SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K


(Mark One)


xANNUALREPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009


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





NORTH
AMERICAN GALVANIZING & COATINGS, INC.


(Exact
name of registrant as specified in its charter)


Delaware


(State or
other jurisdiction of incorporation or organization)


71-0268502


(I.R.S.Employer Identification
No.)





5314 South Yale Avenue, Suite 1000,Tulsa, Oklahoma
74135


(Address
of principal executive offices)(Zip Code)


(918) 494-0964


(Registrant’s telephone
number, including area code)





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


TITLE OF EACH CLASS
              NAME OF EACH EXCHANGE ON WHICH
      REGISTEREDCommon
      Stock, $0.10 par value
              NASDAQ
      Stock Market


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





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





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





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 
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes 
o No 
o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter)  is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K.  x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).


Large
      accelerated filer  o
              Accelerated
      filer  x
              Non-accelerated
      filer  o
              Smaller
      Reporting Company  o
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes 
o       No 
x





The
aggregate market value of Common Stock held by non-affiliates on June 30, 2009
was approximately $73.3 million.  As of  February
18, 2010there
were16,592,556
shares of North American Galvanizing & Coatings, Inc. Common Stock, $0.10
par value, outstanding.





Documents
Incorporated by Reference




Portions
of the registrant’s definitive proxy statement to be filed not later than 120
days after the end of the fiscal year covered by this report are incorporated by
reference in Part III.










NORTH
AMERICAN GALVANIZING & COATINGS, INC.


Annual
Report Pursuant to Section 13 or 15(d)


of
the Securities Exchange Act of 1934


For
the Fiscal Year Ended December 31, 2009




TABLE OF
    CONTENTS
              PageFORWARD
      LOOKING STATEMENTS OR INFORMATION
              2PART
      IItem 1.
              Business
              3Item 1A.
              Risk
      Factors
              6Item 1B.
              Unresolved
      Staff Comments
              10Item 2.
              Properties
              10Item 3.
              Legal
      Proceedings
              10Item 4.
              Submission
      of Matters to a Vote of Security Holders
              11PART
      IIItem 5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              11Item 6.
              Selected
      Financial Data
              12Item 7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
              12Item 7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              12Item 8.
              Financial
      Statements and Supplementary Data
              12Item 9.
              Changes
      in Disagreements with Accountants on Accounting and Financial
      Disclosure
              13Item 9A.
              Controls
      and Procedures
              13Item 9B.
              Other
      Information
              13PART
      IIIItem 10.
              Directors,
      Executive Officers and Corporate Governance
              13Item 11.
              Executive
      Compensation
              13Item 12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              14Item 13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              14Item 14.
              Principal
      Accounting Fees and Services
              14PART
      IVItem 15.
              Exhibits,
      Financial Statement Schedules
              14














1




FORWARD
LOOKING STATEMENTS OR INFORMATION




Certain
statements in this Annual Report on Form 10-K, including information set forth
under the caption “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” constitute “Forward-Looking Statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Such statements are typically punctuated by words or phrases such as
“anticipate,” “estimate,” “should,” “may,” “management believes,” and words or
phrases of similar import. The Company cautions investors that such
forward-looking statements included in this Form 10-K, or hereafter included in
other publicly available documents filed with the Securities and Exchange
Commission, reports to the Company’s stockholders and other publicly available
statements issued or released by the Company involve significant risks,
uncertainties, and other factors which could cause the Company’s actual results,
performance (financial or operating) or achievements to differ materially from
the future results, performance (financial or operating) or achievements
expressed or implied by such forward-looking statements. Factors that could
cause or contribute to such differences could include, but are not limited to,
changes in demand, prices, the raw materials cost of zinc, access to capital,
the cost of natural gas, and changes in economic conditions of the various
markets the Company serves, as well as the other risks detailed herein and in
the Company’s reports filed with the Securities and Exchange
Commission.









































2


PART
I




ITEM
1. BUSINESS




The
Company’s corporate headquarters are located in Tulsa, Oklahoma. As used in this
report, except where otherwise stated or indicated by the context, “North
American Galvanizing,” the “Company” and the “Registrant” means North American
Galvanizing & Coatings, Inc. and its consolidated subsidiary. At the
Company’s Annual Meeting held May 14, 2003, stockholders approved an amendment
of the Company’s certificate of incorporation to change the Company’s name from
Kinark Corporation to North American Galvanizing & Coatings, Inc., effective
July 1, 2003. The former Kinark Corporation was incorporated under the laws of
the State of Delaware in January 1955.




North
American Galvanizing is a manufacturing services holding company currently
conducting business in galvanizing and coatings through its wholly-owned
subsidiary, North American Galvanizing Company and its wholly-owned subsidiaries
(“NAGC”).




In the
second quarter of 2009, NAGC opened a new plant in Benwood, West Virginia. The
new plant, located three miles south of Wheeling, West Virginia, is centrally
located in the vicinity of three interstates and will allow the Company to more
economically and efficiently service customers located in the area, and
in-transit work.




Available
Information




The
Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, the Statements of Beneficial Ownership of Securities on
Forms 3, 4 and 5 for Directors and Officers of the Company and all amendments to
such reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, are available free of charge at the Securities and Exchange
Commission (“SEC”) website at
www.sec.gov.  The Company’s website at www.nagalv.com contains a link to
the SEC website.  The Company has also posted on the website its
(1) Corporate Governance Guidelines, (2) Code of Business Conduct and
Ethics, and (3) the charters for the Audit Committee, the Compensation
Committee, and the Corporate Governance and Nominating Committee.





Galvanizing




The
Company conducts a service, galvanizing and coating operations, through its NAGC
subsidiary. NAGC is principally engaged in hot dip galvanizing of metal products
and components fabricated and owned by its customers. All of NAGC’s revenue is
generated from the value-added galvanizing and coating of customer-owned
products. NAGC galvanizes iron and steel products by immersing them in molten
zinc. This bonding process produces an alloyed metal surface that provides an
effective barrier (“cathodic protection”) against oxidation and corrosion from
exposure to the elements, for up to 50 years. Additional coating services
provided by NAGC include sandblasting, quenching, metalizing (flame sprayed),
centrifuge spinner galvanizing, Corrocote Classic II painting and
INFRASHIELDsm
Coating.




Plants




NAGC
operates eleven galvanizing plants
in eight states. These
strategically located plants enable NAGC to compete
effectively by providing galvanizing to manufacturers representing a broad range
of basic industries throughout the mid and south-central United States, and
beyond. Its galvanizing plants are located in Tulsa, Oklahoma (two plants);
Kansas City, Missouri; St. Louis, Missouri; Nashville, Tennessee; Louisville,
Kentucky; Denver, Colorado; Canton, Ohio; Hurst, Texas; Houston, Texas and Benwood,
West Virginia.  The St. Louis plant is currently idle due to a
fire in November 2009.  See details in Item 2:
Properties.




3


NAGC
completed construction of the Benwood, West Virginia plant in the second quarter
of 2009.  The new operation utilizes a 30 foot kettle and became the
Company’s
eleventh hot dip galvanizing plant.





NAGC
completed an extensive upgrading of facilities at the Hurst plant in
2009.  A new building housing the pretreatment process was constructed
which will create operational efficiencies.





NAGC
finished a complete replacement of the furnace and kettle at the Denver plant in
2009.  This new equipment provides for improved production performance
and optimized energy utilization.




In
January 2008, NAGC opened the Technical Center located in Tulsa, Oklahoma. The
Technical Center houses the Company’s engineering department and offers
customers expanded technical service and guidance on their product design and
performance criteria as they pertain to hot dip galvanizing.  In
addition, the Technical Center is focused on internal Company support activities
and projects to enhance plant operating efficiencies, reduce energy usage and
improve product quality.




Raw
Material




Zinc, the
primary raw material and largest cost component in the Company’s galvanizing
process, is the fourth most widely used metal in the world.  Its
resistance to non-acidic atmospheric corrosion means that zinc is instrumental
in prolonging the life of buildings, vehicles, ships and steel goods and
structures of every kind.  Accordingly, galvanizing accounts for more
than half of all present day applications of zinc.  During 2008 and
2009, there were no major supply disruptions in the zinc
market.




Over the
past several years, the market price of zinc, as quoted on the London Metal
Exchange (“LME”), has been volatile.  During 2007, the LME spot price
of zinc was as high as $1.93 per pound and as low as $1.00 per
pound.  During 2008, the LME spot price of zinc was as high as $1.28
per pound and as low as $0.47 per pound.  During 2009, the LME spot
price of zinc was as high as $1.17 per
pound and as low as $0.48 per pound, ending the year at
$1.17.




Customers




NAGC’s
ten largest customers, on a combined basis, accounted for approximately 34% of
the Company’s consolidated sales in 2009, compared with 32% and 37% in
2008 and 2007 respectively.  No single customer comprised 10% or more
of the Company’s consolidated net sales in 2009, 2008 or 2007.  The
backlog of orders at NAGC is generally nominal due to the short turn-around time
requirement of customers, which is generally demanded in the galvanizing
industry.




Principal
Markets




The
galvanizing process provides effective corrosion protection of fabricated steel,
which is used in numerous markets such as petrochemical, highway and
transportation, energy, utilities, communications, irrigation, pulp and paper,
waste water treatment, food processing, recreation and the manufacture of
original equipment.




The
Company maintains a sales and service network coupled with its galvanizing
plants, supplemented by national account business development at the corporate
level. In 2009, NAGC galvanized steel products for approximately 1,700
customers nationwide.




All of
the Company’s sales are generated through domestic customers whose end markets
are principally in the United States. The Company markets its galvanizing and
coating services directly to its customers and does not utilize agents or
distributors. Although hot dip galvanizing is considered a mature service
industry,





4


the
Company is actively engaged in developing new markets through participation in
industry trade shows, metals trade associations and presentation of technical
seminars by its national marketing service team.




Hot dip
galvanizing is highly competitive. NAGC competes with other publicly and
privately owned independent galvanizing companies, captive galvanizing
facilities operated by manufacturers, and alternative forms of corrosion
protection such as paint. The type and number of competitors vary throughout the
geographic areas in which NAGC does business. Competition is driven primarily by
price, rapid turn-around service time, and the quality of the finished
galvanized product. Management believes that the broad geographic disbursement
of its galvanizing plants and the reliable quality of its service enables NAGC
to compete on a favorable basis. The Company continues to develop and implement
operating and market strategies to maintain its competitive position and to
develop new markets.  These strategies are demonstrated by the
purchase of the hot-dip galvanizing assets of a galvanizing facility in Canton,
Ohio (2005) and the construction of the new operation in Benwood, West Virginia
which was
completed in the second quarter of 2009, as well as expanded
service capabilities at its existing plants.




The
Company’s management does not generally consider the Company’s business to be
seasonal due to the breadth and diversity of markets served.  Sales
volumes typically are lower in the fourth quarter by approximately 3% due to a
higher number of non-operating days.




Environmental




The
Company’s facilities are subject to environmental legislation and regulation
affecting their operations and the discharge of wastes. The operating cost of
compliance with such regulations was approximately $2.1
million in 2009 and $1.9 million in both 2008 and 2007 for the disposal and
recycling of wastes generated by the galvanizing operations.  The $2.1
million in 2009 environmental costs for 2009 include about $0.3 million of costs
related to the St. Louis fire.  See details in Item 2:
Properties.




In
September 2008, the United States Environmental Protection Agency (the “EPA”)
notified the Company of a claim against the Company as a
potentially responsible party related to a Superfund site in Texas City,
Texas.  This matter pertains to galvanizing facilities of a
Company subsidiary and its disposal of waste, which was handled
by their supplier in the early 1980’s.  The EPA offered the Company a
special de minimis
party settlement to resolve potential liability that the Company and its
subsidiaries may have under the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”) at this site.  The Company
accrued the $112,145 de
minimis settlement amount during the third quarter of 2008 and accepted
the EPA’s offer before the deadline of December 30, 2008.




In
regards to concerns about global warming, global warming could have an adverse
impact on the Company, particularly in hurricane prone or low lying areas near
the ocean. At this time, the Company is not able to speculate as to the
potential timing or impact from potential global warming, however the Company
believes that it currently has adequate insurance coverage related to natural
disasters at the NAGC sites. There are several initiatives in the United
States and other countries to regulate certain industries and actions to reduce
the impact of global warming. Some of these initiatives, if made effective,
could have a direct adverse impact on the Company’s operations or an indirect
adverse impact by affecting suppliers or customers. In September 2009, the U.S.
Environmental Protection Agency (“EPA”) promulgated a new regulation regarding
the registry of greenhouse gas emissions for certain facilities. Currently the
Company does not have any sites that are required to report such emissions under
the new EPA climate registry rule. The Company does not expect the regulation to
have a significant impact from a cost or operations perspective, but will
continue to monitor proposed legislation and regulation and its
impact.









5


Employee
Relations




NAGC’s
labor agreement with the United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy Allied Industrial and Service Workers International Union
covering production workers at its Tulsa, Oklahoma galvanizing plants expired
during 2006.  The union ratified a two-year extension of the expiring
agreement, with minor modifications, extending the expiration date of the
agreement to October 31, 2008.  The extension of the agreement brought
union employee contributions to the group health plan more closely in line with
contributions made by non-union employees of the Company.  In 2008,
after several of the employees who were covered by the agreement petitioned the
National Labor Relations Board for a decertification vote, a decertification
election was scheduled to be held on September 25, 2008.  However, on
September 22, 2008, the union filed a “disclaimer of interest” with the National
Labor Relations Board, which denotes that the union is withdrawing its
representation of the Company’s Tulsa, Oklahoma employees. Thus, the union has
been decertified and the employees covered by that agreement are no longer
represented by the union.




The
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy Allied
Industrial and Service Workers International Union represented the labor force
at the galvanizing facility purchased in Canton, Ohio in February 2005. At the
time of purchase, NAGalv-Ohio, Inc., the Company’s wholly-owned subsidiary, did
not assume the existing labor agreement and implemented wage and benefit
programs similar to those at the Company’s other galvanizing
facilities.  In the fourth quarter of 2006, negotiations with the
union were finalized.  The union ratified an agreement effective from
November 13, 2006 to November 12, 2009.  In
November 2009, the union ratified another agreement which is effective until
November 17, 2012.  The latest agreement continues wage and benefit
programs similar to those at the Company’s other
galvanizing facilities.




Nationwide,
the Company had approximately 400 employees in 2009 and 2008.




ITEM
1A. RISK FACTORS




In
addition to important factors described elsewhere in this report, North American
Galvanizing cautions current and potential investors that the following risk
factors, among others, sometimes have affected, and in the future could affect,
the Company’s actual results and could cause such results during fiscal 2010,
and beyond, to differ materially from those expressed in any forward-looking
statements made by or on behalf of North American Galvanizing.  If any of
the following risks actually occurs, the Company’s business, financial condition
or results of operations could be materially adversely affected and you may lose
all of your investment.





Galvanizing is a
business sensitive to economic downturns.





The
Company is principally engaged, through its wholly-owned subsidiary, in hot-dip
galvanizing of metal products and components fabricated by its customers. All of
the Company’s revenue is generated from the value-added galvanizing and coating
of its customer’s products. The galvanizing process provides effective corrosion
protection of fabricated steel, which is used in numerous markets such as
petrochemical, highway and transportation, energy, utilities, communications,
irrigation, pulp and paper, waste water treatment, food processing, recreation
and the manufacture of original equipment. The demand for these products and, in
turn, for the Company’s galvanizing, is dependent on the general economy, the
industries listed and other factors affecting domestic goods
activity.   The current economic downturn and a continued or worsening
economic downturn may negatively affect the Company’s customer
base.  Continued disruption in the credit markets could adversely
affect the Company’s customers’ ability to access capital, which supports the
continuation and expansion of the Company’s customers’ projects, and may lead to
project cancellations, suspensions or delays.  A number of other
factors, including financing conditions and potential bankruptcies in the
industries the Company serves, could adversely affect the Company’s customers
and their ability or willingness to fund





6


capital
expenditures in the future and pay for past services.  Disruptions in
the Company’s customers’ projects or businesses generally could cause a
significant reduction in demand, which could cause a material adverse effect on
price levels and the quantity of galvanizing services provided by the Company,
thereby adversely affecting the Company’s business, operating results and
financial condition.





The
price volatility and availability of zinc and natural gas could reduce the
Company’s profits.





Zinc and
natural gas, combined, represent the largest portion of the Company’s cost of
goods sold.  The price and availability of zinc and natural gas that is
used in the hot-dip galvanizing process is highly competitive and
cyclical.  The following factors, most of which are beyond the Company’s
control, affect the price of zinc and natural gas:





· 
supply and demand factors;


· 
freight costs and transportation availability;


· 
inventory levels;


· 
trade duties and taxes; and


· 
labor disputes.





In
response to an increase in costs, the Company may seek to maintain its profit
margin by attempting to increase the price of its services, but may not be
successful in passing these price increases through to its customers,
particularly in an economic downturn.  If the prices of zinc and/or
natural gas increase significantly and the Company is not successful in passing
these price increases through to its customers, the Company’s results of
operations and profits may be significantly reduced.





Limited
access to capital for internal growth and strategic acquisitions could adversely
affect the Company’s business, operating results and financial
condition.





The
Company’s operating and market strategies to maintain competitive position and
to develop new markets include investments in internal growth and strategic
acquisitions.  If the Company is unable to access capital or raise
capital, on favorable terms or at all, the Company may not be able to invest in
internal growth and strategic acquisitions, which could adversely affect the
Company’s business, operating results and financial condition.





The Company’s acquisition strategy
involves a number of risks.





The
Company intends to grow through acquisitions of assets of, or interests in,
additional geographically strategic hot-dip galvanizing plants or related
businesses.  The Company routinely reviews potential acquisition
opportunities, however it may not be able to implement its growth strategy if it
is unable to identify strategic acquisition targets or make acquisitions on
acceptable terms.  In addition, the Company may need to obtain
additional equity or debt financing in order to make future acquisitions, which
financing may not be available on favorable terms, or at all.  Any
such equity financing may have a dilutive effect on current stockholders of the
Company.  If the Company is able to make acquisitions, the Company may
not be able to effectively integrate an acquired business or acquired
assets.  The process of integrating acquired businesses and/or assets
involves certain risks, including:





·
            assimilating
      operations and products may be unexpectedly difficult;·
            management’s
      attention may be diverted from other business
  concerns;


·
            the
      Company may enter markets in which it has limited or no direct
      experience;·
            additional
      financial and accounting challenges and complexities in areas such as tax
      planning, treasury management and financial
  reporting;


·
            failure
      to realize the cost savings or other financial benefits that the Company
      anticipated







7





in
      connection with the acquisition;·
            risks
      and liabilities from the acquisition targets, some of which may not be
      discovered during due diligence;
and


·
            the
      Company may lose key employees and/or key customers of an acquired
      business.









The
departure of key personnel, including senior management and executive officers,
could disrupt the Company’s business.





The
Company’s ability to provide a competitive service that is both acceptable in
quality and price requires a strong team of executive officers and senior
management that are technically skilled in providing galvanizing
services.  In past years, the Company has downsized administrative and
management positions as a result of cost-cutting initiatives.  The
Company cannot be certain that any executive officer or member of senior
management will continue in such capacity for any particular period of
time.  If there is turnover in such key personnel, the Company may not
be able to hire and retain qualified replacements.  A lack of
effective executive officers and senior management could impact the Company’s
ability to operate and compete in the galvanizing industry, which could disrupt
the Company’s business and adversely affect its results of
operations.





Galvanizing is a
highly competitive business, and if the Company is unable to compete
effectively, the Company may experience a reduction in demand for galvanizing
services, which in turn could adversely affect the Company’s
revenues.





Galvanizing
is a highly competitive business with relatively low barriers to
entry.  The Company competes with other galvanizing companies, captive
galvanizing facilities operated by manufacturers and alternate forms of
corrosion protection such as paint.  Certain of the Company’s
competitors are larger than the Company and have more resources than the Company
does.  Competition is based on a number of factors, including
price.  Excessive capacity in hot-dip galvanizing could have a
material adverse effect on price levels and the quantity of galvanized services
provided by the Company.  In addition, certain of the Company’s
competitors may have lower cost structures and may be able to provide services
at a lower price than the Company is able to provide.  The Company
cannot be certain that its competitors will not develop the expertise,
experience and resources to provide services that are superior in price and
quality.  In addition, the Company cannot be certain that it will be
able to maintain or enhance its competitive position within the industries it
serves or maintain or increase its customer base.  If the Company is
unable to compete effectively, the Company may experience a reduction in demand,
which in turn could adversely affect the Company’s revenues.





The
Company’s operating and financial results may vary significantly from quarter to
quarter.





The
Company’s quarterly operating and financial results are difficult to predict and
could fluctuate significantly from period to period. The level of the Company’s
revenues, gross margins and results of operations at any given time will be
based primarily on the following factors, many of which the Company has no
control over:





·
            the
      timing and volume of work from the Company’s customers;·
            general
      economic conditions;


·
            escalating
      raw material and/or energy costs;·
            interruptions
      to raw material and/or energy
supplies;


·
            the
      budgetary spending patterns of the Company’s
  customers;


8
 ·
              variations
      in the margins of projects performed during any particular
      quarter;


·
            losses
      experienced in the Company’s operations;·
            a
      change in the demand or production of the Company’s services caused by
      severe weather conditions or
otherwise;


·
            a
      chance in the mix of the Company’s customers, contracts and
      business;·
            a
      change in the Company’s customer delivery schedule;
  and


·
            increases
      in the Company’s cost of goods
sold.





If
realized, any of these factors could have a material adverse effect on the
Company’s business, financial condition and operating results.





The
Company may not be able to generate or manage internal growth.





Part of
the Company’s strategy is to grow its business internally to increase its
competitiveness in the market.  As a result, the Company is subject to
certain growth-related risks, including the risk that the Company will be unable
to retain personnel or secure additional qualified employees, attract new
customers or increase the number or size of projects performed for existing
customers or acquire other resources necessary to service such growth
adequately.  The Company cannot be certain that it will be able to
generate sufficient revenues to fund expenses related to enhanced operations and
support internal growth.  As such, any efforts to generate internal
growth may have a negative impact on operating results.  Even if the
Company is able to generate internal growth, if the Company fails to effectively
manage such growth in a manner that minimizes strains on its resources, the
Company could experience disruptions in operations and ultimately be unable to
generate revenues or profits.





The
Company’s Board of Directors may have a significant influence on the outcome of
stockholder votes.





As of
December 31, 2009, the Company’s board
of directors collectively owned approximately 24.9.%
of the Company’s common stock. Accordingly, the directors, as a group, may be
able to significantly influence the outcome of the Company’s stockholder votes,
including votes concerning the election of directors, the adoption or amendment
of provisions in the Company’s certificate of incorporation or bylaws, and the
approval of mergers and other significant corporate transactions.  The
existence of a relatively high level of ownership concentrated in a few persons
makes it less likely that any other holder of the Company’s common stock will be
able to affect the Company’s management or direction. These factors may also
have the effect of delaying or preventing a change in management or voting
control or the Company’s participation in a merger or other significant
corporate transaction.





Various
governmental regulations and environmental risks applicable to the galvanizing
business may require the Company to take actions which will adversely affect its
results of operations.





The
Company’sbusiness
is subject to numerous federal, state, provincial, local and foreign laws and
regulations, including regulations with respect to air emissions, storm water
and the generation, handling, storage, transportation, treatment and disposal of
waste materials.  Legal requirements are frequently changed and subject to
interpretation, and the presently unpredictable ultimate cost of compliance with
these requirements could affect operations.  The Company may be required to
make significant expenditures to comply with governmental laws and
regulations.  Existing laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations, could have a
material adverse effect on the results of operations and financial
condition.





In
regards to concerns about global warming, global warming could have an adverse
impact on the Company, particularly in hurricane prone or low lying areas near
the ocean. At this time, the Company is not able to





9


speculate
as to the potential timing or impact from potential global warming, however the
Company believes that it currently has adequate insurance coverage related to
natural disasters at the NAGC sites. There are several initiatives in the
United States and other countries to regulate certain industries and actions to
reduce the impact of global warming. Some of these initiatives, if made
effective, could have a direct adverse impact on the Company’s operations or an
indirect adverse impact by affecting suppliers or customers. In September 2009,
the U.S. Environmental Protection Agency (“EPA”) promulgated a new regulation
regarding the registry of greenhouse gas emissions for certain facilities.
Currently the Company does not have any sites that are required to report such
emissions under the new EPA climate registry rule. The Company does not expect
the regulation to have a significant impact from a cost or operations
perspective, but will continue to monitor proposed legislation and regulation
and its impact.




ITEM
1B. UNRESOLVED STAFF COMMENTS




No
unresolved staff comments were open as of the date of this report, February 24,
2010.




ITEM
2. PROPERTIES




NAGC
operates eleven hot dip galvanizing plants located in Ohio, Oklahoma, Missouri,
Texas, Colorado, Tennessee, Kentucky  and West
Virginia.  The West Virginia plant was completed and became
operational in the second quarter of 2009
and is leased
under terms which give NAGC the option to extend the lease until September
2023.  The Company’s plant, located in Kansas City, Missouri is
leased under terms which give NAGC the option to extend the lease until
September 2015.  NAGC’s galvanizing plants average 20,000 square feet
in size, with the largest approximately 55,000 square feet, and it operates zinc
kettles ranging in length from 16 to 62 feet. The Company owns all of its
galvanizing plants, except for the Kansas City plant noted above.  All
of the Company’s owned galvanizing plants are pledged as collateral to a bank
pursuant to a credit agreement scheduled to expire July 17, 2012, under which
the Company is provided a revolving credit facility in the aggregate principal
amount of $25 million with future increases of up to an aggregate principal
amount of $15 million.




The
Company experienced a fire November 20, 2009 at its St. Louis
facility.  There were no injuries, and there was no environmental
contamination outside the plant.  The plant is currently idle, and the fire
affected the Company’s 2009 earnings due to loss of business.  The Company
is transporting product to be galvanized from the St. Louis market to other
North American Galvanizing Company plants in its eleven plant network.  The
plant property is insured at a value that approximates replacement cost, and the
insurance coverage also includes coverage for business interruption loss and
reimbursement for extra expense.    At December 31, 2009, the net
book value of building and equipment and inventory that was destroyed was
removed from property, plant and equipment and inventory and a receivable from
insurance of $1.6 million was recorded which is equivalent to the net book value
of destroyed assets plus related expenses incurred through year-end.  The
Company is continuing to compile its claim, and received initial cash proceeds
from insurance in February, 2010 (see Note 16 to Consolidated Financial
Statements).  The Company expects to receive additional cash proceeds from
insurance during 2010.


The
Company’s headquarters office is located in Tulsa, Oklahoma, in approximately
4,600 square feet of office space leased through February 2012.




ITEM
3. LEGAL PROCEEDINGS




NAGC was
notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”) that
it was one of approximately 60 potentially responsible parties under the
Comprehensive Environmental Response, Compensation, and Liability Information
System (“CERCLIS”) in connection with cleanup of an abandoned site formerly
owned by Sandoval Zinc Co., an entity unrelated to NAGC.  The IEPA
notice includes NACG as one of the organizations which arranged for the
treatment and disposal of hazardous substances at Sandoval.  The
estimated timeframe for resolution of the IEPA contingency is
unknown.  The IEPA has yet to respond to a proposed work plan
submitted in August 2000 by a group of the potentially responsible parties or





10


suggest
any other course of action, and there has been no activity in regards to this
issue since 2001.  Until the work plan is approved and completed, the
range of potential loss or remediation, if any, is unknown, and in addition, the
allocation of potential loss between the 60 potentially responsible parties is
unknown and not reasonably estimable.  Therefore, the Company has no
basis for determining potential exposure and estimated remediation costs at this
time and no liability has been accrued.




In
September 2008, the United States Environmental Protection Agency (the “EPA”)
notified the Company of a claim against the Company as a
potentially responsible party related to a Superfund site in Texas City,
Texas.  This matter pertains to galvanizing facilities of a
Company subsidiary and its disposal of waste, which was handled
by their supplier in the early 1980’s.  The EPA offered the Company a
special de minimis
party settlement to resolve potential liability that the Company and its
subsidiaries may have under CERCLA at this Site.  The Company accrued the
$112,145 de minimis
settlement amount during the third quarter of 2008 and accepted the EPA’s offer
before the deadline of December 30, 2008.




North
American Galvanizing & Coatings, Inc. and its subsidiary are parties to a
number of other lawsuits, which are not discussed herein.  Management
of the Company, based upon their analysis of known facts and circumstances and
reports from legal counsel, does not believe that any such matter will have a
material adverse effect on the results of operations, financial condition or
cash flows of the Company.




ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




No
matters were submitted to a vote of stockholders during the fourth quarter of
2009.




PART
II




ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES




Stock
Information




The
Company’s common stock traded under the symbol “NGA” on the American Stock
Exchange through August 1, 2007 and began trading under the same three-digit
symbol on the NASDAQ Stock Market on August 2, 2007. The Company does not expect
to pay a dividend on its common stock and has not done so in the past. The
Company expects to continue that policy in order to reinvest earnings to support
and expand its business operations. The Company’s board of directors may review
the dividend policy in the future, recognizing that dividends may be a desirable
form of return on the investment made by many of its stockholders. Stockholders
of record at December 31, 2009numbered
approximately 1,126.




Quarterly
Stock Prices




First
            
            
            Second
            
            
            Third
            
            
            Fourth2008High
            
            $
            4.95
            
            
            $
            6.95
            
            
            $
            8.66
            
            
            $
            5.41Low
            
            $
            3.20
            
            
            $
            3.88
            
            
            $
            4.21
            
            
            $
            2.362009High
            
            $
            4.76
            
            
            $
            7.85
            
            
            $
            6.34
            
            
            $
            6.12Low
            
            $
            2.15
            
            
            $
            2.90
            
            
            $
            4.90
            
            
            $
            4.61





11


In August
1998, the Board of Directors authorized the Company to repurchase up to
$1,000,000 of its common stock in private or open market
transactions.  In March 2008, the Board of Directors authorized the
Company to buy back an additional $2,000,000 of its common stock, subject to
market conditions.  The Company has completed the August 1998 and
March 2008 share repurchase programs.  In August 2008, the Board of
Directors authorized the Company to buy back $3,000,000 of its common stock,
subject to market conditions.  Unless terminated earlier by resolution
of the Board of Directors, the program will expire when the Company has
purchased shares with an aggregate purchase price of no more than the $307,867
remaining under the program at December 31, 2009.





Issuer
Purchases of Equity Securities




Total
            
            ApproximateNumber
      of
            
            Dollar
      ValueShares
            
            of
      SharesTotal
            
            
            
            Purchased
            
            that
      May YetNumber
      of
            
            Average
            
            as
      Part of
            
            be
      PurchasedPeriod
            Shares
            
            Price
      Paid
            
            Publicly
            
            Under(from/to)
            Purchased
            
            per
      Share
            
            Announced
      Plans
            
            the
      PlanJanuary
      1, 2009–January 31, 2009
            42,166
            
            $   3.95
            
            1,463,893
            
            $     307,867





Information
regarding Stockholders’ Equityappears herein on page
FS-30, Notes to Consolidated Financial Statements.  The information
required by this item concerning securities authorized for issuance under equity
compensation plans appears under the heading “Equity Compensation Plan
Information” in the Company’s Proxy Statement (the “2010 Proxy Statement”) or
the Company’s Annual Report to Stockholders (the “2009 Annual Report”) for its
annual meeting of stockholders to be held on May 27,
2010 and is incorporated herein by reference.




ITEM
6. SELECTED FINANCIAL DATA




The
selected financial data for years 2005 through 2009 are presented on page 16 of
this Annual Report on Form 10-K.




ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




The index
to Management’s Discussion and Analysis of Financial Condition and Results of
Operations is presented on page 19 of this Annual Report on Form
10-K.




ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Management’s discussion of quantitative
and qualitative disclosures about market risk is
presented onpage FS-11 to
FS-12,




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The index
to Financial Statements and Supplementary Data is presented on page 14 of this
Annual Report on Form 10-K.




12


ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




None.




ITEM
9A. CONTROLS AND PROCEDURES




(a)
                Evaluation
      of disclosure controls and
procedures.




Under
supervision and with the participation of management, including the Company’s
principal executive officer and principal financial officer, the Company
conducted an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act, as of the end of the period covered by this Annual
Report on Form 10-K (the “Evaluation Date”).  Based on this
evaluation, the Company’s principal executive officer and principal financial
officer concluded as of the Evaluation Date that the Company’s disclosure
controls and procedures were effective.




(b)
              Management’s
      report on internal control over financial
  reporting.




Management’s
report on internal control over financial reporting, which appears on page FS-13
of this Annual Report, is incorporated herein by reference.




(c)
              Report of Independent
      Registered Public Accounting
Firm




Our auditors have issued an audit
report on our internal control over financial reporting and it is set forth at
page FS-14of this
report.




(d)
              Changes
      in internal control over financial
reporting.




There was
no change in the Company’s internal control over financial reporting that
occurred in the fourth quarter of 2009 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




ITEM
9B. OTHER INFORMATION




None.




PART
III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




The
information contained under the headings “Directors and Executive Officers,” and
“Company Information Available on Website” in the 2010 Proxy Statement is
incorporated herein by reference.




ITEM
11. EXECUTIVE COMPENSATION




The
information required by this item appears in the 2010 Proxy Statement under the
headings “Director Compensation” and “Executive Compensation” and is
incorporated herein by reference. Information regarding the Company’s share
based compensation plans appears herein on pages FS-22 to FS-25, Footnotes to
Consolidated Financial Statements.






13


ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS




The
information required by this item concerning security ownership of certain
beneficial owners and management appears in the 2010 Proxy Statement under the
heading “Security Ownership of Principal Stockholders and Management” and is
incorporated herein by reference.




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE




The
information required by this item concerning certain relationships and related
transactions and director independence appears in the 2010 Proxy Statement under
the heading “Certain Relationships and Related Transactions and Director
Independence” and is incorporated herein by reference.




ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES




Information
required by this item is incorporated herein by reference from the 2010 Proxy
Statement under the caption “Principal Accounting Fees and
Services.”




PART
IV




ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




The
following documents are filed as part of this report:




(1)
                FINANCIAL
      STATEMENTS
                
                PageReports
      of Independent Registered Public Accounting Firm
                
                FS-14
      to FS-15Consolidated
      Balance Sheets at December 31, 2009 and 2008
                
                FS-16Consolidated
      Statements of Income and Comprehensive Income for the Years Ended December
      31, 2009, 2008 and 2007
                
                FS-17Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
      2007
                
                FS-18Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2009,
      2008 and 2007
                
                FS-19Notes
      to Consolidated Financial Statements
                
                FS-20
      to FS-32(2)
                FINANCIAL
      STATEMENT SCHEDULESSchedule
      II – Valuation and Qualifying Accounts
                
                16All
      schedules omitted are inapplicable or the information required is included
      in either the consolidated financial statements or the related notes to
      the consolidated financial statements.Selected
      Financial Data
                
                16  14
 (3)
                EXHIBITSThe
      Exhibits filed with or incorporated by reference into this report are
      listed in the following Index to Exhibits.






EXHIBIT
INDEX




No.
            Description




3.1
              Restated
      Certificate of Incorporation of Kinark Corporation, as amended on June 6,
      1996 (incorporated by reference to Exhibit 3.1 of the Company’s
      Pre-Effective Amendment No. 1 to Registration Statement on Form
      S-3, Registration No. 333-4937, filed with the Commission on June 7,
      1996).




3.1.1
              Certificate of Amendment of the
      Restated Certificate of Incorporation, as Amended of North American
      Galvanizing & Coatings, Inc. (incorporated by reference to the
      Company’s Form 8-K filed with the Commission on January 27,
      2010).




3.2
              Amended and Restated Bylaws of
      Kinark Corporation (incorporated by reference toExhibit 3.1 to the
      Company’s Quarterly
      Report on Form 10-Q dated March 31,
1996)




10.1
              Credit
      Agreement, dated July 17, 2009, between North American Galvanizing &
      Coatings, Inc., aDelaware
      corporation, and Wells Fargo Bank , N.A., anational banking association.(incorporated by reference toExhibit 10.1 to the
      Company’s Quarterly
      Report on Form 10-Q dated June 30,
2009)




10.2**
              2004 Incentive Stock Plan, as
      amended (incorporated by reference to the Company’s Form 8-K filed with the
      Commission on October 3,
2006).




10.2.1**
            Form
      of Stock Option Agreement (incorporated by reference to the Company’s Form
      8-K filedwith the Commission on March 18,
2005).




10.2.2**
            Schedule A to Stock Option
      Agreement (incorporated by reference to the Company’s Form8-K filed with the Commission on
      March 18, 2005).




10.2.3**
              2009
      Incentive Stock Plan, as amended (incorporated by reference to the
      Company’s Form 8-K
      filed with the Commission on January 22,
      2010).




10.4.1*
                Schedule
      of related parties of the Company subscribed to the subordinated debt
      offering for the amounts
    listed.


10.5.1*
                Form
      of Subordinated
Note




10.6.1*
              Form
      of
Warrant




21*
            Subsidiaries
      of the Registrant.




23*
            Consent
      of Independent Registered Public Accounting
  Firm.




24.1***
              Power
      ofattorney from Directors:Linwood J. Bundy,
      Ronald J. Evans, Janice K. Henry, Gilbert L. Klemann, II, Patrick J.
      Lynch, Joseph J. Morrow and John H.
Sununu.




31.1*
            Certification
      pursuant to Section 302 of the Sarbanes, Oxley Act of
  2002.




31.2*
            Certification
      pursuant to Section 302 of the Sarbanes, Oxley Act of
  2002.




32*
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the
      Sarbanes-Oxley Act of 2002.




*  Filed
Herewith.




**  Indicates
management contract or compensation plan.




***
Included on the signature page of this report.




15


SCHEDULE
II




VALUATION
AND QUALIFYING ACCOUNTS




Allowance
for doubtful accounts receivable




Years
Ended December 31, 2009, 2008 and 2007:




Balance
      at
            
            
            
            
            
            
            
            
            Balance
      atBeginning
            
            
            
            
            
            
            
            
            EndDescription
            
            
            of Year
            
            
            Additions
            
            
            Deductions
            
            
            of Year2009
            
            $
            102,000
            
            
            $
            108,000
            
            
            $
            111,000
            
            
            $
            99,0002008
            
            $
            154,000
            
            
            $
            37,000
            
            
            $
            89,000
            
            
            $
            102,0002007
            
            $
            197,000
            
            
            $
            15,000
            
            
            $
            58,000
            
            
            $
            154,000





SELECTED
FINANCIAL DATA




The
summary financial data provided for the five years ended December 31, 2005 to
December 31, 2009 was derived from the audited Consolidated Financial
Statements.




(Dollars
      in thousands except per share amounts)For
      The Years Ended December 31,
              
              2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Sales
              
              $
              77,083
              
              
              $
              86,134
              
              
              $
              88,396
              
              
              $
              74,054
              
              
              $
              47,870Operating
      Income
              
              $
              14,942
              
              
              $
              19,347
              
              
              $
              15,405
              
              
              $
              8,359
              
              
              $
              2,173Percent
      of sales
              
              
              19.4
              %
              
              
              22.5
              %
              
              
              17.4
              %
              
              
              11.3
              %
              
              
              4.5
              %Income
      from Continuing Operations
              
              $
              9,657
              
              
              $
              12,532
              
              
              $
              9,232
              
              
              $
              4,535
              
              
              $
              644Loss
      from Discontinued Operations, net of income taxes
              
              
              -
              
              
              
              (662
              )
              
              
              -
              
              
              
              -
              
              
              
              -Net
      Income (Loss)
              
              $
              9,657
              
              
              $
              11,870
              
              
              $
              9,232
              
              
              $
              4,535
              
              
              $
              644Basic
      Earnings per common share
              
              $
              0.59
              
              
              $
              0.73
              
              
              $
              0.56
              
              
              $
              0.30
              
              
              $
              0.05Diluted
      Earnings  per common share
              
              $
              0.58
              
              
              $
              0.70
              
              
              $
              0.54
              
              
              $
              0.29
              
              
              $
              0.04Capital
      Expenditures
              
              $
              8,056
              
              
              $
              3,228
              
              
              $
              4,430
              
              
              $
              1,414
              
              
              $
              1,016Depreciation
      and Amortization
              
              $
              3,713
              
              
              $
              3,529
              
              
              $
              3,519
              
              
              $
              2,975
              
              
              $
              2,532Weighted
      Average Shares Outstanding *
              
              
              16,516,324
              
              
              
              16,876,559
              
              
              
              17,027,847
              
              
              
              15,563,255
              
              
              
              15,216,568At
      December 31,
              
              
              2009
              
              
              
              2008
              
              
              
              2007
              
              
              
              2006
              
              
              
              2005Working
      Capital
              
              $
              33,628
              
              
              $
              17,689
              
              
              $
              10,664
              
              
              $
              9,296
              
              
              $
              7,026Total
      Assets
              
              $
              72,943
              
              
              $
              54,772
              
              
              $
              47,572
              
              
              $
              48,211
              
              
              $
              41,055Long-Term
      Obligations
              
              $
              4,357
              
              
              $
              -
              
              
              $
              14
              
              
              $
              7,753
              
              
              $
              12,275Stockholders’
      Equity
              
              $
              58,892
              
              
              $
              44,390
              
              
              $
              36,029
              
              
              $
              25,566
              
              
              $
              19,298Book
      Value Per Share
              
              $
              3.55
              
              
              $
              2.69
              
              
              $
              2.19
              
              
              $
              1.58
              
              
              $
              1.41Common
      Shares Outstanding
              
              
              16,593,556
              
              
              
              16,507,813
              
              
              
              16,434,648
              
              
              
              16,223,344
              
              
              
              13,693,896*
      Weighted average shares outstanding include the dilutive effect of stock
      options and warrants, if applicable.




16


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





NORTH AMERICAN
      GALVANIZING& COATINGS, INC.(Registrant)Date:
      February 24, 2010
              By:
              /s/ Beth
      B. PulleyBeth
      B. PulleyVice
      President andChief
      Financial Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on February 24, 2010, by the following persons on behalf of the
registrant and in the capacities indicated.




/s/
      Joseph J. Morrow*
              
              
              /s/
      Patrick J. Lynch*Joseph
      J. Morrow, Non-Executive
              
              
              Patrick
      J. Lynch, DirectorChairman
      of the Board





/s/
      Ronald J. Evans*
              
              
              /s/
      Gilbert L. Klemann, II*Ronald
      J. Evans, President and
              
              
              Gilbert
      L. Klemann, II. DirectorChief
      Executive Officer (Principal
                Executive
      Officer), and Director


/s/
      Beth B. Pulley
              
              
              /s/
      John H. Sununu*Beth
      B. Pulley, Vice President,
              
              
              John
      H. Sununu, DirectorChief
      Financial Officer (Principal
                  Financial
      and Accounting Officer),
                  and
      Secretary
              
              
              Title


/s/
      Linwood
      J. Bundy*
              
              
              /s/
      Janice K. Henry*Linwood
      J. Bundy, Director
              
              
              Janice
      K. Henry, Director




*Beth B.
Pulley, by signing her name hereto, does hereby sign this Annual Report on Form
10-K on behalf of each of the directors and officers of the Registrant after
whose typed names asterisks appear pursuant to powers of attorney duly executed
by such directors and officers and filed with the Securities and Exchange
Commission as exhibits to this report.




By:/s/ Beth B. Pulley
              Beth
      B. Pulley, Attorney-in-fact




17







INDEX
TO MANAGEMENT’S DISCUSSION AND ANALYSIS, CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA









Page




Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            FS-1
      to FS-12




Management’s
      Report on Internal Control over Financial Reporting
            FS-13




Reports
      of Independent Registered Public Accounting Firm
            FS-14
      to FS-15




Consolidated
      Balance Sheets
            FS-16




Consolidated
      Statements of Income and Comprehensive Income
            FS-17




Consolidated
      Statements of Cash Flows
            FS-18




Consolidated
      Statements of Stockholders’ Equity
            FS-19




Notes
      to Consolidated Financial Statements
            FS-20
      to FS-32




Quarterly
      Results
            FS-33





























MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




General




North
American Galvanizing is a leading provider of corrosion protection for iron and
steel components fabricated and owned by its customers. Hot dip galvanizing is
the process of applying a zinc coating to fabricated iron or steel material by
immersing the material in a bath consisting primarily of molten
zinc.




Overview




The
Company’s galvanizing plants offer a broad line of services, including
centrifuge galvanizing for small threaded products, sandblasting, chromate
quenching, polymeric coatings, and its proprietary INFRASHIELDsm
Coating Application Systems, which provides polyurethane protective linings and
coatings over galvanized surfaces. The Company’s structural and chemical
engineers provide customized assistance with initial fabrication design, project
estimates and steel chemistry selection.




The
Company’s
galvanizing and coating operations are composed of eleven facilities located in
Colorado, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Texas and West
Virginia.  The company completed construction of theBenwood,
West Virginia plant in the second quarter 2009.  These facilities
operate galvanizing kettles ranging in length from 16 feet to 62 feet, and have
lifting capacities ranging from 12,000 pounds to 40,000
pounds.




The
Company maintains a sales and service network coupled with its galvanizing
plants, supplemented by national account business development at the corporate
level. In 2009, the Company galvanized steel products for approximately 1,700
customers nationwide.




All
of the Company’s sales are generated from customers whose end markets are
principally in the United States.  The Company markets its galvanizing
and coating services directly to its customers and does not utilize agents or
distributors.  Although hot dip galvanizing is considered a mature
service industry, the Company is actively engaged in developing new markets
through participation in industry trade shows, metals trade associations and
presentation of technical seminars by its national marketing service
team.




Hot
dip galvanizing provides metals corrosion protection for many product
applications used in commercial, construction and industrial markets. The
Company’s galvanizing can be found in almost every major application and
industry that requires corrosion protection where iron or steel is used,
including the following end user markets:




·
            highway
      and transportation;




·
            power
      transmission and distribution;




·
            wireless
      and telecommunications;




·
            utilities;




·
            petrochemical
      processing;




·
            industrial
      grating;




·
            infrastructure,
      including buildings, airports, bridges and power
    generation;




·
            wastewater
      treatment;




·
            fresh
      water storage and transportation;




FS -
1


·
            pulp
      and paper;




·
            pipe
      and tube;




·
            food
      processing;




·
            agricultural,
      including irrigation systems;




·
            recreation,
      including boat trailers, marine docks, stadium
  scaffolds;




·
            bridge
      and pedestrian handrail; and




·
            original
      equipment manufactured products, including general
      fabrication.




As a
value-added service provider, the Company’s revenues are directly influenced by
the level of economic activity in the various end markets that it serves.
Economic activity in those markets that results in the expansion and/or
upgrading of physical facilities (i.e., construction) may involve a time-lag
factor of several months before translating into a demand for galvanizing
fabricated components. Despite the inherent seasonality associated with large
project construction work, the Company maintains a relatively stable revenue
stream throughout the year by offering large and small fabricators reliable and
rapid turn-around service.




The
Company records revenues when the galvanizing processes and inspection utilizing
industry-specified standards are completed. The Company generates all of its
operating cash from such revenues and has a line of credit available, which is
secured by its underlying accounts receivable and zinc inventory, to facilitate
working capital and other capital needs.




Each of
the Company’s galvanizing plants operates in a highly competitive environment
underscored by pricing pressures, primarily from other public and
privately-owned galvanizers and alternative forms of corrosion protection, such
as paint. The Company’s long-term response to these challenges has been a
sustained strategy focusing on providing a reliable quality of galvanizing to
standard industry technical specifications and rapid turn-around time on every
project, large and small. Key to the success of this strategy is the Company’s
continuing commitment and long-term record of reinvesting earnings to upgrade
its galvanizing facilities, implement technical innovations to improve
production efficiencies and construct new facilities when market conditions
present opportunities for growth. The Company is addressing long-term
opportunities to expand its galvanizing and coatings business through programs
designed to increase industry awareness of the proven and unique benefits of
galvanizing for metals corrosion protection. Each of the Company’s independently
operated galvanizing plants is linked to a centralized system involving sales
order entry, facility maintenance and operating procedures, quality assurance,
purchasing and credit and accounting that enable each plant to focus on
providing galvanizing and coating services in the most cost-effective
manner.




The
principal raw materials essential to the Company’s galvanizing and coating
operations are zinc and various chemicals which are normally available for
purchase in the open market.




The
Company experienced a fire November 20, 2009 at its St. Louis
facility.  There were no injuries, and there was no environmental
contamination outside the plant.  The plant is currently idle, and the fire
affected the Company’s 2009 earnings due to loss of business.  The Company
is transporting product to be galvanized from the St. Louis market to other
North American Galvanizing Company plants in its eleven plant network.  The
plant property is insured at a value that approximates replacement cost, and the
insurance coverage also includes coverage for business interruption loss and
reimbursement for extra expense.    At December 31, 2009, the net
book value of building and equipment and inventory that was destroyed was
removed from property, plant and equipment and inventory and a receivable from
insurance of $1.6 million was recorded which is equivalent to the net book value
of destroyed assets plus related expenses incurred through year-end.  The
Company is continuing to compile its claim, and received initial cash proceeds
from insurance in February, 2010 (see Note 16 to Consolidated Financial
Statements).  The Company expects to receive additional cash proceeds from
insurance during 2010.




FS -
2


Key
Indicators




Key
industries which historically have provided the Company some indication of the
potential demand for galvanizing in the near-term, (i.e., primarily within a
year) include highway and transportation, power transmission and
distribution, telecommunications and the level of quoting activity for regional
metal fabricators. In general, growth in the commercial and industrial sectors
of the economy generates new construction and capital spending, which ultimately
impacts the demand for galvanizing.




Key
operating measures utilized by the Company include new orders, zinc inventory,
tons of steel galvanized, revenue, pounds and labor costs per hour, zinc usage
related to tonnage galvanized and lost-time safety performance. These measures
are reported and analyzed on various cycles, including daily, weekly and
monthly.




The
Company utilizes a number of key financial measures to evaluate the operations
at each of its galvanizing plants and to identify trends and variables impacting
operating productivity and current and future business results, which include
return on capital employed, sales, gross profit, fixed and variable costs,
selling and general administrative expenses, operating cash flows, capital
expenditures, interest expense and a number of ratios such as profit from
operations and accounts receivable turnover. These measures are reviewed by the
Company’s operating and executive management each month, or more frequently, and
compared to prior periods, the current business plan and to standard performance
criteria, as applicable.






Key
Developments




The
Company has reported a number of developments supporting its strategic program
to reposition its galvanizing business in the national market.




NAGC
completed constructing a new hot dip galvanizing plant in Benwood, West Virginia
in the second quarter of 2009.  The new operation utilizes a 30 foot
kettle and becomes the Company’s
eleventh hot dip galvanizing plant.




NAGC
completed an extensive upgrading of facilities at the Hurst plant in
2009.  A new building housing the pretreatment process was constructed
which will create operational efficiencies.




NAGC
finished a complete replacement of the furnace and kettle at the Denver plant in
2009.  This new equipment provides for improved production performance
and optimized energy utilization.




On
July 17, 2009, the Company entered into a new credit agreement between the
Company and its subsidiary North American Galvanizing Company as borrowers and
Wells Fargo Bank, N.A. as administrative agent, swing line lender and letter of
credit issuer.  The existing credit agreement with Bank of America,
N.A. was canceled.  The new credit agreement provides for a revolving
credit facility in the aggregate principal amount of $25 million with future
increases of up to an aggregate principal amount of $15 million.The
purpose of the new facility is to refinance a former credit agreement, provide
for issuance of standby letters of credit, provide funding for acquisitions, and
for other general corporate purposes.As
of December 31, 2009, the Company has not borrowed under the new credit
agreement, which has a maturity date of July 17, 2012.




On
August 18, 2009, the Company accepted subscription agreements for $7.3 million
in subordinated debt with stock warrants to purchase 1,095,000 shares of common
stock of the Company.  The private placement








FS -
3


transaction
was completed August 21, 2009.  $3.1 million of the proceeds has been
allocated to the stock warrants and the resulting discount on subordinated debt
is being amortized to interest expense using the effective interest
method.  The purpose of this additional financing is to facilitate the
Company's growth strategy.  The private placement was offered to a
group of current large shareholders and a limited number of other accredited
investors who had expressed an interest in investing in the Company. The 10%
subordinated notes have a five year maturity and the warrants are immediately
exercisable, for a period of up to seven years. Terms of the warrants permit the
holder to purchase shares of the Company's common stock at any time prior to the
expiration date, for cash at an Exercise Price of $5.20 per share (market value
of common stock at date subscription was accepted).  As of December
31, 2009 no warrants had been exercised.




In
January 2008, NAGC opened the Technical Center located in Tulsa, Oklahoma. The
Technical Center houses the Company's engineering department and offers
customers expanded technical service and guidance on their product design and
performance criteria as they pertain to hot dip galvanizing.  In
addition, the Technical Center is focused on internal Company support activities
and projects to enhance plant operating efficiencies, reduce energy usage and
improve product quality.




On
February 28, 2005, NAGalv-Ohio, Inc., a subsidiary of North American Galvanizing
Company, purchased the hot dip galvanizing assets of a galvanizing facility
located in Canton, Ohio.  The transaction was structured as an asset
purchase, pursuant to an Asset Purchase Agreement dated February 28, 2005 by and
between NAGalv-Ohio, Inc. and the privately owned Gregory Industries, Inc. for
all of the plant, property, and equipment of Gregory Industries’
after-fabrication hot dip galvanizing operation.  This strategic
expansion provided NAGC with an important and established customer base of major
fabricators serving industrial, original equipment manufacturer and highway
markets as well as residential and commercial markets for lighting
poles.   In July 2007, the Company replaced the existing kettle
in Canton with a new 51 foot kettle, which is designed to handle large steel
structures, such as bridge beams, utility poles and other steel structural
components that require galvanizing for extended-life corrosion
protection.






















































FS -
4


Results
of Operations
  The
following table shows the Company’s results of operations:
  (Dollars
      in thousands)Year
      Ended December 31,2009
                
                
                2008
                
                
                2007%
      of
                
                
                
                
                
                %
      of
                
                
                
                
                
                %
      ofAmount
                
                
                Sales
                
                
                Amount
                
                
                Sales
                
                
                Amount
                
                
                SalesSales
                
                $
                77,083
                
                
                
                100.0
                %
                
                $
                86,134
                
                
                
                100.0
                %
                
                $
                88,396
                
                
                
                100.0
                %Cost
      of sales excluding depreciation and amortization
                
                
                49,092
                
                
                
                63.7
                %
                
                
                53,219
                
                
                
                61.8
                %
                
                
                60,329
                
                
                
                68.3
                %Selling,
      general and administrative expenses
                
                
                9,336
                
                
                
                12.1
                %
                
                
                10,039
                
                
                
                11.6
                %
                
                
                9,143
                
                
                
                10.4
                %Depreciation
      and amortization
                
                
                3,713
                
                
                
                4.8
                %
                
                
                3,529
                
                
                
                4.1
                %
                
                
                3,519
                
                
                
                4.0
                %Operating
      income
                
                
                14,942
                
                
                
                19.4
                %
                
                
                19,347
                
                
                
                22.5
                %
                
                
                15,405
                
                
                
                17.3
                %Interest
      expense
                
                
                (425
                )
                
                
                (0.6
                )%
                
                
                —
                
                
                
                —
                
                
                
                (553
                )
                
                
                (0.6
                )%Interest
      income and other
                
                
                27
                
                
                
                0.0
                %
                
                
                247
                
                
                
                0.3
                %
                
                
                81
                
                
                
                0.1
                %Income
      from operations before income taxes
                
                
                14,544
                
                
                
                18.8
                %
                
                
                19,594
                
                
                
                22.8
                %
                
                
                14,933
                
                
                
                16.8
                %Income
      tax expense
                
                
                4,887
                
                
                
                6.3
                %
                
                
                7,062
                
                
                
                8.2
                %
                
                
                5,701
                
                
                
                6.4
                %Income
      from operations
                
                
                9,657
                
                
                
                12.5
                %
                
                
                12,532
                
                
                
                14.6
                %
                
                
                9,232
                
                
                
                10.4
                %Loss
      from discontinued operations (net of tax)
                
                
                —
                
                
                
                —
                
                
                
                (662
                )
                
                
                (0.8
                )%
                
                
                —
                
                
                
                —Net
      Income
                
                $
                9,657
                
                
                
                12.5
                %
                
                $
                11,870
                
                
                
                13.8
                %
                
                $
                9,232
                
                
                
                10.4
                %
  2009
COMPARED TO 2008
  Sales.2009
volume was  approximately the same as in 2008.  Although
volume was the same year-over-year, there were several offsetting factors that
affected 2009.  In April 2009, the Company brought online a new
galvanizing plant, located in Benwood, West Virginia.  In late
November 2009, the St. Louis plant ceased operations temporarily due to damage
caused by a fire.  As of February 22, 2010, the plant had not resumed
operations.  Fourth quarter 2009 volume was down versus prior quarters
during the year, representing 22.7% of the total year volume.  The
fourth quarter 2009 slowdown in hot dip galvanizing demand is related to the
overall slowdown in general economic activity and cannot be attributed to any
one geographic area or principal market.
 
 Sales
for year ended December 31, 2009 decreased 10.5% over the prior year, due to a
10.5% decline in average selling prices.  Prices were affected by the
economic downturn and the anticipated drop in overall demand for hot dip
galvanizing along with the Company’s focus on gaining larger volume work which
resulted in lower priced project work during the last half of
2009.  This reduction in average prices was the primary cause of the
decline in earnings.
  Cost of Goods Sold.  Cost of goods
sold for the year ended December 31, 2009 decreased $4.1 million over 2008 due
to a decrease in zinc and utility costs.
  Selling, General and Administrative (SG&A)
Expenses.  SG&A decreased $0.7 million in 2009 compared to
2008 due to a $0.4 million decrease in legal fees and a $0.3 million decrease inpersonnel costs.
  FS -
5
 Depreciation Expense.  Depreciation
expense increased $.2 million from 2008 to 2009 related to an increase in
machinery and equipment at the new location in West Virginia, opened in April,
2009.
  Interest Expense.  Interest expense
of $0.4 million was recorded in 2009 due to the issuance of $7.3 million in
subordinated notes in August, 2009.
  Operating Income.   For the year
ended December 31, 2009, operating income was $14.9 million compared to $19.3
million for 2008. The decrease in operating income is primarily due to a
decrease in average selling prices.
  Income Taxes. The Company’s
effective income tax rates for 2009 and 2008 were 33.6% and 36.0%,
respectively.   The effective tax rates differ from the federal
statutory rate primarily due to state income taxes and minor adjustments to
previous tax estimates.
  Loss from Discontinued Operations, net of income
taxes.   For the year ended December 31, 2008, the loss
from discontinued operations of $0.7 million is due to the final settlement with
Metropolitan Water District of Greater Chicago, related to the
Company’s
former subsidiary, Lake River Corporation.
  Net Income.  For 2009, the Company
reported net income of $9.7 million compared to net income of $11.9 million for
2008.  The decrease in net income is primarily due to a decrease in
average selling prices.
   2008
COMPARED TO 2007
  Sales--Sales volumes for the
year ended December 31, 2008 increased 7% over the prior year due to an overall
increase in demand from existing customers and incremental project
work.  The average selling price for 2008 was 9% lower than the
average selling price for 2007, as a result of decreased zinc
costs.  The decrease in 2008 revenues of 2.6% was due to a combination
of an increase in volume and a lower average sales price compared to
2007.  Sales prices have decreased related to decreases in zinc
costs.
 
 Cost of
Sales-- The $7.1 million decrease in cost of goods sold from 2007 to 2008
was mainly to due to a decrease in zinc costs of 39.3%.  Excluding the
effect of increased volumes, other plant overhead costs increased $1.3 million,
or 17% from 2007 to 2008, due in part to increases in repairs and maintenance
spending and supplies.  Excluding the effect of increased volumes, the
Company’s labor costs increased $0.6 million, or 3%, from 2007 to 2008 mainly
due to higher wages.  Excluding the effect of increased volume,
utilities costs increased $0.4 million, or 10%, for the year ended December 31,
2008, compared to the prior year due in large part to higher gas
prices.
 
 Selling, General
and Administrative (SG&A) Expenses--SG&A increased $0.9
million, or 9.8%, in 2008 compared to 2007.  The increase was due to
increases in personnel costs, primarily in the form of non-cash share-based
compensation.
 
 Operating
Income--For
the year ended December 31, 2008, operating income was $19.3 million, compared
to $15.4 million for 2007.  The increase in operating income is due to
the factors described above.
 
 Income
Taxes--The
Company’s effective income tax rates for 2008 and 2007 were 36.0% and 38.2%,
respectively.   The effective tax rates differ from the federal
statutory rate primarily due to state income taxes and adjustments to previous
tax estimates based on actual tax returns filed.
 
 FS -
6
 Loss from
Discontinued Operations, net of income taxes-- For the year ended
December 31, 2008, the loss from discontinued operations of $0.7 million is due
to the final settlement with Metropolitan Water District of Greater Chicago,
related to the Company’s former subsidiary, Lake River Corporation.
  Net
Income--For
2008, the Company reported net income of $11.9 million compared to net income of
$9.2 million for 2007.  The increase in net income is due to the
factors described above.
  Liquidity
and Capital Resources
  The
Company’s cash flow from operations and borrowings under credit facilities have
consistently been adequate to fund its current facilities working capital and
capital spending requirements.  During 2009, 2008 and 2007, operating
cash flow and borrowings under credit facilities have been the primary sources
of liquidity.  The Company monitors working capital and planned
capital spending to assess liquidity and minimize cyclical cash
flow.
  Cash
flow from operating activities was $14.9 million in 2009, $14.2 million in 2008
and $14.5 million in 2007.  Cash flow from operations is primarily
derived from net income plus depreciation and amortization plus other non-cash
items.  In 2009 cash flow was negatively affected by increases in
income tax receivable and decreases in current liabilities.  These
decreases to cash flow were more than offset by a reduction in accounts
receivable and other assets and a net increase in the deferred tax
accounts.  Cash flow was also positively affected by non-cash share
based compensation and other non-cash items.In 2008, cash flow from
operating activities reflected higher net income and a $1.9 million cash outflow
from changes in other operating assets and liabilities.  In 2007, cash
flow from operating activities reflected a net cash inflow of $0.8 million from
changes in other operating assets and liabilities.
  Capital
expenditures for equipment and upgrade of existing galvanizing facilities
totaled $8.1 million in 2009, $3.2 million in 2008 and $4.4 million in
2007.Expenditures
in 2009 include construction of the new facility in Benwood, West Virginia
($3.6million), upgrading facilities at the Hurst, Texas plant ($2.0
million),and a new furnace and kettle in Denver, Colorado ($0.4million).The
Company continues to have a commitment to invest cash flow in improving plant
operations.  The Company expects base capital expenditures for 2010 to
be between $3.0 million and $4.0 million.
  Cash
provided by financing activities for the year ended December 31, 2009 totaled
$6.8 million primarily due to the issuance of subordinated debt and stock
warrants totaling $6.6 million.In
2008, cash used in financing activities totaled $4.6 million, including purchase
of common stock for the treasury of $5.1 million, which was offset by proceeds
from exercise of stock options and tax benefits from stock option exercises and
Director Stock Units distributed of $0.5 million.  Cash used in
financing activities for the year ended December 31, 2007 totaled $9.1,
including net payments on long-term obligations and bonds of $9.3 million
and purchase of common stock for the treasury of $0.2 million, which was offset
by proceeds from stock options exercised and tax benefits from stock options
exercises of $0.4 million.
  The
Company does not expect an adverse effect on liquidity due to the fire at the
St. Louis facility (See details in Item 2: Properties).
  On
July 17, 2009, the Company entered into a new credit agreementbetween
the Company and its subsidiary North American Galvanizing Company as borrowers
and Wells Fargo Bank, N.A. as administrative agent, swing line lender and letter
of credit issuer.  The existing credit agreement with Bank of America,
N.A. was canceled.The
new credit agreement provides for a revolving credit facility in the aggregate
principal amount of $25 million with future increases of up to an aggregate
principal amount of $15 million.The
purpose of the new facility is to refinance a former credit agreement, provide
for issuance of standby letters of credit,
 
  FS -
7
 provide
funding for acquisitions, and for other general corporate purposes.As
of December 31, 2009, the Company has not borrowed under the new credit
agreement, which has a maturity date of July 17, 2012.
  Substantially
all of the Company’s
accounts receivable, inventories, fixed assets and the common stock of its
subsidiary are pledged as collateral under the new agreement, and the credit
agreement is secured by full and unconditional guaranties from North American
Galvanizing Company’s
subsidiaries.  The credit agreement provides for an applicable margin
ranging from 1.50% to 2.50% over LIBOR and a commitment fee of
..25%.  The applicable margin was 1.73%
at December 31, 2009.
 
 The
credit agreement requires the Company to maintain compliance with certain
covenants.  At December 31, 2009 the Company was in compliance with
the covenants of the new credit agreement.  The required covenants of
the new agreement are as follows:  Funded Debt to EBITDA ratio–maximum allowed of 3.25; Fixed Charge Coverage Ratio–minimum allowed of 1.1 and Asset Coverage Ratio–minimum required of 1.50.  The credit agreement also has other
restrictions.
  At
December 31, 2009, the Company had unused borrowing capacity of  $24.8
million, based on no borrowings outstanding under the revolving credit facility
and $0.2 million of letters of credit to secure payment of current and future
workers’compensation claims.
  On
August 18, 2009, the Company accepted subscription agreements for $7.3 million
in subordinated debt with stock warrants to purchase 1,095,000 shares of common
stock of the Company.  The private placement transaction was completed
August 21, 2009.  $3.1 million of the proceeds has been allocated to
the stock warrants and the resulting discount on subordinated debt is being
amortized to interest expense using the effective interest
method.  The purpose of this additional financing is to facilitate the
Company's growth strategy.  The private placement was offered to a
group of current large shareholders and a limited number of other accredited
investors who had expressed an interest in investing in the Company. The 10%
subordinated notes have a five year maturity and the warrants are immediately
exercisable, for a period of up to seven years. Terms of the warrants permit the
holder to purchase shares of the Company's common stock at any time prior to the
expiration date, for cash at an Exercise Price of $5.20 per share (market value
of common stock at date subscription was accepted).  As of December
31, 2009 no warrants had been exercised.
  The
Company has various commitments primarily related to long term debt, vehicle and
equipment operating leases, facilities operating leases and zinc purchase
commitments. The Company’s off-balance sheet contractual obligations at December
31, 2009,
consist of $1.1 million in outstanding purchase orders for zinc, $1.1 million
for long-term operating leases for galvanizing and office facilities, $0.65
million in outstanding commitments for various operating expenses, $0.5 million
in outstanding commitments for various machinery, equipment and building
improvements and$0.4
million for vehicle and equipment operating leases.  The
various leases for galvanizing facilities expire through 2017. The vehicle
leases expire annually on various schedules through 2012. NAGC periodically
enters into fixed price purchase commitments with domestic and foreign zinc
producers to purchase a portion of its requirements for its hot dip
galvanizing operations; commitments for the future delivery of zinc can
be for up to one year.  The Company expects to fund these commitments
with cash generated from operations and continuation of existing bank credit
agreements as they mature.








FS -
8


The
Company’s contractual obligations and commercial commitments as of December 31,
2009, are as follows (in thousands):


Less
      than
                
                
                
                1-3
                
                
                
                4-5
                
                
                More
      than(in
      thousands)
                
                Total
                
                
                One
      Year
                
                
                Years
                
                
                Years
                
                
                5
      YearsSubordinated
      debt principal payment
                
                $
                7,300
                
                
                $
                —
                
                
                $
                —
                
                
                $
                7,300
                
                
                $
                —Subordinated
      debt interest payments
                
                
                3,346
                
                
                
                730
                
                
                
                2,190
                
                
                
                426
                
                
                
                —Facilities
      operating leases
                
                
                1,052
                
                
                
                267
                
                
                
                596
                
                
                
                113
                
                
                
                76Vehicle
      and equipment operating leases
                
                
                409
                
                
                
                368
                
                
                
                41
                
                
                
                —
                
                
                
                —Other
      purchase commitments
                
                
                2,250
                
                
                
                2,250
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
      contractual cash obligations
                
                $
                14,357
                
                
                $
                3,615
                
                
                $
                2,827
                
                
                $
                7,839
                
                
                $
                76Other
      contingent commitment:Letters
      of credit
                
                $
                164
                
                
                $
                164
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —
  Share
Repurchase Program
  In
August 1998, the Board of Directors authorized the Company to repurchase up to
$1,000,000 of its common stock in private or open market
transactions.  In March 2008, the Board of Directors authorized the
Company to buy back an additional $2,000,000 of its common stock, subject to
market conditions.  The Company has completed the August 1998 and
March 2008 share repurchase programs.  In August 2008, the Board of
Directors authorized the Company to buy back $3,000,000 of its common stock,
subject to market conditions.  Unless terminated earlier by resolution
of the Board of Directors, the program will expire when the Company has
purchased shares with an aggregate purchase price of no more than the $307,867
remaining under the program at December 31, 2009. In
2009, the Company repurchased 42,166 shares at an average price per share of
$3.95, bringing the total number of shares repurchased through December 31, 2009
to 1,463,893 at an average price of $3.89 per share, totaling
$5,692,133.
  Environmental
Matters
  The
Company’s facilities
are subject to environmental legislation and regulation affecting their
operations and the discharge of wastes. The operating cost of compliance with
such regulations was approximately $2.1 million in 2009 and $1.9 million in both
2008 and 2007 for the disposal and recycling of wastes generated by the
galvanizing operations.  The $2.1 million in 2009 environmental costs
for 2009 includeapproximately
$0.3 million of costs related to the St. Louis fire.  (See details in
Item 2: Properties).
  In
September 2008, the United States Environmental Protection Agency (the “EPA”)
notified the Company ofa
claim against the Companyas
a potentiallyresponsible
party related to a Superfund site in Texas City, Texas.Thismatterpertains
to galvanizing facilities of a Company subsidiary and itsdisposal
of waste, which was handled by their supplier in the early
1980’s.  The EPA offered the Company a special de
minimis party settlement to resolve potential liability that the Company
and its subsidiaries may have under CERCLA at this site.  The Company has
accrued the $112,145 de
minimis settlement amount during the third quarter of 2008 and accepted
the EPA’s offer before the deadline of December 30, 2008.
  NAGC
was notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”)
that it was one of approximately 60 potentially responsible parties (“PRPs”)
under the Comprehensive Environmental Response, Compensation, and Liability
Information System (“CERCLIS”) in connection with cleanup of an abandoned site
formerly owned by Sandoval Zinc Co., an entity unrelated to NAGC.  The
IEPA notice includes NACG as one of the organizations which arranged for the
treatment and disposal of hazardous
 
 
 FS -
9
 substances
at Sandoval.  The estimated timeframe for resolution of the IEPA
contingency is unknown.  The IEPA has yet to respond to a proposed
work plan submitted in August 2000 by a group of the potentially responsible
parties or suggest any other course of action, and there has been no activity in
regards to this issue since 2001. Until the work plan is approved and completed,
the range of potential loss or remediation, if any, is unknown, and in addition,
the allocation of potential loss between the 60 potentially responsible parties
is unknown and not reasonably estimable.  Therefore, the Company has
no basis for determining potential exposure and estimated remediation costs at
this time and no liability has been accrued.
  In
regards to concerns about global warming, global warming could have an adverse
impact on the Company, particularly in hurricane prone or low lying areas near
the ocean.At
this time, the Company is not able to speculate as to the potential timing or
impact from potential global warming, however the Company believes that it
currently has adequate insurance coverage related to natural disasters at the
NAGC sites.There
are several initiatives in the United States and other countries to regulate
certain industries and actions to reduce the impact of global
warming.Some
of these initiatives, if made effective, could have a direct adverse impact on
the Company’s
operations or an indirect adverse impact by affecting suppliers or customers. In
September 2009, the U.S. Environmental Protection Agency (“EPA”) promulgated a
new regulation regarding the registry of greenhouse gas emissions for certain
facilities. Currently the Company does not have any sites that are required to
report such emissions under the new EPA climate registry rule. The Company does
not expect the regulation to have a significant impact from a cost or operations
perspective, but will continue to monitor proposed legislation and regulation
and its impact.
  The
Company is committed to complying with all federal, state and local
environmental laws and regulations and using its best management practices to
anticipate and satisfy future requirements. As is typical in the galvanizing
business, the Company will have additional environmental compliance costs
associated with past, present and future operations. Management is committed to
discovering and eliminating environmental issues as they arise. Because of the
frequent changes in environmental technology, laws and regulations, management
cannot reasonably quantify the Company’s potential future costs in this
area.
   Critical
Accounting Policies
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires that management
apply accounting policies and make estimates and assumptions that affect results
of operations and the reported amounts of assets and liabilities. The following
areas are those that management believes are important to the financial
statements because they require significant judgment and
estimation.
  Revenue
Recognition—Revenue is recognized when earned and realized or realizable
in accordance with Staff Accounting Bulletin “SAB” 104 Revenue Recognition, which
requires satisfying the following criteria:  the arrangement with the
customer is evident through the receipt of a purchase order or a written
agreement; the sales price is fixed or determinable; coating services have been
completed, including inspection by the Company according to American Society for
Testing and Materials (“ASTM”) standards; and collectability is reasonably
assured.  The Company does not accept title to customers’ products,
thus, revenue does not include the value of the customers’
products.  Although most customers make arrangements for
transportation, if the Company makes transportation arrangements, freight and
shipping billed to customers is included in sales, and the cost of freight and
shipping is included in cost of sales.
  The Company works
to price its services based on the cost of zinc and the cost of services
performed.  The market price of zinc, as quoted on the London Metal
Exchange (“LME”), has been volatile.  During the last three years, the
LME spot price of zinc was as high as $1.93 and as low as $0.47 per pound,
ending 2009 at $1.17.  Thus, the Company’s revenue can be
impacted positively or negatively based on changes in zinc
prices.
  FS -
10
 Inventories—Inventories are
stated at the lower of cost last in, first out (“LIFO”) basis or market. Since
substantially the Company’s entire inventory
is raw zinc used in the galvanizing of customers’products, market
value is based on an estimate of the value added to the cost of raw zinc as a
result of the galvanizing service.  The price of zinc has been
volatile.  See revenue recognition discussion
above.
  Self-Insurance Reserves—The reserves for
the self-insured portion of workers compensation and health insurance coverage
are based on historical data and current trends. Estimates for reported claims
and for claims incurred but not reported are included in the reserves. These
estimates may be subject to adjustment if the Company’s actual claims are
significantly different than its historical experience. The Company has obtained
insurance coverage for medical claims exceeding $75,000 and workers’
compensation claims exceeding $150,000 per occurrence and has implemented safety
training and other programs to reduce workplace accidents.
  Impairment of Long-Lived Assets—The
Company reviews long-lived assets for impairment using forecasts of future cash
flows to be generated by those assets. These cash flow forecasts are based upon
expected tonnage to be galvanized and the margin to be earned by providing that
service to customers. These assumptions are susceptible to the actions of
competitors and changes in economic conditions in the industries and geographic
markets the Company serves.
  Environmental—The Company expenses or
capitalizes, where appropriate, environmental expenditures that relate to
current operations as they are incurred. Such expenditures are expensed when
they are attributable to past operations and are not expected to contribute to
current or future revenue generation. The Company records liabilities when
remediation or other environmental assessment or clean-up efforts are probable
and the cost can be reasonably estimated.
  Goodwill—Pursuant to the
provisions of FASB Accounting Standards Codification (“ASC”) 350, Intangibles–Goodwill and Other (formerly referenced as Statement of Financial Accounting
Standards (“SFAS”) No. 141,Business
Combinationsand SFAS No. 142,Goodwill
and Other Intangible Assets), which requires
management to estimate the fair value of the Company’s reporting units,
the Company conducts an annual impairment test of goodwill during the second
quarter of each year, unless circumstances arise that require more frequent
testing. The determination of fair value is dependent upon many factors
including, but not limited to, management’s estimate of
future cash flows of the reporting units and discount rates. Any one of a number
of future events could cause management to conclude that impairment indicators
exist and that the carrying value of these assets will not be recovered. The
Company completed the annual impairment test of goodwill for 2009 and concluded
goodwill was not impaired.  Management monitored the
Company’s operations and
the general economic environment including the Company’s market
capitalization throughout the year and is not aware
of any triggering events that required an additional test of goodwill for
possible impairment.
   Quantitative
and Qualitative Disclosures About Market Risks
  The
Company’s operations include managing market risks related to changes in
interest rates and zinc commodity prices.
  Interest Rate
Risk— Changing interest rates will affect interest paid on the Company’s
variable rate debt.  The Company does not have any variable rate debt
as of December 31, 2009.
  Zinc Price
Risk—NAGC periodically enters into fixed price purchase
commitments for physical delivery with domestic and foreign zinc producers to
purchase a portion of its zinc requirements for its hot dip galvanizing operations.
Commitments for the future delivery of zinc, typically up to one year, reflect
rates quoted on the London Metals Exchange.
 
 FS -
11
 At December 31,
2009, the Company had $1.1 million in outstanding purchase orders for
zinc.
  The
Company’s financial
strategy includes evaluating the selective use of derivative financial
instruments to manage zinc and interest costs. As part of its inventory
management strategy, the Company expects to continue evaluating hedging
instruments to minimize the impact of zinc price fluctuations. The
Company’s current zinc
forward purchase commitments are considered derivatives, but the Company has
elected to account for these purchase commitments as normal
purchases.
                                  FS -
12
 MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  The
Management of North American Galvanizing Company (the “Company”) and its
wholly-owned subsidiaries are responsible for establishing and maintaining
adequate internal control over financial reporting. The Company’s internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. Internal control over financial reporting
includes policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial
statements.
  All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective may not
prevent or detect misstatements.
  The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009. In making this
assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework.
  Management’s
assessment included an evaluation of such elements as the design and operating
effectiveness of key financial reporting controls, process documentation,
accounting policies, and overall control environment. Based on this assessment,
the Company’s management has concluded that the Company’s internal control over
financial reporting as of December 31, 2009 was effective.
 
 
     /s/Ronald
      J. Evans
                Ronald J. Evans
                President and
                Chief Executive Officer
              /s/Beth
      B. Pulley
                Beth
      B. Pulley
                Vice
      President and
                Chief
      Financial Officer
       FS -
13
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
the Board of Directors and Stockholders of
 North
American Galvanizing & Coatings, Inc.
   We have
audited the internal control over financial reporting of North American
Galvanizing & Coatings, Inc. and subsidiary (the “Company”) as of December
31, 2009, based on criteria established in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting.  Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances.  We believe
that our audit provides a reasonable basis for our opinion.
  A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
  Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
  In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the criteria
established in Internal
Control — Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended December 31, 2009 of
the Company and our report dated February 24, 2010 expressed an unqualified
opinion on those financial statements and the financial statement schedule
listed in the Index at Item 15.
  /s/
Deloitte & Touche LLP
 Tulsa,
Oklahoma
 February
24, 2010
  FS -
14
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
the Board of Directors and Stockholders of
 North
American Galvanizing & Coatings, Inc.
   We have
audited the accompanying consolidated balance sheets of North American
Galvanizing & Coatings, Inc. and subsidiary (the “Company”) as of December
31, 2009 and 2008, and the related consolidated statements of income,
stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2009. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and the
financial statement schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on the financial statements and the
financial statement schedule based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of North American Galvanizing & Coatings,
Inc. and subsidiary at December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 24, 2010 expressed an
unqualified opinion on the Company's internal control over financial
reporting.
 
  /s/
Deloitte & Touche LLP
 Tulsa,
Oklahoma
 February
24, 2010
  
 FS -
15
 NORTH
      AMERICAN GALVANIZING & COATINGS, INC.CONDENSED
      CONSOLIDATED BALANCE SHEETS(In
      thousands, except share amounts)December
      31,
                
                
                December
      31,ASSETS
                
                2009
                
                
                2008CURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                22,982
                
                
                $
                9,322Trade
      receivables—less allowances of $99 for 2009 and $102 for
    2008
                
                
                9,467
                
                
                
                10,880Raw
      materials inventories
                
                
                5,995
                
                
                
                5,839Deferred
      tax asset—net
                
                
                895
                
                
                
                1,048Receivables
      from insurance
                
                
                1,608
                
                
                
                —Income
      taxes receivable
                
                
                738
                
                
                
                —Prepaid
      expenses and other assets
                
                
                687
                
                
                
                478Total
      current assets
                
                
                42,372
                
                
                
                27,567PROPERTY,
      PLANT AND EQUIPMENTLand
                
                
                2,167
                
                
                
                2,167Galvanizing
      plants and equipment
                
                
                47,250
                
                
                
                40,13549,417
                
                
                
                42,302Less—accumulated
      depreciation
                
                
                (24,384
                )
                
                
                (22,481
                )Construction
      in progress
                
                
                1,430
                
                
                
                2,379Total
      property, plant and equipment—net
                
                
                26,463
                
                
                
                22,200GOODWILL—Net
                
                
                3,448
                
                
                
                3,448OTHER
      ASSETS
                
                
                660
                
                
                
                1,557TOTAL
      ASSETS
                
                $
                72,943
                
                
                $
                54,772LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Trade
      accounts payable
                
                $
                4,203
                
                
                $
                4,088Accrued
      payroll and employee benefits
                
                
                2,144
                
                
                
                1,853Accrued
      taxes
                
                
                98
                
                
                
                607Customer
      deposits
                
                
                —
                
                
                
                538Other
      accrued liabilities
                
                
                2,299
                
                
                
                2,792Total
      current liabilities
                
                
                8,744
                
                
                
                9,878SUBORDINATED
      NOTES PAYABLE
                
                
                4,357
                
                
                
                —DEFERRED
      TAX LIABILITY—Net
                
                
                950
                
                
                
                504Total
      liabilities
                
                
                14,051
                
                
                
                10,382COMMITMENTS
      AND CONTINGENCIES (NOTES 6 AND 7)STOCKHOLDERS’
      EQUITYCommon
      stock—$.10 par value, 50,000,000  and 18,000,000 shares
      authorizedin
      2009 and 2008:Issued—16,593,556
      shares in 2009 and  16,507,813 shares in 2008
                
                
                1,659
                
                
                
                1,651Additional
      paid-in capital
                
                
                15,396
                
                
                
                12,281Retained
      earnings
                
                
                41,837
                
                
                
                32,180Common
      shares in treasury at cost— 488,212 in 2008
                
                
                —
                
                
                
                (1,722
                )Total
      stockholders’ equity
                
                
                58,892
                
                
                
                44,390TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                72,943
                
                
                $
                54,772
  See notes
to consolidated financial statements.
  FS -
16
 NORTH
      AMERICAN GALVANIZING & COATINGS, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME(In
      thousands, except per share amounts)Years
      Ended December 31,
                
                2009
                
                
                2008
                
                
                2007SALES
                
                $
                77,083
                
                
                $
                86,134
                
                
                $
                88,396COST
      AND EXPENSES:Cost
      of sales excluding depreciation and amortization
                
                
                49,092
                
                
                
                53,219
                
                
                
                60,329Selling,
      general and administrative expenses
                
                
                9,336
                
                
                
                10,039
                
                
                
                9,143Depreciation
      and amortization
                
                
                3,713
                
                
                
                3,529
                
                
                
                3,519Total
      costs and expenses
                
                
                62,141
                
                
                
                66,787
                
                
                
                72,991OPERATING
      INCOME
                
                
                14,942
                
                
                
                19,347
                
                
                
                15,405Interest
      expense
                
                
                (425
                )
                
                
                —
                
                
                
                (553
                )Interest
      income and other
                
                
                27
                
                
                
                247
                
                
                
                81INCOME
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
                
                
                14,544
                
                
                
                19,594
                
                
                
                14,933INCOME
      TAX EXPENSE
                
                
                4,887
                
                
                
                7,062
                
                
                
                5,701INCOME
      FROM CONTINUING OPERATIONS
                
                
                9,657
                
                
                
                12,532
                
                
                
                9,232LOSS
      FROM DISCONTINUED OPERATIONS, net of income taxes
                
                
                —
                
                
                
                (662
                )
                
                
                —NET
      INCOME
                
                $
                9,657
                
                
                $
                11,870
                
                
                $
                9,232NET
      INCOME PER COMMON SHARE:Continuing
      OperationsBasic
                
                $
                0.59
                
                
                $
                0.76
                
                
                $
                0.56Diluted
                
                $
                0.58
                
                
                $
                0.74
                
                
                $
                0.54Discontinued
      OperationsBasic
                
                $
                —
                
                
                $
                (0.04
                )
                
                $
                —Diluted
                
                $
                —
                
                
                $
                (0.04
                )
                
                $
                —Net
      IncomeBasic
                
                $
                0.59
                
                
                $
                0.72
                
                
                $
                0.56Diluted
                
                $
                0.58
                
                
                $
                0.70
                
                
                $
                0.54
  See notes
to consolidated financial statements.
  FS -
17
 NORTH
      AMERICAN GALVANIZING & COATINGS, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS
      ENDED December 31, 2009, 2008 AND 2007(In
      thousands)2009
                
                
                2008
                
                
                2007OPERATING
      ACTIVITIES:Net
      income
                
                $
                9,657
                
                
                $
                11,870
                
                
                $
                9,232Loss
      on disposal of assets
                
                
                112
                
                
                
                105
                
                
                
                —Depreciation
      and amortization
                
                
                3,713
                
                
                
                3,529
                
                
                
                3,519Non-cash
      share-based compensation
                
                
                1,102
                
                
                
                704
                
                
                
                531Deferred
      income taxes
                
                
                599
                
                
                
                (500
                )
                
                
                (62
                )Non-cash
      directors’ fees
                
                
                475
                
                
                
                413
                
                
                
                429Amortization
      of subordinated debt discount
                
                
                120
                
                
                
                —
                
                
                
                —Amortization
      of subordinated debt issuance costs
                
                
                39
                
                
                
                —
                
                
                
                —Changes
      in operating assets and liabilities:Accounts
      receivable—net
                
                
                1,413
                
                
                
                (586
                )
                
                
                2,738Inventories
      and other assets
                
                
                (795
                )
                
                
                (238
                )
                
                
                197Accounts
      payable, accrued liabilities and other
                
                
                (1,558
                )
                
                
                (1,094
                )
                
                
                (2,092
                )Cash
      provided by operating activities
                
                
                14,877
                
                
                
                14,203
                
                
                
                14,492INVESTING
      ACTIVITIES:Capital
      expenditures
                
                
                (8,056
                )
                
                
                (3,228
                )
                
                
                (4,430
                )Proceeds
      from sale of assets
                
                
                12
                
                
                
                22
                
                
                
                —Cash
      used in investing activities
                
                
                (8,044
                )
                
                
                (3,206
                )
                
                
                (4,430
                )FINANCING
      ACTIVITIES:Proceeds
      from subordinated debt
                
                
                4,237
                
                
                
                —
                
                
                
                —Proceeds
      from stock warrants
                
                
                3,063
                
                
                
                —
                
                
                
                —Subordinated
      debt issuance costs
                
                
                (678
                )
                
                
                —
                
                
                
                —Proceeds
      from exercise of stock options
                
                
                295
                
                
                
                343
                
                
                
                194Purchase
      of common stock for the treasury
                
                
                (166
                )
                
                
                (5,134
                )
                
                
                (153
                )Tax
      benefits realized from stock options exercised and Director Stock Units
      distributed
                
                
                76
                
                
                
                172
                
                
                
                232Payments
      on long—term obligations
                
                
                —
                
                
                
                (15
                )
                
                
                (18,954
                )Cash
      paid for fractional shares pursuant to stock split effected by stock
      dividend
                
                
                —
                
                
                
                (7
                )
                
                
                (2
                )Proceeds
      from long—term obligations
                
                
                —
                
                
                
                —
                
                
                
                14,873Payments
      on bonds
                
                
                —
                
                
                
                —
                
                
                
                (5,265
                )Cash
      provided by (used in) financing activities
                
                
                6,827
                
                
                
                (4,641
                )
                
                
                (9,075
                )INCREASE
      IN CASH AND CASH EQUIVALENTS
                
                
                13,660
                
                
                
                6,356
                
                
                
                987CASH
      AND CASH EQUIVALENTS:Beginning
      of year
                
                
                9,322
                
                
                
                2,966
                
                
                
                1,979End
      of year
                
                $
                22,982
                
                
                $
                9,322
                
                
                $
                2,966CASH
      PAID DURING THE PERIOD FOR:Interest
                
                $
                425
                
                
                $
                —
                
                
                $
                494Income
      taxes
                
                $
                5,282
                
                
                $
                5,166
                
                
                $
                5,604NON—CASH
      INVESTING AND FINANCING ACTIVITIES:Acquisitions
      of fixed assets included in payables at period end
                
                $
                424
                
                
                $
                141
                
                
                $
                441Uncollected
      insurance proceeds related to plant and equipment
                
                $
                380
                
                
                $
                —
                
                
                $
                —
  See notes
to consolidated financial statements.
  FS -
18
 NORTH
AMERICAN GALVANIZING & COATINGS, INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY FOR EACH OF THE THREE YEARS
ENDED
 DECEMBER
31, 2009, 2008 AND 2007
 (In
thousands, except share amounts)
 Common
      Stock
                
                
                Additional$.10
      Par Value
                
                
                Paid-in
                
                
                Retained
                
                
                Treasury
      StockShares
                
                
                Amount
                
                
                Capital
                
                
                Earnings
                
                
                Shares
                
                
                Amount
                
                
                TotalBALANCE—January
      1, 2007
                
                
                8,209,925
                
                
                $
                821
                
                
                $
                14,061
                
                
                $
                11,078
                
                
                
                98,253
                
                
                $
                (394
                )
                
                $
                25,566Net
      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                9,232
                
                
                
                —
                
                
                
                —
                
                
                
                9,232Incentive
      Stock Plan Compensation
                
                
                —
                
                
                
                —
                
                
                
                531
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                531Stock
      units for Director Stock Unit Program
                
                
                —
                
                
                
                —
                
                
                
                429
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                429Issuance
      of treasury shares for stock option transactions, net of
      shares tendered for payment and including tax
      benefit
                
                
                —
                
                
                
                —
                
                
                
                63
                
                
                
                —
                
                
                
                (77,500
                )
                
                
                310
                
                
                
                373Purchase
      of common stock for the treasury
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                28,550
                
                
                
                (153
                )
                
                
                (153
                )Issuance
      of common stock for stock option transactions,including tax
      benefit
                
                
                7,500
                
                
                
                1
                
                
                
                52
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                53Stock
      split effected by a Three for Two Stock Dividend,including cash
      paid for fractional shares
                
                
                4,118,200
                
                
                
                411
                
                
                
                (413
                )
                
                
                —
                
                
                
                184
                
                
                
                —
                
                
                
                (2
                )Issuance
      of treasury shares for Director Stock UnitProgram
      transactions
                
                
                —
                
                
                
                —
                
                
                
                (170
                )
                
                
                —
                
                
                
                (36,897
                )
                
                
                170
                
                
                
                —Issuance
      of common stock for Director Stock UnitProgram
      transactions
                
                
                31,129
                
                
                
                4
                
                
                
                (4
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —BALANCE—December
      31, 2007
                
                
                12,366,754
                
                
                $
                1,237
                
                
                $
                14,549
                
                
                $
                20,310
                
                
                
                12,590
                
                
                $
                (67
                )
                
                $
                36,029Net
      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                11,870
                
                
                
                —
                
                
                
                —
                
                
                
                11,870Purchase
      of common stock for the treasury
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                979,770
                
                
                
                (5,134
                )
                
                
                (5,134
                )Incentive
      Stock Plan Compensation
                
                
                —
                
                
                
                —
                
                
                
                704
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                704Stock
      units for Director Stock Unit Program, net of tax benefits
                
                
                —
                
                
                
                —
                
                
                
                523
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                523Issuance
      of treasury shares for stock optiontransactions, net of shares
      tendered for payment and including tax benefit
                
                
                —
                
                
                
                —
                
                
                
                (1,064
                )
                
                
                —
                
                
                
                (233,712
                )
                
                
                1,469
                
                
                
                405Stock
      split effected by a four for three stock dividend,including cash
      paid for fractional shares
                
                
                4,126,263
                
                
                
                413
                
                
                
                (420
                )
                
                
                —
                
                
                
                53,500
                
                
                
                —
                
                
                
                (7
                )Issuance
      of common stock for Director Stock UnitProgram
      transactions
                
                
                14,796
                
                
                
                1
                
                
                
                (1
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Issuance
      of treasury shares for nonvested stock awards
                
                
                —
                
                
                
                —
                
                
                
                (1,701
                )
                
                
                —
                
                
                
                (273,326
                )
                
                
                1,701
                
                
                
                —Issuance
      of treasury shares for Director Stock UnitProgram
      transactions
                
                
                —
                
                
                
                —
                
                
                
                (309
                )
                
                
                —
                
                
                
                (50,610
                )
                
                
                309
                
                
                
                —BALANCE—December
      31, 2008
                
                
                16,507,813
                
                
                $
                1,651
                
                
                $
                12,281
                
                
                $
                32,180
                
                
                
                488,212
                
                
                $
                (1,722
                )
                
                $
                44,390Net
      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                9,657
                
                
                
                —
                
                
                
                —
                
                
                
                9,657Warrants
      issued to purchase common stock
                
                
                —
                
                
                
                —
                
                
                
                3,063
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                3,063Incentive
      Stock Plan Compensation
                
                
                —
                
                
                
                —
                
                
                
                1,102
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                1,102Stock
      units for Director Stock Unit Program
                
                
                —
                
                
                
                —
                
                
                
                475
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                475Issuance
      of treasury shares for stock option transactions, netof shares
      tendered for payment and including tax benefit
                
                
                —
                
                
                
                —
                
                
                
                (392
                )
                
                
                —
                
                
                
                (214,191
                )
                
                
                763
                
                
                
                371Purchase
      of common stock for the treasury
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                42,166
                
                
                
                (166
                )
                
                
                (166
                )Issuance
      of common stock
                
                
                85,743
                
                
                
                8
                
                
                
                (8
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Issuance
      of treasury shares for nonvested stock awards
                
                
                —
                
                
                
                —
                
                
                
                (827
                )
                
                
                —
                
                
                
                (232,166
                )
                
                
                827
                
                
                
                —Issuance
      of treasury shares for Director Stock UnitProgram
      transactions
                
                
                —
                
                
                
                —
                
                
                
                (298
                )
                
                
                —
                
                
                
                (84,021
                )
                
                
                298
                
                
                
                —BALANCE—December
      31, 2009
                
                
                16,593,556
                
                
                $
                1,659
                
                
                $
                15,396
                
                
                $
                41,837
                
                
                
                —
                
                
                $
                —
                
                
                $
                58,892
  See notes
to consolidated financial statements.
  FS -
19
 NORTH
AMERICAN GALVANIZING AND COATINGS, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2009, 2008 and 2007
   Description
of Business
  North
American Galvanizing & Coatings, Inc. (“North American Galvanizing” or the
“Company”) is engaged in hot dip galvanizing and coatings for corrosion
protection of customer-owned fabricated steel products through its wholly owned
subsidiary, North American Galvanizing Company (“NAGC”). NAGC provides metals
corrosion protection with 11 regionally located galvanizing plants.
  (1)
Summary of Significant Accounting Policies
  Principles of
Consolidation—The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary. All inter-company transactions
are eliminated in consolidation.
  Estimates—The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the balance sheet dates and
the reported amounts of revenues and expenses for each of the years. Actual
results will be determined based on the outcome of future events and could
differ significantly from the estimates.
  Cash and Cash
Equivalents—Cash and cash equivalents include interest bearing deposits
with original maturities of three months or less.
  Inventories—Inventories consist
of raw zinc “pigs,” molten zinc in galvanizing kettles and other chemicals and
materials used in the galvanizing process. Inventories are stated at the lower
of cost or market with market value based
on estimated realizable value from the galvanizing process. Zinc cost is
determined on a last-in first-out (“LIFO”) basis. Other inventories are valued
primarily on an average cost basis. Inventories consist of the
following:
  (Dollars
      in thousands)2009
                
                
                2008Zinc
                
                $
                5,439
                
                
                $
                5,369Other
                
                
                556
                
                
                
                470$
                5,995
                
                
                $
                5,839
 
  Had
the Company used first-in-first-out (“FIFO”) basis for valuing its zinc
inventories, at December 31, 2009 and 2008, inventories would have been higher
by approximately $3,112,000 and $1,300,000, respectively. The
Company’s
LIFO inventories represented approximately 91% of total inventories at December
31, 2009 and 92% of total inventories at December 31, 2008.  Raw zinc
replacement cost based on year-end market prices was approximately $10,939,000
and $5,100,000 at December 31, 2009 and 2008, respectively. In 2009, inventory
quantities were reduced, resulting in liquidation of LIFO inventory layers which
increased the Company’s
net income by approximately $185,000.   In
2008, inventory quantities were reduced, resulting in liquidation of LIFO
inventory layers which decreasedthe
Company’s
net income by approximately $109,000.
  FS -
20
 Goodwill—Goodwill
represents the excess of purchase price over the fair value of net assets
acquired in business combinations. Goodwill is not amortized but is reviewed at
least annually for impairment. Management selected May 31 as the date of its
annual goodwill impairment test. Based upon the impairment test performed as of
May 31, 2009, management determined that goodwill was not impaired.
  Depreciation and
Amortization—Plant and equipment, including assets under capital leases,
are depreciated on the straight-line basis over their estimated useful lives,
generally at rates of 3% to 6% for buildings and 10% to 20% for equipment,
furnishings and fixtures.
  Environmental
Expenditures—The Company expenses or capitalizes, where appropriate,
environmental expenditures that relate to current operations as they are
incurred. Such expenditures are expensed when they are attributable to past
operations and are not expected to contribute to current or future revenue
generation. The Company records liabilities when remediation or other
environmental assessment or clean-up efforts are probable and the cost can be
reasonably estimated.
  Long-Lived
Assets—Long-lived assets and certain intangibles to be held and used or
disposed of are reviewed for impairment on an annual basis or when events or
circumstances indicate that such impairment may have occurred. The Company has
determined that no impairment loss need be recognized for the years ended
December 31, 2009, 2008 or 2007.
  Self-Insurance—The
Company is self-insured for workers’ compensation and certain health care claims
for its active employees. The Company carries excess insurance providing
coverage for medical claims exceeding $75,000 and workers’ compensation claims
exceeding $150,000 per occurrence, respectively. The reserves for workers’
compensation benefits and health care claims represent estimates for reported
claims and for claims incurred but not reported using loss development factors.
Such estimates are generally based on historical trends and risk assessment
methodologies; however, the actual results may vary from these estimates since
the evaluation of losses is inherently subjective and susceptible to significant
changing factors.
  Revenue
Recognition—Revenue is recognized when earned and realized or realizable
in accordance with Staff Accounting Bulletin (“SAB”) 104. This includes
satisfying the following criteria:  the arrangement with the customer is
evident, through the receipt of a purchase order or a written agreement; the
sales price is fixed or determinable; coating services have been completed,
including inspection by the Company according to American Society for Testing
and Materials (“ASTM”) standards; and collectability is reasonably
assured.  The Company does not accept title to customers’ products,
thus, revenue does not include the value of the customers’
products.  Although most customers make arrangements for
transportation, if the Company makes transportation arrangements, freight and
shipping billed to customers is included in sales, and the cost of freight and
shipping is included in cost of sales.
  Derivative
Financial Instruments—The Company has previously utilized commodity
collar contracts as derivative instruments which are intended to offset the
impact of potential fluctuations in the market price of zinc. The Company had no
derivative instruments that were required to be reported at fair value at
December 31, 2009 and 2008, and did not utilize derivatives during the years
ended December 31, 2009, 2008 or 2007, except for the zinc forward purchase
commitments, which are accounted for as normal purchases (see Note
6).
 Stock
Options—The
CompanyhasadoptedFASB
Accounting Standards Codification (“ASC”) 718, Compensation–Stock Compensation (formerly referenced asStatement of Financial Accounting Standards No. 123(R), Share-Based Payment
(“SFAS No. 123(R)”).   The standard requires grant date fair
value to be estimated using either an option-pricing model which is consistent
with the terms of the award or a market observed price, if such a price exists.
Such costs must be recognized over the period during which an
 
 
 FS -
21
 employee
is required to provide service in exchange for the award. The standard also
requires estimating the number of instruments that will ultimately be issued,
rather than accounting for forfeitures as they occur.
 Income
Taxes—Net deferred income tax assets and liabilities on the consolidated
balance sheet reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes and the benefit of net operating loss
and other tax credit carry-forwards. Valuation allowances are established
against deferred tax assets to the extent management believes it is more likely
than not that the assets will not be realized. No valuation allowance was
considered necessary at December 31, 2009 and 2008.
  The
Company adoptedFASB
ASC 740,Income
Taxes(formerly
referenced as FASB Financial Interpretation No.48,Accounting
for Uncertainty in Income Taxes)on
January 1, 2007.  ASC 740 clarifies whether or not to recognize assets
or liabilities for tax positions taken that may be challenged by a taxing
authority.  The Company files income tax returns in the Federal
jurisdiction and various state jurisdictions. With few exceptions, the
Company is no longer subject to Federal and state income tax examinations by tax
authorities for years before 2003.
  As of
December 31, 2009, the Company updated its evaluation of all open tax years in
all jurisdictions, including an evaluation of the potential impact of additional
state taxes being assessed by jurisdictions in which the Company does not
currently consider itself liable. Based on this evaluation, the Company did not
identify any uncertain tax positions. In connection with the adoption of FIN 48,
the Company will include future interest and penalties, if any, related to
uncertain tax positions as a component of its provision for taxes.
  (2)
Insurance Receivable
  The
Company experienced a fire November 20, 2009 at its St. Louis
facility.  There were no injuries, and there was no environmental
contamination outside the plant.  The plant is currently idle, and the fire
affected the Company’s 2009 earnings due to loss of business.  The Company
is transporting product to be galvanized from the St. Louis market to other
North American Galvanizing Company plants in its eleven plant network.  The
plant property is insured at a value that approximates replacement cost, and the
insurance coverage also includes coverage for business interruption loss and
reimbursement for extra expense.    At December 31, 2009, the net
book value of building and equipment and inventory that was destroyed was
removed from property, plant and equipment and inventory and a receivable from
insurance of $1.6 million was recorded which is equivalent to the net book value
of destroyed assets plus related expenses incurred through year-end.  The
Company is continuing to compile its claim, and received initial cash proceeds
from insurance in February, 2010 (see Note 16).  The Company expects to
receive additional cash proceeds from insurance during 2010.
  (3)
Share-based Compensation
  At
December 31, 2009, the Company had one share-based compensation plan, which was
stockholder-approved, the2009
Incentive Stock Plan (the “Plan”), which includes the Director Stock Unit
Program.The
Plan permits the grant of share options and shares to its employees and
directors for up to 2,624,898shares
of common stock.Director
Stock Unit Program shares are issued under the plan.  The Company
believes that such awards better align the interests of its employees and
directors with those of its stockholders.
  The
compensation cost for the Plan, exclusive of the Director Stock Unit Program,
was $1,102,000 for the year ended December 31, 2009 and $704,000 for the year
ended December 31, 2008.  This
expense is further detailed below.There was no share-based
compensation cost capitalized during 2009 or 2008.
  Non-vested Shares.During
February and March 2008, the Compensation Committee recommended and the Board of
Directors approved a grant totaling 126,667 non-vested shares for management
employees and
 
 FS -
22
 66,667
non-vested
shares for non-management directors.  During July 2008, the
Compensation Committee recommended and the Board of Directors approved a grant
totaling 80,000 non-vested shares for non-management directors.  The
weighted-average grant price of non-vested shares granted in 2008 was
$4.70.  During January 2009, the Compensation Committee recommended
and the Board of Directors approved a grant totaling 154,168 non-vested shares
for management employees and 79,998 non-vested shares for non-management
directors.  The weighted-average grant price ofnon-vested
shares stock granted in 2009 was $3.67.  Non-vested shares granted to
management employees, including management directors vest and become
nonforfeitable on the date that is four years after the date of grant; or if the
participant is a non-employee director of the Company at the time of the grant,
the date that is two years after the date of the grant. The Company is
recognizing this compensation expense over the two year or four year vesting
period, as applicable, on a ratable basis.  Non-vested shares are
valued at market value on the grant date.For
2009, the Company recorded compensation expense fornon-vested
shares of $774,000 and a related tax benefit of $294,000.  For 2008,
the Company recorded compensation expense for non-vested shares of $345,000 and
a related tax benefit of $131,000.
 
 The
following table reflects non-vested share activity for the year ended December
31, 2009.
 
 Weighted
      Average GrantNon-vested shares
                  
                  Shares
                  
                  
                  Date
      Fair ValueNon-vested
      shares at December 31, 2008
                  
                  
                  273,326
                  
                  
                  $
                  4.70Shares
      granted
                  
                  
                  234,166
                  
                  
                  
                  3.67Shares
      cancelled
                  
                  
                  (2,000
                  )
                  
                  
                  3.67Non-vested
      shares at December 31, 2009
                  
                  
                  505,492
                  
                  
                  $
                  4.23
  
 Stock
Options.Option awards are granted with an exercise
price equal to the market price of the Company’s stock at the date of grant; those
option awards usually vest based on 4 years of continuous service and have
10-year contractual terms.  For the year ended December 31, 2007, the
Company issued stock options for 670,000 shares at $2.60 per
share.  No stock options were issued in 2009 or 2008.  The
Company recognized $328,000, $359,000 and $531,000 in 2009, 2008 and 2007
respectively for amortization expense related to stock
options.No tax benefit was
recognized in income tax expense for 2009 or 2008 related to incentive
stock options.
  The fair value of options granted under
the Company’s stock option
plans was estimated using the Black-Scholes option-pricing model with the
following assumptions used:
 Year Ended December
      312007Volatility
                  66%Discount
      rate
                  4.6%Dividend
    yieldWeighted average
      grant date fair value, as adjusted to reflectthe
      four-for-three stock split
                  $1.77
   The
fair value of options which became fully vested during 2009, 2008 and 2007 was
$1,024,000,
$522,000 and $464,000, respectively.  The intrinsic value of
options exercised during 2009, 2008 and 2007 was $1,073,000, $1,550,000 and
$657,000, respectively.
 FS -
23
 Number of
                        
                        
                        Weighted AverageShares
                        
                        
                        Exercise PriceOutstanding,
      December 31, 2008 ( 461,416 exercisable)
                        
                        
                        1,037,916
                        
                        
                        $
                        1.95Granted
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        (281,250
                        )
                        
                        
                        1.22Surrendered/expired/cancelled
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      December 31, 2009 (436,248 exercisable)
                        
                        
                        756,666
                        
                        
                        $
                        2.22Vested
      or expected to vest at December 31, 2009
                        
                        
                        756,666
                        
                        
                        $
                        2.22
 
 
 Information
about stock options as of December 31, 2009:
  Options
      Outstanding
                        
                        
                        Options
      ExercisableWeighted-
                        
                        
                        
                        
                        
                        
                        
                        
                        Weighted-Weighted-
                        
                        
                        Average
                        
                        
                        
                        
                        
                        Weighted-
                        
                        
                        AverageAverage
                        
                        
                        Remaining
                        
                        
                        
                        
                        
                        Average
                        
                        
                        RemainingRange
      of
                        
                        
                        Number
      of
                        
                        
                        Exercise
                        
                        
                        Contractual
                        
                        
                        Number
      of
                        
                        
                        Exercise
                        
                        
                        ContractualExercise
      Prices
                        
                        
                        Shares
                        
                        
                        Price
                        
                        
                        Life
      (Years)
                        
                        
                        Shares
                        
                        
                        Price
                        
                        
                        Life
      (Years)$0.53
      to $0.99
                        
                        
                        
                        59,166
                        
                        
                        $
                        0.74
                        
                        
                        
                        3.2
                        
                        
                        
                        59,166
                        
                        
                        $
                        .74
                        
                        
                        
                        3.2$1.05
      to $1.43
                        
                        
                        
                        117,500
                        
                        
                        
                        1.12
                        
                        
                        
                        6.0
                        
                        
                        
                        38,750
                        
                        
                        
                        1.21
                        
                        
                        
                        5.8$2.60
                        
                        
                        
                        580,000
                        
                        
                        
                        2.60
                        
                        
                        
                        7.2
                        
                        
                        
                        338,332
                        
                        
                        
                        2.60
                        
                        
                        
                        7.2756,666
                        
                        
                        $
                        2.22
                        
                        
                        
                        6.7
                        
                        
                        
                        436,248
                        
                        
                        $
                        2.22
                        
                        
                        
                        6.5




As of December 31,
2009, the total compensation cost related to non-vested awards not yet
recognized was $1,024,000 which is expected to be recognized over a weighted
average period of 1.8years. The
aggregate intrinsic value of options outstanding and options exercisable
was $1,987,000 and $1,146,000, respectively, at December 31,
2009.
  Director Stock Unit
Program.  At the
Company’s Annual Meeting
held July 29, 2009, stockholders approved the 2009 Incentive Stock Plan (the
“Plan”), which includes the Director Stock Unit Program (the
“Program”).  Following the shareholder meeting at which the Plan was
approved, the Board of Directors’Compensation
Committee approved an amendment to the 2009 Incentive Stock Plan. The amendment
to the 2009 Incentive Stock Plan changes the percentage that each
directoris required
todefer in fees each
calendar year from a minimum of 50% to a minimum of 100%.  The
deferred fees will be converted into stock unit grants at the average of the
fair market value for a share of stock for the 10 trading days before the date
the director fees otherwise would have been payable in cash.  The
Company makes a matching stock unit contribution equal to 75% of the amount
deferred by the directors as of the same quarterly payments dates.  On
December 4, 2009, the Board of Directors approved a recommendation proposed by
the Company’s Compensation
Committee to adjust the amount by which the Company will match a
director’s deferred fees
from seventy five percent (75%) to one hundred percent
(100%).  This amendment is
an extension of the July, 2009 amendment that requires all directors to
mandatorily defer 100% of their fee into the Company’s Director Stock
Unit Program, and is effective January 1, 2010.
  The Compensation
Committee also recommended to the Board of Directorsan increase in
theannual fee for
outside directorsfrom $35,000 to
$50,000, effective October 1, 2009.  The last time the fee was
increased was in 2006.  The Board of
Directors approved the recommended increase.
 
 FS -
24
 The
management director is required to participate in the deferral program and the
amendment described above applies to his participation as well.  The
President and CEO, as a management director, receives no additional cash
compensation for his service as a director.  The Company reduces the
CEO’s annual salary by the amount deferred under the Director Stock Unit
Program.  The Company matches deferrals by the management director
with Stock Units at the same rate as it matches deferrals for non-management
directors.
 
 Stock
under this program is eligible for delivery five calendar years following the
year for which the deferral is made subject to acceleration upon the resignation
or retirement of the director or a change in
control.  Directors may elect, at least one full year before
the end of any automatic deferral period, to further defer their receipt of the
stock for at least five years.
  All
of the Company’s
non-management directors elected to defer 100% of the annual board fee for 2009,
2008 and 2007, and the Company’s
chief executive officer elected to defer a corresponding amount of his salary in
2009, 2008 and 2007.  During 2009, fees, salary and Company matching
deferred by the directors represented a total of110,516
stock unit grants valued at $4.30
per stock unittotaling $475,000.  During
2008, fees, salary and Company matching deferred by the directors represented a
total of 80,994 stock unit grants valued at $5.10 per stock unittotaling $413,000.  During 2007, fees, salary and Company matching
deferred by the directors represented a total of 104,291 stock unit grants
valued at $4.11 per stock unit.  Company matching contributions under
this plan were $203,000
in 2009, $177,000 in 2008 and $184,000 in 2007.
  (4)
Earnings Per Share Reconciliation
  At
December 31, 2009, 2008 and 2007 there are no options excluded from the
calculation of diluted earnings per share due to the option price exceeding the
share market price.
  Basic EPS from continuing
      operations:
                
                2009
                
                
                2008
                
                
                2007Income
      from continuing operations
                
                $
                9,657,000
                
                
                $
                12,532,000
                
                
                $
                9,232,000Less:
      income allocable to non-vested shares
                
                
                (290,888
                )
                
                
                (150,002
                )
                
                
                —Income
      attributable to common shareholders
                
                $
                9,366,112
                
                
                $
                12,381,998
                
                
                $
                9,232,000Weighted-average
      shares outstanding
                
                
                15,908,107
                
                
                
                16,289,530
                
                
                
                16,409,647Basic
      EPS from Continuing Operations
                
                $
                0.59
                
                
                $
                0.76
                
                
                $
                0.56Diluted EPS from continuing
      operations:Income
      from continuing operations
                
                $
                9,657,000
                
                
                $
                12,532,000
                
                
                $
                9,232,000Weighted-average
      shares outstanding - Basic
                
                
                15,908,107
                
                
                
                16,289,530
                
                
                
                16,409,647Effect
      of dilutive securities
                
                
                611,130
                
                
                
                587,029
                
                
                
                618,200Diluted
      weighted-average shares outstanding
                
                
                16,519,237
                
                
                
                16,876,559
                
                
                
                17,027,847Diluted
      EPS from Continuing Operations
                
                $
                0.58
                
                
                $
                0.74
                
                
                $
                0.54
  Effective
January 1, 2009, the Company adopted FSP EITF 03-6-1 (Now codified in ASC No.
260, “Earnings per Share.”).  FSP EITF 03-6-1 addresses whether
instruments granted in share-based payments transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share under the two-class method as
described in ASC No. 260.  Under the guidance
 FS -
25
   (5)
Long-Term Obligations
  On July
17, 2009, the Company entered into a new credit agreement between the Company
and its subsidiary North American Galvanizing Company as borrowers and Wells
Fargo Bank, N.A. as administrative agent, swing line lender and letter of credit
issuer.  The existing credit agreement with Bank of America, N.A. was
canceled.
 The new credit agreement provides
for a revolving credit facility in the aggregate principal amount of $25 million
with future increases of up to an aggregate principal amount of $15
million.  The purpose of the new facility is
to refinance a former credit agreement, provide for issuance of standby letters
of credit, provide funding for acquisitions, and for other general corporate
purposes.  As of December 31, 2009, the
Company has not borrowed under the new credit agreement, which has a maturity
date of July 17, 2012.
  Substantially
all of the Company’s
accounts receivable, inventories, fixed assets and the common stock of its
subsidiary are pledged as collateral under the new agreement, and the credit
agreement is secured by full and unconditional guaranties from North American
Galvanizing Company’s
subsidiaries.  The credit agreement provides for an applicable margin
ranging from 1.50% to 2.50% over LIBOR and a commitment fee of
..25%.  The applicable margin was 1.73%
at December 31, 2009.
  The
credit agreement requires the Company to maintain compliance with certain
covenants.  At December 31, 2009 the Company was in compliance with
the covenants of the new credit agreement.  The required covenants of
the new agreement are as follows:  Funded Debt to EBITDA ratio–maximum allowed of 3.25; Fixed Charge Coverage Ratio–minimum allowed of 1.1 and Asset Coverage Ratio–minimum required of 1.50.  The credit agreement also has other
restrictions
  At
December 31, 2009, the Company had unused borrowing capacity of  $24.8
million, based on no borrowings outstanding under the revolving credit facility
and $0.2 million of letters of credit to secure payment of current and future
workers’compensation claims.
  On
August 18, 2009, the Company accepted subscription agreements for $7.3 million
in subordinated debt with stock warrants to purchase 1,095,000 shares of common
stock of the Company.  The private placement transaction was completed
August 21, 2009.  $3.1 million of the proceeds wasallocated to the stock warrants and the resulting discount on subordinated debt
is being amortized to interest expense using the effective interest
method.  The purpose of this additional financing is to facilitate the
Company's growth strategy.  The private placement was offered to a
group of current large shareholders and a limited number of other accredited
investors who had expressed an interest in investing in the Company. The 10%
subordinated notes have a five year maturity and the warrants are immediately
exercisable, for a period of up to seven years. Interest is paid quarterly and
the subordinated debt will be paid at maturity.  Terms of the warrants
permit the holder to purchase shares of the Company's common stock at any time
prior to the expiration date, for cash at an Exercise Price of $5.20 per share
(market value of common stock at date subscription was accepted).  As
of December 31, 2009 no warrants had been
exercised.
  FS -
26
 (6)
Commitments
  The
Company leases its headquarters office and certain manufacturing buildings and
equipment under non-cancelable operating leases. The Company also leases certain
facilities to third parties under non-cancelable operating leases. These
operating leases generally provide for renewal options and periodic rate
increases and are typically renewed in the normal course of business. Lease
expense was approximately $1.4 million in 2009, $1.3 million in 2008 and $1.3
million in 2007.
  Minimum
annual rental commitments at December 31, 2009 are payable as
follows:
  (Dollars
      in thousands)Operating
      Leases2010
                
                $
                6352011
                
                
                2902012
                
                
                1952013
                
                
                1512014
                
                
                56Thereafter
                
                
                134$
                1,461
 
  At
December 31, 2009, the Company had approximately $1.1 million in outstanding
purchase orders for zinc, $0.65 million in outstanding commitments for various
operating expenses and $0.5 million in outstanding commitments for various
machinery, equipment and building improvements.
  (7)
Contingencies
  NAGC was
notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”) that
it was one of approximately 60 potentially responsible parties under the
Comprehensive Environmental Response, Compensation, and Liability Information
System (“CERCLIS”) in connection with cleanup of an abandoned site formerly
owned by Sandoval Zinc Co., an entity unrelated to NAGC.  The IEPA
notice includes NACG as one of the organizations which arranged for the
treatment and disposal of hazardous substances at Sandoval.  The
estimated timeframe for resolution of the IEPA contingency is
unknown.  The IEPA has yet to respond to a proposed work plan
submitted in August 2000 by a group of the potentially responsible parties or
suggest any other course of action, and there has been no activity in regards to
this issue since 2001. Until the work plan is approved and completed, the range
of potential loss or remediation, if any, is unknown, and in addition, the
allocation of potential loss between the 60 potentially responsible parties is
unknown and not reasonably estimable.  Therefore, the Company has no
basis for determining potential exposure and estimated remediation costs at this
time and no liability has been accrued.
  In
September 2008, the United States Environmental Protection Agency (the “EPA”)
notified the Company of a claim against the Company as a
potentially responsible party related to a Superfund site in Texas City,
Texas.  This matter pertains to galvanizing facilities of a
Company subsidiary and its disposal of waste, which was handled
by their supplier in the early 1980’s.  The EPA offered the Company a
special de minimis
party settlement to resolve potential liability that the Company and its
subsidiaries may have under CERCLA at this Site.  The Company accrued the
$112,145 de minimis
settlement amount during the third quarter of 2008 and accepted the EPA’s offer
before the deadline of December 30, 2008.
  The
Company is committed to complying with all federal, state and local
environmental laws and regulations and using its best management practices to
anticipate and satisfy future requirements. As is typical in the galvanizing
business, the Company will have additional environmental compliance costs
associated with past, present and future operations. Management is committed to
discovering and eliminating environmental issues as they arise. Because of
frequent changes in environmental technology, laws and regulations management
cannot reasonably quantify the Company’s potential future costs in this
area.
  FS -
27
 North
American Galvanizing & Coatings, Inc. and its subsidiary are parties to a
number of other lawsuits and environmental matters which are not discussed
herein.  Management of the Company, based upon their analysis of known
facts and circumstances and reports from legal counsel, does not believe that
any such matter will have a material adverse effect on the results of
operations, financial conditions or cash flows of the Company.
  (8)
Treasury Stock
  In
2009, the Company issued 214,191 shares from Treasury for stock option
transactions, 232,166 for non-vested shares, and 84,021 shares for Director
Stock Unit Program transactions (See Note3).  In
2008, the Company issued 311,616 shares from Treasury for stock option
transactions, 273,326 fornon-vested
shares, and 61,266 shares for Director Stock Unit Program
transactions.  In 2007, the Company issued 103,333 shares from
Treasury for stock option transactions and 49,196 shares from Treasury for
Director Stock Unit Program transactions.
  In
August 1998, the Board of Directors authorized the Company to repurchase up to
$1,000,000 of its common stock in private or open market
transactions.  In March 2008, the Board of Directors authorized the
Company to buy back an additional $2,000,000 of its common stock, subject to
market conditions.  The Company has completed the August 1998 and
March 2008 share repurchase programs.  In August 2008, the Board of
Directors authorized the Company to buy back $3,000,000 of its common stock,
subject to market conditions.  Unless terminated earlier by resolution
of the Board of Directors, the program will expire when the Company has
purchased shares with an aggregate purchase price of no more than the $307,867
remaining under the program at December 31, 2009.In
2009, the Company repurchased 42,166 shares at an average price per share of
$3.95, bringing the total number of shares repurchased through December 31, 2009
to 1,463,893 at an average price of $3.89 per share, totaling
$5,692,133.In
2008, the Company repurchased 1,117,635 shares at an average price per share of
$4.59.  In 2007, the Company repurchased 38,100 shares at an average
price per share of $4.04
  
 
         FS -
28
 (9)
Certain Relationships and Related Transactions
  On August
18, 2009, the Company accepted subscription agreements for $7.3 million in
subordinated debt with stock warrants to purchase 1,095,000 shares of common
stock of the Company (see Note 5).  The following
related parties of the Company subscribed to the subordinated debt offering for
the amounts listed.
  Related Party
                  
                  Nature of Relationship
                  
                  Principal Note
                  
                  
                  WarrantsLinwood
      J. Bundy
                  
                  Director
                  
                  $
                  1,000,000
                  
                  
                  
                  150,000C
      & M Management & Realty Partners
                  
                  Director
      Joseph J. Morrow
                  
                  
                  200,000
                  
                  
                  
                  30,000has
      a controlling interestJanice
      K Henry and John M Henry
                  
                  Director
      and spouse
                  
                  
                  250,000
                  
                  
                  
                  37,500Patrick
      J. Lynch
                  
                  Director
                  
                  
                  200,000
                  
                  
                  
                  30,000MCO
      Limited Partnership
                  
                  Director
      Joseph J. Morrow has
                  
                  
                  300,000
                  
                  
                  
                  45,000has
      a controlling interestClaire
      Morrow
                  
                  Spouse
      of Director
                  
                  
                  250,000
                  
                  
                  
                  37,500The
      Joseph J. & Claire Morrow
                  
                  Spouse
      of Director is a
                  
                  
                  1,000,000
                  
                  
                  
                  150,000Charitable
      Foundation
                  
                  TrusteeJoseph
      J. Morrow Revocable Living Trust
                  
                  Director
                  
                  
                  1,000,000
                  
                  
                  
                  150,000Morrow
      & Co., LLC
                  
                  Director
      Joseph J. Morrow
                  
                  
                  1,000,000
                  
                  
                  
                  150,000has
      a controlling interestNancy
      Sununu
                  
                  Spouse
      of Director
                  
                  
                  250,000
                  
                  
                  
                  37,500Total
                  
                  
                  
                  $
                  5,450,000
                  
                  
                  
                  817,500
  Mr.
Joseph J. Morrow, a director of theCompany,is
the Chief Executive Officer, a director and owns a controlling interest inMorrow & Co., LLC, which provided proxy solicitation and other
stockholder related services to the Company totaling $48,000
during 2009.
  A
subsidiary of North American Galvanizing Company (NAGalv-Ohio, Inc.) purchased
the after-fabrication hot dip galvanizing assets of Gregory Industries, Inc.
located in Canton, Ohio on February 28, 2005.  Gregory Industries,
Inc. is a manufacturer of products for the highway industry.  T.
Stephen Gregory, appointed a director of North American Galvanizing &
Coatings, Inc. on June 22, 2005, is the chief executive officer, chairman of the
board, and a shareholder of Gregory Industries, Inc.  Mr. Gregory
resigned from his position as director of the Company in December
2007.  Total sales to Gregory Industries, Inc. for the year ended
December 31, 2007 were approximately $1,297,000.
   (10)
Income Taxes
  The
provision for income taxes consists of the following:
  (Dollars
      in thousands)Year
      Ended December 312009
                
                
                2008
                
                
                2007Current
                
                $
                4,288
                
                
                $
                7,173
                
                
                $
                5,763Deferred
                
                
                599
                
                
                
                (500
                )
                
                
                (62
                )Income
      tax expense
                
                $
                4,887
                
                
                $
                6,673
                
                
                $
                5,701
 
  FS -
29
 The reconciliation
of income taxes at the federal statutory rate to the Company’s effective tax
rate is as follows:
  (Dollars
      in thousands)Year
      ended December 312009
                
                
                2008
                
                
                2007Federal
      taxes at statutory rate
                
                $
                4,989
                
                
                $
                6,490
                
                
                $
                5,126State
      tax net of federal benefit
                
                
                371
                
                
                
                463
                
                
                
                575Other
                
                
                (473
                )
                
                
                (280
                )
                
                
                —Taxes
      at effective tax rate
                
                $
                4,887
                
                
                $
                6,673
                
                
                $
                5,701
 
   The tax
effects of significant items comprising the Company’s net deferred tax asset
(liability) consist of the following:
  (Dollars
      in thousands)Year
      Ended December 312009
                  
                  
                  2008Deferred
      tax assets:Director
      Stock Units
                  
                  $
                  697
                  
                  
                  $
                  516Non-vested
      stock awards
                  
                  
                  425
                  
                  
                  
                  131Other
                  
                  
                  662
                  
                  
                  
                  401Gross
      deferred tax assets
                  
                  $
                  1,784
                  
                  
                  $
                  1,048Deferred
      tax liabilities:Differences
      between book and taxbasis
      of property
                  
                  $
                  1,839
                  
                  
                  $
                  504$
                  (55
                  )
                  
                  $
                  544Presented
      on the balance sheet as:Deferred
      tax asset- net
                  
                  $
                  895
                  
                  
                  $
                  1,048Deferred
      tax liability- net
                  
                  $
                  950
                  
                  
                  $
                  504
   (11) Employee Benefit
Plans
  The
Company offers one of two 401(k) defined contribution plans to its eligible
employees.  In 2005, a newly-created defined contribution plan was
offered to NAGalv-Ohio, Inc. employees, formerly covered by a bargaining
contract with Gregory Industries, Inc.  All
other employees not covered by a bargaining contract become eligible to enroll
in the existing benefit plan after one year of service with the
Company.  Aggregate Company contributions under these benefit plans
were $555,000
in 2009, $505,000 in 2008 and $333,000 in 2007.  Assets of the defined
contribution plan consisted of short-term investments, intermediate
bonds, long-term bonds and listed stocks.
  FS -
30
 (12)
Fair Value of Financial Instruments
  The
carrying value of financial instruments included in current assets and
liabilities approximates fair value. The fair value of the Company’s long-term
debt at December 31, 2009 was estimated to approximate carrying value based on
the borrowing rates available to the Company for loans with similar terms and
average maturities.
  (13)
Union Contracts
  NAGC’s
labor agreement with the United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy Allied Industrial and Service Workers International Union
covering production workers at its Tulsa, Oklahoma galvanizing plants expired
during 2006.  The union ratified a two-year extension of the expiring
agreement, with minor modifications, extending the expiration date of the
agreement to October 31, 2008.  The extension of the agreement brought
employee contributions to the group health plan more closely in line with
contributions made by non-union employees of the Company.  In 2008,
after several of the employees who were covered by the agreement petitioned the
National Labor Relations Board for a decertification vote, a decertification
election was scheduled to be held on September 25, 2008.  However, on
September 22, 2008, the union filed a “disclaimer of interest” with the National
Labor Relations Board, which denotes that the union is withdrawing its
representation of the Company's Tulsa employees. Thus, the union has been
decertified and the employees covered by that agreement are no longer
represented by the union.
  The
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy Allied
Industrial and Service Workers International Union represented the labor force
at the galvanizing facility purchased in Canton, Ohio in February 2005. At the
time of purchase, NAGalv-Ohio, Inc. did not assume the existing labor agreement
and implemented wage and benefit programs similar to those at the Company’s
other galvanizing facilities.  In the fourth quarter of 2006,
negotiations with the union were finalized.  The union ratified an
agreement effective from November 13, 2006 to November 12, 2009.  The
agreement contains wage and benefit programs similar to those implemented in
February, 2005.  In
November 2009, the union ratified another agreement which is effective until
November 17, 2012.  The latest agreement continueswage
and benefit programs similar to those at the Company’s
other galvanizing facilities.
  (14) Segment
Disclosures
  The
Company’s sole business is hot dip galvanizing and coatings, which is conducted
through its wholly owned subsidiary, North American Galvanizing
Company.
  (15)Stockholders’Equity
  During
the second quarter 2009, the holders of a majority of the outstanding shares of
common stock of North American Galvanizing & Coatings, Inc. (the “Company”)
provided written consent approving an amendment to the Company’s Restated
Certificate of Incorporation, as amended, pursuant to the Company’s consent
solicitation authorized by the Company’s Board of Directors.  Through
the written consent, the holders of a majority of the outstanding shares of the
Company’s common stock approved an increase in the number of authorized shares
of the Company’s common stock from 18,000,000 shares to 25,000,000
shares.
  The
Company filed a Certificate of Amendment of the Restated Certificate of
Incorporation, as amended, with the Secretary of State of Delaware on April 2,
2009, which provided that the aggregate number of shares of the Company’s common
stock which the Company had authority to issue was 25,000,000
shares.
 
 FS -
31
 Shareholders at the Company’s Annual
Meeting on July 29, 2009 approved a proposal to increase the number of
authorized shares of the Company’s common stock from 25,000,000 shares to
50,000,000 shares.
 
 The Company filed a Certificate of
Amendment of the Restated Certificate of Incorporation, as amended, with the
Secretary of State of Delaware on January 12, 2010, which provides that the
aggregate number of shares of the Company’s common stock which the Company shall
have authority to issue is 50,000,000 shares.
 
 (16)  Subsequent
Event
  During
February 2010, the Company received a partial insurance payment of $3.6 million
related to the St. Louis fire (See Note 2).  As
of December 31, 2009 the Company had recorded a $1.6 million receivable from
insurance.  The claim with the insurance company is not complete and
the Company expects to receive additional proceeds from
insurance.  Insurance proceeds received in excess of the losses due to
the fire would be recognized in the period received.
 
 
 END
OF FINANCIAL STATEMENTS
                            
 FS -
32
 QUARTERLY
RESULTS (UNAUDITED)
  Quarterly
results of operations for the years ended December 31, 2009 and 2008 were as
follows:
 (Dollars
      in thousands except per share amounts)200931-Mar
                  
                  
                  30-Jun
                  
                  
                  30-Sep
                  
                  
                  31-Dec
                  
                  
                  TotalSales
                  
                  $
                  20,609
                  
                  
                  $
                  18,143
                  
                  
                  $
                  20,051
                  
                  
                  $
                  18,280
                  
                  
                  $
                  77,083Operating
      Income
                  
                  $
                  4,946
                  
                  
                  $
                  3,499
                  
                  
                  $
                  3,953
                  
                  
                  $
                  2,544
                  
                  
                  $
                  14,942Net
      Income
                  
                  $
                  3,461
                  
                  
                  $
                  2,220
                  
                  
                  $
                  2,575
                  
                  
                  $
                  1,401
                  
                  
                  $
                  9,657Net
      Income Per Common ShareBasic
                  
                  $
                  0.21
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.08
                  
                  
                  $
                  0.59Diluted
                  
                  $
                  0.21
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.08
                  
                  
                  $
                  0.58(Dollars
      in thousands except per share amounts)200831-Mar
                  
                  
                  30-Jun
                  
                  
                  30-Sep
                  
                  
                  31-Dec
                  
                  
                  TotalSales
                  
                  $
                  20,702
                  
                  
                  $
                  21,978
                  
                  
                  $
                  21,845
                  
                  
                  $
                  21,609
                  
                  
                  $
                  86,134Operating
      Income
                  
                  $
                  4,883
                  
                  
                  $
                  5,462
                  
                  
                  $
                  4,420
                  
                  
                  $
                  4,582
                  
                  
                  $
                  19,347Income
      from Continuing Operations
                  
                  $
                  3,075
                  
                  
                  $
                  3,423
                  
                  
                  $
                  3,037
                  
                  
                  $
                  2,997
                  
                  
                  $
                  12,532Loss
      from Discontinued  Operations (net of taxes)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  (662
                  )
                  
                  $
                  (662
                  )Net
      Income
                  
                  $
                  3,075
                  
                  
                  $
                  3,423
                  
                  
                  $
                  3,037
                  
                  
                  $
                  2,335
                  
                  
                  $
                  11,870Net
      Income Per Common ShareBasic
                  
                  $
                  0.18
                  
                  
                  $
                  0.21
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.15
                  
                  
                  $
                  0.72Diluted
                  
                  $
                  0.18
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.70


















FS -
33