Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

    x     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarterly Period Ended June 30, 2012

or,

 

    ¨     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from        to         

Commission File Number 1-5415

 

 

A. M. Castle & Co.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   36-0879160

(State or Other Jurisdiction of

incorporation of organization)

 

(I.R.S. Employer

Identification No.)

1420 Kensington Road, Suite 220, Oak Brook, Illinois   60523
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone, including area code 847/455-7111

None

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

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

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

 

Large accelerated filer    ¨    Accelerated filer    x
Non-accelerated filer    ¨  (Do not check if a smaller reporting company)    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at July 30, 2012

Common Stock, $0.01 Par Value

  23,092,184 shares

 

 

 


Table of Contents

A. M. CASTLE & CO.

Table of Contents

 

         Page

Part I. Financial Information

  

Item 1.

 

Financial Statements (unaudited):

  
 

Condensed Consolidated Balance Sheets

   3
 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

   4
 

Condensed Consolidated Statements of Cash Flows

   5
 

Notes to Condensed Consolidated Financial Statements

   6-29

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   30-40

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   40

Item 4.

 

Controls and Procedures

   40

Part II. Other Information

  

Item 6.

 

Exhibits

   41

Signatures

     42

Exhibit Index

     43


Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Amounts in thousands, except par value and per share data

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     As of  
     June 30,
2012
    December 31,
2011
 

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 20,449      $ 30,524   

Accounts receivable, less allowances of $4,219 and $3,584

     178,075        181,036   

Inventories, principally on last-in, first-out basis (replacement cost higher by $144,979 and $138,882)

     364,391        272,039   

Prepaid expenses and other current assets

     20,980        10,382   

Income tax receivable

     3,781        8,287   
  

 

 

   

 

 

 

Total current assets

     587,676        502,268   

Investment in joint venture

     39,736        36,460   

Goodwill

     69,851        69,901   

Intangible assets

     87,833        93,813   

Prepaid pension cost

     16,501        15,956   

Other assets

     22,323        21,784   

Property, plant and equipment

    

Land

     5,194        5,194   

Building

     52,398        52,434   

Machinery and equipment

     174,485        172,833   
  

 

 

   

 

 

 

Property, plant and equipment, at cost

     232,077        230,461   

Less - accumulated depreciation

     (153,022     (148,320
  

 

 

   

 

 

 

Property, plant and equipment, net

     79,055        82,141   
  

 

 

   

 

 

 

Total assets

   $ 902,975      $ 822,323   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities

    

Accounts payable

   $ 179,661      $ 116,874   

Accrued liabilities

     39,781        33,828   

Income taxes payable

     1,526        1,884   

Current portion of long-term debt

     212        192   

Short-term debt

     1,000        500   
  

 

 

   

 

 

 

Total current liabilities

     222,180        153,278   
  

 

 

   

 

 

 

Long-term debt, less current portion

     290,570        314,240   

Deferred income taxes

     32,635        25,650   

Other non-current liabilities

     7,156        7,252   

Pension and post retirement benefit obligations

     9,821        9,624   

Commitments and contingencies

    

Stockholders’ equity

    

Preferred stock, $0.01 par value - 9,988 shares authorized; no shares issued and outstanding at June 30, 2012 and December 31, 2011

     —          —     

Common stock, $0.01 par value - 60,000 shares authorized; 23,211 shares issued and 23,092 outstanding at June 30, 2012 and 23,159 shares issued and 23,010 outstanding at December 31, 2011

     232        232   

Additional paid-in capital

     220,181        184,596   

Retained earnings

     141,709        148,987   

Accumulated other comprehensive loss

     (20,084     (19,824

Treasury stock, at cost - 119 shares at June 30, 2012 and 149 shares at December 31, 2011

     (1,425     (1,712
  

 

 

   

 

 

 

Total stockholders’ equity

     340,613        312,279   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 902,975      $ 822,323   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS) INCOME

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Net sales

   $ 329,392      $ 282,568      $ 692,308      $ 555,356   

Costs and expenses:

        

Cost of materials (exclusive of depreciation and amortization)

     240,681        208,470        504,648        409,898   

Warehouse, processing and delivery expense

     38,474        33,874        77,000        67,016   

Sales, general, and administrative expense

     34,894        30,864        70,106        61,985   

Depreciation and amortization expense

     6,474        5,059        13,087        10,058   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     8,869        4,301        27,467        6,399   

Interest expense, net

     (9,964     (1,120     (20,157     (2,106

Interest expense - unrealized loss on debt conversion option

     (4,257     —          (15,597     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes and equity in earnings of joint venture

     (5,352     3,181        (8,287     4,293   

Income taxes

     641        (2,466     (3,732     (3,734
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in earnings of joint venture

     (4,711     715        (12,019     559   

Equity in earnings of joint venture

     1,733        2,982        4,741        5,841   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (2,978     3,697        (7,278     6,400   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) income per share

   $ (0.13   $ 0.16      $ (0.32   $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted (loss) income per share

   $ (0.13   $ 0.16      $ (0.32   $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per common share

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

   $ (6,462   $ 4,565      $ (7,538   $ 8,597   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the Six Months Ended
June 30,
 
     2012     2011  

Operating activities:

    

Net (loss) income

   $ (7,278   $ 6,400   

Adjustments to reconcile net (loss) income to net cash used in operating activities:

    

Depreciation and amortization

     13,087        10,058   

Amortization of deferred gain

     15        (213

Amortization of deferred financing costs and debt discount

     3,028        342   

Loss on sale of fixed assets

     26        177   

Unrealized loss on debt conversion option

     15,597        —     

Unrealized losses on commodity hedges

     876        —     

Equity in earnings of joint venture

     (4,741     (5,841

Dividends from joint venture

     1,465        1,336   

Deferred tax benefit

     (903     (1,501

Share-based compensation expense

     1,943        1,906   

Excess tax benefits from share-based payment arrangements

     (63     (145

Increase (decrease) from changes in, net of acquisition:

    

Accounts receivable

     3,170        (33,420

Inventories

     (92,270     (41,920

Prepaid expenses and other current assets

     (10,751     (593

Other assets

     757        (327

Prepaid pension costs

     (905     (920

Accounts payable

     61,735        47,768   

Income taxes payable and receivable

     4,174        6,194   

Accrued liabilities

     8,490        (6,004

Postretirement benefit obligations and other liabilities

     (3,081     165   
  

 

 

   

 

 

 

Net cash used in operating activities

     (5,629     (16,538

Investing activities:

    

Capital expenditures

     (4,689     (4,819

Proceeds from sale of fixed assets

     6        64   
  

 

 

   

 

 

 

Net cash used in investing activities

     (4,683     (4,755

Financing activities:

    

Short-term borrowings (repayments), net

     500        15,163   

Net (repayments) borrowings on previously existing revolving lines of credit

     —          1,616   

Proceeds from long-term debt, including new revolving credit facility

     337,135        —     

Repayments of long-term debt, including new revolving credit facility

     (336,120     (214

Payment of debt issue costs

     (1,503     —     

Excess tax benefits (deficiencies) from share-based payment arrangements

     63        145   

Exercise of stock options

     104        240   
  

 

 

   

 

 

 

Net cash from financing activities

     179        16,950   

Effect of exchange rate changes on cash and cash equivalents

     58        (307

Net decrease in cash and cash equivalents

     (10,075     (4,650
  

 

 

   

 

 

 

Cash and cash equivalents - beginning of year

     30,524        36,716   
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 20,449      $ 32,066   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

A. M. Castle & Co.

Notes to Condensed Consolidated Financial Statements

Unaudited - Amounts in thousands except per share data and percentages

(1) Condensed Consolidated Financial Statements

The condensed consolidated financial statements included herein have been prepared by A. M. Castle & Co. and subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The Condensed Consolidated Balance Sheet at December 31, 2011 is derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of management, the unaudited statements, included herein, contain all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of financial results for the interim period. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. The 2012 interim results reported herein may not necessarily be indicative of the results of the Company’s operations for the full year.

(2) New Accounting Standards

Standards Updates Adopted

Effective January 1, 2012, the Company adopted ASU No. 2011-08, “Intangibles – Goodwill and Other.” The objective of this ASU is to simplify how entities test goodwill for impairment. The amendments allow entities to assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test per Topic 350, “Intangibles – Goodwill and Other.” The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The adoption of this ASU impacts the way the Company tests goodwill for impairment. As allowed by this ASU for its January 1, 2012 annual impairment test, the Company did not elect the option to perform a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. Instead the Company followed the two-step method. Refer to Note 7 for the results of the annual goodwill impairment test.

Effective January 1, 2012, the Company adopted ASU No. 2011-05, “Presentation of Comprehensive Income.” The amendments in this ASU impact all entities that report items of other comprehensive income and are effective retrospectively for public entities. The amendments in this ASU eliminate the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments provide the entity with the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Both options require an entity to present each component of net income along with total net income, each component of other comprehensive income along with total other comprehensive income and a total amount for comprehensive income. The subsequent issuance of ASU 2011-12, “Comprehensive Income” in December 2011 deferred the changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. All other provisions in ASU 2011-05 were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The presentation requirements associated with the adoption of ASU 2011-05 are reflected in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income herein.

 

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Effective January 1, 2012, the Company adopted ASU No. 2011-04, “Fair Value Measurement.” The amendments in this ASU apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. The amendments in this ASU clarify the requirements of the existing standard and include some changes to principles or requirements for measuring or disclosing information about fair value measurements. Refer to Note 5 for required disclosures related to this ASU.

Standards Updates Issued Not Yet Effective

During December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” The amendments in this ASU require an entity to disclose information to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on its financial position, including the effect or potential effect of rights of set off associated with an entity’s recognized assets and recognized liabilities within the scope of Topic 210. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU may impact the Company’s disclosures in future interim and annual financial statements issued.

(3) Earnings Per Share

Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock plus common stock equivalents. Common stock equivalents consist of employee and director stock options, restricted stock awards, other share-based payment awards, and contingently issuable shares related to the Company’s convertible debt which are included in the calculation of weighted average shares outstanding using the treasury stock method, if dilutive. The following table is a reconciliation of the basic and diluted earnings per share calculations for the three and six months ended June 30, 2012 and 2011:

 

     For the Three Months
Ended June 30,
     For the Six Months
Ended June 30,
 
     2012     2011      2012     2011  

Numerator:

         

Net (loss) income

   $ (2,978   $ 3,697       $ (7,278   $ 6,400   
  

 

 

   

 

 

    

 

 

   

 

 

 

Denominator:

         

Denominator for basic (loss) earnings per share:

         

Weighted average common shares outstanding

     22,989        22,820         22,963        22,800   

Effect of dilutive securities:

         

Outstanding common stock equivalents

     —          532         —          405   
  

 

 

   

 

 

    

 

 

   

 

 

 

Denominator for diluted earnings per share

     22,989        23,352         22,963        23,205   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic (loss) earnings per share

   $ (0.13   $ 0.16       $ (0.32   $ 0.28   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted (loss) earnings per share

   $ (0.13   $ 0.16       $ (0.32   $ 0.28   
  

 

 

   

 

 

    

 

 

   

 

 

 

Excluded outstanding shared-based awards having an anti-dilutive effect

     916        20         916        20   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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The Convertible Notes are dilutive to the extent the Company generates net income and the average stock price during the period is greater than $10.28, the conversion price of the Convertible Notes (see Note 4). The Convertible Notes are only dilutive for the “in the money” portion of the Convertible Notes that could be settled with the Company’s stock. In future periods, absent a fundamental change, (as defined in the Convertible Notes agreement), the outstanding Convertible Notes could increase diluted average shares outstanding by a maximum of approximately 5,600 shares. As of June 30, 2012, 651 shares were excluded from diluted average shares outstanding as there would have been an anti-dilutive effect.

For the three and six months ended June 30, 2012 and 2011, the participating securities, which represent certain non-vested shares granted by the Company, were less than one percent of total securities. These securities do not participate in the Company’s net (loss) income.

(4) Debt

Short-term and long-term debt consisted of the following:

 

     June 30,
2012
    December 31,
2011
 

SHORT-TERM DEBT

    

Foreign

   $ 1,000      $ 500   
  

 

 

   

 

 

 

Total short-term debt

     1,000        500   

LONG-TERM DEBT

    

Senior Secured Notes due December 15, 2016

     225,000        225,000   

Convertible Notes due December 15, 2017

     57,500        57,500   

New Revolving Credit Facility due December 15, 2015

     36,300        35,500   

Other, primarily capital leases

     547        244   
  

 

 

   

 

 

 

Total long-term debt

     319,347        318,244   

Plus: derivative liability for conversion feature associated with convertible debt

     —          26,440   

Less: unamortized discount

     (28,565     (30,252

Less: current portion

     (212     (192
  

 

 

   

 

 

 

Total long-term portion

     290,570        314,240   

TOTAL SHORT-TERM AND LONG-TERM DEBT

   $ 291,782      $ 314,932   
  

 

 

   

 

 

 

During December 2011, in conjunction with the completion of the acquisition of Tube Supply, the Company issued $225,000 aggregate principal amount of 12.75% Senior Secured Notes due 2016 (the “Secured Notes”), issued $57,500 aggregate principal amount of 7.0% Convertible Senior Notes due 2017 (the “Convertible Notes”) and entered into a $100,000 senior secured asset based revolving credit facility (the “New Revolving Credit Facility”). Net proceeds from these transactions (collectively referred to as the “Debt Transactions”) were used to complete the Acquisition, repay existing debt and for general corporate purposes.

 

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Secured Notes

The Company filed a registration statement with the Securities and Exchange Commission on Form S-4 on April 11, 2012. The registration statement was declared effective on June 12, 2012.

On June 12, 2012, the Company commenced an offer to exchange $225,000 principal amount of 12.75% Secured Notes due 2016, which are registered under the Securities Act of 1933 (the “New Secured Notes”), for $225,000 principal amount of outstanding 12.75% Senior Secured Notes due 2016, which had not been registered under the Securities Act of 1933 (the “Old Secured Notes”). The terms of the New Secured Notes issued are identical in all material respects to the Old Secured Notes, except that the New Secured Notes are registered under the Securities Act of 1933, do not have any of the transfer restrictions, registration rights and additional interest provisions relating to the Old Secured Notes and bear a different CUSIP number from the Old Secured Notes. The Company did not receive any proceeds from the exchange offer.

The New Secured Notes will mature on December 15, 2016. The Company will pay interest on the New Secured Notes at a rate of 12.75% per annum in cash semi-annually. The first payment of $14,344 was made on June 15, 2012. The New Secured Notes are fully and unconditionally guaranteed, jointly and severally, by certain 100% owned domestic subsidiaries of the Company (the Note Guarantors). The New Secured Notes and the related guarantees are secured by a lien on substantially all of the Company’s and the Note Guarantors’ assets, subject to certain exceptions and permitted liens pursuant to a pledge and security agreement. The terms of the New Secured Notes contain numerous covenants imposing financial and operating restrictions on the Company’s business. These covenants place restrictions on the Company’s ability and the ability of its subsidiaries to, among other things, pay dividends, redeem stock or make other distributions or restricted payments; incur indebtedness or issue common stock; make certain investments; create liens; agree to payment restrictions affecting certain subsidiaries; consolidate or merge; sell or otherwise transfer or dispose of assets, including equity interests of certain subsidiaries; enter into transactions with affiliates, enter into sale and leaseback transactions; and use the proceeds of permitted sales of the Company’s assets. Refer to Note 15 for Guarantor Financial Information disclosure.

On or after December 15, 2014, the Company may redeem some or all of the New Secured Notes at a redemption premium of 106.375% of the principal amount for the 12-month period beginning December 15, 2014 and 100% thereafter, plus accrued and unpaid interest. Prior to December 15, 2014, the Company may redeem up to 35% of the aggregate principal amount of the New Secured Notes at a redemption price of 112.75% of the principal amount, plus accrued and unpaid interest, with the net cash proceeds of certain equity offerings. In addition, the Company may, at its option, redeem some or all of the New Secured Notes at any time prior to December 15, 2014, by paying a “make-whole” premium, plus accrued and unpaid interest.

The New Secured Notes also contain a provision that allows holders of the New Secured Notes to require the Company to repurchase all or any part of the New Secured Notes if a change of control triggering event occurs. Under this provision, the repurchase of the New Secured Notes will occur at a purchase price of 101% of the outstanding principal amount, plus accrued and unpaid interest, if any, on such New Secured Notes to the date of repurchase. In addition, upon certain asset sales, the Company may be required to offer to use the net proceeds thereof to purchase some of the New Secured Notes at 100% of the principal amount thereof, plus accrued and unpaid interest.

 

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Subject to certain conditions, within 95 days after the end of each fiscal year, the Company must make an offer to purchase New Secured Notes with certain of its excess cash flow (as defined in the indenture) for such fiscal year, commencing with the fiscal year ending December 31, 2012, at 103% of the principal amount thereof, plus accrued and unpaid interest.

Convertible Notes

The Convertible Notes will mature on December 15, 2017. The Company will pay interest on the Convertible Notes at a rate of 7.0% in cash semi-annually. The first payment of $2,013 was made on June 15, 2012. The initial conversion rate for the Convertible Notes will be 97.2384 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, equivalent to an initial conversion price of approximately $10.28 per share of common stock. The conversion rate will be subject to adjustment, but will not be adjusted for accrued and unpaid interest, if any. In addition, if an event constituting a fundamental change occurs, the Company will in some cases increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such fundamental change. Upon conversion, the Company will pay and/or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, together with cash in lieu of fractional shares.

Holders may convert their Convertible Notes at their option on any day prior to the close of business on the scheduled trading day immediately preceding June 15, 2017 only under the following circumstances: (1) during the five business-day period after any five consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of that measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such day; (2) during any calendar quarter (and only during such calendar quarter) after the calendar quarter ending December 31, 2011, if the last reported sale price of the Company’s common stock for 20 or more trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is equal to or greater than 130% of the applicable conversion price in effect for each applicable trading day; (3) upon the occurrence of specified corporate events, including certain dividends and distributions; or (4) if the Company calls the Convertible Notes for redemption on or after December 20, 2015. The Convertible Notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, June 15, 2017 through the second scheduled trading day immediately preceding the maturity date.

On April 26, 2012, at the Company’s Annual Meeting of Stockholders, shareholder approval was obtained for the issuance of shares in excess of 20% of the Company’s outstanding common stock to satisfy any conversions of the Convertible Notes. Additionally, shareholder approval was obtained to amend the Company’s charter to authorize additional shares of common stock from 30,000 to 60,000. With these approvals, the Company now has the ability to share-settle the conversion option in full and therefore, the embedded conversion option is no longer required to be separately valued and accounted for as a derivative liability. The mark-to-market adjustment on the conversion option for the period from March 31, 2012 through April 26, 2012 (the final valuation date) was a loss of $4,257. As of April 26, 2012, the conversion option’s cumulative value of $42,037 was reclassified to additional paid-in capital and will no longer be marked-to-market through earnings. The deferred tax benefit of $8,264 associated with the temporary difference between the financial reporting basis of the derivative liability and its tax basis at the date of issuance (December 15, 2011) was also reclassified to additional paid-in capital.

Upon a fundamental change, subject to certain exceptions, holders may require the Company to repurchase some or all of their Convertible Notes for cash at a repurchase price equal to 100% of the principal amount of the Convertible Notes being repurchased, plus any accrued and unpaid interest.

 

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The Company may not redeem the Convertible Notes prior to December 20, 2015. On or after December 20, 2015, the Company may redeem all or part of the Convertible Notes (except for the Convertible Notes that we are required to repurchase as described above) if the last reported sale price of the Company’s common stock exceeds 135% of the applicable conversion price for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day immediately prior to the date of the redemption notice. The redemption price will equal the sum of 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, plus a “make-whole premium” payment. The Company must make the make-whole premium payments on all Convertible Notes called for redemption including Convertible Notes converted after the date we delivered the notice of redemption. The Company will pay the redemption price in cash except for any non-cash portion of the make-whole premium.

New Revolving Credit Facility

The New Revolving Credit Facility consists of a $100,000 senior secured asset-based revolving credit facility (subject to adjustment pursuant to a borrowing base described below), of which (a) up to an aggregate principal amount of $20,000 will be available for a Canadian subfacility, (b) up to an aggregate principal amount of $20,000 will be available for letters of credit and (c) up to an aggregate principal amount of $10,000 will be available for swingline loans. Loans under the New Revolving Credit Facility will be made available to the Company and certain domestic subsidiaries (the “U.S. Borrowers”) in U.S. dollars and the Canadian Borrowers in U.S. dollars and Canadian dollars. The New Revolving Credit Facility will mature on December 15, 2015.

The New Revolving Credit Facility will rank pari passu in right of payment with the Secured Notes, but, pursuant to the intercreditor agreement, the Secured Notes will be effectively subordinated to the indebtedness under the New Revolving Credit Facility with respect to the collateral.

At the Company’s election, borrowings under the New Revolving Credit Facility will bear interest at variable rates based on (a) a customary base rate plus an applicable margin of between 0.50% and 1.00% (depending on quarterly average undrawn availability under the New Revolving Credit Facility) or (b) an adjusted LIBOR rate plus an applicable margin of between 1.50% and 2.00% (depending on quarterly average undrawn availability under the New Revolving Credit Facility). The weighted average interest rate for borrowings under the New Revolving Credit Facility for the six months ended June 30, 2012 was 2.66%. The Company will pay certain customary recurring fees with respect to the New Revolving Credit Facility.

The New Revolving Credit facility contains a springing financial maintenance covenant requiring the Company to maintain the ratio (as defined in the agreement) of EBITDA to fixed charges of 1.1 to 1.0 when excess availability is less than the greater of 10% of the calculated borrowing base (as defined in the agreement) or $10,000. In addition, if excess availability is less than the greater of 12.5% of the calculated borrowing base (as defined in the agreement) or $12,500, the lender has the right to take full dominion of the Company’s cash collections and apply these proceeds to outstanding loans under the New Revolving Credit Agreement. As of June 30, 2012, the Company’s excess availability of $53,990 was above such thresholds.

 

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(5) Fair Value Measurements

The three-tier value hierarchy the Company utilizes, which prioritizes the inputs used in the valuation methodologies, is:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

The fair value of cash, accounts receivable and accounts payable approximate their carrying values. The fair value of cash equivalents are determined using the fair value hierarchy described above. Cash equivalents consisting of money market funds are valued based on quoted prices in active markets and as a result are classified as Level 1. The Company’s pension plan asset portfolio as of June 30, 2012 and December 31, 2011 is primarily invested in fixed income securities, which generally fall within Level 2 of the fair value hierarchy.

Fair Value Measurements of Debt

The fair value of the Company’s fixed rate debt as of June 30, 2012 was estimated to be $318,835 compared to a carrying value of $253,935, net of unamortized discount. The fair value for the Senior Secured Notes is determined based on recent trades of the bonds and fall within level 2 of the fair value hierarchy.

The fair value of the Convertible Notes, which fall within level 3 of the fair value hierarchy, is determined based on similar debt instruments that do not contain a conversion feature. The main inputs and assumptions into the binomial lattice model are the Company’s stock price at the end of the period ($10.62), expected volatility (41.4%), credit spreads (12.02%) and the risk-free interest rate (0.81%). These inputs and assumptions are determined based on current market data and are not viewed as having significant sensitivity.

As of June 30, 2012, the estimated fair value of the Company’s debt outstanding under its revolving credit facilities, which falls within level 3 of the fair value hierarchy, is $34,300 compared to its carrying value of $37,300, assuming the current amount of debt outstanding at the end of the year was outstanding until the maturity of the Company’s facility in December 2015. Although borrowings could be materially greater or less than the current amount of borrowings outstanding at the end of the year, it is not practical to estimate the amounts that may be outstanding during the future periods since there is no predetermined borrowing or repayment schedule.

Fair Value Measurements of Commodity Hedges

During the second quarter of 2011, the Company implemented a commodity hedging program to mitigate risks associated with certain commodity price fluctuations. At June 30, 2012, the Company had executed forward contracts that extend through 2015. The sole counterparty to these contracts is not considered a credit risk by the Company. At June 30, 2012, the notional value associated with forward contracts was $15,822. The Company recorded losses of $1,387 and $1,011 for the three and six months ended June 30, 2012, respectively, as a result of changes in the fair value of the contracts. There were no gains or losses recorded for the three and six months ended June 30, 2011. Refer to Note 13 for letters of credit outstanding for collateral associated with commodity hedges.

 

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The Company uses information which is representative of readily observable market data when valuing derivatives liabilities associated with commodity hedges. The derivative liabilities are classified as Level 2 in the table below.

The assets and liabilities measured at fair value on a recurring basis were as follows:

 

     Level 1      Level 2      Level 3      Total  

As of June 30, 2012:

           

Derivative liability for commodity hedges

   $ —         $ 3,207       $ —         $ 3,207   

Derivative liability for conversion feature associated with convertible debt

   $ —         $ —         $ —         $ —     

As of December 31, 2011:

           

Derivative liability for commodity hedges

   $ —         $ 2,331       $ —         $ 2,331   

Derivative liability for conversion feature associated with convertible debt

   $ —         $ —         $ 26,440       $ 26,440   

The following reconciliation represents the change in fair value of Level 3 liabilities from January 1, 2012 to June 30, 2012:

 

     Derivative liability for
conversion feature associated
with convertible debt
 

Fair value as of January 1

   $ 26,440   

Mark-to-Market adjustment on conversion feature

     15,597   

Reclassification from long-term debt, less current portion to additional paid-in capital

     (42,037
  

 

 

 

Fair value as of June 30

   $ —     
  

 

 

 

(6) Segment Reporting

The Company distributes and performs processing on both metals and plastics. Although the distribution processes are similar, the customer markets, supplier bases and types of products are different. Additionally, the Company’s Chief Executive Officer, the chief operating decision-maker, reviews and manages these two businesses separately. As such, these businesses are considered reportable segments and are reported accordingly.

In its Metals segment, the Company’s marketing strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very precise specifications. Core products include alloy, aluminum, nickel, stainless steel, carbon and titanium. Inventories of these products assume many forms such as plate, sheet, extrusions, round bar, hexagon bar, square and flat bar, tubing and coil. Depending on the size of the facility and the nature of the markets it serves, service centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, trepanning machinery, boring machinery, honing equipment, water-jet cutting, stress relieving and annealing furnaces, surface grinding equipment and sheet shearing equipment.

 

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The Company’s Plastics segment consists exclusively of a wholly-owned subsidiary that operates as Total Plastics, Inc. (“TPI”) headquartered in Kalamazoo, Michigan, and its wholly-owned subsidiaries. The Plastics segment stocks and distributes a wide variety of plastics in forms that include plate, rod, tube, clear sheet, tape, gaskets and fittings. Processing activities within this segment include cut-to-length, cut-to-shape, bending and forming according to customer specifications. The Plastics segment’s diverse customer base consists of companies in the retail (point-of-purchase), automotive, marine, office furniture and fixtures, safety products, life sciences applications, and general manufacturing industries. TPI has locations throughout the upper northeast and midwest regions of the U.S. and one facility in Florida from which it services a wide variety of users of industrial plastics.

The accounting policies of all segments are the same as described in Note 1, “Basis of Presentation and Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Management evaluates the performance of its business segments based on operating income.

Segment information for the three months ended June 30, 2012 and 2011 is as follows:

 

     Net
Sales
     Operating
Income
    Capital
Expenditures
     Depreciation &
Amortization
 

2012

          

Metals segment (a)

   $ 297,244       $ 11,210      $ 1,668       $ 6,117   

Plastics segment

     32,148         1,064        370         357   

Other (b)

     —           (3,405     —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated

   $ 329,392       $ 8,869      $ 2,038       $ 6,474   
  

 

 

    

 

 

   

 

 

    

 

 

 

2011

          

Metals segment

   $ 252,256       $ 5,095      $ 2,626       $ 4,737   

Plastics segment

     30,312         1,062        384         322   

Other

     —           (1,856     —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated

   $ 282,568       $ 4,301      $ 3,010       $ 5,059   
  

 

 

    

 

 

   

 

 

    

 

 

 

Segment information for the six months ended June 30, 2012 and 2011 is as follows:

 

     Net
Sales
     Operating
Income 
    Capital
Expenditures
     Depreciation &
Amortization
 

2012

          

Metals segment (a)

   $ 629,136       $ 31,763      $ 3,320       $ 12,423   

Plastics segment

     63,172         1,601        771         664   

Other (b)

     —           (5,897     —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated

   $ 692,308       $ 27,467      $ 4,091       $ 13,087   
  

 

 

    

 

 

   

 

 

    

 

 

 

2011

          

Metals segment

   $ 496,845       $ 8,681      $ 3,943       $ 9,422   

Plastics segment

     58,511         1,624        876         636   

Other

     —           (3,906     —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated

   $ 555,356       $ 6,399      $ 4,819       $ 10,058   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(a) The results of Tube Supply, Inc. (“Tube Supply”), acquired on December 15, 2011, are included in the Company’s Metals segment.
(b) “Other” – Operating income includes the costs of executive, legal and finance departments, which are shared by both the Metals and Plastics segments.

 

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Below are reconciliations of segment data to the consolidated financial statements for the three months ended June 30:

 

     2012     2011  

Operating income

   $ 8,869      $ 4,301   

Interest expense, net

Interest expense - unrealized loss on debt conversion option

    

 

(9,964

(4,257


   

 

(1,120

—  


  

  

 

 

   

 

 

 

(Loss) income before income taxes and equity in earnings of joint venture

     (5,352     3,181   

Equity in earnings of joint venture

     1,733        2,982   
  

 

 

   

 

 

 

Consolidated (loss) income before income taxes

   $ (3,619   $ 6,163   
  

 

 

   

 

 

 

Below are reconciliations of segment data to the consolidated financial statements for the six months ended June 30:

 

     2012     2011  

Operating income

   $ 27,467      $ 6,399   

Interest expense, net

Interest expense - unrealized loss on debt conversion option

    

 

(20,157

(15,597


   

 

(2,106

—  


  

  

 

 

   

 

 

 

(Loss) income before income taxes and equity in earnings of joint venture

     (8,287     4,293   

Equity in earnings of joint venture

     4,741        5,841   
  

 

 

   

 

 

 

Consolidated (loss) income before income taxes

   $ (3,546   $ 10,134   
  

 

 

   

 

 

 

Segment information for total assets is as follows:

 

     June 30,
2012
     December 31,
2011
 

Metals segment

   $ 803,974       $ 729,692   

Plastics segment

     59,265         56,171   

Other (a)

     39,736         36,460   
  

 

 

    

 

 

 

Consolidated

   $ 902,975       $ 822,323   
  

 

 

    

 

 

 

 

(a) “Other” — Total assets consist of the Company’s investment in joint venture.

 

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Table of Contents

(7) Goodwill and Intangible Assets

The changes in carrying amounts of goodwill during the six months ended June 30, 2012 were as follows:

 

     Metals
Segment
    Plastics
Segment
     Total  

Balance as of January 1, 2012

       

Goodwill

   $ 117,145      $ 12,973       $ 130,118   

Accumulated impairment losses

     (60,217     —           (60,217
  

 

 

   

 

 

    

 

 

 

Balance as of January 1, 2012

     56,928        12,973         69,901   

Currency valuation

     (50     —           (50

Balance as of June 30, 2012

       
  

 

 

   

 

 

    

 

 

 

Goodwill

     117,095        12,973         130,068   

Accumulated impairment losses

     (60,217     —           (60,217
  

 

 

   

 

 

    

 

 

 

Balance as of June 30, 2012

   $ 56,878      $ 12,973       $ 69,851   
  

 

 

   

 

 

    

 

 

 

The Company’s annual test for goodwill impairment is completed as of January 1st each year. Based on the January 1, 2012 test, the Company determined that there was no impairment of goodwill. The Company’s year-to-date operating results, among other factors, are considered in determining whether it is more-likely-than-not that the fair value for any reporting unit has declined below its carrying value, which would require the Company to perform an interim goodwill impairment test. Another recession or economic declines in specific industries could change management’s expectations of future financial results and/or key valuation assumptions used in determining the fair-value of its reporting units which could result in a test for the impairment of goodwill prior to the Company’s annual testing date of January 1st.

On December 15, 2011, the Company acquired 100 percent of the outstanding common shares of Tube Supply. The aggregate purchase price was $184,385. There were no changes in the purchase price allocation during the six months ended June 30, 2012. The purchase price allocation is preliminary and it is subject to change upon the finalization of items such as the determination of fair values of pre-acquisition contingencies, finalization of the working capital adjustments and certain tax related matters.

The following summarizes the components of intangible assets:

 

     June 30, 2012      December 31, 2011  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Gross
Carrying
Amount
     Accumulated
Amortization
 

Customer relationships

   $ 118,505       $ 40,079       $ 118,567       $ 34,960   

Non-compete agreements

     3,888         3,069         3,888         2,902   

Trade name

     8,240         799         8,249         410   

Developed technology

     1,400         253         1,400         19   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 132,033       $ 44,200       $ 132,104       $ 38,291   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The weighted-average amortization period for the intangible assets is 10.8 years, 11.3 years for customer relationships, 9.4 years for trade names, 3 years for non-compete agreements and 3 years for developed technology. Substantially all of the Company’s intangible assets were acquired as part of the acquisitions of Transtar on September 5, 2006 and Tube Supply on December 15, 2011. For the three-month periods ended June 30, 2012 and 2011, amortization expense was $2,956 and $1,659, respectively. For the six-month periods ended June 30, 2012 and 2011, amortization expense was $5,918 and $3,322, respectively.

The following is a summary of the estimated annual amortization expense for 2012 and each of the next 4 years:

 

2012

   $ 11,776   

2013

     11,776   

2014

     11,743   

2015

     10,976   

2016

     10,976   

(8) Inventories

Approximately ninety percent of the Company’s inventories are valued at the lower of LIFO cost or market. Final inventory determination under the LIFO costing method is made at the end of each fiscal year based on the actual inventory levels and costs at that time. Interim LIFO determinations, including those at June 30, 2012, are based on management’s estimates of future inventory levels and costs. The Company values its LIFO increments using the cost of its latest purchases during the periods reported.

Current replacement cost of inventories exceeded book value by $144,979 and $138,882 at June 30, 2012 and December 31, 2011, respectively. Income taxes would become payable on any realization of this excess from reductions in the level of inventories.

(9) Share-based Compensation

The Company accounts for its share-based compensation arrangements by recognizing compensation expense for the fair value of the share awards granted ratably over their vesting period. All compensation expense related to share-based compensation arrangements is recorded in sales, general and administrative expense. The unrecognized compensation cost as of June 30, 2012 associated with all share-based payment arrangements is $8,734 and the weighted average period over which it is to be expensed is 1.4 years.

Due to executive terminations that occurred during the first half of 2012, the Company revised its forfeiture rate for the active Long-Term Compensation Plans. The weighted average forfeiture rate is 30% and 18% at June 30, 2012 and December 31, 2011, respectively.

2012 Long-Term Compensation Plan

On March 7, 2012, the Human Resources Committee (the “Committee”) of the Board of Directors of the Company approved equity awards under the Company’s 2012 Long-Term Compensation Plan (“2012 LTC Plan”) for executive officers and other select personnel. The 2012 LTC Plan awards included restricted stock units (“RSUs”) and performance share units (“PSUs”). All 2012 LTC Plan awards are subject to the terms of the Company’s 2008 A.M. Castle & Co. Omnibus Incentive Plan, amended and restated as of April 28, 2011.

 

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The 2012 LTC Plan consists of three components of share-based payment awards as follows:

Restricted Share Units - the Company granted 181 RSUs with a grant date fair value of $10.02 per share unit, which was established using the market price of the Company’s stock on the date of grant. The RSUs cliff vest on December 31, 2014. Each RSU that becomes vested entitles the participant to receive one share of the Company’s common stock. The number of shares delivered may be reduced by the number of shares required to be withheld for federal and state withholding tax requirements (determined at the market price of Company shares at the time of payout).

Performance Share Units - the Company granted 362 PSUs, half of which contain a market- based performance condition and half of which contained a non-market-based performance condition.

PSUs containing a market-based performance condition - the potential award for PSUs containing a market-based performance condition is dependent on relative total shareholder return (“RTSR”), which is measured over a three-year performance period, beginning January 1st of the year of grant. RTSR is measured against a group of peer companies either in the metals industry or in the industrial products distribution industry (the “RTSR Peer Group”). The number of performance shares, if any, that vest based on the performance achieved during the three-year performance period, will vest at the end of the three-year performance period. Each performance share that becomes vested entitles the participant to receive one share of the Company’s common stock. The number of shares delivered may be reduced by the number of shares required to be withheld for federal and state withholding tax requirements (determined at the market price of Company shares at the time of payout).

The grant date fair value for the PSUs containing the RTSR market-based performance condition under the 2012 LTC Plan of $13.78 was estimated using a Monte Carlo simulation with the following assumptions:

 

     2012  

Expected volatility

     85.0

Risk-free interest rate

     0.40

Expected life (in years)

     2.81   

Expected dividend yield

     —     

Compensation expense for performance awards containing a market-based performance condition is recognized regardless of whether the market condition is achieved to the extent the requisite service period condition is met.

PSUs containing a non-market-based performance condition - the potential award for PSUs containing a non-market-based performance condition is determined based on the Company’s average actual performance versus Company-specific target goals for Return on Invested Capital (“ROIC”) (as defined in the 2012 LTC Plan) for the three-year performance period beginning on January 1st of the year of grant. Partial performance awards can be earned for performance less than the target goal, but in excess of minimum goals and award distributions twice the target can be achieved if the maximum goals are met or exceeded. The number of performance shares, if any, that vest based on the performance achieved during the three-year performance period, will vest at the end of the three-year performance period. Compensation expense recognized is based on management’s expectation of future performance compared to the pre-established performance

 

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Table of Contents

goals. If the performance goals are not expected to be met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The grant date fair-value of the PSUs containing a non-market-based performance condition was established using the market price of the Company’s stock on the date of grant.

The award information associated with market and non-market-based performance condition awards is summarized below:

 

Share type

   Grant Date
Fair Value
     Estimated
Number of PSUs
to be Issued
     Maximum Number of
PSUs that could
Potentially be Issued
 

Market-based performance condition

   $ 13.78         138         266   

Non-market-based performance condition

   $ 10.02         215         266   

(10) Comprehensive (Loss) Income

Comprehensive (loss) income includes net (loss) income and all other non-owner changes to equity that are not reported in net (loss) income. The Company’s comprehensive (loss) income for the three months ended June 30, 2012 and 2011 is as follows:

 

     June 30,  
     2012     2011  

Net (loss) income

   $ (2,978   $ 3,697   

Foreign currency translation (loss) gain

     (3,374     786   

Pension cost amortization, net of tax

     (110     82   
  

 

 

   

 

 

 

Total comprehensive (loss) income

   $ (6,462   $ 4,565   
  

 

 

   

 

 

 

The Company’s comprehensive income (loss) for the six months ended June 30, 2012 and 2011 is as follows:

 

     June 30,  
     2012     2011  

Net income (loss)

   $ (7,278   $ 6,400   

Foreign currency translation gain (loss)

     (41     2,032   

Pension cost amortization, net of tax

     (219     165   
  

 

 

   

 

 

 

Total comprehensive income (loss)

   $ (7,538   $ 8,597   
  

 

 

   

 

 

 

The components of accumulated other comprehensive loss is as follows:

 

     June 30,
2012
    December 31,
2011
 

Foreign currency translation losses

   $ (4,732   $ (4,691

Unrecognized pension and postretirement benefit costs, net of tax

     (15,352     (15,133
  

 

 

   

 

 

 

Total accumulated other comprehensive loss

   $ (20,084   $ (19,824
  

 

 

   

 

 

 

 

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Table of Contents

(11) Employee Benefit Plans

Components of the net periodic pension and postretirement benefit cost for the three months ended June 30, 2012 are as follows:

 

     For the Three Months Ended
June 30,
 
     2012     2011  

Service cost

   $ 192      $ 176   

Interest cost

     1,750        1,904   

Expected return on assets

     (2,464     (2,514

Amortization of prior service cost

     81        81   

Amortization of actuarial loss

     149        57   
  

 

 

   

 

 

 

Net periodic pension and postretirement benefit

   $ (292   $ (296
  

 

 

   

 

 

 

Components of the net periodic pension and postretirement benefit cost for the six months ended June 30, 2012 are as follows:

 

     For the Six Months  Ended
June 30,
 
     2012     2011  

Service cost

   $ 384      $ 352   

Interest cost

     3,500        3,808   

Expected return on assets

     (4,928     (5,028

Amortization of prior service cost

     162        162   

Amortization of actuarial loss

     298        114   
  

 

 

   

 

 

 

Net periodic pension and postretirement benefit

   $ (584   $ (592
  

 

 

   

 

 

 

As of June 30, 2012, the Company had not made any cash contributions to its pension plans for this fiscal year and does not anticipate making any significant cash contributions to its pension plans in 2012.

(12) Joint Venture

Kreher Steel Co., LLC is a 50% owned joint venture of the Company. It is a metals distributor of bulk quantities of alloy, special bar quality and stainless steel bars, headquartered in Melrose Park, Illinois.

The following information summarizes financial data for this joint venture for the three months ended June 30, 2012 and 2011:

 

     For the Three Months Ended
June 30,
 
     2012      2011  

Net sales

   $ 67,662       $ 67,080   

Cost of materials

     56,267         54,432   

Income before taxes

     4,433         6,782   

Net income

     3,466         5,964   

 

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The following information summarizes financial data for this joint venture for the six months ended June 30, 2012 and 2011:

 

     For the Six Months  Ended
June 30,
 
     2012      2011  

Net sales

   $ 144,467       $ 130,679   

Cost of materials

     119,665         105,710   

Income before taxes

     11,534         13,510   

Net income

     9,482         11,682   

(13) Commitments and Contingent Liabilities

As of June 30, 2012, the Company had $6,622 of irrevocable letters of credit outstanding which primarily consisted of $3,800 for collateral associated with commodity hedges and $1,994 for compliance with the insurance reserve requirements of its workers’ compensation insurance carriers.

The Company is party to a variety of legal proceedings arising from the operation of its business. These proceedings are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of management, based upon the information available at this time, that the currently expected outcome of these proceedings will not have a material effect on the consolidated results of operations, financial condition or cash flows of the Company.

In 2011, the Company determined that it inadvertently exported certain aluminum alloy bar that are listed on the U.S. Bureau of Industry and Security’s (BIS) Commerce Control List to countries where there is an export license requirement if an exception is not otherwise available. The exports, which occurred in 2011, had a total transaction value of approximately $13 and were made without export licenses. The exports involved shipments to the Company’s wholly-owned subsidiary in China and to a customer in the Philippines. In response thereto, the Company has submitted a voluntary self-disclosure describing the nature of these shipments to the Office of Export Enforcement of the Department of Commerce (OEE) in accordance with applicable Export Administration Regulations. The Company previously disclosed similar incidents to BIS in 2008, which were resolved in September 2011 through the payment of a $775 civil penalty and a commitment to satisfy certain compliance and reporting obligations. If it is determined that the Company failed to comply with the applicable U.S. export regulations, the OEE could assess additional monetary penalties, restrict export privileges or provide an administrative warning. While the ultimate disposition of this matter cannot be predicted with certainty, it is the opinion of management, based on the information available at this time, that the outcome of this matter will not have a material effect on the Company’s financial position, results of operations or cash flows.

(14) Income Taxes

The tax years 2008 through 2011 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Audits of the Company’s 2008 and 2009 U.S. federal income tax returns are in process as of June 30, 2012. To date, no material issues have been raised. Due to the potential for resolution of the examination or expiration of statutes of limitations, it is reasonably possible that the Company’s gross unrecognized tax benefits may change within the next 12 months by a range of zero to $720.

 

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The Company received its 2010 federal tax refund of $2,025 during February 2012 and its 2009 federal income tax refund of $6,344 during January 2011.

(15) Guarantor Financial Information

The accompanying condensed consolidating financial information has been prepared and presented pursuant to Rule 3-10 of SEC Regulation S-X “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” The consolidating financial information presents A. M. Castle & Co. (Parent) and subsidiaries. The consolidating financial information has been prepared on the same basis as the consolidated statements of the Parent. The equity method of accounting is followed within this financial information.

Condensed Consolidating Balance Sheet

As of June 30, 2012

 

     Parent      Guarantors     Non-Guarantors     Eliminations     Consolidated  

Assets

           

Current assets

           

Cash and cash equivalents

   $ 1,784       $ 1,774      $ 16,891      $ —        $ 20,449   

Accounts receivable, less allowance for doubtful accounts

     71,824         54,108        52,143        —          178,075   

Receivables from affiliates

     649         2,597        21        (3,267     —     

Inventories

     82,841         203,258        78,876        (584     364,391   

Prepaid expenses and other current assets

     23,854         (8,544     9,240        211        24,761   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     180,952         253,193        157,171        (3,640     587,676   

Investment in joint venture

     39,736         —          —          —          39,736   

Goodwill

     7,458         47,018        15,375        —          69,851   

Intangible assets

     —           67,650        20,183        —          87,833   

Other assets

     33,589         881        4,354        —          38,824   

Investment in subsidiaries

     390,467         11,626        —          (402,093     —     

Receivables from affiliates

     88,419         80,658        4,835        (173,912     —     

Property, plant and equipment, net

     46,942         21,187        10,926        —          79,055   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 787,563       $ 482,213      $ 212,844      $ (579,645   $ 902,975   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

           

Current liabilities

           

Accounts payable

   $ 96,178       $ 55,843      $ 27,640      $ —        $ 179,661   

Payables due to affiliates

     1,440         116        1,711        (3,267     —     

Other current liabilities

     23,370         7,788        10,149        —          41,307   

Current portion of long-term debt and short-term debt

     181         21        1,010        —          1,212   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     121,169         63,768        40,510        (3,267     222,180   

Long-term debt, less current portion

     286,544         —          4,026        —          290,570   

Payables due to affiliates

     13,976         37,278        122,658        (173,912     —     

Deferred income taxes

     13,882         19,203        (450     —          32,635   

Other non-current liabilities

     11,379         4,994        604        —          16,977   

Stockholders’ equity

     340,613         356,970        45,496        (402,466     340,613   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 787,563       $ 482,213      $ 212,844      $ (579,645   $ 902,975   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Balance Sheet

As of December 31, 2011

 

     Parent      Guarantors     Non-Guarantors     Eliminations     Consolidated  

Assets

           

Current assets

           

Cash and cash equivalents

   $ 11,528       $ 588      $ 18,408      $ —        $ 30,524   

Accounts receivable, less allowance for doubtful accounts

     68,334         57,587        55,115        —          181,036   

Receivables from affiliates

     273         3,495        146        (3,914     —     

Inventories

     57,643         155,113        59,547        (264     272,039   

Prepaid expenses and other current assets

     19,080         (3,894     3,483        —          18,669   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     156,858         212,889        136,699        (4,178     502,268   

Investment in joint venture

     36,460         —          —          —          36,460   

Goodwill

     7,459         47,018        15,424        —          69,901   

Intangible assets

     —           72,633        21,180        —          93,813   

Other assets

     34,300         628        2,812        —          37,740   

Investment in subsidiaries

     379,622         12,151        —          (391,773     —     

Receivables from affiliates

     66,878         71,041        7,292        (145,211     —     

Property, plant and equipment, net

     49,701         21,981        10,459        —          82,141   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 731,278       $ 438,341      $ 193,866      $ (541,162   $ 822,323   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

           

Current liabilities

           

Accounts payable

   $ 53,469       $ 45,794      $ 17,611      $ —        $ 116,874   

Payables due to affiliates

     1,387         76        2,451        (3,914     —     

Other current liabilities

     21,073         9,281        5,358        —          35,712   

Current portion of long-term debt and short-term debt

     82         50        560        —          692   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

   $ 76,011         55,201      $ 25,980        (3,914     153,278   

Long-term debt, less current portion

     303,739         1        10,500        —          314,240   

Payables due to affiliates

     21,884         10,415        112,912        (145,211     —     

Deferred income taxes

     6,251         19,676        (277     —          25,650   

Other non-current liabilities

     11,114         5,195        567        —          16,876   

Stockholders’ equity

     312,279         347,853        44,184        (392,037     312,279   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 731,278       $ 438,341      $ 193,866      $ (541,162   $ 822,323   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statement of Operations

For the Quarter ended June 30, 2012

 

     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Net Sales

   $ 155,771      $ 112,771      $ 70,439      $ (9,589   $ 329,392   

Costs and expenses:

          

Cost of materials (exclusive of depreciation and amortization)

     115,780        80,608        54,025        (9,732     240,681   

Warehouse, processing and delivery expense

     20,042        12,390        6,042        —          38,474   

Sales, general and administrative expense

     17,931        10,622        6,341        —          34,894   

Depreciation and amortization expense

     1,986        3,497        991        —          6,474   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     32        5,654        3,040        143        8,869   

Interest expense, net

     (6,170     —          (3,794     —          (9,964

Interest expense - unrealized loss on debt conversion option

     (4,257     —          —          —          (4,257
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes and equity in earnings of subsidiaries and joint venture

     (10,395     5,654        (754     143        (5,352

Income taxes

     2,506        (2,059     194        —          641   

Equity in earnings (losses) of subsidiaries

     3,178        (277     —          (2,901     —     

Equity in earnings of joint venture

     1,733        —          —          —          1,733   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (2,978     3,318        (560     (2,758     (2,978
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

   $ (6,462   $ 3,318      $ 2,814      $ (6,132   $ (6,462
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statement of Operations

For the Quarter ended June 30, 2011

 

     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Net Sales

   $ 155,749      $ 71,291      $ 57,394      $ (1,866   $ 282,568   

Costs and expenses:

          

Cost of materials (exclusive of depreciation and amortization)

     115,098        51,556        43,682        (1,866     208,470   

Warehouse, processing and delivery expense

     20,447        8,451        4,976        —          33,874   

Sales, general and administrative expense

     18,171        8,364        4,329        —          30,864   

Depreciation and amortization expense

     2,141        2,229        689        —          5,059   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (108     691        3,718        —          4,301   

Interest expense, net

     (229     —          (891     —          (1,120
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes and equity in earnings of subsidiaries and joint venture

     (337     691        2,827        —          3,181   

Income taxes

     (1,444     (313     (709     —          (2,466

Equity in earnings of subsidiaries

     2,496        158        —          (2,654     —     

Equity in earnings of joint venture

     2,982        —          —          —          2,982   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     3,697        536        2,118        (2,654     3,697   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 4,565      $ 536      $ 2,904      $ (3,440   $ 4,565   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statement of Operations

For the Six Months ended June 30, 2012

 

     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Net Sales

   $ 324,833      $ 241,180      $ 147,634      $ (21,339   $ 692,308   

Costs and expenses:

          

Cost of materials (exclusive of depreciation and amortization)

     240,541        171,863        113,000        (20,756     504,648   

Warehouse, processing and delivery expense

     40,461        24,628        11,911        —          77,000   

Sales, general and administrative expense

     36,652        21,527        11,927        —          70,106   

Depreciation and amortization expense

     4,042        7,056        1,989        —          13,087   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     3,137        16,106        8,807        (583     27,467   

Interest expense, net

     (13,169     —          (6,988     —          (20,157

Interest expense - unrealized loss on debt conversion option

     (15,597     —          —          —          (15,597
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes and equity in earnings of subsidiaries and joint venture

     (25,629     16,106        1,819        (583     (8,287

Income taxes

     2,729        (6,199     (473     211        (3,732

Equity in earnings (losses) of subsidiaries

     10,881        (241     —          (10,640     —     

Equity in earnings of joint venture

     4,741        —          —          —          4,741   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (7,278     9,666        1,346        (11,012     (7,278
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

   $ (7,538   $ 9,666      $ 8,053      $ (17,719   $ (7,538
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statement of Operations

For the Six Months ended June 30, 2011

 

     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Net Sales

   $ 302,504      $ 140,895      $ 115,689      $ (3,732   $ 555,356   

Costs and expenses:

          

Cost of materials (exclusive of depreciation and amortization)

     223,720        102,168        87,742        (3,732     409,898   

Warehouse, processing and delivery expense

     40,266        16,851        9,899        —          67,016   

Sales, general and administrative expense

     36,601        16,623        8,761        —          61,985   

Depreciation and amortization expense

     4,268        4,463        1,327        —          10,058   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (2,351     790        7,960        —          6,399   

Interest expense, net

     (405     —          (1,701     —          (2,106
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes and equity in earnings of subsidiaries and joint venture

     (2,756     790        6,259        —          4,293   

Income taxes

     (1,948     (323     (1,463     —          (3,734

Equity in earnings of subsidiaries

     5,263        391        —          (5,654     —     

Equity in earnings of joint venture

     5,841        —          —          —          5,841   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     6,400        858        4,796        (5,654     6,400   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 8,597      $ 858      $ 6,829      $ (7,687   $ 8,597   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statement of Cash Flows

For the Period ended June 30, 2012

 

     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Operating activities:

          

Net (loss) income

   $ (7,278   $ 9,666      $ 1,346      $ (11,012   $ (7,278

Equity in earnings of subsidiaries

     10,881        (241     —          (10,640     —     

Adjustments to reconcile net (loss) income to cash provided by operating activities

     11,804        (24,180     (7,627     21,652        1,649   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     15,407        (14,755     (6,281     —          (5,629

Investing activities:

          

Capital expenditures and other

     (2,053     (1,276     (1,354     —          (4,683
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (2,053     (1,276     (1,354     —          (4,683

Financing activities:

          

Proceeds from long-term debt, including new revolving credit facility

     326,404        —          10,731        —          337,135   

Repayments of long-term debt, including new revolving credit facility

     (318,717     (29     (17,374     —          (336,120

Payment of debt issue costs

     (1,503     —          —          —          (1,503

Net intercompany (repayments) borrowings

     (29,449     17,246        12,203        —          —     

Other financing

     167        —          500        —          667   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) from financing activities

     (23,098     17,217        6,060        —          179   

Effect of exchange rate changes on cash and cash equivalents

     —          —          58        —          58   

(Decrease) increase in cash and cash equivalents

     (9,744     1,186        (1,517     —          (10,075
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents - beginning of year

     11,528        588        18,408        —          30,524   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 1,784      $ 1,774      $ 16,891      $ —        $ 20,449   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statement of Cash Flows

For the Period ended June 30, 2011

 

     Parent     Guarantors     Non-Guarantors     Eliminations     Consolidated  

Operating activities:

          

Net income

   $ 6,400      $ 858      $ 4,796      $ (5,654   $ 6,400   

Equity in earnings of subsidiaries

     5,263        391        —          (5,654     —     

Adjustments to reconcile net (loss) income to cash provided by operating activities

     (20,743     1,786        (15,289     11,308        (22,938
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) from operating activities

     (9,080     3,035        (10,493     —          (16,538

Investing activities:

          

Capital expenditures and other

     (3,013     (916     (826     —          (4,755
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (3,013     (916     (826     —          (4,755

Financing activities:

          

Short term borrowings

     10,200        —          4,963        —          15,163   

Net (repayments) borrowings on previously existing revolving lines of credit

     (41     (13     1,456        —          1,402   

Net intercompany (repayments) borrowings

     (4,537     (1,497     6,034        —          —     

Other financing activities, net

     385        —          —          —          385   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash from (used in) financing activities

     6,007        (1,510     12,453        —          16,950   

Effect of exchange rate changes on cash and cash equivalents

     —          —          (307     —          (307

(Decrease) increase in cash and cash equivalents

     (6,086     609        827        —          (4,650
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents - beginning of year

     7,629        1,068        28,019        —          36,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 1,543      $ 1,677      $ 28,846      $ —        $ 32,066   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Amounts in millions except per share data

Disclosure Regarding Forward-Looking Statements

Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and the Company assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “predict,” “plan,” or similar expressions. These statements are not guarantees of performance or results, and they involve risks, uncertainties, and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements, including those risk factors identified in Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with the Company’s condensed consolidated financial statements and related notes thereto in ITEM 1 “Condensed Consolidated Financial Statements (unaudited)”.

Executive Overview

2011 Acquisition

On December 15, 2011, the Company acquired 100 percent of the outstanding common shares of Tube Supply, Inc. (“Tube Supply”). Tube Supply is a leading value-added distributor of specialty tubular and bar products for the oil and gas industry, based in Houston, Texas. Tube Supply provides high quality products and services primarily to the North American oilfield equipment manufacturing industry. Tube Supply operates two service centers, which are located in Houston, Texas and Edmonton, Alberta. The results and the assets of Tube Supply are included in the Company’s Metals segment. Tube Supply had net sales of $45.3 million for the quarter ended June 30, 2012.

Economic Trends and Current Business Conditions

A. M. Castle & Co. and subsidiaries (the “Company”) experienced a slight increase in demand from its customer base in the second quarter of 2012 compared to the second quarter of 2011 in both the Metals and Plastics segments.

Metals segment sales increased 17.8% from the second quarter of 2011. Average tons sold per day, excluding Tube Supply, increased 1.1% compared to the prior year quarter, which was primarily driven by growth in carbon and alloy plate and nickel products. Virtually all key end-use markets experienced weaker demand

 

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in the second quarter of 2012 compared to 2011 with the exception of the heavy equipment and oil and gas sectors. The shift in demand is reflective of a slight build-up of inventory in the Company’s target end markets.

The Company’s Plastics segment reported a sales increase of 6.3% compared to the second quarter of 2011, reflecting continued strength in the automotive and office furniture sectors, partially offset by weaker demand in the store fixtures sector. The Plastics segment also experienced resin price increases during the first five months of the year, which began to soften in mid-May.

Management uses the PMI provided by the Institute for Supply Management (website is www.ism.ws) as an external indicator for tracking the demand outlook and possible trends in its general manufacturing markets. The table below shows PMI trends from the first quarter of 2010 through the second quarter of 2012. Generally speaking, an index above 50.0 indicates growth in the manufacturing sector of the U.S. economy, while readings under 50.0 indicate contraction. During June 2012, the PMI had a reading below 50.0 for the first month since July 2009.

 

YEAR

   Qtr 1      Qtr 2      Qtr 3      Qtr 4  

2010

     58.2         58.8         55.4         56.8   

2011

     61.1         56.4         51.0         52.4   

2012

     53.3         52.7         

Material pricing and demand in both the Metals and Plastics segments of the Company’s business have historically proven to be difficult to predict with any degree of accuracy. A favorable PMI trend suggests that demand for some of the Company’s products and services, in particular those that are sold to the general manufacturing customer base in the U.S., could potentially be at a higher level in the near-term. The Company believes that its revenue trends typically correlate to the changes in PMI on a six to twelve month lag basis.

Results of Operations: Second Quarter 2012 Comparisons to Second Quarter 2011

Consolidated results by business segment are summarized in the following table for the quarter ended June 30, 2012 and 2011.

 

           Fav/(Unfav)  
     2012     2011     $ Change     % Change  

Net Sales

        

Metals

   $ 297.2      $ 252.3      $ 44.9        17.8

Plastics

     32.2        30.3        1.9        6.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

   $ 329.4      $ 282.6      $ 46.8        16.6

Cost of Materials

        

Metals

   $ 218.2      $ 187.5      $ (30.7     (16.4 )% 

% of Metals Sales

     73.4     74.3    

Plastics

     22.5        21.0        (1.5     (7.1 )% 

% of Plastics Sales

     69.9     69.3    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Cost of Materials

   $ 240.7      $ 208.5      $ (32.2     (15.4 )% 

% of Total Sales

     73.1     73.8    

Operating Costs and Expenses

        

Metals

   $ 67.8      $ 59.7      $ (8.1     (13.6 )% 

Plastics

     8.6        8.2        (0.4     (4.9 )% 

 

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Other

     3.4        1.9        (1.5     (78.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Costs & Expenses

   $ 79.8      $ 69.8      $ (10.0     (14.3 )% 

% of Total Sales

     24.2     24.7    

Operating Income

        

Metals

   $ 11.2      $ 5.1      $ 6.1        119.6

% of Metals Sales

     3.8     2.0    

Plastics

     1.1        1.1        —          —     

% of Plastics Sales

     3.4     3.6    

Other

     (3.4     (1.9     (1.5     (78.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Income

   $ 8.9      $ 4.3      $ 4.6        107.0

% of Total Sales

     2.7     1.5    

“Other” includes the costs of executive, legal and finance departments which are shared by both segments of the Company.

Net Sales:

Consolidated net sales were $329.4 million, an increase of $46.8 million, or 16.6%, compared to the second quarter of 2011. Metals segment sales during the second quarter of 2012 of $297.2 million were $44.9 million, or 17.8%, higher than the same period last year. Tube Supply had net sales of $45.3 million for the quarter ended June 30, 2012. The decline in sales in the Metals segment, excluding the activity of Tube Supply, was the result of a slight increase in demand, offset by lower average prices for the Company’s products. Average tons sold per day, excluding Tube Supply, increased 1.1% compared to the prior year quarter, which was primarily driven by growth carbon and alloy plate and nickel products. Virtually all key end-use markets experienced weaker demand in the second quarter of 2012 compared to 2011 with the exception of the heavy equipment and oil and gas sectors.

Plastics segment sales during the second quarter of 2012 of $32.2 million were $1.9 million, or 6.3% higher than the second quarter of 2011 due to increased pricing and higher sales volume reflecting continued strength in the automotive and office furniture sectors, partially offset by weaker demand in the store fixtures sector. In addition, the Plastics segment experienced resin price increases during the first five months of the year, which began to soften in mid-May.

Cost of Materials:

Cost of materials (exclusive of depreciation and amortization) during the second quarter of 2012 was $240.7 million, an increase of $32.2 million, or 15.4%, compared to the second quarter of 2011. Material costs for the Metals segment for the second quarter of 2012 were $218.2 million or 73.4% as a percent of net sales compared to $187.5 million or 74.3% as a percent of sales for the second quarter of 2011. Tube Supply cost of materials was $29.6 million for the quarter ended June 30, 2012. Excluding Tube Supply, cost of materials increased $2.6 million compared to the second quarter of 2011. Second quarter 2012 results include a $1.4 million loss associated with commodity hedges compared to no charge in the prior year period. The Metals segment recorded LIFO expense of $1.5 million in the second quarter of 2012 compared to $3.9 million in the second quarter of 2011. Material costs for the Plastics segment of 69.9% as a percent of net sales for the second quarter of 2012 were higher than 69.3% for the same period last year due to higher costs experienced in the automotive sector of the business.

 

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Operating Expenses and Operating Income:

On a consolidated basis, operating costs and expenses increased $10.0 million, or 14.3%, compared to the second quarter of 2011. Operating costs and expenses were $79.8 million, or 24.2% of net sales, compared to $69.8 million, or 24.7% of net sales during the second quarter of 2011.

During the second quarter of 2012, the Company incurred costs associated with executive employment transition in the amount of $1.6 million. As a result of the transition, share-based awards were forfeited, which resulted in a significant increase in the Company’s forfeiture rate. The increase in the forfeiture rate estimate associated with the active Long-term Compensation Plans resulted in a decrease in sales, general and administrative cost of approximately $1.0 million. The net impact of the employment transition costs on sales, general and administrative expense was approximately $0.6 million.

There were overall increases in payroll related costs in the second quarter of 2012 compared to the prior year quarter, resulting from a change in the Company’s 401(k) matching contribution to 100% of each dollar on eligible employee contributions up to the first 6% of the employee’s pre-tax compensation, which was effective July 1, 2011. Other factors that contributed to increased payroll related costs in 2012 compared to 2011 included merit increases, which are effective in April of each year, and headcount increases.

The increase in operating expenses for the second quarter of 2012 compared to the second quarter of 2011 primarily relates to the following:

 

   

Warehouse, processing and delivery costs increased by $4.6 million of which $4.2 million is associated with Tube Supply activity for the quarter. The remaining $0.4 million increase is primarily attributed to increased compensation and benefits expense as a result of headcount and merit increases;

 

   

Sales, general and administrative costs increased by $4.0 million of which $2.7 million is associated with Tube Supply activity for the quarter. The remaining increase is primarily due to the net impact of the CEO transition costs of $0.6 million and an increase to bad debt reserves for customer bankruptcies of $0.8 million;

 

   

Depreciation and amortization expense was $1.4 million higher than the second quarter of 2011 primarily due to the depreciation and amortization of Tube Supply’s fixed and intangible assets acquired in December 2011.

Consolidated operating income for the second quarter of 2012 was $8.9 million compared to $4.3 million for the same period last year. Tube Supply contributed $7.0 million to the overall increase from the second quarter of 2011. The Company’s second quarter 2012 operating income as a percent of net sales increased to 2.7% from 1.5% in the second quarter of 2011.

Other Income and Expense, Income Taxes and Net Income:

Interest expense was $14.2 million in the second quarter of 2012, an increase of $13.1 million versus the same period in 2011 as a result of interest charges on the Company’s new senior secured notes, convertible notes and revolving line of credit, as well as the unrealized loss for the mark-to-market adjustment on the conversion option associated with the convertible notes.

 

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Interest expense for the second quarter of 2012 includes the following new charges compared to the prior year period:

 

   

Non-cash interest charge of $4.3 million associated with the mark-to-market adjustment on the conversion option associated with the convertible notes, which is not deductible for federal income tax purposes;

 

   

Interest on senior secured and convertible notes of $7.9 million; and

 

   

Amortization of debt discount of $0.8 million.

The Company recorded income tax benefit of $0.6 million for the quarter ended June 30, 2012 compared to tax expense of $2.5 million for the same period last year. The Company’s effective tax rate is expressed as ‘Income tax expense’, which includes tax expense on the Company’s share of joint venture earnings, as a percentage of ‘Income before income taxes and equity in earnings of joint venture.’ The effective tax rate for the quarters ended June 30, 2012 and 2011 were 12.0% and 77.5%, respectively. The change in the effective tax rate compared to the second quarter of 2011 was primarily the result of the non-deductibility of the mark-to-market adjustment on the conversion option associated with the convertible notes in the amount of $4.3 million.

Equity in earnings of the Company’s joint venture was $1.7 million in the second quarter of 2012, which was $1.2 million less than the same period last year. An increase to bad debt reserves for customer bankruptcies impacted equity in earnings of the joint venture by approximately $0.6 million in the second quarter of 2012 compared to 2011. Lower demand for Kreher’s products in virtually all end-use markets compared to the same period last year was another contributing factor to the decrease in equity in earnings of the Company’s joint venture.

Consolidated net loss for the second quarter of 2012 was $3.0 million, or $0.13 per diluted share, compared to net income of $3.7 million, or $0.16 per diluted share, for the same period in 2011. The net loss for the second quarter of 2012 resulted from the mark-to-market adjustment on the conversion option associated with the convertible debt.

Results of Operations: Six Months 2012 Comparisons to Six Months 2011

Consolidated results by business segment are summarized in the following table for the six months ended June 30, 2012 and 2011.

 

           Fav/(Unfav)  
     2012     2011     $ Change     % Change  

Net Sales

        

Metals

   $ 629.1      $ 496.9      $ 132.2        26.6

Plastics

     63.2        58.5        4.7        8.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

   $ 692.3      $ 555.4      $ 136.9        24.6

Cost of Materials

        

Metals

   $ 460.3      $ 369.4      $ (90.9     (24.6 )% 

% of Metals Sales

     73.2     74.3    

Plastics

     44.4        40.5        (3.9     (9.6 )% 

% of Plastics Sales

     70.3     69.2    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Cost of Materials

   $ 504.7      $ 409.9      $ (94.8     (23.1 )% 

% of Total Net Sales

     72.9     73.8    

Operating Costs and Expenses

        

Metals

   $ 137.1      $ 118.8      $ (18.3     (15.4 )% 

 

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Plastics

     17.2        16.4        (0.8     (4.9 )% 

Other

     5.9        3.9        (2.0     (51.3 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Costs & Expenses

   $ 160.2      $ 139.1      $ (21.1     (15.2 )% 

% of Total Net Sales

     23.1     25.0    

Operating Income (Loss)

        

Metals

   $ 31.7      $ 8.7      $ 23.0        264.4

% of Metals Sales

     5.0     1.8    

Plastics

     1.6        1.6        —          —     

% of Plastics Sales

     2.5     2.7    

Other

     (5.9     (3.9     (2.0     (51.3 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Income

   $ 27.4      $ 6.4      $ 21.0        328.1

% of Total Net Sales

     4.0     1.2    

“Other” includes the costs of executive, legal and finance departments which are shared by both segments of the Company.

Net Sales:

Consolidated net sales were $692.3 million, an increase of $136.9 million, or 24.6%, compared to the same period last year. Higher net sales were primarily the result of higher shipping volumes and increased pricing in the metals and plastics markets. Metals segment sales during the first six months of 2012 of $629.1 million were $132.2 million, or 26.6%, higher than the same period last year. Tube Supply had net sales of $105.1 million for the first half of 2012. Average tons sold per day increased 5.2% compared to the prior year period. The increase in sales volume was driven primarily by carbon and alloy plate, nickel, stainless and tubing products. Key end-use markets that experienced increased demand in the first six months of 2012 include oil and gas, heavy equipment and general industrial equipment.

Plastics segment sales during the first six months of 2012 of $63.2 million were $4.7 million, or 8.0% higher than the same period last year due to increased pricing and higher sales volume reflecting continued strength in the automotive and office furniture sectors. In addition, the Plastics segment experienced resin price increases during the first five months of the year, which began to soften in mid-May.

Cost of Materials:

Cost of materials (exclusive of depreciation and amortization) during the first six months of 2012 were $504.7 million, an increase of $94.8 million, or 23.1%, compared to the same period last year. Material costs for the Metals segment for the first six months of 2012 were $460.3 million or 73.2% as a percent of net sales compared to $369.4 million or 74.3% as a percent of net sales for the first six months of 2011. Tube Supply cost of materials was $69.4 million for the first half of 2012. Cost of materials increased primarily as a result of increased sales activity for the period. Year-to-date 2012 results include a $1.0 million loss associated with commodity hedges compared to no charge in the prior year period. The Metals segment recorded LIFO expense of $6.1 million in 2012 compared to $6.9 million during the prior year period. Material costs for the Plastics segment were 70.3% and 69.2% as a percent of net sales for the first six months of 2012 and 2011, respectively. Management believes that consolidated material costs as a percentage of net sales will be comparable to first six months of 2012 levels for the balance of 2012.

 

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Operating Expenses and Operating Income:

On a consolidated basis, operating costs and expenses increased $21.1 million, or 15.2%, compared to the same period last year. Operating costs and expenses were $160.2 million, or 23.1% as a percent of sales, compared to $139.1 million, or 25.0% as a percent of sales last year. Second quarter 2011 results include a $0.8 million charge for export penalties related to product shipments that occurred from 2005 to 2008.

During the second quarter of 2012, the Company incurred costs associated with executive employment transition in the amount of $1.6 million. As a result of the transition, share-based awards were forfeited, which resulted in a significant increase in the Company’s forfeiture rate. The increase in the forfeiture rate estimate associated with the active Long-term Compensation Plans resulted in a decrease in sales, general and administrative cost of approximately $1.0 million. The net impact of the employment transition costs on sales, general and administrative expense was approximately $0.6 million.

There were overall increases in payroll related costs in the first half of 2012 compared to the prior year period, resulting from a change in the Company’s 401(k) matching contribution to 100% of each dollar on eligible employee contributions up to the first 6% of the employee’s pre-tax compensation, which was effective July 1, 2011. Other factors that contributed to increased payroll related costs in 2012 compared to 2011 included merit increases, which are effective in April of each year, and headcount increases.

The increase in operating expenses for the first six months of 2012 compared to 2011 primarily relates to the following:

 

   

Warehouse, processing and delivery costs increased by $10.0 million of which $8.5 million is associated with Tube Supply activity for the period. The remaining $1.5 million increase is primarily attributed to increased compensation and benefits expense as a result of headcount, merit and healthcare cost increases, partially offset by a decrease in workers’ compensation costs;

 

   

Sales, general and administrative costs increased by $8.1 million of which $5.8 million is associated with Tube Supply activity for the period. The remaining increase is primarily due to the net impact of the CEO transition costs of $0.6 million, an increase to bad debt reserves for customer bankruptcies of $0.8 million and increased payroll costs of approximately $1.0 million as a result of headcount, merit, workers compensation and healthcare cost increases;

 

   

Depreciation and amortization expense was $3.0 million higher than the first half of 2011 primarily due to the depreciation and amortization of Tube Supply’s fixed and intangible assets acquired in December 2011.

Consolidated operating income for the six months ended June 30, 2012 was $27.4 million compared to operating income of $6.4 million for the same period last year. Tube Supply contributed $17.9 million to the overall increase from the first half of 2011.

Other Income and Expense, Income Taxes and Net Income (Loss):

Interest expense was $35.8 million in the first half of 2012, an increase of $33.6 million versus the same period in 2011 as a result of interest charges on the Company’s new senior secured notes, convertible notes and revolving line of credit, as well as the unrealized loss for the mark-to-market adjustment on the conversion option associated with the convertible notes.

 

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Interest expense for the first half of 2012 includes the following new charges compared to the prior year period:

 

   

Non-cash interest charge of $15.6 million associated with the mark-to-market adjustment on the conversion option associated with the convertible notes, which is not deductible for federal income tax purposes;

 

   

Interest on senior secured and convertible notes of $16.2 million; and

 

   

Amortization of debt discount of $1.6 million.

For the six months ended June 30, 2012 and 2011, the Company recorded tax expense of $3.7 million and $3.7 million, respectively. The Company’s effective tax rate is expressed as ‘Income tax expense or benefit’ as a percentage of ‘Income (loss) before income taxes and equity in earnings of joint venture.’ This calculation includes taxes on the joint venture income but excludes joint venture income. The effective tax rate for the six months ended June 30, 2012 and 2011 was (45.0)% and 87.0%, respectively. The change in the effective tax rate compared to the first six months of 2011 was primarily the result of the non-deductibility of the mark-to-market adjustment on the conversion option associated with the convertible notes in the amount of $15.6 million. In addition, the effective tax rate for the six months ended June 30, 2011 was significantly higher than the current period due to higher earnings of the Company’s joint venture.

Equity in earnings of the Company’s joint venture was $4.7 million for the six months ended June 30, 2012, compared to $5.8 million for the same period last year. An increase to bad debt reserves for customer bankruptcies impacted equity in earnings of the joint venture by approximately $0.6 million for the six months ended 2012 compared to 2011. Lower demand for Kreher’s products in virtually all end-use markets compared to the same period last year was another contributing factor to the decrease in equity in earnings of the Company’s joint venture.

Consolidated net loss for the first six months of 2012 was $7.3 million, or $0.32 per diluted share, versus net income of $6.4 million, or $0.28 per diluted share, for the same period in 2011. The net loss for the first half of 2012 resulted from the mark-to-market adjustment on the conversion option associated with the convertible debt.

Accounting Policies:

There have been no changes in critical accounting policies from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Liquidity and Capital Resources

Cash and cash equivalents decreased by $10.1 million for the six months ended June 30, 2012 compared to a decrease of $4.7 million for the same period last year.

The Company’s principal sources of liquidity are operating earnings, management of working capital and available borrowing capacity to fund working capital needs and growth initiatives. In times of economic downturn the Company typically has generated significant cash flow from operations due to net reductions in working capital while during times of economic prosperity, the Company typically has utilized cash flow from operations to fund net working capital increases to support the business growth. Cash used in operations for the six months ended June 30, 2012 was $5.6 million compared to cash used in operations of $16.5 million for

 

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the six months ended June 30, 2011. Specific components of the change in working capital are highlighted below:

 

   

During the six months ended June 30, 2012, cash receipts from customers exceeded net sales resulting in a $3.2 million cash flow impact due to a decrease in accounts receivable for the six months ended June 30, 2012 compared to a $33.4 million cash flow impact due to an increase in accounts receivable for the same period last year. Net sales increased 24.6% from the same period last year. Average receivable days outstanding was 48.4 days for the six months ended June 30, 2012 compared to 48.7 for the six months ended June 30, 2011.

 

   

During the six months ended June 30, 2012, inventory purchases exceeded sales of inventory resulting in a $92.3 million cash flow impact due to an increase in inventory compared to a $41.9 million cash flow impact due to an increase in inventory in the six months ended June 30, 2011. Average days sales in inventory was 170.5 days for the six months ended June 30, 2012 compared to 120.4 days for the six months ended June 30, 2011.

 

   

During the six months ended June 30, 2012, purchases exceeded cash paid for inventories and other goods and services resulting in a $70.2 million cash flow impact due to a net increase in accounts payable and accrued liabilities compared to a $41.8 million cash flow impact due to a net increase in accounts payable and accrued liabilities for the same period last year.

 

   

The Company received its 2010 federal income tax refund of approximately $2.0 million during February 2012 and its 2009 federal income tax refund of approximately $6.3 million during January 2011.

In December 2011, in conjunction with the acquisition of Tube Supply, the Company issued $225.0 million aggregate principal amount of 12.75% Senior Secured Notes due 2016, $57.5 million aggregate principal amount of 7.0% Convertible Senior Notes due 2017 and entered into a $100.0 million senior secured asset based revolving credit facility (the “New Revolving Credit Facility”). Net proceeds of $304.6 million were used to complete the Acquisition, pay-off amounts outstanding under our previous credit agreement and for general corporate purposes.

Historically, the Company’s primary uses of liquidity and capital resources have been capital expenditures, payments on debt (including interest payments), acquisitions and dividend payments. Management believes the Company will be able to generate sufficient cash from operations and planned working capital improvements to fund its ongoing capital expenditure programs and meet its debt obligations for at least the next twelve months. Furthermore, the Company does have available borrowing capacity under the New Revolving Credit Agreement. The new debt agreements impose significant operating and financial restrictions which may prevent the Company from certain business opportunities such as, making acquisitions or paying dividends, among other things. The New Revolving Credit facility contains a springing financial maintenance covenant requiring the Company to maintain the ratio (as defined in the agreement) of EBITDA to fixed charges of 1.1 to 1.0 when excess availability is less than the greater of 10% of the calculated borrowing base (as defined in the agreement) or $10.0 million. In addition, if excess availability is less than the greater of 12.5% of the calculated borrowing base (as defined in the agreement) or $12.5 million, the lender has the right to take full dominion of the Company’s cash collections and apply these proceeds to outstanding loans under the New Revolving Credit Agreement (“cash dominion”). Based on the Company’s cash projections, it does not anticipate a scenario whereby cash dominion would occur.

The Company is committed to maintaining a strong financial position through maintaining sufficient levels of available liquidity, managing working capital and monitoring the Company’s overall

 

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capitalization. Cash and cash equivalents at June 30, 2012 were $20.4 million, and the Company had $54.0 million of available borrowing capacity under its New Revolving Credit Facility. Approximately 17% of the Company’s consolidated cash and cash equivalents balance resides in the United States. As foreign earnings are permanently reinvested, availability under the Company’s New Revolving Credit Facility would be used to fund operations in the United States should the need arise in the future.

Working capital at June 30, 2012 was $365.5 million compared to $349.0 million at December 31, 2011. The increase in working capital is primarily due to higher inventory of $92.4 million to support higher sales volumes and higher prepaid expenses and other current assets of $10.6 million, partially offset by a decrease in cash and income tax receivable of $10.1 million and $4.5 million, respectively, and increases in accounts payable and accrued liabilities of $62.8 million and $6.0 million, respectively, from December 31, 2011 to June 30, 2012.

The Company monitors its overall capitalization by evaluating total debt to total capitalization. Total debt to total capitalization is defined as the sum of short- and long-term debt, divided by the sum of total debt and stockholders’ equity. Total debt to total capitalization was 46.1% at June 30, 2012 and 50.2% at December 31, 2011. As of April 26, 2012, the conversion option value of $42.0 million was reclassified from long-term debt, less current portion to additional paid-in capital, resulting in a decrease to the debt to total capitalization at June 30, 2012. The deferred tax benefit of $8.3 million associated with the temporary difference between the financial reporting basis of the derivative liability and its tax basis at the date of issuance (December 15, 2011) was also reclassified to additional paid-in capital. Over the long-term, the Company plans to continue to improve its total debt to total capitalization by improving operating results, managing working capital and using cash generated from operations to repay outstanding debt. Going forward, as and when permitted by term of agreements noted above, depending on market conditions, the Company may decide in the future to refinance, redeem or repurchase its debt and take other steps to reduce its debt or lease obligations or otherwise improve its overall financial position and balance sheet.

On November 5, 2009 the Company filed a universal shelf registration statement with the Securities and Exchange Commission, which was declared effective on November 23, 2009. The registration statement gives the Company the flexibility to offer and sell from time to time in the future up to $100 million of equity, debt or other types of securities as described in the registration statement, or any combination of such securities. If securities are issued, the Company may use the proceeds for general corporate purposes, including acquisitions, capital expenditures, working capital and repayment of debt.

Cash paid for capital expenditures for the six months ended June 30, 2012 was $4.7 million, a decrease of $0.1 million compared to the same period last year. Management believes that annual capital expenditures will approximate $13.0 million in 2012, which is $2.0 million lower than the estimate at the beginning of the year.

The Company’s principal payments on long-term debt, including the current portion of long-term debt, required during the next five years and thereafter are summarized below:

 

2012

   $ 0.2   

2013

     0.3   

2014

     —     

2015

     36.3   

2016

     225.0   

2017 and beyond

     57.5   
  

 

 

 

Total debt

   $ 319.3   
  

 

 

 

 

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As of June 30, 2012, the Company had $6.6 million of irrevocable letters of credit outstanding, which primarily consisted of $3.8 million for collateral associated with commodity hedges and $2.0 million for compliance with the insurance reserve requirements of its workers’ compensation insurance carriers.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to interest rate, commodity price and foreign exchange rate risks that arise in the normal course of business. There have been no significant or material changes to such risks since December 31, 2011. Refer to Item 7a in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2011 for further discussion of such risks.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

A review and evaluation was performed by the Company’s management, including the interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) and have concluded that these disclosure controls and procedures are effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended June 30, 2012 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

(c) Changes in Company Management

On May 10, 2012, Scott F. Stephens, was appointed interim President and Chief Executive Officer, replacing Michael H. Goldberg. Mr. Stephens also retained his position as Vice President, Finance and Chief Financial Officer. The change in Company management did not materially affect the Company’s internal control over financial reporting during the three months ended June 30, 2012.

 

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Part II. OTHER INFORMATION

Item 6. Exhibits

 

Exhibit
No.

  

Description

    2.3    Second Amendment to the Stock Purchase Agreement, dated January 13, 2012, by and among A. M. Castle & Co., Mr. Paul Sorensen, Mr. Jerry Willeford, and Tube Supply, LLC (as successor in interest to Tube Supply Inc.). Incorporated by reference to Exhibit 2.3 to the Company’s Form S-4/A filed with the SEC on May 25, 2012. Commission File No. 333-180662.
    2.4    Third Amendment to the Stock Purchase Agreement, dated May 11, 2012, by and among A. M. Castle & Co., Mr. Paul Sorensen, Mr. Jerry Willeford, and Tube Supply, LLC (as successor in interest to Tube Supply Inc.). Incorporated by reference to Exhibit 2.4 to the Company’s Form S-4/A filed with the SEC on May 25, 2012. Commission File No. 333-180662.
  10.29*    Employment Agreement, dated November 9, 2011, by and between A. M. Castle & Co. and Mr. Paul Sorensen.
  10.30*    Form of Retention Bonus Agreement for certain executive officers in connection with CEO leadership transition, dated May 14, 2012.
  10.31*    Amendment to Employment Agreement, dated May 30, 2012, by and between A. M. Castle & Co. and Mr. Paul Sorensen.
  31.1    CEO and CFO Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
  32.1    CEO and CFO Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101.INS    XBRL Instance Document (1)
101.SCH    XBRL Taxonomy Extension Schema Document (1)
101.CAL    XBRL Taxonomy Calculation Linkbase Document (1)
101.LAB    XBRL Taxonomy Label Linkbase Document (1)
101.PRE    XBRL Taxonomy Presentation Linkbase Document (1)

 

(1) Furnished with this report. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
* These agreements are considered a compensatory plan or arrangement.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

A. M. Castle & Co.

  (Registrant)
Date: August 7, 2012   By:  

/s/ Patrick R. Anderson

    Patrick R. Anderson
    Vice President – Controller and Chief Accounting Officer
   

(Mr. Anderson has been authorized to

sign on behalf of the Registrant.)

 

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Exhibit Index

The following exhibits are filed herewith or incorporated herein by reference:

 

Exhibit
No.

  

Description

  

Page

 
    2.3    Second Amendment to the Stock Purchase Agreement, dated January 13, 2012, by and among A. M. Castle & Co., Mr. Paul Sorensen, Mr. Jerry Willeford, and Tube Supply, LLC (as successor in interest to Tube Supply Inc.). Incorporated by reference to Exhibit 2.3 to the Company’s form S-4/A filed with the SEC on May 25, 2012. Commission File No. 333-180662.      —     
    2.4    Third Amendment to the Stock Purchase Agreement, dated May 11, 2012, by and among A. M. Castle & Co., Mr. Paul Sorensen, Mr. Jerry Willeford, and Tube Supply, LLC (as successor in interest to Tube Supply Inc.). Incorporated by reference to Exhibit 2.4 to the Company’s Form S-4/A filed with the SEC on May 25, 2012. Commission File No. 333-180662.      —     
  10.29*    Employment Agreement, dated November 9, 2011, by and between A. M. Castle & Co. and Mr. Paul Sorensen.      E-1   
  10.30*    Form of Retention Bonus Agreement for certain executive officers in connection with CEO leadership transition, dated May 14, 2012.      E-19   
  10.31*    Amendment to Employment Agreement, dated May 30, 2012, by and between A. M. Castle & Co. and Mr. Paul Sorensen.      E-24   
  31.1    CEO and CFO Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002      E-27   
  32.1    CEO and CFO Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 2002      E-28   
101.INS    XBRL Instance Document (1)   
101.SCH    XBRL Taxonomy Extension Schema Document (1)   
101.CAL    XBRL Taxonomy Calculation Linkbase Document (1)   
101.LAB    XBRL Taxonomy Label Linkbase Document (1)   
101.PRE    XBRL Taxonomy Presentation Linkbase Document (1)   

 

(1) Furnished with this report. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
* These agreements are considered a compensatory plan or arrangement.

 

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