  (4,688)
Net increase in cash and cash equivalents 3,538 5,590 
          
Cash and cash equivalents — beginning of year $9,526 $37,392  $9,526 $37,392 
          
Cash and cash equivalents — end of period $11,453 $32,704  $13,064 $42,982 
          
Supplemental disclosure of cash flows information — Cash paid during the period: 
Supplemental disclosure of cash flow information — cash paid during period: 
Interest $3,009 $54  $8,413 $2,953 
          
Income taxes $1,035 $7,044  $21,050 $25,093 
          
See Note 3 to the consolidated financial statements for disclosure of noncash investing activity.
The accompanying notes are an integral part of these statements

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A. M. Castle & Co.
Notes to Condensed Consolidated Financial Statements
March 31,June 30, 2007
(Unaudited)
1. Condensed Consolidated Financial Statements
 
  The condensed consolidated financial statements included herein have been prepared by A.M. Castle & Co. and subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The Condensed Consolidated Balance Sheet at December 31, 2006 is derived from the audited financial statements at that date. The Company believes that the disclosures are adequate and make the information not misleading; however, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of management, the unaudited statements, included herein, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, the cash flows and the results of operations for the periods then ended. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report onForm 10-K.10-K. The 2007 interim results reported herein may not necessarily be indicative of the results of the Company’s operations for the full year.
The amounts presented on the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2006 have been corrected to report dividends from joint venture as a cash flow from operating activities to conform to the 2007 presentation. The dividends from joint venture were previously reported as a cash flow from investing activities.
The Company had non-cash investing activities for the six months ended June 30, 2007 consisting of $3.0 million in profit sharing contributions made in treasury shares and $0.3 million in preferred share dividends paid in shares of common stock.
 
2. New Accounting Standards – Issued Not Yet Adopted
 
  In September 2006 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurement” and in February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 157 was issued to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance in applying these definitions. SFAS No. 157 encourages entities to combine fair value information disclosed under SFAS No. 157 with other accounting pronouncements, including SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, where applicable. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not expect the adoption of these statements to materially affect its consolidated financial results of operations, cash flows or its financial position.
3.Noncash Investing Activity
The Company had noncash investing activities for the quarter ended March 31, 2007 of $2,957,000, which represented capital expenditures in accounts payable. This item is the Company’s initial payment due and payable in April 2007 to Oracle Corporation as part of the Company’s investment in its new Enterprise Resource Planning (“ERP”) technology.

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4.3. Earnings per share
 
  TheFor the period through the conversion of the preferred stock in connection with the secondary offering on May 24, 2007, the Company’s preferred stock participatesstockholders 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 SFAS 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 and convertible preferred stock shares, which have been included in the calculation of weighted average shares outstanding using the treasury stock method. In accordance with SFAS No. 128, the following table is a reconciliation of the basic and diluted earnings per share calculations for the threesix months ended March 31,June 30, 2007 and 2006(in thousands, except per share data):
                        
 For The Three Months  For the Three Months For the Six Months 
 Ended March 31,  Ended June 30, Ended June 30, 
 2007 2006  2007 2006 2007 2006 
Numerator:  
Net income $15,835 $16,049  $16,362 $14,358 $32,197 $30,408 
Preferred dividends distributed  (243)  (242)  (350)  (243)  (593)  (485)
             
Undistributed earnings $15,592 $15,807  $16,012 $14,115 $31,604 $29,923 
             
Undistributed earnings attributable to:  
Common stockholders $14,327 $15,807  $15,392 $14,115 $29,730 $29,923 
Preferred stockholders, as if converted 1,265 —  620 — 1,874 — 
             
Total undistributed earnings $15,592 $15,807  $16,012 $14,115 $31,604 $29,923 
             
Denominator:  
Denominator for basic earnings per share: 
Weighted average common shares outstanding 17,048 16,633  18,985 16,653 18,016 16,657 
Effect of dilutive securities:  
Outstanding employee and director common stock options and restricted stock 771 322 
Outstanding employee and director common stock options 780 360 786 305 
Convertible preferred stock 1,794 1,794  1,196 1,794 1,495 1,794 
             
Denominator for diluted earnings per share 19,613 18,749  20,961 18,807 20,277 18,756 
             
Basic earnings per common share $0.84 $0.95 
Basis earnings per common share $0.81 $0.83 $1.65 $1.78 
             
Diluted earnings per common share $0.81 $0.86  $0.78 $0.76 $1.59 $1.62 
             
Outstanding employee & director common stock options and restricted and convertible preferred stock shares having no dilutive effect 30 6 
Outstanding employee and director common stock options and restricted and convertible preferred stock shares having no dilutive effect — — — 4 
             

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5.4. Debt
 
  Short-term and long-term debt consisted of the following at March 31,June 30, 2007 and December 31, 2006 (dollars in thousands):
                
 March 31, December June 30, December 
 2007 31, 2006 2007 31, 2006 
      
SHORT-TERM DEBT  
U.S. Revolver $108,500 $108,000  $65,700 $108,000 
Canadian facility 509 —  700 — 
Mexico 2,350 1,863  2,350 1,863 
Transtar 1,627 1,383  1,135 1,383 
Trade acceptances 12,763 12,015  13,955 12,015 
    
Total short-term debt 125,749 123,261  83,840 123,261 
  
LONG-TERM DEBT  
U.S. Term Loan due in scheduled installments from 2007 through 2011 27,000 28,500  — 28,500 
6.76% insurance company loan due in scheduled installments from 2007 through 2015 69,283 69,283  69,283 69,283 
Industrial development revenue bonds due in varying amounts through 2009 3,600 3,600  3,600 3,600 
Other, primarily capital leases 1,299 1,502  1,125 1,502 
      
Total long-term debt 101,182 102,885  74,008 102,885 
Less-current portion  (12,844)  (12,834)  (6,823)  (12,834)
      
Total long-term portion 88,338 90,051  67,185 90,051 
     
 
TOTAL SHORT-TERM AND LONG-TERM DEBT $226,931 $226,146  $157,848 $226,146 
      
     In September 2006, the Company entered into a $210 million amended senior credit facility with its lending syndicate. This facility replaced the Company’s $82.0 million revolving credit facility entered into in July 2005. The amended senior credit facility provides for (i) a $170 million revolving loan to be drawn on by the company from time to time, (ii) a $30 million term loan and (iii) a Cdn. $11.1 million revolving loan (approximately $9.9 million in U.S. dollars) to be drawn on by the Company’s Canadian subsidiary from time to time. The revolving loans and term loan mature in 2011.
     In late 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 $93.2 million. The proceeds were used to repay the $27.0 million outstanding balance on the U.S. Term Loan and reduce 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.
Available revolving credit capacity is primarily used to fund working capital needs. As of March 31,June 30, 2007, the Company had outstanding borrowings of $108.5$65.7 million under its U.S. Revolver and had availability of $53.7$96.5 million. The Company’s Canadian subsidiary had $0.5$0.7 million in outstanding borrowings under the Canadian Revolver and availability of $9.4$9.2 million at March 31,June 30, 2007.

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6. Goodwill and Intangible Assets
 
  Acquisition of Transtar
 
  On September 5, 2006, the Company acquired all of the issued and outstanding capital stock of Transtar Intermediate Holdings #2, Inc. (“Transtar”), a wholly owned subsidiary of H.I.G. Transtar Inc. The results of Transtar’s operations have been included in the consolidated financial statements since that date. These results and the assets of Transtar are included in the Company’s Metals segment. In accordance with the purchase agreement, the determination of the final purchase price is subject to a working capital adjustment. The final determination and agreement on the adjustment has not yet been completed but the Company expects that it will be finalized by the end of the calendar year. The purchase price adjustment will impact the final allocation of purchase price to the acquired assets and liabilities. For more information regarding the acquisition of Transtar, refer to our 2006 Annual Report on Form 10-K.
 
  The changes in carrying amounts of goodwill were as follows (dollars in thousands):
                        
 Metals Plastics   Metals Plastics  
 Segment Segment Total Segment Segment Total
Balance as of December 31, 2006 $88,810 $12,973 $101,783  $88,810 $12,973 $101,783 
Currency translation 7 — 7  65 — 65 
        
Balance as of March 31, 2007 $88,817 $12,973 $101,790 
Balance as of June 30, 2007 $88,875 $12,973 $101,848 
        
  The Company performs an annual impairment test on goodwill during the first quarter of each fiscal year. Based on the test performed during the first quarter of 2007, the Company has determined that there is no impairment of goodwill.
 
  The following summarizes the components of intangible assets at March 31,June 30, 2007 and December 31, 2006 (dollars in thousands):
                                
 March 31, 2007 December 31, 2006 June 30, 2007 December 31, 2006
 Gross Gross   Gross Gross  
 Carrying Accumulated Carrying Accumulated Carrying Accumulated Carrying Accumulated
 Amount Amortization Amount Amortization Amount Amortization Amount Amortization
          
Customer Relationships $66,851 $3,578 $66,851 $2,061  $66,851 $5,096 $66,851 $2,061 
Non-Compete Agreements 1,557 340 1,557 178  1,557 431 1,557 178 
    
Total $68,408 $3,918 $68,408 $2,239  $68,408 $5,527 $68,408 $2,239 
          
  The weighted-average amortization period is 10.8 years, 11 years for customer contracts and 3 years for non-compete agreements. Substantially all of the Company’s intangible assets were acquired as part of the acquisition of Transtar on September 5, 2006.
 
  For the three monthsix-month period ended March 31,June 30, 2007, the aggregate amortization expense was $1.7$3.3 million. For the three monthsix-month period ended March 31,June 30, 2006, the aggregate amortization expense was immaterial.
The following is a summary of the estimated aggregate amortization expense for each of the next five years (dollars in thousands):

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2007 (July 1 through December 31, 2007) $3,302 
2008  6,604 
2009  6,441 
2010  6,081 
2011  6,070 
2012  6,070 
7.6. InventoryInventories
 
  Final inventory determination under the last-in,first-out (LIFO) method can only be made at the end of each fiscal year based on the actual inventory levels and costs at that time. Accordingly, interim LIFO determinations, including those at March 31,June 30, 2007, are based solely on management’s estimates of inventory levels and costs. Since future estimates of inventory levels and costs are subject to certain forces beyond the control of management, interim financial results are subject to fiscal year-end LIFO inventory valuations.
     Current replacement cost of inventories exceeded book value by $143.0 million and $128.4 million at March 31, 2007 and December 31, 2006, respectively. Income taxes would become payable on any realization of this excess from reductions in the level of inventories.
     The Company has entered into consignment inventory agreements with a few select customers whereby revenue is not recorded until the customer has consumed product from the consigned inventory and title has passed. Net sales derived from consigned inventories at customer locations for 2007 was $4.3 million, or 1.1% of sales. Inventory on consignment at customers as of March 31, 2007 was $4.0 million, or 1.7%, of consolidated net inventory as reported on the Company’s consolidated balance sheets.
8.
     Current replacement cost of inventories exceeded book value by $161.6 million and $128.4 million at June 30, 2007 and December 31, 2006, respectively. Income taxes would become payable on any realization of this excess from reductions in the level of inventories.
     The Company has entered into consignment inventory agreements with a few select customers whereby revenue is not recorded until the customer has consumed product from the consigned inventory and title has passed. Net sales derived from consigned inventories at customer locations for 2007 was $10.2 million, or 1.4% of sales. Inventory on consignment at customers as of June 30, 2007 was $5.2 million, or 2.0%, of consolidated net inventory as reported on the Company’s consolidated balance sheets.
7. Share-Based Compensation
 
  The Company maintains long-term stock incentive and stock option plans for the benefit of officers, directors and key management employees. The fair value of stock options granted has been estimated using the Black-Scholes option pricing model. There were no stock options granted in the first quarteror second quarters of 2007. Other forms of share-based compensation have generally used the market price of the Company’s stock on the date of grant to estimate fair value.
       In 2005, the Company established the 2005 Performance Stock Equity Plan (the “Performance Plan”). Under the Performance Plan, 438,448 stock awards have been granted, of which 76,06979,902 have been forfeited. In the firstsecond quarter of 2007, no awards were granted and 1,2503,833 were forfeited in this plan. The number of shares that could potentially be issued is 724,758.717,092.
 
       In 2007, the Company established the 2007 Long-Term Incentive Plan (the “2007 Performance Plan”), which is similar in form to the Performance Plan. Under this Plan, 82,400 restricted stock awards were granted in January 2007 and 38,100 restricted stock awards were granted in April 2007. None have been forfeited. The number of shares that could potentially be issued under this plan is 241,000. The grant date fair values range from $25.45 to $34.33. Under the 2007 Performance Plan, the shares related to the awards will be distributed in 2010, contingent upon meeting company-wide performance goals over the 2007-2009 performance period.periods.
     Additionally, 13,014 shares of restricted stock awards were granted in April 2007 to the non-employee members of the board of directors at a grant date fair value of $34.58 per share.
     The consolidated expense for all share based compensation plans was $1.1 million and $0.9 million for the three months ended June 30, 2007 and 2006, respectively and $2.5 million and $1.9 million for the six months ended June 30, 2007 and 2006, respectively. The unrecognized compensation cost as of June 30, 2007 associated with all plans is $5.8 million and the weighted average period over which it is to be expensed is 1.8 years.

Page 11 of 22
25
9.8. Comprehensive Income
 
  Comprehensive income includes net income and all other non-owner changes to equity that are not reported in net income. Below is the Company’s comprehensive income for the three months ended March 31,June 30, 2007 and 2006(dollars in millions).
         
  March 31, March 31,
  2007 2006
Net income $15.8  $16.0 
Foreign currency translation  0.1   (0.2)
Pension cost amortization, net of tax  0.5   — 
   
Total Comprehensive Income $16.4  $15.8 
   
The total accumulated other comprehensive losses at March 31, 2007 and December 31, 2006 comprised (dollars in millions):
         
  March 31, December 31,
  2007 2006
   
Foreign currency valuation $3.7  $3.6 
Unrecognized pension and postretirement benefit costs, net of tax  (21.6)  (22.1)
   
Total Accumulated Other Comprehensive Loss $(17.9) $(18.5)
   
         
  2007 2006
   
Net income $16.4  $14.4 
Foreign currency translation  2.6   1.4 
Pension cost amortization, net of tax  0.5   — 
   
Total Comprehensive Income $19.5  $15.8 
   
10.Below is the Company’s comprehensive income for the six months ended June 30, 2007 and 2006(dollars in millions).
         
  2007 2006
   
Net income $32.2  $30.4 
Foreign currency translation  2.7   1.1 
Pension cost amortization, net of tax  1.0   — 
   
Total Comprehensive Income $35.9  $31.5 
   
The total accumulated other comprehensive losses at June 30, 2007 and December 31, 2006 comprised(dollars in millions):
         
  June 30, December 31,
  2007 2006
   
Foreign currency valuation $6.3  $3.6 
Unrecognized pension and postretirement benefit costs, net of cash  (21.1)  (22.1)
   
Total Accumulated Other Comprehensive Loss $(14.8) $(18.5)
   
9. 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, our Chief Executive Officer reviews and manages these two businesses separately. As such, these businesses are considered segments according to FASSFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” and are reported accordingly in the Company’s consolidated financial statements.
     The accounting policies for all segments are described in Note 3 “Segment Reporting” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Management evaluates performance of its business segments based on operating income. The Company does not maintain separate standalone financial statements prepared in accordance with GAAP for each of its operating segments.
     The following is the segment information for the quarters ended March 31,June 30, 2007 and 2006:
                 
  Net Operating Capital Depreciation &
(dollars in millions) Sales Income Expenditures Amortization
 
2007                
Metals Segment $346.6  $30.3  $1.8  $4.6 
Plastics Segment  28.8   1.5   0.4   0.3 
Other  —   (2.8)  —   — 
   
Consolidated $375.4  $29.0  $2.2  $4.9 
   
                 
2006                
Metals Segment $250.7  $26.5  $4.6  $2.1 
Plastics Segment  28.5   1.8   0.4   0.3 
Other  —   (2.2)  —   — 
   
Consolidated $279.2  $26.1  $5.0  $2.4 
   

Page 12 of 2225
                 
  Net Operating Capital Depreciation &
(dollars in millions) Sales Income Expenditures Amortization
 
2007                
Metals Segment $343.3  $29.4  $5.6  $4.7 
Plastics Segment  29.3   1.7   0.6   0.3 
Other  —   (2.0)  —   — 
   
Consolidated $372.6  $29.1  $6.2  $5.0 
   
                 
2006                
Metals Segment $244.8  $23.3  $5.1  $2.5 
Plastics Segment  30.8   2.8   0.3   0.2 
Other  —   (2.4)  —   — 
   
Consolidated $275.6  $23.7  $5.4  $2.7 
   
  “Other” – Operating loss includes the costs of executive, finance and legal departments, and other corporate activities which support both the Metalsmetals and Plasticsplastics segments of the Company.
 
  The following is the segment information for total assets at March 31,the six months ended June 30, 2007 and December 31, 2006 was as follows:2006:
                    
 March 31, December 31, Net Operating Capital Depreciation &
(dollars in millions) 2007 2006 Sales Income Expenditures Amortization
2007 
Metals Segment $648.6 $593.7  $690.0 $59.8 $7.4 $9.3 
Plastics Segment 49.5 47.8  58.0 3.2 1.0 0.6 
Other 14.2 13.6  —  (4.8) — — 
    
Consolidated $712.3 $   655.1  $748.0 $58.2 $8.4 $9.9 
    
 
2006 
Metals Segment $495.4 $49.9 $7.2 $4.5 
Plastics Segment 59.4 4.5 0.6 0.6 
Other —  (4.6) — — 
  
Consolidated $554.8 $49.8 $7.8 $5.1 
  
  “Other” — The segment’s total assets consist– Operating loss includes the costs of executive, finance and legal departments, and other corporate activities which support both the metals and plastics segments of the Company’s investment in a joint venture.Company.
The segment information for total assets at June 30, 2007 and December 31, 2006 was as follows:
         
  June 30, December 31,
(dollars in millions) 2007 2006
 
Metals Segment $662.8  $593.7 
Plastics Segment  48.6   47.8 
Other  15.2   13.6 
   
Consolidated $726.6  $655.1 
   
“Other” — The segment’s total assets consist of the Company’s investment in a joint venture.

Page 13 of 25
11.10. Pension and Postretirement Benefits
 
  The following are the components of the net pension and postretirement benefit expenses (in thousands):
                
 For the three months ended For the Three Months Ended
 March 31, June 30,
 2007 2006 2007 2006
    
Service cost $934.5 $917.8  $934.5 $917.8 
Interest cost 1,911.1 1,805.8  1,911.1 1,805.8 
Expected return on plan  (2,520.0)  (2,423.9)
Expected return on plan assets  (2,520.0)  (2,423.9)
Amortization of prior service cost 26.4 26.4  26.4 26.4 
Amortization of net loss 787.0 945.8  787.0 945.8 
    
Net periodic cost $1,139.0 $1,271.9  $1,139.0 $1,271.9 
    
         
  For the Six Months Ended
  June 30,
  2007 2006
   
Service cost $1,869.0  $1,835.6 
Interest cost  3,822.2   3,611.6 
Expected return on plan assets  (5,040.0)  (4,847.8)
Amortization of prior service cost  52.8   52.8 
Amortization of net loss  1,574.0   1,891.6 
   
Net periodic cost $2,278.0  $2,543.8 
   
  As of March 31,June 30, 2007, the Company has not made any cash contributions to its pension plans for this fiscal year but will continue to evaluate optionsand does not anticipate making any contributions for funding this plan inthe balance of 2007.
12.11. Commitments and Contingent Liabilities
 
  At March 31,June 30, 2007, the Company had $5.3 million of irrevocable letters of credit outstanding, $1.7 million of which is for compliance with the insurance reserve requirements of its workers’ compensation insurance carrier. The remaining $3.6 million is in support of the outstanding industrial revenue bonds. The Company is the defendant in several lawsuits arising out of the conduct 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, 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.

Page 13 of 22

13.
12. Income Taxes
 
  In June 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”Taxes – an interpretation of FASB No. 109.109”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. It prescribes a recognition threshold and

Page 14 of 25
measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return.
     The Company adopted FIN 48 on January 1, 2007. No increase in liability for unrecognized tax benefits were recorded as a result of the adoption. As of March 31, 2007, the Company has a $1.0 million liability recorded for unrecognized tax benefits of which $0.4 million would impact the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense.
     The Company anticipates the amount of unrecognized tax benefits to increase $0.2 million by December 31, 2007. This increase will result in an increase in currently unrecognized tax benefits.
     The Company adopted FIN 48 on January 1, 2007. No increase in liability for unrecognized tax benefits was recorded as a result of the adoption. As of January 1, 2007, the Company has a $1.0 million liability recorded for unrecognized tax benefits of which $0.3 million would impact the effective tax rate if recognized. As of June 30, 2007, the Company has a $1.1 million liability recorded for unrecognized tax benefits of which $0.4 million would impact the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense.
     The Company does not anticipate the amount of unrecognized tax benefits to change in the next twelve months.
     The Company or its subsidiaries files income tax returns in the U.S., 28 states and 5 foreign jurisdictions. The Canadian income tax returns for 2002 through 2004 are currently under audit. No material adjustments have been proposed to date. The tax years 2003 through 2006 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Review
This discussion should be read in conjunction with the information contained in the Condensed Consolidated Financial Statements and Notes.
Executive Overview
Economic Trends and Current Business Conditions
A. M. Castle & Co. and subsidiaries (“the Company”) continued to enjoy favorablehigher pricing for its products through the second quarter and the first half of 2007, which resulted in favorable revenue growth compared to both the second quarter and first six months of last year. The acquisition of Transtar Metals in the fall of 2006 was also a key contributor to revenue and income growth comparisons. Excluding this acquisition, volume levels in the balance of the business were softer when compared to the second quarter and first six months of 2006. Metal products sold to the aerospace industry continued to exhibit higher demand through the second quarter of 2007. Projected 2007, demandbut other products sold to the general North American manufacturing sector were not as robust as the record levels achieved in early 2006. The outlook for the aerospace and oil and gas markets remain bullish,remains favorable, and current general economic indicators do not currently suggest that alead management to believe any significant prolonged downturn in the Metals business is on the near-term horizon. Forecasted 2007 demand in the North American durable goods manufacturing sector, which is a leading economic indicator, continues to exhibit requirements above 2006 levels.
     Historically, the Company has used the Purchaser’s Managers Index (“PMI”) provided by the Institute of Supply Managers to track general demand trends in its customer markets. Table 1The table below shows recent PMI trends from the first quarter of 2005 through the firstsecond quarter of 2007. Generally speaking, an index above 50.0 indicates growth in the manufacturing sector of the U.S. economy. As the table indicates, the demand trend while down from earlier quarters, still reflected a favorable growth rate for the firstsecond quarter of 2007. The Company’s revenue growth has historically improved over these same quarters. However, first quarter 2007 volume growth for the Company on a consolidated basis, excluding Transtar, is approximately 5% less than the same quarter in 2006. The Company experienced its highest volume growth rate in the first quarter of 2006 versus any other quarter in recent years. First quarter 2007 volume, excluding Transtar, was up slightly versus each of the prior three quarters.
                 
YEAR Qtr 1 Qtr 2 Qtr 3 Qtr 4
 
2005  55.7   53.2   55.8   57.2 
2006  55.6   55.2   53.8   50.9 
2007  50.8   55.2         
 

Page 1415 of 22
         
YEAR Qtr 1 Qtr 2 Qtr 3 Qtr 4
 
2005 55.7 53.2 55.8 57.2
2006 55.6 55.2 53.8 50.9
2007 50.8      
 
25
Results of Operations: Year-to-YearSecond Quarter 2007 Comparisons and Commentaryto Second Quarter 2006
Consolidated results by business segment are summarized in the following table for the quarter ended March 31,June 30, 2007 and 2006. First quarter 2007 net income included a $0.9 million after-tax charge for the write-off of the Company’s investments in information technology systems, which were under development and are included in the Company’s Metals segment reporting. During the quarter, the Company signed an agreement to purchase Oracle’s ERP system in support of its strategic growth initiative, leading to the accelerated write-off of the Company’s investment in its current systems.2006
Operating Results by Segment
                 
  Quarter Ended  
(dollars in millions) June 30, Fav/(Unfav)
  2007 2006 $ Change % Change
 
Net Sales                
Metals $343.3  $244.8  $98.5   40.2%
Plastics  29.3   30.8   (1.5)  (4.9)%
   
Total Net Sales $372.6   275.6  $97.0   35.2%
                 
Cost of Materials                
Metals $250.7  $174.8  $75.9   43.4%
% of Metals Sales
  73.0%  71.4%      (1.6)%
Plastics  19.6   20.4   (0.8)  (3.9)%
% of Plastics Sales
  66.9%  66.2%      (0.7)%
   
Total Cost of Materials $270.3  $195.2  $75.1   38.5%
% of Total Net Sales
  72.5%  70.8%      (1.7)%
                 
Other Operating Costs and Expenses                
Metals $63.2  $46.7  $16.5   35.3%
Plastics  8.0   7.6   0.4   5.3%
Other  2.0   2.4   (0.4)  (16.7)%
   
Total Other Operating Costs & Expense $73.2  $56.7  $16.5   29.1%
% of Total Net Sales
  19.6%  20.6%      0.9%
                 
Operating Income                
Metals $29.4  $23.3  $6.1   26.2%
% of Metals Sales
  8.6%  9.5%      (0.9)%
Plastics  1.7   2.8   (1.1)  39.3%
% of Plastics Sales
  5.8%  9.1%      (3.3)%
Other  (2.0)  (2.4)  0.4   16.7%
   
Total Operating Income $29.1  $23.7  $5.4   22.8%
% of Total Net Sales
  7.8%  8.6%      (0.8)%
                 
  Quarter Ended  
(dollars in millions) March 31, Fav/(Unfav)
  2007 2006 Fav/(Unfav) % Change
 
Net Sales                
Metals $346.6  $250.7  $95.9   38.3%
Plastics  28.8   28.5   0.3   1.1 
   
Total Net Sales $375.4  $279.2  $96.2   34.4%
                 
Cost of Materials                
Metals $250.0  $177.1  $72.9   41.2%
% of Metals Sales
  72.1%  70.6%  (1.5)%    
Plastics  19.5   19.0   0.5   2.6%
% of Plastics Sales
  67.7%  66.7%  (1.0)%    
   
Total Cost of Materials $269.5  $196.1  $73.4   37.4%
% of Total Net Sales
  71.8%  70.2%  (1.6)%    
                 
Other Operating Costs and Expenses                
Metals $66.3  $47.1  $19.2   40.8%
Plastics  7.8   7.7   0.1   1.3 
Other  2.8   2.2   0.6   27.3 
   
Total Other Operating Costs & Expense $76.9  $57.0  $19.9   34.9%
% of Total Net Sales
  20.5%  20.4%  (0.1)%    
 
Operating Income                
Metals $30.3  $26.5  $3.8   14.3%
% of Metals Sales
  8.7%  10.6%  (1.9)%    
Plastics  1.5   1.8   (0.3)  (16.7)%
% of Plastics Sales
  5.2%  6.3%  (1.1)%    
Other  (2.8)  (2.2)  (0.6)  (27.3)%
   
Total Operating Income $29.0  $26.1  $2.9   11.1%
% of Total Net Sales
  7.7%  9.3%  (1.6)%    

Page 15 of 22

“Other” – Operating loss includes the costs of executive, finance and legal departments, and other corporate activities which support both the Metals and Plastics segments of the Company.
Acquisition of Transtar
On September 5, 2006, the Company acquired all of the issued and outstanding capital stock of Transtar Intermediate Holdings #2, Inc. (“Transtar”), a wholly owned subsidiary of H.I.G. Transtar Inc. The results of Transtar’s operations have been included in the consolidated financial statements since that date. These results and the assets of Transtar are included in the Company’s Metals segment. For more information regarding the acquisition of Transtar, refer to our 2006 Annual Report on Form 10-K. In order to present a consistent quarter-over-quarter analysis of financial condition and results of operation, the Company is herein disclosing the incremental impact of its recent acquisition.

Page 16 of 25
Net Sales:
Consolidated net sales of $375.4$372.6 million increased 34.4%35.2%, or $96.2$97.0 million, versus the firstsecond quarter of 2006. The Transtar acquisition added $72.8$72.6 million of net sales for the quarter and the remaining $302.6$300.0 million of net sales were $23.4$24.4 million, or 8.4%8.9%, ahead ofhigher than the same quarter of last year.
     Metals segment sales of $346.6$343.3 million were $95.9$98.5 million, or 38.3%40.2%, ahead of last year. Of the 38.3%40.2% sales increase, 29.0%29.6% was attributable to Transtar and 14.4% was attributable to increased material pricing,Transtar. Material price increases more than offset by a 5.1% decline in volume.lower volume across most of the remaining metals business.
     Plastics segment sales of $28.8$29.3 million were $0.3$1.5 million or approximately 1.1%, strongerlower than the samesecond quarter of 2006. Volume andPlastic material pricingprices were 2.5% higher than last year, but volume was 7.4% lower. During the second quarter of 2006, the Plastics segment enjoyed a significant customer order for a point-of-purchase display program that did not repeat in the plastics segment were essentially flat versus the first quarter of 2006.current year.
Cost of Materials
Consolidated firstsecond quarter 2007 costs of materials (exclusive of depreciation) increased $73.4$75.1 million, or 37.4%38.5%, to $269.5$270.3 million. The acquisition of Transtar contributed $50.8$52.4 million of the increase. The balance of the increase was primarily due to higher material costs from suppliers, typically in the form of surcharges. Material costs for the second quarter were 72.5% of sales as compared to 70.8% in the second quarter of 2006. Increased material prices from suppliers in the form of surcharges are passed on to larger program customers, or customers purchasing under a contractual agreement, at cost, resulting in higher material costs as a percent of sales.
Other Operating Expenses and Operating Income:
Total consolidatedConsolidated operating expenses in the second quarter of $76.9 million increased $19.92007 were $73.2 million, or 34.9%, versus19.6% of sales compared to $56.7 million, or 20.6% of sales last year. The $16.5 million increase was primarily attributable to the first quarter of last year on a 34.4% increase in net sales. The Transtar acquisition added $15.9and a $0.6 million of the increase, the systems write-off accounted for $1.4 million, and general inflation on wages, benefits and other variable expenses account for the balance of the change.impairment charge related to long-lived assets.
     Consolidated operating income of $29.0$29.1 million (7.7% of sales) is $2.9was $5.4 million higher than the first quarter of last year largely reflecting continued top line growth.due to revenue growth and the maintenance of good operating margins.
Other Income and Expense, Income Taxes and Net Income:
Equity in earnings of joint venture was $1.4 million for the second quarter of $0.9 million was2007, or $0.3 million lowerhigher than in 2006, reflecting weaker automotive industry-related sales at the Company’ssame period last year due to a recent acquisition by the joint venture, Kreher Steel.venture.
     Financing costs, which consistconsisting primarily of interest expense, were $4.3$4.2 million in the firstsecond quarter of 2007 which was $3.2 million higher than the same period in 2006. The primary driver of higher interest expense was the Company’s increased borrowings related to the acquisition of Transtar in September 2006.2006 and the write-off of $0.4 million of deferred financing costs related to the retirement of the U.S. Term Loan.
     Consolidated net income applicable to common stock was $15.6$16.0 million, or $0.81$0.78 per diluted share, in the firstsecond quarter of 2007 versus a consolidated net income applicable to common stock of $15.8$14.1 million, or $0.86$0.76 per diluted share, in the corresponding period of 2006.
Results of Operations: Six Months 2007 Comparisons to Six Months 2006
Consolidated results by business segment are summarized in the following table for the six months ended June 30, 2007 and 2006(dollars in millions):

Page 17 of 25
                 
  Six Months Ended  
  June 30, Fav/(Unfav)
  2007 2006 $ Change % Change
 
Net Sales                
Metals $690.0  $495.4  $194.6   39.3%
Plastics  58.0   59.4   (1.4)  (2.4)%
   
Total Net Sales $748.0  $554.8  $193.2   34.8%
                 
Cost of Materials                
Metals $500.7  $351.7  $149.0   42.4%
% of Metals Sales
  72.6%  71.0%      (1.6)%
Plastics  39.0   39.6   (0.6)  (1.5)%
% of Plastics Sales
  67.2%  66.7%      (0.5)%
   
Total Cost of Materials $539.7  $391.3  $148.4   37.9%
% of Total Net Sales
  72.2%  70.5%      (1.7)%
                 
Other Operating Costs and Expenses        
Metals $129.5  $93.8  $35.7   38.1%
Plastics  15.8   15.3   0.5   3.3%
Other  4.8   4.6   0.2   4.3%
   
Total Other Operating Costs & Expense $150.1  $113.7  $36.4   32.0%
% of Total Net Sales
  20.1%  20.5%      0.4%
                 
Operating Income                
Metals $59.8  $49.9  $9.9   19.8%
% of Metals Sales
  8.7%  10.1%      (1.4)%
Plastics  3.2   4.5   (1.3)  28.9%
% of Plastics Sales
  5.5%  7.6%      (2.1)%
Other  (4.8)  (4.6)  (0.2)  4.3%
   
Total Operating Income $58.2  $49.8  $8.4   16.9%
% of Total Net Sales
  7.8%  9.0%      (1.2)%
“Other” – Operating loss includes the costs of executive, finance and legal departments, and other corporate activities which support both the metals and plastics segments of the Company.
Net Sales:
Six month 2007 consolidated net sales of $748.0 million were $193.2 million, or 34.8%, higher than last year.
     Metal segment sales of $690.0 million were $194.6 million, or 39.3%, ahead of last year. The Transtar acquisition added $145.4 million of sales for the first six months of 2007, or 29.3% of the total 39.3% revenue increase compared to last year. Excluding the acquisition, metal price levels were higher than the first six months of 2006, more than offsetting the effects of lower overall volume for the balance of the Metals segment.
     Plastic segment sales of $58.0 million were $1.4 million lower than the first half of 2006. Plastic material prices increased 2.5%, but volume was 4.7% lower than the corresponding period of last year, largely due to slower demand across the industry.
Cost of Materials:
Consolidated first half 2007 costs of materials (exclusive of depreciation) increased $148.4 million, or 37.9%, to $539.7 million. The acquisition of Transtar contributed $3.7$103.1 million of the increase. The balance of the increase was primarily due to net income duringhigher material costs from suppliers,

Page 18 of 25
typically in the quarter. First quarterform of surcharges. Material costs for the first six-months of 2007 net incomewere 72.2% of sales as compared to 70.5% in 2006. Increased material prices from suppliers in the form of surcharges are passed on to larger program customers, or customers purchasing under a contractual agreement, at cost, resulting in higher material costs as a percent of sales.
Other Operating Expenses and Operating Income:
Year-to-date consolidated operating expense of $150.1 million included a $0.9$1.4 million after-tax charge ($0.04 per diluted share) for the write-off of the Company’s prior investmentformer business systems. This charge was triggered by the Company’s decision to implement the Oracle ERP system. The increase in information technology systems.

Page 16operating expenses as compared to the first half of 222006 was primarily due to the Transtar acquisition, the $1.4 million charge mentioned above, and a $0.6 million impairment charge related to long-lived assets.

     Consolidated operating profit of $58.2 million, or 7.8% of sales, was $8.4 million higher than last year.
Other Income and Expense, Income Taxes and Net Income:
Joint venture equity earnings for the first half of 2007 of $2.3 million were approximately equal to the first half of 2006.
     Financing costs, which consist primarily of interest expense, were $8.4 million for the first six months of 2007 and $2.0 million for the same period in 2006. The increase in interest expense reflects the debt funding of the Transtar acquisition in the fall of 2006.
     Year-to-date consolidated net income (after preferred dividends of $0.6 million) was $31.6 million, or $1.59 per diluted share, versus $29.9 million, or $1.62 per basic share, for the first six-months of 2006.
Critical Accounting Policies:
The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes” – an interpretation of FASB No. 109. See Note 12 to the consolidated financial statements for more information regarding the Company’s adoption of FIN 48. There have been no other changes in critical accounting policies from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
Liquidity and Capital Resources
The Company’s principal sources of liquidity are earnings from operations, management of working capital, and the $210 million amended senior credit facility.
     In late 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 $93.2 million. The proceeds were used to permanently repay the $27.0 million outstanding balance on the U.S. Term Loan and 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.
Cash fromused in operating activities infor the first six months of 2007 was $11.2 million, primarily driven by increased working capital requirements. Receivable days outstanding were 44.9 days at the end of the second quarter of 2007 was $4.5 million. Working capital, excludingas compared to 47.3 days at the current portion of long-term debt, of $121.4 million was up $18.0 million since the beginningend of the year. Tradefourth quarter of 2006. Total receivables of $189.9 million were up $28.9 millionincreased due to increasedhigher sales. Receivable days sales outstanding declined 4.2 days from December 31, 2006 to a level of 43.1 days reflecting strong collections during the quarter. Inventory at net book value of $237.5 million, including last-in, first-out reserves of $143.0 million, increased $35.1 million from December, 2006. DaysDSI (days sales in inventory) was 136.1 days at the end of the second quarter of 2007 versus a DSI of 129.2 days at the end of the fourth quarter of 2006. The increase in inventory of 121.7 days reflects higher receipts oflevels are primarily in the Company’s nickel and aluminum materials inproducts that support the first quarter.aerospace and oil and gas markets.
     Available revolving credit capacity is primarily used to fund working capital needs. As of March 31,June 30, 2007, the Company had outstanding borrowings of $108.5$65.7 million under its U.S. Revolver and had availability of $53.7$96.5 million. The Company’s Canadian subsidiary had $0.5$0.7 million in outstanding borrowings under the Canadian Revolver and availability of $9.4$9.2 million at March 31,June 30, 2007.

Page 19 of 25
     The Company paid a cash dividenddividends to its shareholders of $0.06$0.12 per common share, or $1.0$2.0 million, during the first quarterthrough June of 2007. The Company also paid $0.2$0.6 million in preferred stock dividends duringup through May of 2007, which is when the first quarterpreferred stock was converted and sold by the shareholders as part of 2007.the secondary equity offering completed at that time. The $0.6 million preferred stock dividend was comprised of $0.3 million in cash and $0.3 million in shares of common stock.
     Capital expenditures in the first quarterthrough June of 2007 were $2.2$8.4 million, reflecting typical equipment replacement and upgrades. Despite increased working capital levels, the Company reduced its debt, net of cash position, by $1.1including $3.4 million sincefor the beginning phase of the year.Company’s Oracle ERP implementation.
     The Company’s principal payments on long-term debt, including the current portion of long-term debt, required over the next few years are summarized below(dollars in thousands):
          
 
Year ending December 31,Year ending December 31,  
2007 (for the nine months April 1, 2007 to December 31, 2007) $11,131 
2007(for the six months July 1, 2007 to December 31, 2007)
 $6,426 
20082008 12,998  7,005 
20092009 16,470  10,477 
20102010 13,220  7,221 
20112011 12,140  7,640 
2012 and beyond2012 and beyond  35,223  35,239 
     
Total debtTotal debt $101,182  $74,008 
        
     As of March 31,June 30, 2007, the Company remains in compliance with the covenants of its financial agreements, which require it to maintain certain funded debt-to-capital ratios, working capital-to-debt ratios and a minimum equity value as defined within the agreement.
     Current business conditions lead management to believe it will be able to generate sufficient cash from operations and ongoingThe Company expects working capital managementrequirements to decline over the balance of 2007, which will facilitate a return to favorable cash flows from operations. Favorable operating cash flow will fund itsthe Company’s ongoing capital expenditure programs and meet its debt obligations.

Page 17 of 22

Commitments and Contingencies
At March 31,June 30, 2007, the Company had $5.3 million of irrevocable letters of credit outstanding, $1.7 million of which were for compliance with the insurance reserve requirements of its workers’ compensation insurance carrier. The remaining $3.6 million was in support of the outstanding industrial revenue bonds.
     The Company is the defendant in several lawsuits arising out of the conduct 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, 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 3. Quantitative and Qualitative Disclosure 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.
There have been no significant or material changes to such risks since December 31, 2006. Refer to Item 7a in our Annual Report on Form 10-K filed for the year ended December 31, 2006 for further discussion of such risks.

Page 20 of 25
Item 4. Controls and Procedures
(a)Evaluation of 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) as of the end of the period covered by this report.
     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.
     In its Annual Report on Form 10-K for the year ended December 31, 2006, the Company reported that, based upon their review and evaluation, the Company’s disclosure controls and procedures were effective as of December 31, 2006.
     As part of its evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report, and in accordance with the framework published by the Committee of Sponsoring Organizations of the Treadway Commission, referred to as theInternal Control — Integrated Framework,the Company’s management has concluded that our internal control over financial reporting was effective as of the end of the period covered by this report.

Page 18 of 22

(b)Changes in Internal Controls
There was no change in the Company’s “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934 that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

          During the quarter, the Company signed an agreement to purchase Oracle’s ERP system in support
Page 21 of its strategic growth initiative. While no changes have been made to our internal control over financial reporting at this time, we will continue to review our internal control over financial reporting as the ERP system is implemented within the Company. Additionally, the Company is in the process of reviewing and documenting the internal control structure of Transtar and, if necessary, will make appropriate changes to Transtar’s internal control over financial reporting.25
Part II. OTHER INFORMATION
Item 1.Item 1. Legal Proceedings
There were no material legal proceedings other than the ordinary routine litigation incidental to the business of the Company.
Item 1A.Item 1A. Risk Factors
During the quarter there were no material changes to the risk factors set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
         
        (d) Maximum
      (c) Total Number Number (or
      of Shares (or Approximate
      Units) Purchased(c) Total Number Dollar Value) of
  (a) Total Number (b) Averageas Part ofShares (or Units)
Price of Shares (or Price Shares (or Units)
of Shares (orPaid per PubliclyUnits) Purchased that May Yet Be
Period Units) Purchased Share (or Unit) Announcedas Part of Purchased
      Plans orPublicly Announced (Under the Plans
      Plans or Programs or Programs)
 
JanuaryApril 1 – January 31April 30 — — — —
 —   —
May 1 – May 31—   —
February 1 – February 28 — —
June 1 – June 30 — —
 —   —   
March 1 – March 31— ———
   
         
Total — — — ——
   
Item 6.Exhibits
Item 6. Exhibits
Exhibit 31.1 Certification Pursuant to Section 302 by CEO

Exhibit 31.2 Certification Pursuant to Section 302 by CFO

Exhibit 32.1 Certification Pursuant to Section 906 by CEO & CFO
Exhibit 31.2 Certification Pursuant to Section 302 by CFO
Exhibit 32.1 Certification Pursuant to Section 906 by CEO & CFO

Page 1922 of 2225
SIGNATURES
Pursuant to the requirements 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)  
       
Date: May 4,August 2, 2007 By: /s/ Henry J. Veith  
       
    Henry J. Veith  
       
    Controller  
    (Mr. Veith is the Chief Accounting Officer and has been
authorized to sign on behalf of the Registrant.)