Datamonitor company profile A M Castle & Co

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COMPANY OVERVIEW
A M Castle & Co (A M Castle) is a specialty metals and plastics manufacturing and distribution
company. It specializes in the distribution of alloy and stainless steels; nickel alloys; aluminum and
carbon. Through its subsidiary, Total Plastics, the company also distributes a range of value added
industrial plastics. A.M. Castle operates throughout North America and Europe. The company is
headquartered in Franklin Park, Illinois and employs 2,016 people.
The company recorded revenues of $1,177.6 million during the fiscal year ended December 2006,
an increase of 22.8% over 2005. The operating profit of the company was $92.5 million during fiscal
year 2006, an increase of 29.9% over 2005. The net profit was $55.1 million in fiscal year 2006, an
increase of 41.7% over 2005.
KEY FACTS
A M Castle & Co Head Office
3400 North Wolf Road
Franklin Park
Illinois 60131
USA
1 847 455 7111 Phone
1 847 455 6930 Fax
http://www.amcastle.com Web Address
1,177.6 Revenue / turnover
(USD Mn)
December Financial Year End
2,016 Employees
CAS New York Ticker


BUSINESS DESCRIPTION
A M Castle is a specialty metals and plastics distribution company. The company provides a range
of inventories, as well as pre processing services, and distributes and performs first-stage processing
on both metals and plastics.The company, through its Castle Metals core specialty metals business,
distributes carbon, alloy and stainless steels, nickel alloys, aluminum, titanium, cast iron, and copper
and brass products in a variety of product forms including bar, plate, tube, sheet, and coil.
The company operates through two business segments: specialty metals and plastics segment.
The metals segment's products include carbon, alloy and stainless steels, nickel alloys,
aluminum,titanium, brass, and copper. This segment also offers specialized manufacturing services
for customers through pre-qualified subcontractors. The company also has a 50% interest in Kreher
Steel, a company that delivers metal alloy and stainless products primarily to customers in the
MidWest of the US.
The plastics segment operates through subsidiary Total Plastics (TPI), which consists of two
majority-owned joint ventures, Advanced Fabricating Technology and Paramont Machine Company.
The company purchases metals and plastics from many producers and provides delivery, frequently
overnight, of a range of metal and plastic products, which are made principally by leased trucks.
Total Plastics also distributes industrial plastics. Another subsidiary, Oliver Steel Plate supplies
carbon and alloy plates and heavy gauge carbon plate products. Metal Express subsidiary serves
the small-quantity metal market with customer base throughout the Midwest.
Castle Metals' joint venture Kreher Steel Company distributes carbon, alloy, stainless and tool steel
bar products. Castle Metals (Mexico) offers a range of products on site while it also offers full range
of Castle Metals product lines available from the other US Castle locations.


HISTORY
A M Castle was founded in 1890.
The company underwent major expansion in 1973 with the acquisition of Hy-Alloy Steel, an
Illinois-based distributor of carbon and alloy steels.
During 1993, A M Castle launched H-A Industries, a value-added bar processing center in Hammond,
Indiana. In 1997, the plant was extended to 250,000 sq. ft., allowing the company to double its
heat-treating capacity and triple bar turning output. Two years later, the company formed Metal
Express, a small order distribution company in which it initially held a 60% joint venture interest.
Also during that year, the company acquired a 50% joint venture interest in Energy Alloys, a
Houston-based metals distributor.
The company purchased a 50% interest in Laser Precision, located in Libertyville, Illinois, in 1999.
This was followed by the acquisition of Oliver Steel Plate.
The company acquired its partner's remaining interest in Metal Express and thus made it a wholly
owned subsidiary of the company, in 2002.
Michael H. Goldberg was appointed as President and Chief Executive Officer of A M Castle in
January 2006. In September of the same year, the company acquired Transtar Metals.
In January 2007, John McCartney was appointed as Chairman of the Board of the company. In May
2007, the company filed an application to transfer the listing of its common stock to the New York
Stock Exchange (NYSE) from the Chicago Stock Exchange.
In October 2007, the company sold its wholly owned subsidiary Metal Express to Metal Supermarkets
(Chicago) Ltd, a unit of Metal Supermarkets Corp for approximately $6.7 million.


KEY EMPLOYEES
Compensation Board Job Title Name
506903 USD Executive Board President and Chief Executive
Officer
Michael H Goldberg
Non Executive Board Chairman John McCartney
Non Executive Board Director Brian P Anderson
Non Executive Board Director Thomas A Donahoe
Non Executive Board Director William K Hall
Non Executive Board Director Robert S Hamada
Non Executive Board Director Patrick J Herbert
Non Executive Board Director Ann M. Drake
Non Executive Board Director Michael Simpson
Non Executive Board Director Pamela Forbes - Lieberman
388589 USD Senior Management Executive Vice President; President,
Castle Metals
Stephen V Hooks
279577 USD Senior Management Vice President of Finance and Chief
Financial Officer
Larry A Boik
Senior Management Vice President and General
Counsel/Corporate Secretary
Sherry L. Holland
Senior Managemen

KEY EMPLOYEE BIOGRAPHIESMichael H GoldbergBoard: Executive BoardJob Title: President and Chief Executive OfficerSince: 2006Age: 53Mr. Goldberg has been President and Chief Executive Officer of the company since 2006. Prior tojoining the company, he was Executive Vice President of Integris Metals (an aluminum and metalsservice center) from 2001 to 2005. From 1998 to 2001, Mr. Goldberg was Executive Vice Presidentof North American Metals Distribution Group, a division of Rio Algom.John McCartneyBoard: Non Executive BoardJob Title: ChairmanSince: 2007Age: 54Mr. McCartney has been Chairman of the company since 2007. He is also the Chairman of the Boardof Westcon Group, Vice Chairman of Datatec, (technology holding company) from 1998 to 2004.From 1997 to 1998, Mr. McCartney was President of Client Access Business Unit of 3Com Corporation(computer networking company). He is also a Director of Huron Consulting Group and Federal SignalCorporation.Brian P AndersonBoard: Non Executive BoardJob Title: DirectorAge: 56Mr. Anderson serves as Director of A M Castle & Co. He was formerly Corporate Vice President,Finance, Senior Vice President and Chief Financial Officer of Baxter International. He brings abackground of global finance to the Board. Mr. Anderson is a Director of WW Grainger. He is alsoa Director of the Chicago Botanical Gardens and on the Dean's Advisory Board of Kelly School ofBusiness, Indiana University. Mr. Anderson was appointed as a Member of the company's AuditCommittee.Thomas A DonahoeBoard: Non Executive BoardJob Title: DirectorSince: 2005Age: 71Mr. Donahoe serves as Director of A M Castle & Co. He is a retired Vice Chair of Price Waterhouse,rounds out the financial expertise of the company's Board of Directors. Mr. Donahoe is a Directorof NiCor and Andrews. He is also a Director of the Hadley School for the Blind, Kohls Children'sMuseum, Executive Service of Chicago, Johnston R. Bowman Health Center for the Elderly, ChicagoBotanical Gardens, and Big Shoulders Fund. Mr. Donahoe is a member of the company's AuditCommittee.William K HallBoard: Non Executive BoardJob Title: DirectorSince: 1984Age: 63Mr. Hall serves as Director of A M Castle & Co. He has been Chairman of Procyon Technologies,(aerospace/defense component manufacturer). He was Chairman and Chief Executive of ProcTechnologies, Inc. (2000 to 2004). He was Executive Consultant from 1999 to 2000 and, from 1996until his retirement in 1999, Chairman and Chief Executive Officer of Falcon Building Products,(diversified manufacturer of building products). Mr. Hall is a Director of Actuant, Gencorp, ProcyonTechnology Kansas City Power & Light and Woodhead Industries.Robert S HamadaBoard: Non Executive BoardJob Title: DirectorSince: 1984Age: 69Mr. Hamanda serves as Director of A M Castle & Co. He is Professor Emeritus, Edward Eagle BrownDistinguished Service Professor of Finance and former Dean (1993 to 2001) University of Chicago,Graduate School of Business. Mr. Hamada is also a Director of the National Bureau of EconomicResearch, the Northern Trust, Fleming Companies and Federal Signal.Patrick J HerbertBoard: Non Executive BoardJob Title: DirectorSince: 1996Age: 57
Mr. Herbert serves as Director of A M Castle & Co. He has been President of Simpson Estates, aprivate asset management firm, since 1996.Ann M. DrakeBoard: Non Executive BoardJob Title: DirectorSince: 2007Age: 59Ms. Drake has been Director of the company since 2007. She is a Chief Executive Officer of DSCLogistics, a privately held supply chain management company. Ms. Drake has served as the CEOof DSC Logistics for over ten years.Michael SimpsonBoard: Non Executive BoardJob Title: DirectorSince: 1972Age: 68Mr. Simpson serves as Director of A M Castle & Co. He is Chairman Emeritus of the Board of Castle.Mr. Simpson was elected Vice President of Castle in 1977 and Chairman of the Board in 1979. Mr.Simpson retired as an Officer of Castle in August 2001 and stepped down as Chairman in January2004.Pamela Forbes - LiebermanBoard: Non Executive BoardJob Title: DirectorAge: 53Pamela Forbes Lieberman is Interim Chief Operating Officer of Entertainment Resource, Inc fromMarch, 2006 to August, 2006. President and Chief Executive Officer of TruServ Corporation (nowknown as True Value Company) from 2001 to 2004.
MAJOR PRODUCTS AND SERVICESA M Castle is a specialty metals and plastics manufacturing and distribution company. The companyoffers the following products and services:Products:CarbonCast ironAlloyAluminumStainless steelNickel alloysTitaniumCast ironCopper and brass productsPlasticServices:Bar thermal treating and finishing
TOP COMPETITORSThe following companies are the major competitors of A M Castle & CoNippon Steel CorporationUnited States Steel CorporationCommercial Metals CompanyCarpenter Technology CorporationAllegheny Technologies IncorporatedEmpire Resources IncKobe Steel, Ltd.Metals USA IncOlympic Steel IncRyerson Tull, Inc.Reliance Steel & Aluminum Co.
COMPANY VIEWA statement by Michael H. Goldberg, President and Chief Executive Officer of A.M. Castle & Co. isgiven below. The statement has been taken from the company’s 2006 annual report.A Bold New Direction: 2006 marked several major milestones in our company’s 116-year history.• Our revenues surpassed the $1 billion threshold for the first time, while earnings grew 43% to arecord $54 million.• Our strong balance sheet positioned us to embark on a bold multi-year strategy to become ourindustry’s foremost provider of specialty metals products and services on a global basis.• Our acquisition of Transtar Metals reflects the first significant step in this new direction. A leadingprovider of high performance aluminum alloys to the global aerospace and defense industries withapproximately $250 million in 2006 revenues, Transtar will serve as the cornerstone to increase ourpresence in these key markets.Our new direction aligns us with several favorable trends that are shaping and redefining the specialtymetals distribution business. These include a strategic shift on the part of both our suppliers andcustomers toward outsourcing their metals processing requirements, increasing demand from largeOEMs for global sourcing and complex supply chain solutions, and continuing industry consolidation.To take advantage of these trends, we have established four core objectives to drive our strategyover the next several years:• An increased focus on providing specialty products and value-added services that leverage ourlong-standing experience and reputation in highly engineered metals;• An expanded presence in high growth “vertical” (industrial) markets that use significant volumesof specialty metals such as aerospace and defense, oil and gas, and heavy equipment;• International expansion, both as a specialty metals supplier and as a provider of supply chainsolutions to OEMs looking to outsource more functions globally; and• Investment in our infrastructure to support our accelerated growth strategy.This Annual Report presents our strategic blueprint for the next several years during which we planto build a significantly larger company with a highly focused brand identity. Most importantly, we willbe able to support our customers with a comprehensive and truly integrated suite of products,high-value added processing and supply chain services.2006 Results and Business Environment
During 2006, we experienced healthy demand in our major market, the producer durable equipmentsector. Industries such as aerospace and defense, oil and gas, power generation, heavy equipmentand mining as well as certain niches within the transportation sector were especially strong. Incontrast, there was some flattening in demand relative to the previous year in the automotive andresidential construction sectors, but these are areas in which Castle does not have significant marketparticipation. Pricing continued to increase, especially in nickel-based products.Consolidated revenues rose 23% over the prior year reaching a record $1.2 billion. Metals sales,which account for 90% of total reported revenues, gained 25% to a record $1.1 billion.The acquisitionof Transtar contributed $77.9 million of the metals sales increase. Volume growth in Metals, whichexcludes material price increases, was 6.6%. Metals tonnage was up in every product categoryversus 2005. Sales of stainless steel and nickel alloy bar products were particularly robust, reflectingthe strong aerospace and oil and gas markets. Sales of plate products to the heavy equipmentmarkets also grew at a brisk pace.Revenues at our plastics segment, Total Plastics, Inc., which comprise the remaining 10% of theconsolidated total, grew 6.8% to a record $115 million. Volume growth in plastics, which excludesmaterial price increases, was 3.9% in 2006. Industrial plastics markets that were particularly strongincluded boat builders, point-of-purchase display and industrial tape used primarily in transportation.EBITDA increased 30% to a record $110 million. Additionally, we have achieved a minimum of 11.5%incremental EBITDA in each of the past three years, translating into 12 cents of additional operatingincome for every incremental dollar of sales.Operating expenses, excluding cost of materials, rose 16.8% from a year ago. On a same-storebasis (excluding Transtar), operating expense rose 7.5% in support of higher customer demand,with the balance related to the consolidation of Transtar into our operating results.We note that,from an operating margin standpoint, Transtar’s margins are similar if not higher than those of CastleMetals so we anticipate improved operating margins from this acquisition.Inventories totaled $202 million on December 31, 2006, an increase of $83 million from 2005’s $119million, of which $70 million was due to the Transtar acquisition and the balance to increased materialprices.The more telling indication of our inventory management progress can be seen in the reductionin DSI (Days Sales in Inventory) over the past several years to a 120-day level in both 2004 and2005 compared with a 160-day level during the 2000 through 2003 period. In 2006, we brought thatlevel down to 117 days including Transtar, and we have targeted an additional five-day reductionfor 2007. Given the cyclical nature of our business and the volatility in pricing, we dedicate significantresources to managing our inventory levels and we continue to work with both our suppliers andcustomers toward developing a more efficient supply chain.Debit financing expense was $8.3 million for the year, slightly less than 2005, including approximatelyfour months of interest on debt incurred by the Transtar acquisition. Prior to this acquisition, strongcash generation and related interest income, combined with the 2005 refinancing of our long-termdebt, had enabled us to significantly reduce both debt levels and related interest expense.
Net income applicable to common stock was a record $54.2 million, or $2.89 per diluted share, anincrease of 43% over last year’s record $37.9 million, or $2.11 per diluted share. Return on openingshareholders’ equity was 31% for 2006 versus 29% a year earlier.Our debt-to-capital ratio stood at 51.2% at 2006 year-end versus 31.3% a year earlier as a result ofthe debt incurred to acquire Transtar. The purchase price of the acquisition at closing, excludingtransactional costs was $173.3 million, and was funded with approximately $30.0 million of availablecash and $143.3 million of debt financing. Due to strong internal cash flow generation, we anticipatebringing our debt-to-capital ratio down to the low 40% range by the end of 2007, exclusive of anyadditional acquisitions. Furthermore, we would anticipate reaching pre-acquisition debt-to-capitallevels in the low-to-mid 30% range by the end of 2008, again excluding any additional majoracquisitions.Major Accomplishments of 2006As noted earlier, in 2006 we achieved several major milestones including record financial results,the launch of a bold new strategy for our metals business and the largest acquisition in our history.In broad terms, our new strategy reflects a shift from what has historically been a product-orientationto one that is focused on delivering products and services to targeted markets.We believe that thisrefocusing will be a powerful force in more effectively penetrating markets that not only consumelarge quantities of specialty metals, but also require high value-added processing and supply chainservices on a global basis. In so doing, we will develop a clear and distinct brand identity as theindustry’s foremost provider of specialty metals and services.The acquisition of Transtar Metals is the first step in this exciting direction. Transtar has eightoperations strategically located in aerospace hubs in the United States and Europe, and completesits global footprint through a network of sales agents and representatives located throughout Asiaand the rest of the world. International sales represent over one-third of Transtar’s total revenuestream. Post-acquisition, sales in the aerospace and defense sector represent more than 30% ofour total metals revenue, and we believe we have effectively positioned ourselves for solid futuregrowth.We invite you to read more about this and other aspects of our new direction in the specialsection beginning on page 7 of this Report.We also took important steps to ensure that we have the organizational structure in place to supportthe managerial requirements of our new direction. Toward this end, we reorganized our companyand created three senior executive positions that reinforce our focus on global solutions, procurementand marketing. Additionally, we established a joint Procurement Coordination Council to optimizethe combined purchasing power of Castle Metals and Transtar, and to facilitate cross-sellingopportunities.To further enhance this latter effort and as part of our integration process, we transferreda Castle Metals’ senior executive to Transtar, whose primary task is to identify and leveragecross-selling opportunities between our two companies.Other noteworthy events include the opening of our new distribution and service center in Birmingham,Alabama, and the expansion of our Montreal, Canada facility by fifty percent to accommodate thegrowing demand for specialty metals we are seeing in these regions.We were also pleased to
announce the ratification of a four-year agreement with the United Steelworkers Union which coversour Chicago, Cleveland, and Kansas City operations.We believe the agreement is fair for ouremployees and provides the company with the flexibility to enhance our customer service andoperating productivity.Finally, we re-evaluated our ERP (Enterprise Resource Planning) requirements to ensure that ourinformation technology capabilities are appropriately aligned with our new and broader strategicobjectives. In late February 2007, we committed to deploy an Oracle platform as the engine for ourEnterprise Resource Planning system. The estimated cost of this project will be $10 to $12 millionover two to three years, and will provide significantly enhanced functionality as compared with ourprevious approach. Our plan is to have our primary metals businesses on the same ERP platform,with international capabilities and the flexibility to expediently incorporate any future acquisitions.Outlook for 2007From a market perspective, based on current orders, we expect to see continued strength in theaerospace and defense, and oil and gas markets, and reasonable growth in the other producerdurable equipment markets we serve. In our specialty product categories, pricing continues to befirm.We could see some softening of pricing in our commodity products, although they will remainhistorically strong.From an internal standpoint, we are excited about the growth opportunities arising from our newstrategic direction. In last year’s Letter, we talked about achieving a revenue growth rate in our coremetals business at two percentage points above the business cycle.Today, the opportunities presentin our market, coupled with our strategy to address these opportunities, position us for far greatergrowth potential. Transtar, which offers excellent cross-selling opportunities, is the first step in thatdirection. It is our intent to invest in other growth businesses over the next several years while beingmindful of our balance sheet.We have also established more ambitious growth goals for ourgeneral-line metals business, which continues to be a strong component and complement to ourspecialty metals business.Our plastics segment, which today accounts for 10% of our consolidated revenues, provides a furtherreason for our optimistic view of A.M. Castle’s future. Total Plastics, Inc., “TPI”, has grown from a$25 million company when it was acquired in 1996 to $115 million at 2006 year-end. TPI expectscontinued strong organic growth in 2007, which should be augmented by greenfield start-upoperations.We will also continue to consider geographicallydriven acquisitions.In closing, I would like to thank all of our employees for their confidence and commitment. This hasbeen a year of tremendous change and challenge as we transition to a new direction and bolderbusiness initiatives. Our employees have shown tremendous resilience and enthusiasm in meetingthis challenge. The remaining pages of this year’s Annual Report are dedicated to a more in-depthdiscussion of our new strategy to be the foremost provider of specialty metals and processingservices.We are well on our way.