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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

A. M. CASTLE & CO.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No

Indicate by check mark 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 x.

The approximate aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on February 24, 2003 was $64,776,335.

The number of shares outstanding of the registrant’s common stock on February 24, 2003 was 15,799,106 shares.

DOCUMENTS INCORPORATED BY REFERENCE

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ITEM 1 — Business

A. M. Castle & Co. is a specialty metals and plastics distribution company serving the North American market. The registrant (Company or Castle) provides a broad range of inventories as well as preprocessing services to a wide variety of customers.

     The Company distributes and performs first stage processing on both metals and plastics. Although the distribution processes are similar, different markets are served with different products and, therefore these businesses are considered segments according to Statement on Financial Accounting Standards (SFAS) No. 131 “Disclosures about Segments of an Enterprise and Related Information”. In 2002 the plastics segment accounted for over 10 percent of the Company’s revenue and therefore is disclosed as a separate segment. Prior to 2002 the Company concluded that its business activities fell into one identifiable business segment since over 90 percent of all revenues were derived from the distribution of its specialty metal products. In the last three years, the percentages of total sales of the two segments were approximately as follows:

     Within the Metals segment, inventory takes many forms including 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, the Metals segment 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, Edge Conditioning Equipment, Sheet Shears and Coil Processing Equipment. This segment also performs specialized fabrications for customers through pre-qualified subcontractors.

     The Company’s market strategies focus on the more highly engineered grades and alloys of metals, supported by a strong service commitment to meeting the needs of users of those metals.

     The Company has its main office, and largest metals distribution center, in Franklin Park, Illinois. This center serves metropolitan Chicago and, approximately, a nine-state area. In addition, there are distribution centers in various other cities (see Item 2). The Chicago, Los Angeles and Cleveland distribution centers together account for approximately 40% of all core metal sales.

     In North America, the Company serves a wide range of industrial companies within the producer durable equipment sector of the economy from locations throughout the United States and Canada. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms spread across the entire spectrum of metals using industries. The Company’s customer base is well diversified with no single industry accounting for more than 5% of the Company’s total business and no one customer more than 4%. The Company’s coast-to-coast network of metals service centers provides next day delivery to most of the markets it serves, and two-day delivery to virtually all of the rest. Listed below are the operating subsidiaries, divisions and joint ventures included in the Company’s Metal’s segment, along with a brief summary of their business activities.

     Keystone Tube Company, LLC is a distributor of tubular products serving Midwest customers directly from its Chicago area facility. Keystone Honing Company, LLC is a Titusville, Pennsylvania based distributor and processor of honed tubular products. Oliver Steel Plate Company processes and distributes heavy steel plate from its Cleveland area plant. The Company’s value-added bar processing center, H-A Industries, thermally processes, turns and straightens alloy and carbon bar and its KSI, LLC processing center in LaPorte, Indiana chromes and processes industrial bar and tubing.

     The Company has a 50% interest in Castle dé Mexico, S.A. de C.V., a joint venture which targets a wide range of businesses within the producer durable goods sector. The Company also holds a one-half joint venture interest in Kreher Steel Co., a Midwest distributor, focusing on customers whose primary need is for immediate, reliable delivery of large quantities of alloy, SBQ and stainless bars. In 1998, Castle formed Metal Express, a small order distribution joint venture. On May 1, 2002 the Company purchased the remaining interest in Metal Express from its joint venture partner. In 1998 the Company acquired a 50% joint venture interest in Energy Alloys LP, a Houston based metals distributor. In 1999 the

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Company purchased a 50% interest in Laser Precision, located in Libertyville, Illinois in order to enhance its processing capabilities.

     The Plastics segment includes Total Plastics, Inc. (TPI) headquartered in Michigan and two majority owned joint ventures, Advanced Fabricating Technology and Paramont Machine Company. TPI has locations throughout the Midwest and East (see Item 2) where it services a wide variety of users of industrial plastics.

     In general, the Company purchases metals and plastics from many producers. Satisfactory alternative sources are available for all metals and plastics that the Company buys 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. The Company’s ability to provide quick delivery, frequently overnight, of a wide variety of metal and plastic products allows customers to reduce their inventory investment because they do not need to order the large quantities required by producing mills.

     Approximately 81% of 2002 net sales were from materials regularly held in stock by the Company. The materials required to fill the balance of net sales were obtained from other sources, such as direct mill shipments to customers or purchases from other distributors. Sales are primarily through the Company’s own sales organization and are made to many thousands of customers in a wide variety of industries. No single customer is significant to the Company’s sales volume. 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.

     The Company has approximately 1,500 full-time employees in its operations throughout the United States and Canada. Approximately 300 of these are represented by collective bargaining units, principally the United Steelworkers of America.

ITEM 2 — Properties

The Company’s principal executive offices are at its Franklin Park plant near Chicago, Illinois. All properties and equipment are well maintained and in good operating condition and 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:

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(1)

Leased: See Note 5 in the Consolidated Notes to Financial Statements for information regarding lease agreements.

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ITEM 3 — Legal Proceedings

There are no material legal proceedings other than the ordinary routine litigation incidental to the business of the Company.

     On December 23, 2002, EA Holdings, Inc. filed a complaint in the District Court of Harris County, Texas, 61st Judicial District, against the Company. The matter was removed to the U.S. District Court for the Southern District of Texas, Houston Division. The complaint was amended to seek recision of the joint venture, Energy Alloys L.P., and damages for the alleged breach of the Partnership Agreement. On February 20, 2003, the Company filed counterclaims in the action alleging breach of fiduciary duty on the part of the other joint venture partner and certain individuals. The matter is scheduled for mediation on March 12, 2003.

     The Company does not foresee any material adverse impact from this litigation and has fully discussed the matter with its counsel and independent auditors.

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 2002.

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PART II

ITEM 5 — Market for the Registrant’s Common Equity and Related Stockholder Matters

A.     M. Castle & Co.’s Common Stock trades on the American and Chicago Stock Exchanges under the ticker symbol “CAS”. As of February 24, 2003 there were approximately 1,455 shareholders of record and an estimated 1,076 beneficial shareholders.

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

ITEM 6 — Selected Financial Data

This schedule is prepared reflecting accounting changes as required or allowed to more fairly present the results of operations over the five-year period. Non-GAAP Statements for years preceding these changes have not been revised to reflect their retroactive application of these changes.

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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 Financials and Notes.

Overview
Castle’s operating results in both 2001 and 2002 reflect the impact of a prolonged downturn in the durable goods manufacturing sector of the economy that the Company serves. Capacity utilization rates in durable manufacturing fell from the low 80 percent area in mid-2000 to the 70 percent area by mid-2001 and have plateaued at that level since then. In this market environment, shipments from metal service centers have declined by 20% or more, mill prices have fallen to levels not seen since the mid-80’s and price competition within the metals distribution industry has intensified.

     During the second half of 2000, the Company initiated a comprehensive review of all aspects of its business. This review, which included a critical assessment of the current performance and future potential of each of the Company’s business units and market segments, resulted in the Roadmap to Shareholder Value outlined in the 2000 Annual Report to shareholders. This plan focuses on three critical areas: increasing operating margins; improving asset utilization; and growing revenues.

     Significant progress was made in both 2001 and 2002 in implementing this plan, the details of which are addressed in the annual reports for both of these years. Much of this progress has been masked by the adverse market conditions existent throughout this period. However, the accomplishments that have been achieved to date have served to mitigate some of the impact of the market downturn on performance and we believe it has positioned the Company to fully capitalize on the upturn when it occurs.

2002 Compared with 2001
On May 1, 2002 the Company acquired its joint venture partner’s remaining interest in Metal Express. The results of this entity, now a wholly owned subsidiary, have been consolidated into the Company’s financial statements as of the date of acquisition.

     Revenue for 2002 of $538.1 million was 9.3% below the $593.3 million generated in 2001. Excluding the effects of the acquisition of Metal Express, the decrease in sales was 10.7% due to lower total shipments, a product mix shift away from higher priced aerospace metals and intense price competition within the industry. Approximately 88.8% of all revenues were derived from the Company’s core metals businesses with the remaining 11.2% from the distribution of plastics (See Note 1 to the “Notes to Consolidated Financial Statements” for segment financial information).

     Gross material margin on sales decreased by 9.1% to $160.1 million from $176.2 million in 2001. The gross margin percentage increased slightly to 29.8% from 29.7% in 2001. The Company uses LIFO (last-in, first-out) as its primary method for valuing inventory. During 2002, gross material margin was negatively impacted by a net inventory adjustment of $1.3 million (LIFO gain of $0.5 million less inventory devaluation of $1.8 million). Comparatively, in 2001 gross material margin was negatively impacted by a net inventory adjustment of $3.3 million (LIFO gain of $3.4 million less inventory devaluation of $6.7 million). Excluding the effects of the acquisition of Metal Express, gross material margin declined 11.4% and the gross margin percentage decreased to 29.5% in 2002 from 29.7% in 2001. Declining sales volume, product mix, margin compression and lower mill price levels were the main reasons for the reduction in gross material margins.

     Total other operating expenses in 2002 were $164.5 million as compared to $173.3 million in 2001, a decrease of $8.8 million, or 5.1%. Excluding the acquisition of Metal Express, the decrease was

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$13.2 million, or 7.6%. As more fully described below, the 7.6% reduction in other operating expenses was achieved despite only a 2.9% reduction in line items sold (order activity) in the metals segment, reflecting the Company’s ongoing emphasis on cost reduction and operating efficiencies. Operating expenses includes non-cash pension income, net of non-cash expenses for post-retirement benefits, in accordance with SFAS No. 87 and SFAS No. 106. During 2002 net pension income totalled $2.5 million as compared with $2.3 million in 2001. During 2001, depreciation and amortization expense included $1.0 million of amortization of goodwill. Due to the adoption of SFAS No. 142 “Goodwill and Other Intangible Assets” on January 1, 2002, goodwill is no longer being amortized.

     In 2002, the Company generated an operating loss of $4.4 million compared with an operating profit of $2.8 million in 2001.

     In November 2002 the Company amended its debt covenants with its institutional and banking lenders. In consideration for those changes, the Company agreed to an increase of 200 basis points in interest rates. In December 2002 the existing accounts receivable securitization agreement was terminated and a new three-year commitment was established with another institution. The discount pricing on the new facility carries a comparable rate increase. A fee of $2.2 million was expensed during the year for establishment of the new facility ($0.9 million was expensed in 2001 for the initial setup and sale of receivables under the previous agreement). Total financing costs (interest expense, net and discount on sale of accounts receivable) increased by $0.2 million. Excluding the net difference in the initiation costs of the two receivable securitization facilities, financing expenses decreased by $1.1 million which is reflective of decreased short term rates which affect the accounts receivable securitization discount, the change from a higher priced revolver borrowing agreement in September 2001 to the lower cost accounts receivable securitization facility, along with an overall reduction in debt and accounts receivable sold (see Liquidity and Capital Resources section).

     Castle’s 2002 effective income tax rate was 37.4%, slightly higher than the 36.1% rate of the previous year due to the impact of non-deductible expenses on a higher pre tax loss.

     During the second quarter of 2002, the Company sold its United Kingdom subsidiary for $6.5 million consisting of $3.3 million received in cash and $3.2 million to settle amounts owed by the United Kingdom subsidiary. The after-tax loss on the sale totals $0.8 million. The financial statements for all periods have been restated to present the subsidiary as a discontinued operation in accordance with generally accepted accounting principles.

     In November 2002 the Company’s largest stockholder purchased, through a private placement, $12.0 million ($11.2 million net of transaction expenses) of eight-percent cumulative convertible preferred stock. Dividends of $0.1 million have been accrued in 2002 from the date of the purchase.

     The net loss applicable to common stock for 2002, including $0.1 million of preferred dividends, totalled $10.2 million or $0.68 per share, as compared to last year’s net loss of $5.0 million, or $0.36 per share, reflecting the continuing recessionary conditions in most of the industries the Company serves.

Segments

Metals
Revenue for this segment decreased by $60.6 million, or 11.3%, to $477.7 million in 2002 from $538.3 million in 2001. Excluding the acquisition of Metal Express, which was consolidated effective May 1, 2002, sales decreased by $69.1 million (12.8%). Carbon and stainless steel accounted for 72.3% of total activity with the balance provided from sales of non-ferrous metal products. The decrease was due to a 5.4% decline in tons sold, competitive pressure on pricing throughout the year and a change in mix away from higher priced aerospace and corrosion resistant materials to lower priced carbon plate and bar products.

     The Metals segment operating profit decreased $9.0 million to a $3.9 million loss from a profit of $5.1 million in 2001. Gross material margins decreased $17.2 million while gross material margin percentage increased slightly to 29.1% from 29.0% in 2001. Other operating expenses for the same period decreased by $8.2 million. Excluding the effects of the acquisition of Metal Express, operating profit decreased by $8.7 million with gross margin decreasing $21.2 million resulting in a material gross margin rate of 28.8%. The reduction in gross material margin was partially offset by a decrease in other operating expenses of $12.5 million (excluding Metal Express), or 8.3%. Although sales volume decreased 12.9%, the number of lines handled (booked, processed, shipped and billed) declined by only 2.9% reflecting a 10% reduction in average order size. In order to mitigate the effects of the declining sales and order size over the past two years, major cost cutting and efficiency programs were put in place.

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The result of these programs has been to increase productivity as measured by lines per employee by 14%.

     Total assets of the Metals segment increased $30.4 million. Prepaid pension assets accounted for $16.3 million of the increase as a result of the contribution of $13.3 million in cash and Company stock and $3.0 million in non-cash pension income. Another $6.8 million increase was the result of consolidating Metal Express. An advance of $2.5 million was made to one of the segment’s joint ventures during the year and $1.8 million was invested in a Certificate of Deposit (restricted cash) to secure a Letter of Credit related to the Company’s insurance programs. These increases were offset by a $6.6 million decrease in net fixed assets due to depreciation being greater than capital expenditures (net of the sale/leaseback transaction). Accounts receivable were $12.5 million higher due primarily to a $15.8 million decrease in the amount of accounts receivable sold. Exclusive of the change, amounts due from customers were $3.3 million lower due to reduced sales volume and a 2.2 day improvement in days sales outstanding. Inventory decreased $3.7 million in concert with the Company’s inventory reduction programs.

Plastics
Revenue for this segment increased by $5.5 million, or 10.0%, to $60.5 million in 2002 from $55.0 million in 2001. Although the segment experienced the same recessionary pressures as the Metals segment did early in the year, a strong fourth quarter recovery (25% ahead of 2001 fourth quarter results) produced a favorable year-to-year sales comparison.

     The Plastics segment operating profit increased $1.4 million to $2.4 million in 2002 from $1.0 million in 2001. For the year, gross material margins increased $1.2 million even as gross material margin percentage decreased to 35.1% from 36.4% in 2001. The decrease in margin rates reflects the highly competitive pressures existing in the market place. Despite the increase in sales activity, continuing cost containment programs throughout the year resulted in a reduction in other operating expenses of $0.2 million.

     Total assets of the Plastics segment increased by $1.6 million year-over-year. Accounts receivable increased $0.8 million, primarily due to the 25% sales volume increase in the fourth quarter of 2002 over the fourth quarter of 2001. Inventory rose $1.7 million in support of the increased sales volume. These increases were offset by a $0.8 million decrease in net fixed assets due to depreciation exceeding capital expenditures.

Other
The Company’s “Other” operating segment includes expenses related to executive and legal services that benefit both the metals and plastics segments. This expense decreased to $2.8 million in 2002 from $3.3 million in 2001.

     The “Other” segment’s total assets consist solely of the Company’s income tax receivable of $9.9 million at December 31, 2002, which increased by $4.8 million due to larger operating losses.

2001 Compared with 2000
Net sales for 2001 of $593.3 million were 18.2% under the $725.5 million generated in 2000. Approximately 91% of all revenues were derived from the Company’s metals distribution business and 9% from the distribution of plastics.

     Gross material margin decreased by 18.0% to $176.2 million from $214.9 million in 2000. Despite the sales decline, gross material margin percentage increased slightly to 29.7% in 2001 from 29.6% in 2000. During 2001, gross material margin was negatively impacted by a net inventory adjustment of $3.3 million (LIFO gain of $3.4 million less inventory devaluation of $6.7 million). Comparatively, in 2000 gross material margin was reduced by a net inventory adjustment of $0.7 million (LIFO loss of $6.0 million and a positive inventory revaluation of $5.3 million). In 2000, gross material margin was also negatively affected by special charges of $2.0 million. Substantially all inventories are valued using the LIFO method of inventory valuation.

     Total other operating expenses in 2001 were $173.3 million as compared to other operating expenses in 2000 of $200.0 million (before Impairment and other operating expenses), a decrease of $26.7 million, or 13.4%. Although much of the reduction is associated with lower sales activity, the Company had taken several major initiatives during the year to achieve sustainable reductions in virtually all categories of other operating expenses. In 2001, the Company’s operating profit declined $5.6 million

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to $2.8 million from $8.4 million in 2000. Operating expenses include non-cash pension income, net of non-cash expenses for post-retirement benefits, in accordance with SFAS No. 87 and SFAS No. 106. During 2001, net pension income totalled $2.3 million as compared to $2.0 million in 2000.

     During the third quarter of 2001, the outstanding domestic revolving debt was fully paid down with funds generated by a new accounts receivable securitization program, which became the Company’s primary source for working capital funds. This is the primary reason for the reduction in interest expense during 2001. The discount amount on the securitization agreement is recorded as “Discount on sale of accounts receivable”. This $1.3 million expense includes a charge of $0.9 million relating to the initial set up of the facility.

     Castle’s 2001 effective income tax rate of 36.1% was higher than the 31.6% rate of the previous year due to the impact of non-deductible expenses and a higher pre-tax loss.

     The net loss applicable to common stock for 2001 totalled $5.1 million, or $0.36 per share, as compared to 2000’s net loss of $1.7 million, or $0.12 per share, reflecting the recessionary conditions in existence in most of the industries Castle served.

Segments

Metals
Revenue for this segment decreased by $120.5 million, or 18.3%, to $538.3 million in 2001 from $658.8 million in 2000. Carbon and stainless steels accounted for 71% of the sales of this segment with the balance being provided from the sales of non-ferrous metal products. Business conditions deteriorated during the year with most of this segment’s markets declining 20% or more.

     The Metals segment operating profit decreased $1.9 million to $5.1 million in 2001 from $7.0 million in 2000. Gross material margins decreased $33.3 million. Despite the sales decline, gross material margin percentage increased to 29.0% from 28.8% in 2000. During 2001, gross material margins were negatively affected by a net inventory adjustment of $3.3 million (LIFO gain of $3.4 million less inventory devaluation of $6.7 million) as compared to a $0.7 million net inventory adjustment (LIFO loss of $6.0 million and a positive inventory revaluation of $5.3 million) and special charges of $2.0 million in 2000. Total other operating expenses in 2001 were $151.0 million as compared to other operating expenses in 2000 of $182.4 million, a decrease of $31.4 million, or 17.2%. In 2000, the segment incurred an “impairment and other operating expenses” charge (see Note 8 in Notes to Consolidated Financial Statements). Excluding these charges, other operating expenses decreased by $24.9 million, or 14.2%. Although much of the reduction is associated with lower sales activity, the segment had taken major initiatives during the year to achieve sustainable reductions in virtually all categories of operating expenses.

     Total assets of the Metals segment decreased $83.3 million. Accounts receivable decreased by $58.1 million, $23.2 million of which was due to lower sales volume, offset by a 2.6 day increase in days sales outstanding. Additionally, at December 31, 2001, the Company had sold $34.9 million of receivables under the accounts receivable securitization facility which was initiated in September of 2001. Inventory decreased by $28.8 million due to both the reduction in sales volume and the Company’s ongoing program to increase inventory turn rates in order to improve cash flow. Depreciation was larger than capital expenditures (net of sale/leaseback transaction) reducing total assets by $3.0 million. Offsetting these reductions were an increase in pension plan assets of $2.9 million relating to the non-cash income recognized on the plan investments and $3.5 million in advances made to two of the Company’s joint ventures.

Plastics
Revenue for this segment decreased by $11.7 million, or 17.6%, to $55.0 million in 2001 from $66.7 million in 2000. This segment experienced the same recessionary pressures as the Metals segment throughout the year.

     The Plastics segment operating profit decreased $3.7 million to $1.0 million in 2001 from $4.7 million in 2000. Gross material margins decreased $5.4 million and the gross material margin percentage fell to 36.4% in 2001 from 38.1% in 2000, reflecting the highly competitive pressures existing in the market place. Operating expenses decreased $1.7 million during the period. As was the case with the Metals segment, although much of the reduction was volume related, major sustainable cost reduction programs were put in place during the year.

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     Total assets of the Plastics segment decreased by $8.0 million. The decrease was primarily due to a reduction in accounts receivable as a result of lower sales volume ($2.3 million) and the first-year sale of receivables under the accounts receivable securitization agreement ($5.1 million). Net property, plant and equipment decreased by $0.7 million as depreciation exceeded capital expenditures.

Other
The Company’s “Other” operating segment includes expenses related to executive and legal services that benefit both the metals and plastics segments. These expenses remained constant at $3.3 million in 2001 and 2000.

     The “Other” segment’s total assets consist solely of the Company’s income tax receivable of $5.1 million at December 31, 2001.

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

Accounts Receivable — Accounts receivable are evaluated on a quarterly basis and any significant customers with delinquent balances are reviewed to determine future collectibility. Assessments are based on legal issues (bankruptcy status), past history, current financial and credit agency reports, and the experience of the credit representatives. Accounts judged to be uncollectible are reserved or written off in the quarter in which the determination is made. Additional reserves are maintained based on the Company’s historical bad debt experience. Management believes that the net accounts receivable at the end of the year are collectible.

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 out of the control of the Company and could differ materially from the amounts currently reported.

Insurance Plans — The Company is self-insured for workers’ compensation and automobile insurance. Self-insurance amounts are capped for individual claims and in 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. Management believes the reserves are adequate at the end of the year.

Revenue Recognition — Revenue from product sales is recognized upon shipment, whereupon title passes and the Company has no further obligations to the customer. Provisions for discounts and rebates to customers, and returns and other adjustments are provided for in the same period the related sales are recorded. Shipping and handling expenses are recorded as operating expenses.

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Capital Expenditures
Capital expenditures for 2002 totalled $1.5 million as compared to $7.4 million in 2001. Major expenditures included the replacement and upgrading of machinery and equipment and enhancements to information processing systems. It is anticipated that capital expenditures will be slightly higher in 2003 mainly in the area of replacement of older machinery and equipment.

     Capital expenditures for 2001 totalled $7.4 million as compared to $13.2 million in 2000. Major expenditures included replacement of machinery and equipment, increased processing capabilities and enhancements to a warehouse management system.

     During 2002 and 2001, the Company sold and leased back approximately $2.0 million and $2.5 million of fixed assets, respectively, which added to cash flow and minimized other financing requirements. The leaseback transactions are recorded as operating leases and therefore are not reflected as debt on the accompanying Consolidated Financial Statements.

Liquidity and Capital Resources
The Company continues to pursue several courses of action to further improve operating efficiency, reduce structural expense and strengthen its capital structure. The Company continues to seek strategic purchasers for its non-synergistic or under-performing business units to generate cash for further debt reduction.

     During the second quarter of 2002, as part of the Company’s program to strengthen its capital structure, $2.5 million in cash was received from the sale of its United Kingdom subsidiary along with $3.2 million to settle amounts owed by the subsidiary. An additional $0.8 million was received in January 2003 as the final settlement on the sale. In April 2002, $0.8 million was expended for the purchase of the remaining joint venture interest in Metal Express.

     The Company contributed $11.3 million of Company stock to the Pension Plans during 2002. It also recognized $2.5 million of non-cash income on the pension investments net of non-cash post-retirement benefit expense. Management, after consultation with its investment advisors, has determined that the 10% expected long-term rate of return on plan assets is appropriate. Despite the recent downturn in the stock market, the plans have consistently achieved long-term returns in excess of 10%.

     The Company’s financial agreements require it to maintain certain funded debt-to-capital ratios, working capital-to-debt ratios and minimum equity values. The Company was in compliance with all restrictive covenants at December 31, 2002. In order to provide additional flexibility in the management of the business during the current economic downturn, the Company has renegotiated its loan covenants with its long-term lenders. The amendments expand certain financial covenants in order to provide greater financial and operating flexibility in exchange for a 200 basis point increase in interest rates. As part of the amendments, the Company granted its lenders security interest (which will be perfected by the end of the first quarter of 2003) in the Company’s and its subsidiaries’ assets and provided subsidiary guarantees. The interest rate increase will be reduced by 150 basis points and the collateral positions released when the Company’s balance sheet reaches an investment grade level as defined in the loan agreements. The initial increases in interest rates provided for by these amendments will raise the Company’s interest expense by approximately $2.1 million, annually.

     Also in November 2002 the Company’s largest shareholder purchased through a private placement $12.0 million of eight-percent cumulative convertible preferred stock ($11.2 million net of expenses). Management believes that this investment reaffirms the shareholder’s confidence that the steps outlined above will position the Company to realize significant earnings leverage when demand in its markets return to pre-recession levels.

     In December 2002 the Company replaced the expiring $50 million Accounts Receivable Securitization Program (which was initially entered into in September 2001, and amended in September 2002 from its original $65 million commitment) with a three year, $60 million commitment. This program is currently the primary source of funds for working capital. At December 31, 2002 the Company utilized $25.9 million under the facility ($40.0 million was utilized at December 31, 2001). There remained $5.2 million of immediately available funds under this facility along with $3.7 million of other committed lines of credit. Management believes that funds generated from future operations, the existing $8.9 million of availability and the $9.9 million of income tax refunds will provide adequate funding for current business operations.

     Working Capital totalled $96.5 million at December 31, 2002 as compared to $100.2 million at December 31, 2001. Accounts receivable increased $14.9 million primarily due to lower sales of accounts

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receivable under the securitization agreement of $14.1 million (from $40.0 million at December 31, 2001 to $25.9 million at December 31, 2002). Inventory increased $2.2 million (excluding Metal Express, inventory decreased by $2.0 million). Inventory of approximately $8.0 million was purchased on favorable terms in the latter part of the fourth quarter of 2002 in order to prepare for the seasonally stronger first and second quarters. Accounts payable rose by $16.4 million, substantially offsetting the increase in accounts receivable and inventories. Working capital related to discontinued operations was reduced by $4.8 million.

     During the first quarter of 2002, the Company received a $4.7 million loss carry-back income tax refund which was reflected as an income tax receivable on the December 31, 2001 Balance Sheet. An additional $2.2 million was received in the second quarter of 2002 representing an additional loss carry-back from 2001 as a result of legislation signed on March 8, 2002 temporarily increasing the loss carry-back period from two years to five years. The $9.9 million income tax receivable at December 31, 2002 is due primarily to operating losses and deductible contributions made to the Company’s pension plan. This receivable is expected to be realized in 2003.

     Subsequent to December 31, 2002 the Company received signed letters of intent for the sale of two of its underutilized operating facilities. The estimated combined sale of these properties will yield approximately $13.5 million in cash. The Company will continue to serve these markets by renting only the amount of space required.

     During 2002 and 2001 the Company sold and leased back equipment under operating leases with terms ranging from five to six years. The assets sold at approximately net book value for proceeds of $2.0 million and $2.5 million respectively. The leases allow for a purchase option of $0.6 million in 2002 and $0.9 million in 2001. Annual rentals are $0.3 million and $0.6 million for assets sold in 2002 and 2001 respectively. These leases are recorded as operating leases in accordance with the criteria set forth in SFAS No. 13 “Accounting For Leases”.

Cash Commitments
The following is a schedule of cash commitments for long-term debt and non-cancelable lease payments:

Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to various rate and metal price risks that arise in the normal course of business. The Company finances its operations with fixed and variable rate borrowings and the Accounts Receivable Securitization facility. Market risk arises from changes in variable interest rates. An increase of 1% in interest rates on the variable rate indebtedness and Accounts Receivable Securitization facility would increase the Company’s annual interest expense and discount on sale of accounts receivable by approximately $0.4 million. The performance of the pension plans are subject to certain market risks arising from investment performance. A 1% decrease in investment performance would generate an $0.8 million reduction in earnings. A 0.25% decrease in the discount rate assumption would have the affect of increasing the accrued benefit obligation by $2.2 million. The Company’s raw material costs are comprised primarily of engineered steels and highly specialized metals. Market risk arises from changes in the price of steel and other metals. Although average selling prices generally increase or decrease as the price of steel and other metals increase or decrease, the impact of a change in the price of steel and other metals is more immediately reflected in the Company’s raw material cost than in the Company’s selling prices.

Commitments and Contingencies
The Company has a buy/sell provision with its joint venture partner in Energy Alloys L.P. Under this provision, either party may present an offer to purchase its partner’s interest for a specific dollar value.

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The other party then has two options. It may accept the offer and sell its interest in the joint venture or it may buy the offerer’s interest at the same price. On January 28, 2003 the Company initiated a buy offer which the joint venture partner must either accept or reject within thirty days. If the partner does nothing, it is deemed to have accepted the Company’s offer. Should the Company purchase its partner’s interest, it would pay approximately $1.7 million for equity and partner loans to the joint venture and assume debt of approximately $7.7 million. Should the partner elect to purchase its interest, the Company would receive approximately $3.5 million for its equity and loans to the joint venture.

     The joint venture partner has filed a lawsuit to rescind the partnership agreement. Due to uncertainties of the lawsuit and timing as to when the offer will close, the Company cannot estimate the economic effect.

Equity Plan Disclosures
The following table includes information regarding the Company’s equity compensation plans:

Controls and Procedures

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A. M. Castle & Co.
Consolidated Statements of Operations

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

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A. M. Castle & Co.
Consolidated Balance Sheets