##### Table of Contents



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, 2008
    
    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
  
  Maryland
    
    36-0879160(State or Other Jurisdiction of 
incorporation of organization)
    
    (I.R.S. Employer Identification No.)
 3400 North Wolf Road, Franklin Park, Illinois
    
    60131(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone, including area code
    
    847/455-7111
  
  X
  Large accelerated filer
    
    Accelerated filer X
    
    Non-accelerated filer
    
    Smaller reporting company(Do not check if a smaller reporting company)
  X
  Class
    
    Outstanding at April 25, 2008Common Stock, $0.01 Par Value
    
    22,636,239 shares




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##### 



PagePart I. Financial InformationItem 1.
    
    Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets
    
    3Condensed Consolidated Statements of Operations
    
    4Condensed Consolidated Statements of Cash Flows
    
    5Notes to Condensed Consolidated Financial Statements
    
    6-17Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    17-22Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    22Item 4.
    
    Controls and Procedures
    
    22Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    23Item 1A.
    
    Risk Factors
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    23Item 6.
    
    Exhibits
    
    23Section 302 Certification of CEOSection 302 Certification of CFOSection 906 Certification of CEO and CFO




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CONDENSED CONSOLIDATED BALANCE SHEETS(Dollars in thousands, except share and par value data)
    

As
ofUnaudited
    
    March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    31,427
    
    
    $
    22,970Accounts receivable, less allowances of $3,560 at March 31, 2008
and $3,220 at December 31, 2007
    
    
    205,106
    
    
    
    146,675Inventories, principally on last-in, first-out basis
(replacement cost higher by $145,086
at March 31, 2008 and $142,118 at December 31, 2007)
    
    
    220,392
    
    
    
    207,284Other current assets
    
    
    13,605
    
    
    
    13,462Total current assets
    
    
    470,530
    
    
    
    390,391Investment in joint venture
    
    
    18,810
    
    
    
    17,419Goodwill
    
    
    114,207
    
    
    
    101,540Intangible assets
    
    
    63,039
    
    
    
    59,602Prepaid pension cost
    
    
    27,758
    
    
    
    25,426Other assets
    
    
    5,062
    
    
    
    7,516Property, plant and equipment, at costLand
    
    
    5,193
    
    
    
    5,196Building
    
    
    48,995
    
    
    
    48,727Machinery and equipment (includes construction in progress)
    
    
    162,902
    
    
    
    155,950217,090
    
    
    
    209,873Less  accumulated depreciation
    
    
    (136,597
    )
    
    
    (134,763
    )80,493
    
    
    
    75,110Total assets
    
    $
    779,899
    
    
    $
    677,004LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    154,799
    
    
    $
    109,055Accrued liabilities
    
    
    35,069
    
    
    
    33,143Income taxes payable
    
    
    6,049
    
    
    
    2,497Deferred income taxes  current
    
    
    6,656
    
    
    
    7,298Current portion of long-term debt
    
    
    7,599
    
    
    
    7,037Short-term debt
    
    
    24,824
    
    
    
    18,739Total current liabilities
    
    
    234,996
    
    
    
    177,769Long-term debt, less current portion
    
    
    92,815
    
    
    
    60,712Deferred income taxes
    
    
    39,853
    
    
    
    37,760Other non-current liabilities
    
    
    17,182
    
    
    
    15,688Commitments and contingenciesStockholders equityCommon stock, $0.01 par value  30,000,000 shares authorized;
22,814,440 shares issued and 22,585,861 outstanding at March 31, 2008 and
22,330,946 shares issued and 22,097,869 outstanding at December 31, 2007
    
    
    228
    
    
    
    223Additional paid-in capital
    
    
    177,109
    
    
    
    179,707Retained earnings
    
    
    219,622
    
    
    
    207,134Accumulated other comprehensive income (loss)
    
    
    1,493
    
    
    
    1,498Treasury stock, at cost  228,579 shares at March 31, 2008
and 233,077 shares at December 31, 2007
    
    
    (3,399
    )
    
    
    (3,487
    )Total stockholders equity
    
    
    395,053
    
    
    
    385,075Total liabilities and stockholders equity
    
    $
    779,899
    
    
    $
    677,004
 The accompanying notes are an integral part of these statements.




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CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
    
    For the Three(Dollars in thousands, except per
share data)
    
    Months EndedUnaudited
    
    March 31,2008
    
    
    2007Net sales
    
    $
    393,479
    
    
    $
    375,351Costs and expenses:Cost of materials (exclusive of depreciation and amortization)
    
    
    291,344
    
    
    
    269,450Warehouse, processing and delivery expense
    
    
    38,525
    
    
    
    35,570Sales, general, and administrative expense
    
    
    35,482
    
    
    
    36,394Depreciation and amortization expense
    
    
    5,811
    
    
    
    4,896Operating income
    
    
    22,317
    
    
    
    29,041Interest expense, net
    
    
    (2,046
    )
    
    
    (4,261
    )Income before income taxes and equity in earnings of joint
venture
    
    
    20,271
    
    
    
    24,780Income taxes
    
    
    (8,350
    )
    
    
    (9,877
    )Income before equity in earnings of joint venture
    
    
    11,921
    
    
    
    14,903Equity in earnings of joint venture
    
    
    1,893
    
    
    
    932Net income
    
    
    13,814
    
    
    
    15,835Preferred stock dividends
    
    
    
    
    
    
    (243
    )Net income applicable to common stock
    
    $
    13,814
    
    
    $
    15,592Basic earnings per share
    
    $
    0.62
    
    
    $
    0.84Diluted earnings per share
    
    $
    0.62
    
    
    $
    0.81Dividends per common share paid
    
    $
    0.06
    
    
    $
    0.06
 The accompanying notes are an integral part of these statements.




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands)
    
    For the Three MonthsUnaudited
    
    Ended March 31,2008
    
    
    2007Operating activities:Net income
    
    $
    13,814
    
    
    $
    15,835Adjustments to reconcile net income to net cash
from operating activities:Depreciation and amortization
    
    
    5,811
    
    
    
    4,896Amortization of deferred gain
    
    
    (223
    )
    
    
    (223
    )Loss on disposal of fixed assets
    
    
    11
    
    
    
    1,340Equity in earnings of joint venture
    
    
    (1,893
    )
    
    
    (932
    )Dividends from joint venture
    
    
    503
    
    
    
    358Deferred tax provision (benefit)
    
    
    745
    
    
    
    1,649Share-based compensation expense
    
    
    831
    
    
    
    1,454Excess tax benefits from share-based payment arrangements
    
    
    (2,665
    )
    
    
    Increase (decrease) from changes, net of acquisitions, in:Accounts receivable
    
    
    (44,092
    )
    
    
    (28,859
    )Inventories
    
    
    (2,255
    )
    
    
    (35,012
    )Other current assets
    
    
    (997
    )
    
    
    2,216Other assets
    
    
    (110
    )
    
    
    (67
    )Prepaid pension costs
    
    
    (518
    )
    
    
    827Accounts payable
    
    
    35,627
    
    
    
    32,325Accrued liabilities
    
    
    (1,538
    )
    
    
    694Income taxes payable
    
    
    6,866
    
    
    
    8,055Postretirement benefit obligations and other liabilities
    
    
    (165
    )
    
    
    288Net cash from operating activities
    
    
    9,752
    
    
    
    4,844Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (26,876
    )
    
    
    Capital expenditures
    
    
    (5,377
    )
    
    
    (2,179
    )Proceeds from sale of fixed assets
    
    
    29
    
    
    
    9Net cash used in investing activities
    
    
    (32,224
    )
    
    
    (2,170
    )Financing activities:Short-term borrowings, net
    
    
    5,827
    
    
    
    2,500Proceeds from issuance of long-term debt
    
    
    30,377
    
    
    
    Repayments of long-term debt
    
    
    (67
    )
    
    
    (1,703
    )Payment of debt issuance fees
    
    
    
    
    
    
    (21
    )Preferred stock dividend
    
    
    
    
    
    
    (243
    )Common stock dividends
    
    
    (1,326
    )
    
    
    (1,023
    )Excess tax benefits from share-based payment arrangements
    
    
    2,665
    
    
    
    Payment of withholding taxes from share-based incentive issuance
    
    
    (6,000
    )
    
    
    Net cash from (used in) financing activities
    
    
    31,476
    
    
    
    (490
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (547
    )
    
    
    (257
    )Net increase in cash and cash equivalents
    
    
    8,457
    
    
    
    1,927Cash and cash equivalents  beginning of year
    
    
    22,970
    
    
    
    9,526Cash and cash equivalents  end of period
    
    $
    31,427
    
    
    $
    11,453
 The accompanying notes are an integral part of these statements.




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(Unaudited  Amounts in thousands except share and per share data)
 (1)
    
    Condensed Consolidated Financial StatementsThe 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, 2007 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 consolidated financial statements
and the notes thereto included in the Companys latest Annual Report on Form 10-K. The 2008 interim
results reported herein may not necessarily be indicative of the results of the Companys
operations for the full year.Subsequent to the issuance of the Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2007, the Company determined that dividends from joint venture previously
reported as cash flows from investing activities in the condensed consolidated statements of cash
flows for the three months ended March 31, 2007 of $358 should have been reported as cash flows
from operating activities. As a result, the Condensed Consolidated Statements of Cash Flows have
been corrected to reduce cash inflows from investing activities and increase cash flows from
operating activities by $358 for the three months ended March 31, 2007, from the amount previously
reported to properly present dividends from joint venture.Non-cash investing activities for the three months ended March 31, 2008 related primarily to the
acquisition of Metals U.K. Group and consisted of $1,997 of stock consideration currently probable
of being paid and $345 of cash consideration payable, but not yet paid. The Company had non-cash
investing activities for the three months ended March 31, 2007 consisting of $2,957 which
represented capital expenditures in accounts payable related to the Companys initial payment as
part of the investment in its new Enterprise Resource Planning (ERP) technology.(2)
    
    New Accounting StandardsStandards AdoptedIn September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157) and in
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 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 157 encourages entities to combine fair value information disclosed under
SFAS 157 with other accounting pronouncements, including SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, where applicable. Additionally, SFAS 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.




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Effective January 1, 2008, the Company adopted SFAS 157 and SFAS 159. In February 2008, the FASB
issued FASB Staff Position Nos. FAS 157-1 and FAS 157-2 (FSP 157-1 and FSP 157-2). FSP 157-1
excludes SFAS No. 13, Accounting for Leases, as well as other accounting pronouncements that
address fair value measurements for leases, from the scope of SFAS No. 157. FSP 157-2 delays the
effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually) until fiscal years beginning after November 15, 2008.The Company did not elect the fair value option for any assets or liabilities. The adoption of
SFAS 157 and SFAS 159 did not materially affect the Companys consolidated financial results of
operations, cash flows or financial position.Standards Issued Not Yet AdoptedIn 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 statement 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 upon the nature, terms and size of the acquisitions 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. 51 (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 statement 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 on the Companys financial condition, results of
operations and cash flows.(3)
    
    AcquisitionsAcquisition of Metals U.K. GroupOn January 3, 2008, the Company acquired 100 percent of the outstanding capital stock of Metals
U.K. Group (Metals U.K. or the Acquisition). The Acquisition was accounted for using the
purchase method in accordance with SFAS No. 141, Business Combinations. Accordingly, the Company
recorded the net assets at their estimated fair values, and included operating results in its
Metals segment from the date of acquisition.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 four




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##### Table of Contents



Preliminary Purchase Price Allocation
 Current assets
    
    $
    26,037Property, plant and equipment, net
    
    
    3,876Trade name
    
    
    516Customer relationships  contractual
    
    
    893Customer relationships  non-contractual
    
    
    2,421Non-compete agreements
    
    
    1,706Goodwill
    
    
    12,697Total assets
    
    
    48,146Current liabilities
    
    
    13,775Long-term liabilities
    
    
    4,316Total liabilities
    
    
    18,091Net assets
    
    $
    30,055




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Acquisition of Transtar Intermediate Holdings #2, Inc. (Transtar)As discussed in Note 8 to the consolidated financial statements included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2007, the final purchase price for acquisition
of Transtar is subject to a working capital adjustment. The final determination and agreement on
the adjustment has not been completed as of March 31, 2008, 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.(4)
    
    Earnings Per ShareThe Company determined earnings per share in accordance with SFAS No. 128, Earnings Per Share
(SFAS 128). For the three-month period ended March 31, 2007, prior to 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, the following table is a reconciliation of the
basic and diluted earnings per share calculations for the three months ended March 31, 2008 and
2007 (shares in thousands):
 2008
    
    
    2007Numerator:Net income
    
    $
    13,814
    
    
    $
    15,835Preferred dividends distributed
    
    
    
    
    
    
    (243
    )Undistributed earnings
    
    $
    13,814
    
    
    $
    15,592Undistributed earnings attributable to:Common stockholders
    
    $
    13,814
    
    
    $
    14,327Preferred stockholders, as if converted
    
    
    
    
    
    
    1,265Total undistributed earnings
    
    $
    13,814
    
    
    $
    15,592Denominator:Denominator for basic earnings per share:Weighted average common shares outstanding
    
    
    22,195
    
    
    
    17,048Effect of dilutive securities:Outstanding employee and directors common stock
options, restricted stock and share-based awards
    
    
    172
    
    
    
    771Convertible preferred stock
    
    
    
    
    
    
    1,794Denominator for diluted earnings per share
    
    
    22,367
    
    
    
    19,613Basic earnings per share
    
    $
    0.62
    
    
    $
    0.84




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2008
    
    
    2007Diluted earnings per share
    
    $
    0.62
    
    
    $
    0.81Outstanding employees and directors common stock
options and convertible preferred stock shares
having an anti-dilutive effect
    
    
    20
    
    
    
    30
 (5)
    
    DebtShort-term and long-term debt consisted of the following:
 March 31,
    
    
    December 31,2008
    
    
    2007SHORT-TERM DEBTU.S. Revolver A
    
    $
    7,900
    
    
    $
    4,300Mexico
    
    
    2,300
    
    
    
    Other Foreign
    
    
    4,352
    
    
    
    2,312Trade acceptances
    
    
    10,272
    
    
    
    12,127Total short-term debt
    
    
    24,824
    
    
    
    18,739LONG-TERM DEBT6.76% insurance company loan due in
scheduled installments from 2008
through 2015
    
    
    63,228
    
    
    
    63,228U.S. Revolver B
    
    
    30,640
    
    
    
    Industrial development revenue
bonds at a 3.91% weighted average
rate, due in varying amounts
through 2009
    
    
    3,600
    
    
    
    3,600Other, primarily capital leases
    
    
    2,946
    
    
    
    921Total long-term debt
    
    
    100,414
    
    
    
    67,749Less-current portion
    
    
    (7,599
    )
    
    
    (7,037
    )Total long-term portion
    
    
    92,815
    
    
    
    60,712TOTAL SHORT-TERM AND LONG-TERM DEBT
    
    $
    125,238
    
    
    $
    86,488




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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 or Base Rate loans may fall or rise as
set forth in the Amended and Restated Credit Agreement depending on the Companys debt-to-capital
ratio as calculated on a quarterly basis.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 6.76% Notes
so as to be substantially the same as the amended senior credit facility.As of March 31, 2008, the Company had outstanding borrowings under its U.S. A Revolver of $7,900
and availability of $152,917. Borrowings under the U.S. B Revolver were $30,640 and availability
was $19,360 as of March 31, 2008. The Companys Canadian subsidiary had no outstanding borrowings
under the Canadian Facility and had availability of $10,000. The weighted average interest rate
for borrowings under the U.S. A Revolver and U.S. B Revolver as of March 31, 2008 was 6.43% and
6.65%, respectively.As of March 31, 2008, 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 adjusted consolidated net worth as defined within the
agreements.(6)
    
    Segment ReportingThe 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 to SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information and are reported accordingly.In its Metals segment, the Companys marketing strategy focuses on distributing highly engineered
specialty grades and alloys of metals as well as providing specialized processing services designed
to meet very tight specifications. Core products include nickel alloys, aluminum, stainless steels
and carbon. Inventories of these products assume many forms such as plate, sheet, round bar,
hexagon bar, square and flat bars; 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, polishes and straightens 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 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.The accounting policies of all segments are the same as described in Note 1 Basis of Presentation
and Significant Accounting Policies in the Companys Annual Report on Form 10-K for the year




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##### Table of Contents



ended December 31, 2007. Management evaluates the performance of its business segments based on
operating income. The Metals segment includes the operating results of Metals U.K. for the three
months ended March 31, 2008.Segment information for the three months ended March 31, 2008 and 2007 is as follows:
 Net
    
    Operating
    
    Capital
    
    Depreciation &Sales
    
    Income (Loss)
    
    Expenditures
    
    Amortization2008Metals segment
    
    $
    362,266
    
    
    $
    23,302
    
    
    $
    4,866
    
    
    $
    5,508Plastics segment
    
    
    31,213
    
    
    
    1,618
    
    
    
    511
    
    
    
    303Other
    
    
    
    
    
    
    (2,603
    )
    
    
    
    
    
    
    Consolidated
    
    $
    393,479
    
    
    $
    22,317
    
    
    $
    5,377
    
    
    $
    5,8112007Metals segment
    
    $
    346,592
    
    
    $
    30,330
    
    
    $
    1,745
    
    
    $
    4,604Plastics segment
    
    
    28,759
    
    
    
    1,505
    
    
    
    434
    
    
    
    292Other
    
    
    
    
    
    
    (2,794
    )
    
    
    
    
    
    
    Consolidated
    
    $
    375,351
    
    
    $
    29,041
    
    
    $
    2,179
    
    
    $
    4,896
 Other  Operating loss includes the costs of executive, legal and finance departments, which are
shared by both the Metals and Plastics segments.Segment information for total assets is as follows:
 March 31,
    
    December 31,2008
    
    2007Metals segment
    
    $
    707,379
    
    
    $
    607,993Plastics segment
    
    
    53,710
    
    
    
    51,592Other
    
    
    18,810
    
    
    
    17,419Consolidated
    
    $
    779,899
    
    
    $
    677,004
 Other  Total assets consist of the Companys investment in joint venture.(7)
    
    Goodwill and Intangible AssetsAcquisition of Metals U.K.As discussed in Note 3, the Company acquired the outstanding capital stock of Metals U.K. on
January 3, 2008. Metals U.K.s results and assets are included in the Companys Metals segment from
the date of acquisition.The changes in carrying amounts of goodwill during the three months ended March 31, 2008 were as
follows:
 Metals
    
    PlasticsSegment
    
    Segment
    
    TotalBalance as of December 31, 2007
    
    $
    88,567
    
    
    $
    12,973
    
    
    $
    101,540Acquisition
of Metals U.K.
    
    
    12,697
    
    
    
    
    
    
    
    12,697Currency valuation
    
    
    (30
    )
    
    
    
    
    
    
    (30
    )Balance as of March 31, 2008
    
    $
    101,234
    
    
    $
    12,973
    
    
    $
    114,207




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##### Table of Contents



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 2008, the Company has determined
that there is no impairment of goodwill.The following summarizes the components of intangible assets:
 March 31, 2008
    
    December 31, 2007GrossCarrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships
    
    $
    70,181
    
    
    $
    9,829
    
    
    $
    66,867
    
    
    $
    8,131Non-compete agreements
    
    
    3,263
    
    
    
    963
    
    
    
    1,557
    
    
    
    691Trade name
    
    
    516
    
    
    
    129
    
    
    
    
    
    
    
    Total
    
    $
    73,960
    
    
    $
    10,921
    
    
    $
    68,424
    
    
    $
    8,822
 The weighted-average amortization period for the intangible assets is 10.3 years, 10.7 years for
customer relationships, 3 years for non-compete agreements and 1 year for trade name. Substantially
all of the Companys intangible assets were acquired as part of the acquisitions of Transtar on
September 5, 2006 and Metals U.K. on January 3, 2008, respectively. For the three  month periods
ended March 31, 2008 and 2007, amortization expense was $2,099 and $1,679, respectively.The following is a summary of the estimated annual amortization expense for each of the next 5
years:
 2008
    
    $
    8,3882009
    
    
    7,6992010
    
    
    7,3492011
    
    
    6,7702012
    
    
    6,161
 (8)
    
    InventoriesOver 80 percent of the Companys inventories are stated at the lower of last-in, first-out (LIFO)
cost or market. Final inventory determination under the LIFO method can only be made at the end of
each fiscal year based on the actual inventory levels and costs at that time. Interim LIFO
determinations, including those at March 31, 2008, are based solely on managements estimates of
future inventory levels and costs. Since estimates of future inventory levels and costs are subject
to certain forces beyond the control of management, interim financial results are subject to
estimated fiscal year-end LIFO inventory valuations.Current replacement cost of inventories exceeded book value by $145,086 and $142,118 at March 31,
2008 and December 31, 2007, respectively. Income taxes would become payable on any realization of
this excess from reductions in the level of inventories.(9)
    
    Share-based CompensationThe Company accounts for its share-based compensation programs by recognizing compensation expense
for the fair value of the share awards granted ratably over their vesting period in accordance with
SFAS No. 123R, Share-Based Payment. The compensation cost that has been charged against income
for the Companys share-based compensation arrangements was $831
and $1,454 for the three months ended March 31, 2008 and 2007, respectively. The total income




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##### Table of Contents



tax
benefit recognized in the condensed consolidated statements of operations for share-based
compensation arrangements was $324 and $427 for the three months ended March 31, 2008 and 2007,
respectively. All compensation expense related to share-based compensation plans is recorded in
sales, general and administrative expense. The unrecognized compensation cost as of March 31, 2008
associated with all share-based payment arrangements is $6,733 and the weighted average period over
which it is to be expensed is 1.7 years.Restricted Stock, 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 key
management employees. During the three months ended March 31, 2008, the Company established the
2008 Restricted Stock, Stock Option and Equity Compensation Plan, which authorized up to 2,000,000
shares to be issued under the plan.Beginning in 2006, the Company began to utilize restricted stock to compensate non-employee
directors and non-vested shares issued under the Long-Term Incentive Performance (LTIP) Plans as
its long-term incentive compensation method for executives and other key employees. Stock options
may be granted in the future under certain circumstances when deemed appropriate by management and
the Board of Directors.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. A summary of the stock option activity
under the Companys share-based compensation plans is shown below:
 Weighted AverageShares
    
    Exercise PriceOutstanding at January 1, 2008
    
    
    284,120
    
    
    $
    11.68Granted
    
    
    Forfeited
    
    
    Exercised
    
    
    Outstanding at March 31, 2008
    
    
    284,120
    
    
    $
    11.68Vested or expected to vest as of
March 31, 2008
    
    
    284,120
    
    
    $
    11.68
   Weighted-AverageRestricted Stock
    
    Shares
    
    Grant Date Fair ValueNon-vested at January 1, 2008
    
    
    52,714
    
    
    $
    28.51Granted
    
    
    4,498
    
    
    $
    22.23Less vested shares
    
    
    Non-vested at March 31, 2008
    
    
    57,212
    
    
    $
    28.02




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##### Table of Contents



Deferred Compensation Plan The Company also has a 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, and 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
represent a liability award which is re-measured at fair value at each reporting date. As of March
31, 2008, an aggregate 23,913 common share equivalent units are included in the director accounts.Long-Term Incentive Performance Plans The Company maintains the 2005 Performance Stock Equity
Plan (the 2005 Plan), the 2007 Long-Term Incentive Plan (the 2007 Plan) and the 2008 Long-Term
Incentive Plan (the 2008 Plan) (collectively referred to as the LTIP Plans). Under the LTIP
Plans, selected executives and other key employees are eligible to receive share-based awards.
Final award vesting and distribution of awards granted under the LTIP Plans is determined based on
the Companys actual performance versus the target goals for a three-year consecutive period (as
defined in the 2005, 2007 and 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. Unless covered by a specific change-in-control or severance arrangement, individuals to
whom performance shares have been granted under the LTIP Plans must be employed by the Company at
the end of the performance period or the award will be forfeited, unless the termination of
employment was due to death, disability or retirement. Compensation expense recognized is based on
managements expectation of future performance compared to the pre-established performance goals.
If the performance goals are not met, no compensation expense would be recognized and any
previously recognized compensation expense would be reversed.2005 Plan Based on the actual results of the Company for the three-year period ended December 31,
2007, the maximum number of shares (724,268) was earned under the 2005 Plan. During the three
months ended March 31, 2008, 483,494 shares were issued to participants at a market price of $25.13
per share. The remaining 240,774 shares were withheld to fund required withholding taxes. The
excess tax benefit recorded to additional paid in capital as a result of the share issuance was
$2,665.2007 Plan 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 March 31, 2008, based on its projections, the Company estimates that 113,783 shares will be
issued. The maximum number of shares that could potentially be issued under the 2007 Plan is
227,566. The shares associated with the 2007 Plan will be distributed in 2010, contingent upon the
Company meeting performance goals over the three  year period ending December 31, 2009.2008 Plan The fair value of the awards granted under the 2008 Plan was $22.90 per share and was
established using the market price of the Companys stock on the date of grant. As of March 31,
2008, based on its projections, the Company estimates that 221,750 shares will be issued. The
maximum number of shares that could potentially be issued under the 2008 Plan is 443,500. The
shares associated with the 2008 Plan will be distributed in 2011, contingent upon the Company
meeting performance goals over the three  year period ending December 31, 2010.




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##### Table of Contents



(10)
    
    Comprehensive IncomeComprehensive income includes net income and all other non-owner changes to equity that are not
reported in net income. The Companys comprehensive income is as follows:
 March 31,2008
    
    
    2007Net Income
    
    $
    13,814
    
    
    $
    15,835Foreign currency translation (loss) gain
    
    
    (1,112
    )
    
    
    120Pension cost amortization, net of tax
    
    
    1,107
    
    
    
    489Total Comprehensive Income
    
    $
    13,809
    
    
    $
    16,444
 The components of accumulated other comprehensive income is as follows:
 March 31,
    
    
    December 31,2008
    
    
    2007Foreign currency translation gains
    
    $
    6,725
    
    
    $
    7,837Unrecognized pension and postretirement
benefit costs, net of tax
    
    
    (5,232
    )
    
    
    (6,339
    )Total accumulated other comprehensive income
    
    $
    1,493
    
    
    $
    1,498
 (11)
    
    Pension and Postretirement PlansEffective July 1, 2008, the Company-sponsored pension plans and supplemental pension plan
(collectively, the pension plans) will be frozen. 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 during the three months ended March 31, 2008. As a
result of the decision to freeze the pension plans, the Company is evaluating its current
investment portfolio target allocation for the pension plan funds. The Company may decide to
change the investment portfolio target allocation which could impact the expected long-term
rate of return and the Companys net periodic pension cost.Components of the net periodic pension and postretirement benefit cost for the three months
ended are as follows:
 March 31,2008
    
    
    2007Service cost
    
    $
    529
    
    
    $
    935Interest cost
    
    
    1,826
    
    
    
    1,911Expected return on assets
    
    
    (2,781
    )
    
    
    (2,520
    )Amortization of prior service cost
    
    
    26
    
    
    
    26Amortization of actuarial loss
    
    
    83
    
    
    
    787Net periodic pension (benefit) cost,
excluding impact of curtailment
    
    $
    (317
    )
    
    $
    1,139
 As of March 31, 2008, the Company had not made any cash contributions to its pension plans for
this fiscal year and does not anticipate making any contributions in 2008.




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##### Table of Contents



(12)
    
    Commitments and Contingent LiabilitiesAt March 31, 2008, the Company had $6,883 of irrevocable letters of credit outstanding which
primarily consisted of $3,600 in support of the outstanding industrial development revenue
bonds and $2,100 for compliance with the insurance reserve requirements of its workers
compensation insurance carrier (see Note 5).The Company is the defendant in several lawsuits arising from the operation of its business.
These lawsuits are incidental and occur in the normal course of the Companys business
affairs. It is the opinion of management, based on current knowledge, that no uninsured
liability will result from the outcome of this litigation that would have a material adverse
effect on the consolidated results of operations, financial condition or cash flows of the
Company.(13)
    
    Income TaxesThe following table shows the net change in the Companys unrecognized tax benefits:
 Balance as of December 31, 2007
    
    $
    1,754Increases (decreases) in unrecognized tax benefits:Due to tax positions taken during the current year
    
    
    65Balance as of March 31, 2008
    
    $
    1,819
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Financial Review
 Executive Overview
 Economic Trends and Current Business Conditions




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##### Table of Contents



YEAR
    
    Qtr 1
    
    
    Qtr 2
    
    
    Qtr 3
    
    
    Qtr 42006
    
    
    54.7
    
    
    
    54.1
    
    
    
    52.9
    
    
    
    50.82007
    
    
    50.5
    
    
    
    53.0
    
    
    
    51.3
    
    
    
    49.62008
    
    
    49.2




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##### Table of Contents



Results of Operations: First Quarter 2008 Comparisons to First Quarter 2007
  (Amounts in 000s)
    
    Fav/(Unfav)2008
    
    2007
    
    $ Change
    
    % ChangeNet SalesMetals
    
    $
    362,266
    
    
    $
    346,592
    
    
    $
    15,674
    
    
    
    4.5
    %Plastics
    
    
    31,213
    
    
    
    28,759
    
    
    
    2,454
    
    
    
    8.5
    %Total Net Sales
    
    $
    393,479
    
    
    $
    375,351
    
    
    $
    18,128
    
    
    
    4.8
    %Cost of MaterialsMetals
    
    $
    270,251
    
    
    $
    249,987
    
    
    $
    20,264
    
    
    
    (8.1
    )%% of Metals Sales
    
    
    74.6
    %
    
    
    72.1
    %
    
    
    
    
    
    
    (2.5
    )%Plastics
    
    
    21,093
    
    
    
    19,463
    
    
    
    1,630
    
    
    
    (8.4
    )%% of Plastics Sales
    
    
    67.6
    %
    
    
    67.7
    %
    
    
    
    
    
    
    0.1
    %Total Cost of Materials
    
    $
    291,344
    
    
    $
    269,450
    
    
    $
    21,894
    
    
    
    (8.1
    )%% of Total Sales
    
    
    74.0
    %
    
    
    71.8
    %
    
    
    
    
    
    
    (2.2
    )%Other Operating Costs and
ExpensesMetals
    
    $
    68,713
    
    
    $
    66,275
    
    
    $
    2,438
    
    
    
    (3.7
    )%Plastics
    
    
    8,502
    
    
    
    7,791
    
    
    
    711
    
    
    
    (9.1
    )%Other
    
    
    2,603
    
    
    
    2,794
    
    
    
    (191
    )
    
    
    6.8
    %Total Other
Operating Costs & Expenses
    
    $
    79,818
    
    
    $
    76,860
    
    
    $
    2,958
    
    
    
    (3.8
    )%% of Total Sales
    
    
    20.3
    %
    
    
    20.5
    %
    
    
    
    
    
    
    0.2
    %Operating IncomeMetals
    
    $
    23,302
    
    
    $
    30,330
    
    
    $
    (7,028
    )
    
    
    (23.2
    )%% of Metals Sales
    
    
    6.4
    %
    
    
    8.7
    %
    
    
    
    
    
    
    (2.3
    )%Plastics
    
    
    1,618
    
    
    
    1,505
    
    
    
    113
    
    
    
    7.5
    %% of Plastics Sales
    
    
    5.2
    %
    
    
    5.2
    %
    
    
    
    
    
    
    Other
    
    
    (2,603
    )
    
    
    (2,794
    )
    
    
    191
    
    
    
    6.8
    %Total Operating Income
    
    $
    22,317
    
    
    $
    29,041
    
    
    $
    (6,724
    )
    
    
    (23.2
    )%% of Total Sales
    
    
    5.7
    %
    
    
    7.7
    %
    
    
    
    
    
    
    (2.0
    )%
 Other includes the costs of executive, legal and finance departments which are shared by
both segments of the Company.
 Acquisition of Metals U.K. Group:
  Net Sales:




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##### Table of Contents



Cost of Materials:
  Other Operating Expenses and Operating Income:
   Other Income and Expense, Income Taxes and Net Income:
      Accounting Policies:




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##### Table of Contents



Page 21 of 27  Liquidity and Capital Resources
       :
 (Amounts in 000s)2008
    
    $
    7,3742009
    
    
    11,1642010
    
    
    7,8772011
    
    
    7,9942012
    
    
    8,1892013 and beyond
    
    
    57,816Total debt
    
    $
    100,414




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##### Table of Contents



Page 22 of 27    
   
  Evaluation of Disclosure Controls and Procedures
    Internal Control  Integrated Framework,
 Changes in Internal Controls




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Page 23 of 27 
 Part II. OTHER INFORMATION




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Page 24 of 27 SIGNATURES
  A. M. Castle & Co.(Registrant)Date: April 29, 2008
    
    By:
    
    /s/ Patrick R. AndersonPatrick R. AndersonVice President  Controller and Chief
Accounting Officer(Mr. Anderson has been authorized to
sign on behalf of the Registrant.)