UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2005		Commission File Number: 1-5415

(Exact name of registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code (847) 455-7111
Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock — $0.01 par value Series A Cumulative Convertible Preferred Stock — 0.01 par value		American and Chicago Stock Exchanges           Not Registered

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

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

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

		Yes þ		No o

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

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

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

Large Accelerated Filer o       Accelerated Filer þ       Non-Accelerated Filer o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $134,858,000.

The number of shares outstanding of the registrant’s common stock on March 24, 2006 was 16,657,025 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Documents Incorporated by Reference		Applicable Part of Form 10-K
Proxy Statement furnished to Stockholders in connection with registrant’s Annual Meeting of Stockholders		Part III

 

 

ITEM 1—Business

Business and Markets

A. M. Castle & Co. (“The Company”) is a specialty metals and plastics distribution company serving the North American market. The Company provides a broad range of product inventories as well as value-added processing services to a wide array of customers, principally within the producer durable equipment sector of the economy.

     The Company purchases metals and plastics from many producers. Satisfactory alternative sources are available for all inventory purchased and its business would not be materially adversely affected by the loss of any one supplier. Purchases are made in large lots and held in the distribution centers until sold, usually in smaller quantities and many times with some value-added processing services performed. The Company’s ability to provide quick delivery, frequently overnight, of a wide variety of metals and plastic products, and its processing capabilities allow customers to reduce their own inventory investment by reducing their need to order the large quantities required by producing mills or perform additional material processing services.

     Approximately 89% of 2005’s consolidated net sales included materials shipped from Company stock. The materials required to fill the balance of sales were obtained from other sources, such as direct mill shipments to customers or purchases from other distributors. Thousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization. Deliveries are made principally by leased trucks. Common carrier delivery is used in areas not serviced directly by the Company’s fleet.

     The Company encounters strong competition both from other metals and plastics distributors and from large distribution organizations, some of which have substantially greater resources.

     At December 31, 2005, the Company had 1,604 full-time employees in its operations throughout the United States, Canada and Mexico. Of these, 286 are represented by collective bargaining units, principally the United Steelworkers of America.

Business Segments

     The Company distributes and performs processing on both metals and plastics. Although the distribution processes are similar, different customer markets, supplier bases and types of products exist. Additionally, our Chief Executive Officer reviews and manages these two businesses separately. As such, these businesses are considered segments according to Statement on Financial Accounting Standards (SFAS) No. 131 “Disclosures about Segments of an Enterprise and Related Information” and are reported accordingly in the Company’s various public filings.

     In 2005, the Metals segment accounted for roughly 89% of the company’s revenues, and its Plastics segment the remaining 11%. In the last three years, the percentages of total sales of the two segments were approximately as follows:

		2005				2004				2003
Metals			89	%			88	%			88	%
Plastics			11	%			12	%			12	%
			100	%			100	%			100	%

Metals Segment

In its metals business, Castle’s market strategy focuses on highly engineered grades and alloys of metals as well as specialized processing services geared to meet very tight specifications. Core products include carbon, alloy and stainless steels; nickel alloys; and aluminum. Inventories of these products assume many forms such as round, hexagon, square and flat bars; plates; tubing; and sheet and coil. Depending on the size of the facility and the nature of the markets it serves, service centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, water-jet cutting, stress relieving and annealing furnaces, surface grinding equipment and sheet shearing equipment. This segment also performs various specialized fabrications for its customers through pre-qualified subcontractors.

     The Company has its flagship metals distribution center and corporate headquarters in Franklin Park, Illinois. This center serves metropolitan Chicago and a nine-state area. In addition, there are distribution centers in various other cities (see Item 2). The Company recently

announced its plans to open a new metals distribution facility in Alabama during the first half of 2006 as it continues to broaden its geographic market reach into the southeastern region of the U.S. The Franklin Park, Los Angeles and Cleveland distribution centers are the largest facilities and, together, account for approximately 36% of all metals sales.

     Our customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms. The customer base is well diversified across a wide range of industries with no single customer accounting for more than 3% of the Company’s consolidated net sales. A coast-to-coast network of metals service centers provides next-day delivery to most of the segments’ markets, and two-day delivery to virtually all of the rest. Listed below are the other operating subsidiaries and divisions included in the Company’s Metals segment, along with a brief summary of their business activities.

     Oliver Steel Plate Company processes and distributes thick carbon steel plate from its Cleveland area plant.

     H-A Industries, located just across the Indiana state line near Chicago, thermally processes, turns, polishes and straightens alloy and carbon bar.

     On January 1, 2004 the Company purchased the remaining 50% interest in Castle de Mexico, S.A. de C.V. from its joint venture partner. Castle de Mexico, S.A. de C.V. services a wide range of businesses within the producer durable goods sector located in Mexico. As a wholly owned entity, the operations and reported results of Castle de Mexico, S.A. de C.V. have been included in the Company’s Metals segment reporting since the purchase date.

     In 1998, the Company formed Metal Express, a small order metals distribution company in which it had a 60% interest. On May 1, 2002 the Company purchased the remaining interest in Metal Express from its joint venture partner.

Plastics Segment

The Company’s Plastics segment consists of Total Plastics, Inc. (TPI), headquartered in Kalamazoo, Michigan. This segment stocks and distributes a wide variety of plastics in forms that include plate, rod, tube, clear sheet, tape, gaskets and fittings. Processing activities within this segment include cut to length, cut to shape, bending and forming according to customer specifications.

     The Plastics segment diverse customer base consists of companies in the retail (point-of-purchase), marine, office furniture and fixtures, transportation and general manufacturing industries. No single customer accounts for more than 3% of this segment’s consolidated net sales.

     Up until 2004, TPI included two majority-owned joint ventures, Advanced Fabricating Technology (“Aftech”) and Paramont Machine Company. Paramont became a wholly-owned subsidiary of TPI in March 2004 through the purchase of the remaining joint venture partner’s interest. On September 30, 2005, TPI purchased the joint venture partner’s remaining interest in Aftech. TPI has locations throughout the upper Northeast and Midwest portions of the U.S. and one facility in Florida, (see Item 2) from which it services a wide variety of users of industrial plastics.

Joint Venture

Since March 31, 2001, the Company has held a 50% joint venture interest in Kreher Steel Co., a Midwest metals distributor, focusing on customers whose primary need is for immediate, reliable delivery of large quantities of alloy, special bar quality (SBQ) and stainless bars. Equity in the earnings from this joint venture is reported separately in the Company’s consolidated statement of operations.

Access to SEC Filings

The Company makes available free of charge on or through its Web site at www.amcastle.com the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

ITEM 1A — Risk Factors

Our business, operations and financial conditions are subject to various risks and uncertainties. Current or potential investors should carefully consider the risks and uncertainties described below, together with all other information in this annual report on Form 10-K and other documents filed with the SEC, before making any investment decisions with respect to the Company’s securities.

Cyclical Markets

The Company is subject to cyclical market demand trends. Significant changes within the manufacturing sector of the North American economy could have a material impact on the Company’s sales and profitability.

Material Price Volatility

The prices the Company pays for its materials, both metals and plastics, may fluctuate due to market factors beyond its control. The financial results of the Company could be materially impacted by future material cost fluctuations particularly if, due to market factors, it is unable to pass-through these increases to its customers.

Material Availability

The Company’s ability to secure a sufficient quantity of material in a timely manner and at a competitive price is critical to meeting its customer’s needs. Unforeseen disruptions in its supply base could materially impact operating results in the future.

International Operations

The Company serves and operates in certain international markets that could expose it to political, economic or currency related risks. As the Company operates internationally, primarily in Canada and Mexico, management believes these risks to be relatively minor.

Primary Distribution Hub

The Company’s largest facility in Franklin Park, Illinois serves as a primary distribution center that ships product to other facilities as well as external customers. This same facility serves as the Company’s headquarters and houses its primary information systems. The business could be adversely impacted by a major disruption within this operation in the event of:

	§		Damage to or inoperability of its warehouse or related systems
	§		A prolonged power or telecommunication failure
	§		A natural disaster such as fire, tornado or flood
	§		An airplane crash on-site as the facility is located within seven miles of O’Hare International airport (a major U.S. airport) and lies below certain take-off and landing flight patterns.

     The Company has appropriate data storage and retrieval procedures that include off-site system capabilities. However, a prolonged disruption of the services and capabilities of the Franklin Park facility and operation could adversely impact the Company’s financial performance.

General Business Risks

Other typical business risks include legal and regulatory climate, labor retention and relations, and cost management. Management regularly assesses these and other risks relative to the business and adjusts internal practices and policies to help mitigate their impact on the Company’s performance. The Company also maintains insurance coverage to reasonably protect the Company from catastrophic losses.

     The Company competes in an industry that contains many competitors, some of which are larger with greater financial resources available to them.

     Though reasonable measures and protective practices are in place, there can be no assurance that the significant occurrence of one or multiple risks, identified or unknown, will not have a material adverse effect on the Company’s results of operation or enterprise value.

ITEM 1B — Unresolved SEC Staff Comments

     None

ITEM 2 — Properties

The Company’s principal executive offices are at its Franklin Park plant near Chicago, Illinois. All properties and equipment are sufficient for the current level of activities. Distribution centers and sales offices are maintained at each of the following locations, all of which are owned, except as indicated:

		Approximate
		Floor Area in
Locations		Square Feet
Castle Metals
Charlotte, North Carolina			116,500
Chicago area  -
Franklin Park, Illinois			522,600
Cleveland area  -
Bedford Heights, Ohio			374,400
Dallas, Texas			78,000
Edmonton, Alberta			38,300	(1)
Fairfield, Ohio			186,000	(1)
Houston, Texas			109,100
Kansas City, Missouri			118,000	(1)
Kent, Washington			31,100	(1)
Los Angeles area  -
Paramount, California			155,500	(1)
Montreal, Quebec			26,100	(1)
Minneapolis, Minnesota			65,200
Philadelphia, Pennsylvania			71,600
Stockton, California			60,000	(1)
Mississauga, Ontario			60,000	(1)
Wichita, Kansas			58,800	(1)
Winnipeg, Manitoba			50,000
Worcester, Massachusetts			56,000
Sales Offices (Leased)
Cincinnati, Ohio
Milwaukee, Wisconsin
Phoenix, Arizona
Tulsa, Oklahoma
Castle de Mexico
Monterrey, Mexico			55,000	(1)
H-A Industries
Hammond, Indiana			243,000	(1)
Keystone Tube Company LLC
Riverdale, Illinois			115,000	(1)
Oliver Steel Plate Company
Twinsburg, Ohio			120,000	(1)
Metal Express, LLC
Hartland, Wisconsin			4,000	(1)
Other Locations (15)			112,000	(1)
Total Metals Segment			2,826,200

		Approximate
		Floor Area in
Locations		Square Feet
Total Plastics, Inc.
Baltimore, Maryland			24,000	(1)
Cleveland, Ohio			8,600	(1)
Detroit, Michigan			22,000	(1)
Elk Grove Village, Illinois			22,500	(1)
Fort Wayne, Indiana			9,600	(1)
Grand Rapids, Michigan			42,500
Harrisburg, Pennsylvania			13,900	(1)
Indianapolis, Indiana			13,500	(1)
Kalamazoo, Michigan			81,000	(1)
Mt. Vernon, New York			27,000	(1)
New Philadelphia, Ohio			10,700	(1)
Pittsburgh, Pennsylvania			8,500	(1)
Rockford, Michigan			53,600	(1)
Tampa, Florida			17,700	(1)
Trenton, New Jersey			6,000	(1)
Worcester, Massachusetts			11,000
Total Plastics Segment			372,100
GRAND TOTAL			3,198,300

ITEM 3 — Legal Proceedings

The Company is the defendant in several lawsuits arising out of the conduct of its business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of the Company’s in-house counsel, based on current knowledge, that no uninsured liability will result from the outcome of this litigation that would have a material adverse effect on the consolidated results of operations, financial condition or cash flows of the Company.

ITEM 4 — Submission of Matters to a Vote of Security Holders

No items were submitted to vote of security holders during the fourth quarter of fiscal 2005.

PART II

ITEM 5 — Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

A. M. Castle & Co.’s Common Stock trades on the American and Chicago Stock Exchanges under the ticker symbol “CAS”. As of March 1, 2006 there were approximately 1,274 shareholders of record and an estimated 4,292 beneficial shareholders. The Company paid no dividends in 2005 or 2004. On January 30, 2006 the Company announced a $0.06 per share cash dividend payable February 27^th to shareholders of record February 13, 2006.

     See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management”, for information regarding common stock authorized for issuance under equity compensation plans.

     The following table sets forth for the periods indicated the range of the high and low stock price:

						—STOCK PRICE RANGE—
		2005								2004
		Low				High				Low				High
First Quarter		$	11.35			$	17.25			$	6.63			$	9.21
Second Quarter		$	11.05			$	16.11			$	7.35			$	11.00
Third Quarter		$	13.88			$	17.97			$	8.60			$	11.81
Fourth Quarter		$	15.02			$	24.52			$	10.25			$	13.90

     Below is a summary by month of shares purchased by the Company during the fourth quarter of 2005:

(d) Maximum

(c) Total Number

Number (or

of Shares (or

Approximate

Units) Purchased

Dollar Value) of

as Part of

Shares (or Units)

Publicly

that May Yet Be

(a) Total Number

(b) Average Price

Announced

Purchased

of Shares (or

Paid per Share

Plans or

(Under the Plans

Period

Units) Purchased

(or Unit)

Programs

or Programs)

October 1 — October 31

16,488

*

19.49

—

—

November 1 — November 30

327,796

*

19.93

—

—

December 1 — December 31

7,796

*

21.47

—

—

Total

352,080

*

19.94

—

—

ITEM 6 — Selected Financial Data

(dollars in millions, except share data)		2005				2004				2003				2002				2001
Statement of Operations Data:
Net sales		$	959.0			$	761.0			$	543.0			$	538.1			$	593.3
Income (loss) from continuing operations			38.9				15.4				(19.9	)			(10.8	)			(6.8	)
Income (loss) per share from continuing operations			2.37				0.92				(1.32	)			(0.74	)			(0.48	)
Cash dividends declared per common share			—				—				—				—				0.50
Balance Sheet Data (December 31):
Total assets			423.7				383.0				338.9				352.6				327.4
Total debt			80.1				101.4				108.3				112.3				119.9
Stockholders’ equity			175.5				130.4				113.7				130.9				117.2

     The Company adopted FAS 123R, “Share-Based Payment,” as its method to account for stock-based compensation (see Note 10 to the consolidated financial statements).

ITEM 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Review

This discussion should be read in conjunction with the information contained in the Consolidated Financial Statements and Notes.

EXECUTIVE OVERVIEW

Recent Market and Pricing Trends

The Company’s primary markets exhibited continued strong underlying demand throughout 2005. Consolidated net sales for 2005 of $959.0 million were $198.0 million, or 26%, higher than 2004. Excluding the impact of higher material prices, net sales rose nearly 6%. The aerospace, oil and gas, mining and construction equipment, and truck and railroad equipment sectors were especially robust. Metals material pricing stabilized in 2005 as compared to rapid price escalation throughout 2004. The 2005 metals supply was generally steady and reliable, with the exception of nickel steels, which continue to be rapidly consumed by the aerospace and oil and gas industries. Suppliers’ delivery lead times stretched in some cases to 20 weeks by year-end 2005 for certain nickel steels. The Company believes that its strong presence in the nickel steels marketplace niche and its relationships with primary nickel steels suppliers have the Company well-positioned to competitively service customer demand for these products, which represented 11% of 2005 consolidated total net sales.

     Historically, management has used the Purchaser’s Managers Index (“PMI”) provided by the Institute of Supply Management (website is www.ism.ws) as a reasonable tracking measure of general demand trends in its customer markets. Table 1 below shows PMI trends from the first quarter of 2003 through the final quarter of 2005. Generally speaking, an index above 50.0 indicates continuing growth in the manufacturing sector of the U.S. economy. As the data indicates, the U.S. manufacturing economy is still growing at a modest pace as of 2005 year-end. The Company’s revenue growth, net of material price increases, has improved over this same time period.

Table 1

YEAR		Qtr 1				Qtr 2				Qtr 3				Qtr 4
2003			49.7				49.0				54.1				60.3
2004			62.4				62.5				59.7				57.4
2005			55.7				53.2				56.0				57.0

     Though the PMI does offer some insight, management typically relies on its relationships with the Company’s supplier and customer base to assess continuing demand trends. As of December 31, 2005, indicators generally point to a continued healthy demand for the Company’s products in 2006.

     The Company’s Plastics segment reported modest underlying sales growth in 2005 and more dramatic material price increases than those experienced in the Metals segment. Driven by global increases in petroleum based products and the impact of hurricane Katrina on the supplier base, plastic material prices rose, on average, an estimated 17% during 2005. Typically, prices in this business are less volatile than those in the metals markets and are less subjective to the North American manufacturing economic cycles. However, current price levels are unusually high and may not remain at these levels throughout the next year.

     Demand for the Company’s plastic products comes from different markets than those within the Metals segment, and tends to be more stable and less cyclical historically. Additionally, the Plastics segment has benefited from a sustained program of geographic expansion as four new branches have opened since late 2002.

Current Business Outlook

A favorable 2005 year-end PMI suggests that demand for the Company’s products and services should continue at their current high levels at least in the near-term. To date, metals pricing, in the aggregate, for the products the Company sells remains stable. Select pricing for nickel sheet has risen during 2005 and conversely, certain carbon steel prices have declined, but the overall mix of products within the Metals segment resulted in lower price volatility than in 2004.

     As previously mentioned, plastic material prices were at high levels as 2005 came to a close. It is difficult to determine how long they will remain at the year-end 2005 levels. The Company will

continue to assess its growth initiatives for this segment and may consider further geographic expansion alternatives as it has in the last few years.

RESULTS OF OPERATIONS: YEAR-TO-YEAR COMPARISONS AND COMMENTARY

As described in this Management’s Discussion and Analysis under the caption “Recent Accounting Pronouncements” and in footnote 1 to the financial statements, the Company elected to adopt FAS 123R — “Share-Based Payment”, on a modified retrospective basis in the fourth quarter of 2005. As such, previously reported financial results for 2005 and prior years have been restated as a result of this adoption. The following commentary and comparative financial data reflect these changes.

     Our discussion of comparative period results is based upon the following components of the Company’s consolidated statements of operations.

Net Sales —The Company derives its revenues from the sale and processing of metals and plastics. Pricing is established with each customer order and includes charges for the material, processing activity and delivery. The pricing varies by product line and type of processing. The Company does not enter into any long-term fixed price arrangements with a customer without obtaining a similar agreement with its suppliers.

Cost of Material Sold—Cost of material sold consists of the costs we pay for metals, plastics and related inbound freight charges. The Company accounts for inventory on a LIFO (last-in-first-out) basis. LIFO adjustments are calculated as of December 31 of each year. Interim estimates of the year-end charge or credit are determined based on inflationary or deflationary purchase cost trends and estimated year-end inventory levels. Interim LIFO estimates may require significant year-end adjustments. (See Note 14 of the consolidated financial statements)

Gross Material Margin—Gross material margin is defined as net sales less cost of material sold. Historically, the Company has been successful in maintaining its margin percentage in periods of increasing and declining material costs. If material costs increase and the Company maintains its margin percentage, it generates more material margin dollars. Conversely, if material costs decline and the Company maintains its margin percentage, we generate fewer material margin dollars.

Expenses—Expenses primarily consist of (1) plant and delivery expenses, which include occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs; (2) selling expenses, which include compensation and employee benefits for sales personnel, and general and administrative expenses, which include compensation for executive officers and general management, expenses for professional services primarily attributable to accounting and legal advisory services, data communication and computer hardware and maintenance; and (3) depreciation and amortization expenses include depreciation for all owned property and equipment, and amortization of various long-lived assets.

2005 Results Compared to 2004

Consolidated results by business segment are summarized in the following table for years 2005 and 2004. Impairment and other special charges are shown separately for clarification purposes.

Operating Results by Segment (dollars in millions)

		Year Ended December 31,
		2005				2004				Fav/(Unfav)				% Change
Net Sales
Metals		$	851.3			$	671.2			$	180.1				26.8	%
Plastics			107.7				89.8				17.9				19.9
Total Net Sales		$	959.0			$	761.0			$	198.0				26.0
Gross Material Margin
Metals		$	247.3			$	188.5			$	58.8				31.2	%
% of Metals Sales			29.1	%			28.1	%			1.0	%
Plastics			34.5				29.1				5.4				18.6
% of Plastics Sales			32.0	%			32.4	%			(0.4	)%
Total Gross Material Margin		$	281.8			$	217.6			$	64.2				29.5	%
% of Total Sales			29.4	%			28.6	%			0.8	%
Operating Expense
Metals		$	172.0			$	155.4			$	(16.6	)			10.7	%
Plastics			28.9				23.6				(5.3	)			22.5
Other			9.7				7.1				(2.6	)			36.6
Total Operating Expense		$	210.6			$	186.1			$	(24.5	)			13.2	%
% of Total Sales			(22.0	)%			(24.5	)%			2.5	%
Operating Income
Metals		$	75.3			$	33.1			$	42.2
% of Metals Sales			8.8	%			4.9	%			3.9	%
Plastics			5.6				5.5				0.1
% of Plastics Sales			5.2	%			6.1	%			(0.9	)%
Other			(9.7	)			(7.1	)			(2.6	)
Total Operating Income		$	71.2			$	31.5			$	39.7
% of Total Sales			7.4	%			4.1	%			3.3	%

Net Sales:

Consolidated net sales for the Company of $959.0 were up $198.0 million, or 26.0%, versus the prior year. Volume increased 6% and material price increases accounted for the balance of the year-over-year sales growth.

     Metals segment sales of $851.3 million were 26.8%, or $180.1 million, ahead of 2004. Volume increased 6% during 2005 and the balance of the sales growth was due to higher pricing. The aerospace, oil and gas, mining and construction equipment, and truck and railroad equipment sectors were especially robust.

     Plastics segment sales of $107.7 million were $17.9 million, or 19.9%, higher than last year. Volume increased approximately 2% during 2005 while prices rose 17%. The business experienced some softness in its retail point-of-purchase display and shelving markets during the third-quarter of 2005, affecting its year-over-year growth comparisons. The business rebounded back to historical levels by year-end.

Gross Material Margins and Operating Profit:

On a consolidated basis, gross material margins grew $64.2 million or 29.5% to $281.8 million. Increased sales were the primary reason for this increase.

     Gross material margins as a percent of sales were 29.4% in 2005 as compared to 28.6% in 2004, an increase of 0.8 margin points. Although there was a $4.0 million unfavorable LIFO (last-in,

first-out) charge (LIFO less FIFO inventory revaluation) versus a $2.6 million net LIFO charge in 2004, margins still rose year-over-year due to favorable product mix.

     Consolidated operating expenses increased $24.5 million, or 13.2%, versus 2004 in support of higher overall customer demand. However, operating expense declined as a percent of sales from 24.5% in 2004 to 22.0% in 2005, as the Company was able to leverage its sales growth.

     The Company’s “Other” operating segment includes expenses related to executive, financial and legal services that benefit both operating segments. The $2.6 million increase in expense as compared to the prior year is primarily attributable to long-term management incentive programs that were initiated in 2005.

     Total operating profit of $71.2 million was $39.7 million, or 126.0%, ahead of last year. Solid underlying demand coupled with a lower, previously restructured cost base, strengthened the Company’s operating profits.

Other Income and Expense, and Net Results:

Equity in earnings of the Company’s joint venture, Kreher Steel, was $4.3 million in 2005, as compared to $5.2 million in 2004. Kreher employs FIFO (first-in, first-out) accounting in valuing its inventory and cost of sales. During 2004 Kreher’s product lines experienced escalating material costs as compared to declining material costs in 2005, thus resulting in lower gross material margins.

     Interest expense of $7.3 million in 2005 declined $1.6 million versus prior year on lower overall borrowings and reduced interest rates, stemming from the Company’s debt refinancing in the second half of 2005 (See Notes 8 and 9 to the consolidated financial statements). As part of the refinancing of its long-term notes in the fourth quarter of 2005, the Company recorded a $4.9 million pre-tax charge related to the early termination of its former note agreements.

     Consolidated net income of $37.9 million, or $2.11 earnings per diluted share in 2005 compared favorably to $14.5 million, or $0.82 per diluted share, in 2004.

2004 Results Compared to 2003

The following financial comparisons include certain significant changes in the Company’s structure or business that are considered to be important to the reader’s general understanding when viewing results of operations for the years presented.

     Beginning in late 2000, management initiated a major restructuring program which included a review of certain under-performing business units and an assessment of the Company’s overall cost structure. Specific actions taken by management in 2003 resulted in the Company incurring restructuring related charges in its reported results. The restructuring better postured the Company to participate in the 2004 and 2005 economic recovery by shedding business units that had in prior years either produced operating losses, consumed disproportionate amounts of cash, or both, and were not a strategic fit with the Company’s core business.

     The Company also incurred additional non-recurring charges associated with equipment lease buyout provisions for assets included in the sale of a non-strategic business unit and for the negotiated early property lease buyout and related write-off of leasehold improvements of a vacated facility.

     Total restructuring related charges for 2003 were $11.5 million on a pre-tax basis. Further details on these charges can be found in Note 7 to the consolidated financial statements.

     Consolidated results by business segment are summarized in the following table for years 2004 and 2003. Impairment and other special charges are shown separately for clarification purposes.

Operating Results by Segment (dollars in millions)

		Year Ended December 31,
		2004				2003				Fav/(Unfav)				% Change
Net Sales
Metals		$	671.2			$	475.3			$	195.9				41.2	%
Plastics			89.8				67.7				22.1				32.6
Total Net Sales		$	761.0			$	543.0			$	218.0				40.1
Gross Material Margin
Metals		$	188.5			$	135.2			$	53.3				39.4	%
% of Metals Sales			28.1	%			28.4	%			(0.4	)%
Metals Special Charges			—				(1.6	)			1.6
Plastics			29.1				23.4				5.7				24.4
% of Plastics Sales			32.4	%			34.6	%			(2.2	)%
Total Gross Material Margin		$	217.6			$	157.0			$	60.6				38.6	%
% of Total Sales			28.6	%			28.9	%			(0.3	)%
Operating Expense
Metals		$	155.4			$	141.0			$	(14.4	)			10.2	%
Metals Impairment			—				6.5				6.5
Plastics			23.6				20.6				(3.0	)			14.6
Other			7.1				4.7				(2.4	)			51.1
Total Operating Expense		$	186.1			$	172.8			$	(13.3	)			7.7	%
% of Total Sales			(24.5	)%			(31.8	)%			7.4	%
Operating Income (Loss)
Metals		$	33.1			$	(5.8	)		$	38.9
% of Metals Sales			4.9	%			(1.2	)%			6.2	%
Metals Special Charges and Impairment			—				(8.1	)			8.1
Plastics			5.5				2.8				2.7
% of Plastics Sales			6.1	%			4.1	%			2.0	%
Other			(7.1	)			(4.7	)			(2.4	)
Total Operating Income (Loss)		$	31.5			$	(15.8	)		$	47.3
% of Total Sales			4.1	%			(2.9	)%			7.0	%

Net Sales:

Consolidated net sales for the Company in 2004 of $761.0 million were up $218.0 million, or 40.1%, versus 2003. Improved market conditions in the manufacturing sector of the U.S. economy and shortages in raw materials used in metal production fueled sales growth in terms of both price and real volume. Metals segment sales of $671.2 million in 2004 were up $195.9 million, or 41.2%, versus 2003. Management estimates that the impact of 2004 material price escalation accounted for approximately two-thirds of the sales increase. The Company’s wholly-owned Mexican subsidiary added $14.6 million of sales in 2004. The balance of the year-over-year sales growth in this segment was due to increased volume driven by healthier market conditions. Plastics segment sales of $89.8 million increased $22.1 million, or 32.6%, versus 2003. Roughly 3% of this increase was due to material price inflation with the balance of growth resulting from planned geographic expansion the Company initiated in 2003.

Gross Material Margins and Operating Profit (Loss):

On a consolidated basis, gross material margins increased $60.6 million or 38.6% to a level of $217.6 million in 2004. Increased volume and material cost and margin pass-through accounted for this improvement versus 2003. Within its Metals segment, the Company recorded $1.6 million of

impairment related charges in 2003. See Note 7 to the consolidated financial statements for more details on the nature of these charges. Included in the 2004 margin were charges totaling $5.2 million resulting from company-wide physical inventories conducted in the third and fourth quarter. The Mexican operation contributed $3.2 million of margin in 2004. Total gross material margins within the Metals segment increased by $54.9 million, or 41.0%, including these factors. The Plastics segment increased gross material margins in 2004 by $5.7 million, or 24.4%. Margin as a percent of sales declined during the year in this segment largely due to product and customer mix. Included in the 2004 margin for the Plastics segment are $0.5 million of charges associated with an annual physical inventory conducted in the fourth quarter.

     In 2003, the Company incurred a $15.8 million operating loss on a consolidated basis, including $8.1 million of impairment and other special charges associated with management’s decision to exit certain business units and dispose of certain capital assets. No impairment or special charges were recorded in 2004. The Company recorded a $2.6 million unfavorable net LIFO (last-in, first-out) charge in 2004, compared to a $2.4 million charge in 2003.

     Consolidated operating expenses increased $13.3 million or 7.7% in 2004 in support of volume growth. Operating expense as a percent of sales declined from 31.8% (excluding impairment charges) in 2003 to 24.5% in 2004. More importantly, the incremental year-over-year increase in operating expense as a percent of incremental sales growth was 7.4%, reflecting the Company’s ability to support significant sales growth with a nominal increase in variable expense. Metals segment operating expense increased $14.4 million (excluding $6.5 million of impairment charges recorded in 2003) or 7.4% of their 41.2% sales increase. Operating expenses in the Plastics segment increased $3.0 million or 13.6% of their 32.6% growth in sales.

     The Company’s “Other” operating segment includes expenses related to executive, legal and financial services that benefited both segments. This expense increased to $7.1 million in 2004 from $4.7 million in 2003. Most of the increase was attributable to management incentives and initial year Sarbanes-Oxley compliance costs.

     Consolidated operating profit earned in 2004 was $31.5 million compared to an operating loss of $15.8 million one year ago.

Other Income and Expense, and Net Results:

The Company’s joint venture, Kreher Steel, experienced similar favorable market dynamics as the Company’s own Metals segment throughout 2004. Equity in earnings in 2004 associated with the Company’s 50% interest in this joint venture were $5.2 million. In 2003, the Company recorded a $3.5 million impairment charge associated with certain joint venture investments which management elected to sell or exit (Note 7 to the consolidated financial statements for more details). Equity earnings of joint ventures in 2003, excluding the impairment charge, were $0.1 million.

     Interest expense decreased $0.7 million to $9.0 million in 2004. This reflected lower long-term debt levels. Due to lower average amounts sold under its Financing Agreement in 2004, the Company recorded a $1.0 million discount on receivables sold versus $1.2 million in 2003.

     Consolidated net income from continuing operations in 2004 was $15.4 million compared to a loss of $19.9 million in 2003. In the fourth quarter of 2003, the Company recorded an additional $0.2 million loss (net of taxes) on the disposal of its United Kingdom subsidiary (sold in May 2002) associated with an outstanding customer product liability claim. This loss is shown in Discontinued Operations in the Company’s comparative Statement of Operations. Preferred dividends in 2004 and 2003 of $1.0 million each year are related to the Company’s November 2002 private placement of cumulative convertible preferred stock with its largest shareholder.

     The Company reported net income of $14.5 million, or $0.82 per diluted share in 2004 versus a net loss of $21.0 million or $1.33 per diluted share in 2003.

YEAR-END 2005 LIQUIDITY AND CASH POSITION

Liquidity and Capital Resources

The Company’s primary sources of liquidity include cash generated from earnings and its use of available borrowing capacity to fund working capital needs and growth initiatives. The Company’s 2005 operating results coupled with its debt refinancing have dramatically improved its financial position and liquidity.

     Net cash from operating activities in 2005 was $57.9 million, largely driven by strong earnings and ongoing working capital management. In July 2005, the Company replaced its former receivable purchase facility with an $82 million revolving line of credit (“Revolver”). This transaction triggered a 150 basis point interest rate reduction on the Company’s long-term notes existing at that date. Available Revolver capacity is primarily used to fund working capital needs. In November of 2005 the Company completed a planned refinancing of its long-term debt through the issuance of $75 million of ten-year senior secured notes. The Company’s 6.26% Senior Secured Notes are due in scheduled installments through November 17, 2015 (the “Notes”). Interest on the Notes accrues at the rate of 6.26% annually, payable semi-annually beginning on May 15, 2006. The proceeds were used to retire all of its former long-term notes. This refinancing enabled the Company to reduce its annual debt service cash outlays, by extending maturities on the debt and achieving a fixed lower interest rate. (See Notes 8 and 9 to the consolidated financial statements.)

     Total long-term debt declined $21.3 million during 2005 and year-end cash increased $34.3 million. The debt-to-capital ratio at December 31, 2005 was 30.8% versus 43.7% at the end of 2004. As of December 31, 2005 the Company had no outstanding borrowings under its Revolver and had availability of $76.0 million.

     In 2005 the Company continued its aggressive program to manage its investment in inventory. The following chart depicts the improvements in inventory turns, as measured by days’ sales in inventory (“DSI”) since 2003.

		FY				FY				FY
		2005				2004				2003
Average DSI			119.3				119.2				153.1

     2004 inventory performance was favorably impacted by shortages in metals supply across the industry. 2005 DSI reflects sustainable improvement in inventory turnover.

     As of December 31, 2005, the Company remained in compliance with the covenants of its credit agreements, which require it to maintain certain funded debt-to-capital ratios, working capital-to-debt ratios and a minimum book value of equity, as defined within the agreement. A summary of covenant compliance is shown below.

				Actual
		Required		12/31/05
Debt-to-Capital Ratio		< 0.55		0.26
Working Capital-to-Debt Ratio		>1.00		2.70
Book Value of Equity		$123.9 Million		$175.5 Million

     Management believes the Company will be able to generate sufficient cash from operations and planned working capital improvements (principally from reduced inventories) to fund its ongoing capital expenditure programs and meet its debt obligations.

Capital Expenditures

Capital expenditures for 2005 were $8.7 million as compared to $5.3 million in 2004. During 2005, the Company embarked on a multi-year program to replace certain of its business technology and support systems. Approximately $0.7 million of 2005 capital expenditures were associated with this project. Management estimates that total spending on this technology improvement will be in the $4 million to $6 million range, to be spent over the three-year period from 2005 through 2008. The balance of 2005 capital expenditures included normal replacement and upgrading of machinery and equipment.

Contractual Obligations and Other Commitments:

At December 31, 2005, the Company’s contractual obligations, including estimated payments by period, were as follows: (Dollars in Thousands)

						Less				One to								More
						Than One				Three				Three to				Than Five
Payments Due In		Total				Year				Years				Five Years				Years
Long-Term Debt Obligations		$	80,060			$	6,233			$	13,411			$	17,580			$	42,836
Interest Payments on Debt Obligations (a)			29,224				5,008				12,733				5,813				5,670
Capital Lease Obligations			1,548				534				913				101				—
Operating Lease Obligations			56,265				11,258				20,091				14,278				10,638
Purchase Obligations (b)			226,231				217,834				8,397				—				—
Other (c)			5,858				5,858				—				—				—
Total		$	399,186			$	246,725			$	55,545			$	37,772			$	59,144

The above table does not include $14.4 million of other non-current liabilities recorded on the balance sheet, as summarized in Notes 3 and 4 to the consolidated financial statements. These non-current liabilities consist of liabilities related to the Company’s non-funded supplemental pension plan and postretirement benefit plans for which payment periods cannot be determined. Non-current liabilities also include the deferred gain on the sale of assets, which are principally the sale-leaseback transactions disclosed in Note 3 to the consolidated financial statements. The cash outflows associated with these transactions are included in the operating lease obligations above.

     The Company has a number of long-term contracts to purchase certain quantities of material with certain suppliers. In each case of such a long-term obligation, the Company has an irrevocable purchase agreement from its customer for the same amount of material over the same time period.

Pension Funding

The Company’s funding policy on its defined benefit pension plan is to satisfy the minimum funding requirements of ERISA. During 2005, the Company contributed $1.0 million to the Hourly Employees Pension Plan. Future funding requirements are dependent upon various factors outside the Company’s control including, but not limited to, fund asset performance and changes in regulatory or accounting requirements. Based upon factors known and considered as of December 31, 2005, the Company does not anticipate any further cash contributions to be made to the pension plans in 2006.

Off-Balance Sheet Arrangements

With the exception of letters of credit and sales/leaseback financing on certain equipment used in the operation of the business, it is not the Company’s general practice to use off-balance sheet arrangements, such as third-party special-purpose entities or guarantees to third parties.

     Obligations of the Company associated with its leased equipment are disclosed within this filing under the “Contractual Obligations and Other Commitments” section above.

     See Note 12 to the consolidated financial statements for more details on the Company’s outstanding letters of credit.

Critical Accounting Policies:

The financial statements have been prepared in accordance with generally accepted accounting principals, which necessarily include amounts that are based on estimates and assumptions. The following is a description of some of the more significant policies:

Inventory — Substantially all inventories are valued using the last-in first-out (LIFO) method. Under this method, the current value of material sold is recorded as cost of material sold rather than the actual cost in the order in which it was purchased. This means that older costs are included in inventory, which may be higher or lower than current costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals or plastics industry. The use of LIFO for inventory valuation was chosen to better match replacement cost of inventory with the current pricing used to bill customers.

Retirement Plans — The Company values retirement plan assets and liabilities based on assumptions and valuations established by management following consultation with its independent actuary. Future valuations are subject to market changes, which are not in the control of the Company and could differ materially from the amounts currently reported. Note 4 to the consolidated financial statements disclose the assumptions used by management.

Insurance Plans — The Company is self-insured for a portion of worker’s compensation and automobile insurance. Self-insurance amounts are capped for individual claims, and, in the aggregate, for each policy year by an insurance company. Self-insurance reserves are based on unpaid, known claims (including related administrative fees assessed by the insurance company for claims processing) and a reserve for incurred but not reported claims based on the Company’s historical claim experience and development.

Revenue Recognition — Revenue from product sales is largely recognized upon shipment whereupon title passes and the Company has no further obligations to the customer. The Company has entered into consignment inventory agreements with a few select customers whereby revenue is not recorded until the customer has consumed product from the consigned inventory and title has passed. Revenue derived from consigned inventories at customer locations for 2005 was $11.9 million (or 1.2% of sales) compared to $9.5 million (or 1.2% of 2004 sales). Inventory on consignment at customers as of December 31, 2005 was $1.5 million, or 1.2% of consolidated net inventory as reported on the Company’s consolidated balance sheets. Provisions for discounts and rebates to customers, and returns and other adjustments are recorded in the same period the related sales are recorded. Shipping and handling expenses of $29.1 million, $24.4 million and $20.6 million for 2005, 2004 and 2003, respectively, were recorded as operating expense in the period incurred.

Goodwill Impairment — The carrying value of goodwill is evaluated annually during the first quarter of each fiscal year or when certain events (e.g. the potential sale of an entity) occur which require a more current valuation. The valuation is based on the comparison of an entity’s discounted cash flow (equity valuation) to its carrying value. If the carrying value exceeds the equity valuation the goodwill is impaired appropriately. The equity valuation is based on historical data and management assumptions of future cash flow. Since the assumptions are forward looking, actual results could differ materially from those used in the valuation process.

Income taxes—The Company accounts for income taxes using the asset and liability method. Deferred income taxes reflect the net tax effect, using enacted tax rates of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The Company records valuation allowances against its deferred tax assets when it is more likely than not that the amounts will not be realized. Income tax expense includes provisions for amounts that are currently payable, plus changes in deferred tax assets and liabilities.

Stock-Based Compensation — The Company offers stock-based compensation to executive and other key employees, as well as its directors. Stock-based compensation expense is generally recorded using the grant date fair value of the stock award. For stock option grants, the Company determines the grant date fair value of the award with a Black Scholes valuation model using assumptions for the risk-

free interest rate, expected term of the option, volatility and expected dividend yield. See Note 10 to the consolidated financial statements for a discussion of the specific assumptions used by management. The Company’s long-term performance plan generally calculates fair value by reference to the grant date market price of the Company’s common stock and in recording stock compensation expense, management also must estimate the probable number of shares which will ultimately vest. The actual number of shares that will vest may differ from management’s estimate.

Recent Accounting Pronouncements:

A description of recent other accounting pronouncements is included in Note 1 “Notes to Consolidated Financial Statements” under the caption “New Accounting Standards”.

ITEM 7a — Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to various interest rate and metal price risks that arise in the normal course of business. The Company finances its operations with fixed and variable rate borrowings. Market risk arises from changes in variable interest rates. Under its Revolver, the Company’s interest rate on borrowings is subject to changes in the LIBOR and Prime rate market fluctuations. As of December 31, 2005, the Company had no outstanding borrowings under the Revolver. (See Note 8 to consolidated financial statements for more details on the Company’s variable interest rate.) All of the Company’s long-term debt as of December 31, 2005 is on a fixed interest rate. The Company’s raw material costs are comprised primarily of engineered metals and plastics. Market risk arises from changes in the price of steel, other metals and plastics. Although average selling prices generally increase or decrease as material costs increase or decrease, the impact of a change in the purchase price of materials is more immediately reflected in the Company’s cost of goods sold than in its selling prices.

ITEM 8 — Financial Statements and Supplementary Data

Consolidated Statements of Operations

		Year Ended December 31,
(Dollars in thousands, except per share data)		2005				2004				2003
Net sales		$	958,978			$	760,997			$	543,031
Cost of material sold			677,186				543,426				384,459
Special charges (Note 7)			—				—				1,624
Gross material margin			281,792				217,571				156,948
Plant and delivery expense			108,427				95,229				87,055
Sales, general, and administrative expense			92,848				82,142				70,354
Depreciation and amortization expense			9,340				8,751				8,839
Impairment and other operating expenses (Note 7)			—				—				6,456
Total operating expense			210,615				186,122				172,704
Operating income (loss)			71,177				31,449				(15,756	)
Interest expense, net (Note 9)			(7,348	)			(8,968	)			(9,709	)
Discount on sale of accounts receivable (Note 8)			(1,127	)			(969	)			(1,157	)
Loss on extinguishment of debt (Note 9)			(4,904	)			—				—
Income (loss) from continuing operations before income taxes and equity in earnings of joint ventures			57,798				21,512				(26,622	)
Income taxes (Note 6)			(23,191	)			(11,294	)			10,046
Income (loss) from continuing operations before equity in earnings of joint ventures			34,607				10,218				(16,576	)
Equity in earnings of joint ventures			4,302				5,199				137
Impairment to joint venture investment and advances (Note 7)			—				—				(3,453	)
Income (loss) from continuing operations			38,909				15,417				(19,892	)
Discontinued operations (Note 7):
Loss on disposal of subsidiary, net of income tax benefit of ($115)			—				—				(172	)
Net income (loss)		$	38,909			$	15,417			$	(20,064	)
Preferred dividends			(961	)			(957	)			(961	)
Net income (loss) applicable to common stock		$	37,948			$	14,460			$	(21,025	)
Basic earnings (loss) per share:
Continuing operations		$	2.37			$	0.92			$	(1.32	)
Discontinued operations			—				—				(0.01	)
		$	2.37			$	0.92			$	(1.33	)
Diluted earnings (loss) per share:
Continuing operations		$	2.11			$	0.82			$	(1.32	)
Discontinued operations			—				—				(0.01	)
		$	2.11			$	0.82			$	(1.33	)

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

Consolidated Balance Sheets

		December 31,
(Dollars in thousands)		2005				2004
Assets
Current assets
Cash and cash equivalents (Note 1)		$	37,392			$	3,106
Accounts receivable, less allowances of $1,763 in 2005 and $1,760 in 2004 (Note 8)			107,064				80,323
Inventories (principally on last-in first-out basis) (latest cost higher by $104,036 in 2005 and $92,500 in 2004 (Note 1)			119,306				135,588
Other current assets			6,351				8,489
Total current assets			270,113				227,506
Investment in joint venture (Note 5)			10,850				8,463
Goodwill and intangible assets (Note 1)			32,222				32,201
Prepaid pension cost (Note 4)			41,946				42,262
Other assets			4,182				7,586
Property, plant and equipment, at cost (Note 1)
Land			4,772				4,771
Building			45,890				45,514
Machinery and equipment			127,048				124,641
			177,710				174,926
Less — accumulated depreciation			(113,288	)			(109,928	)
			64,422				64,998
Total assets		$	423,735			$	383,016
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	103,246			$	93,342
Accrued payroll and employee benefits			12,241				11,246
Accrued liabilities			9,294				8,345
Current and deferred income taxes (Note 6)			7,052				3,653
Current portion of long-term debt (Note 9)			6,233				11,607
Total current liabilities			138,066				128,193
Long-term debt, less current portion (Note 9)			73,827				89,771
Deferred income taxes (Note 6)			21,903				19,668
Deferred gain on sale of assets (Note 3)			5,967				6,465
Pension and postretirement benefit obligations (Note 4)			8,467				6,874
Minority interest			—				1,644
Commitments and contingencies (Notes 3 and 12)
Stockholders’ equity (Notes 10 and 11)
Preferred stock, $0.01 par value — 10,000,000 shares authorized 12,000 shares issued and outstanding			11,239				11,239
Common stock, $0.01 par value — authorized 30,000,000 shares; issued and outstanding 16,605,714 in 2005 and 15,806,366 in 2004			166				159
Additional paid-in capital			60,916				45,052
Retained earnings			110,530				72,582
Accumulated other comprehensive income			2,370				1,616
Other — deferred compensation			—				(2	)
Treasury stock, at cost — 546,065 shares in 2005 and 62,065 shares in 2004			(9,716	)			(245	)
Total stockholders’ equity			175,505				130,401
Total liabilities and stockholders’ equity		$	423,735			$	383,016

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

Consolidated Statements of Cash Flows

		Year Ended December 31,
(Dollars in thousands)		2005				2004				2003
Cash flows from operating activities:
Net income (loss)		$	38,909			$	15,417			$	(20,064	)
Loss from disposal of discontinued operations			—				—				172
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			9,340				8,751				8,839
Amortization of deferred gain			(498	)			(839	)			(593	)
Loss on sale of facilities/equipment			73				701				376
Equity in earnings from joint ventures			(4,302	)			(5,199	)			(137	)
Deferred tax provision			(2,046	)			7,072				(6,020	)
Stock compensation expense			4,174				1,460				2,015
Increase in minority interest			—				188				104
Excess tax benefits from stock-based payment arrangements			(793	)			—				—
Asset and joint venture impairment			—				—				11,333
Increase (decrease) from changes in:
Accounts receivable			(26,217	)			(24,126	)			(18,827	)
Inventories			16,742				(15,668	)			14,328
Other current assets			2,186				(350	)			9,930
Other assets			(398	)			(133	)			(3,181	)
Prepaid pension costs			316				(187	)			(1,716	)
Accounts payable			9,702				24,351				2,543
Accrued payroll and employee benefits			2,319				4,363				708
Income tax payable			7,594				(1,377	)			(716	)
Accrued liabilities			506				(1,053	)			(758	)
Postretirement benefit obligations and other liabilities			271				249				606
Net cash from operating activities			57,878				13,621				(1,059	)
Cash flows from investing activities:
Investments and acquisitions			(236	)			(1,744	)			—
Dividends from joint ventures			1,915				2,228				(289	)
Proceeds from sale of facilities/equipment			33				—				14,002
Capital expenditures			(8,685	)			(5,318	)			(5,145	)
Collection of note receivable			2,465				—				—
Net cash from investing activities			(4,508	)			(4,834	)			8,568
Cash flows from financing activities:
Proceeds from issuance of long-term debt			75,000				—				—
Repayment of long-term debt			(96,271	)			(7,452	)			(5,182	)
Preferred stock dividend			(961	)			(957	)			(961	)
Exercise of stock options			2,227				—				—
Excess tax benefits from stock-based payment arrangements			793				—				—
Net cash from financing activities			(19,212	)			(8,409	)			(6,143	)
Effect of exchange rate changes on cash and cash equivalents			128				273				171
Net increase in cash and cash equivalents			34,286				651				1,537
Cash and cash equivalents — beginning of year			3,106				2,455				918
Cash and cash equivalents — end of year		$	37,392			$	3,106			$	2,455

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

Supplemental Disclosures of
Consolidated Cash Flows Information

		Year Ended December 31,
(Dollars in thousands)		2005				2004				2003
Supplemental disclosures of cash flows information
Cash paid (received) during the year for—
Interest		$	8,365			$	8,910			$	9,740
Income taxes		$	16,860			$	6,331			$	(12,653	)

Consolidated Statements of Stockholders’ Equity

																										Accumulated
														Add’l								Other-				Other
		Preferred				Common				Treasury				Paid-in				Retained				Deferred				Comprehensive
(Dollars in thousands)		Stock				Stock				Stock				Capital				Earnings				Compensation				Income				Total
Balance at January 1, 2003 — as previously reported		$	11,239			$	158			$	(230	)		$	35,017			$	85,490			$	(195	)		$	(555	)		$	130,924
Cumulative effect on prior years of applying FAS123R retrospectively															6,335				(6,343	)											(8	)
Balance at January 1, 2003 — as adjusted		$	11,239			$	158			$	(230	)		$	41,352			$	79,147			$	(195	)		$	(555	)		$	130,916
Comprehensive Loss:
Net loss																			(20,064	)											(20,064	)
Foreign currency translation																											1,691				1,691
Pension liability adjustment																											(94	)			(94	)
Total comprehensive loss																															(18,467	)
Preferred Dividends																			(961	)											(961	)
Other							1				(15	)			2,015								165								2,166
Balance at December 31, 2003		$	11,239			$	159			$	(245	)		$	43,367			$	58,122			$	(30	)		$	1,042			$	113,654
Comprehensive Income:
Net income																			15,417												15,417
Foreign currency translation																											1,009				1,009
Pension liability adjustment																											(435	)			(435	)
Total comprehensive income																															15,991
Preferred Dividends																			(957	)											(957	)
Exercise of stock options and other															1,685								28								1,713
Balance at December 31, 2004		$	11,239			$	159			$	(245	)		$	45,052			$	72,582			$	(2	)		$	1,616			$	130,401
Comprehensive Income:
Net income																			38,909												38,909
Foreign currency translation																											1,151				1,151
Pension liability adjustment																											(397	)			(397	)
Total comprehensive income																															39,663
Preferred Dividends																			(961	)											(961	)
Long-term incentive plan															2,143																2,143
Exercise of stock options and other							7				(9,471	)			13,721								2								4,259
Balance at December 31, 2005		$	11,239			$	166			$	(9,716	)		$	60,916			$	110,530			$	—			$	2,370			$	175,505

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

A. M. Castle & Co.
Notes to Consolidated Financial Statements
December 31, 2005

(1) Principal accounting policies

Nature of Operations—A.M. Castle & Co. and subsidiaries (the “Company”) distribute specialty metals and plastics to customers in North America. The Company provides a broad range of product inventories as well as value-added processing services to a wide array of customers, principally within the producer durable equipment sector of the economy.

Basis of presentation—The consolidated financial statements include the accounts of A. M. Castle & Co. and its subsidiaries over which the Company exhibits a controlling interest. The equity method of accounting is used for the Company’s remaining 50% owned joint venture. All inter-company accounts and transactions have been eliminated.

Use of estimates—The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America which necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts.

Revenue Recognition—Revenue from product sales is largely recognized upon shipment whereupon title passes and the Company has no further obligations to the customer. The Company has entered into consignment inventory agreements with a few select customers whereby revenue is not recorded until the customer has consumed product from the consigned inventory and title has passed. Revenue derived from consigned inventories at customer locations for 2005 was $11.9 million (or 1.2% of sales) compared to $9.5 million (or 1.2% of 2004 sales). Inventory on consignment at customers as of December 31, 2005 was $1.5 million, or 1.2% of consolidated net inventory as reported on the Company’s consolidated balance sheets. Provisions for discounts and rebates to customers, and returns and other adjustments are recorded in the same period the related sales are recorded. Shipping and handling expenses of $29.1 million, $24.4 million and $20.6 million for 2005, 2004 and 2003, respectively, were recorded as operating expense in the period incurred.

Cost of Material Sold—Cost of material sold consists of the costs we pay for metals, plastics and related inbound freight charges. The Company accounts for inventory on a LIFO (last-in, first-out) basis. LIFO adjustments are calculated as of December 31 of each year. Interim estimates of the year-end charge or credit are determined based on inflationary or deflationary purchase cost trends and estimated year-end inventory levels. Interim LIFO estimates may require significant year-end adjustments. See Note 14 to the consolidated financial statements for further details of such adjustments.

Expenses—Expenses primarily consist of (1) plant and delivery expenses, which include occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs; (2) selling expenses, which include compensation and employee benefits for sales personnel, and general and administrative expenses, which include compensation for executive officers and general management, expenses for professional services primarily attributable to accounting and legal advisory services, data communication and computer hardware and maintenance; and (3) depreciation and amortization expenses include depreciation for all owned property and equipment and amortization of various long-lived assets.

Cash and cash equivalents—Short-term investments that have an original maturity, at time of purchase, of 90 days or less are considered cash equivalents.

Inventories—Over ninety percent of the Company’s inventories are stated at the lower of last-in, first-out (LIFO) cost or market. The Company values its LIFO increments using the costs of its latest purchases during the years reported. In 2005 and 2003 certain inventory quantity reductions caused a liquidation of LIFO inventory values. The liquidations increased pre-tax income by $2.8 million in 2005 and reduced pre-tax loss by $1.5 million in 2003.

Property, plant and equipment—Property, plant and equipment are stated at cost and include assets held under capitalized leases. Major renewals and betterments are capitalized, while maintenance and repairs that do not substantially improve or extend the useful lives of the respective assets are expensed currently. When properties are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income.

     The Company provides for depreciation of plant and equipment by charging against income amounts sufficient to amortize the cost of properties over their estimated useful lives (buildings and building improvements-12 to 40 years; machinery and equipment — 5 to 20 years). For assets classified as machinery and equipment, lives used for calculating depreciation expense are from 10 to 20 years for manufacturing equipment, 10 years for furniture and fixtures, and 5 years for vehicles and office equipment. Leasehold improvements are depreciated over the shorter of their useful life or the remaining term of the lease. Depreciation is provided using the straight-line method for financial reporting purposes and accelerated methods for tax purposes.

Long-Lived Assets —The Company’s long-lived assets and identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Income taxes—The Company accounts for income taxes using the asset and liability method. Deferred income taxes reflect the net tax effect, using enacted tax rates of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The Company records valuation allowances against its deferred tax assets when it is more likely than not that the amounts will not be realized. Income tax expense includes provisions for amounts that are currently payable, plus changes in deferred tax assets and liabilities.

Foreign currency translation—For all non-U.S. operations, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates, and income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are deferred in accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Gains or losses resulting from foreign currency transactions were not material in 2005, 2004 or 2003.

Statement of Cash Flows —The Company had non-cash financing activities for the years ended December 31, 2005 and 2004, which included the receipt of shares of the Company’s common stock tendered in lieu of cash by employees exercising stock options. The tendered shares had value of $9.4 million in 2005 (509,218 shares), and $0.1 million in 2004 (5,657 shares), and were recorded as treasury stock.

Earnings per share — Earnings per common share are computed by dividing net income (loss) by the weighted average number of shares of common stock (basic) plus common stock equivalents (diluted) outstanding during the year. Common stock equivalents consist of stock options, restricted stock awards and preferred stock shares and have been included in the calculation of weighted average shares outstanding using the treasury stock method. In accordance with Statement of Financial

Accounting Standards (“FAS”) No. 128 “Earnings per share”, the following table is a reconciliation of the basic and fully diluted earnings per share calculations for the periods reported. (dollars and shares in thousands)

		2005				2004				2003
Income (loss) from continuing operations		$	38,909			$	15,417			$	(19,892	)
Loss from discontinued operations			—				—				(172	)
Net income (loss)			38,909				15,417				(20,064	)
Preferred dividends			(961	)			(957	)			(961	)
Net income (loss) applicable to common stock		$	37,948			$	14,460			$	(21,025	)
Weighted average common shares outstanding			16,033				15,795				15,780
Dilutive effect of outstanding employee and directors’ common stock options and restricted stock			583				1,253				1,263
Dilutive effect of preferred stock			1,794				1,794				1,794
Diluted common shares outstanding			18,420				18,842				18,837
Basic earnings (loss) per share:
Continuing operations		$	2.37	*		$	0.92	*		$	(1.32)	*
Discontinued operations			—				—				(0.01	)
Net income (loss) per share		$	2.37			$	0.92			$	(1.33	)
Diluted earnings (loss) per share:
Continuing operations		$	2.11			$	0.82			$	(1.32	)
Discontinued operations			—				—				(0.01	)
Net income (loss) per share		$	2.11			$	0.82			$	(1.33	)
Outstanding employees’ and directors’ common stock options and restricted and preferred stock shares having no dilutive effect			53				956				1,576