-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WDkyd6qKQMkxxZ29AfckjBZKw1mC7/oNP/QJ21XbYR7cpc9NJhuCc7/9wYp7AqxQ OdwLfx6GiK6Db0rs60CPIw== 0000912057-95-001441.txt : 19950615 0000912057-95-001441.hdr.sgml : 19950615 ACCESSION NUMBER: 0000912057-95-001441 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950316 SROS: AMEX SROS: MSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASTLE A M & CO CENTRAL INDEX KEY: 0000018172 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-METALS SERVICE CENTERS & OFFICES [5051] IRS NUMBER: 360879160 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05415 FILM NUMBER: 95521347 BUSINESS ADDRESS: STREET 1: 3400 N WOLF RD CITY: FRANKLIN PARK STATE: IL ZIP: 60131 BUSINESS PHONE: 7084557111 10-K405 1 FORM 10-K405 Page 1 of 14 Pages - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year Ended December 31, 1994 Commission File Number: 1-5415 ------------------- ------ A. M. CASTLE & CO. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-0879160 - ----------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3400 North Wolf Road, Franklin Park, Illinois 60131 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (708) 455-7111 ------------------------------ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ---------------------------- ------------------------------------- Common Stock - no par value American and Chicago Stock Exchanges Securities registered pursuant to Section 12(g) of the Act: None -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X . ------ The approximate aggregate market value of the registrant's common stock held by non-affiliates of the registrant on March 3, 1995 was $144,056,445. The number of shares outstanding of the registrant's common stock on March 3, 1995 was 11,081,265 shares. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENTS INCORPORATED BY REFERENCE APPLICABLE PART OF FORM 10-K Annual Report to Stockholders for the Parts I, II and IV year ended December 31, 1994 Proxy Statement dated March 10, 1995 Part III furnished to Stockholders in connection with registrant's Annual Meeting of Stockholders PAGE 2 OF 14 PART I Item 1. Business. A. M. Castle & Co. is one of North America's largest, independent metals service center companies. The registrant (Company) provides a complete range of inventories as well as preprocessing services to a wide variety of customers. In the last three years, sales mix was approximately as follows: 1994 1993 1992 ---- ---- ---- Carbon and Stainless 78% 77% 73% Non-Ferrous Metals 22% 23% 27% --- --- --- 100% 100% 100% These metals are inventoried in many forms including round, hexagon, square and flat bars; plates; tubing; shapes; and sheet and coil. Depending on the size of the facility and the nature of the markets it serves, each of the Company's service centers is equipped as needed with Bar Saws, Tubing Cut-off Lathes, Close Tolerance Plate Saws, Oxygen and Plasma Arc Flame Cutting Machinery, Stress Relieving and Annealing Furnaces, Surface Grinding Equipment, Edge Conditioning Equipment, Sheet Shears and Coil Processing Equipment. The Company also does specialized fabrications for customers through pre-qualified subcontractors. Emphasis on the more highly engineered grades and alloys of metals, supported by strong service commitments, has earned the Company a leadership role in filling the needs of users of those metals. The Company has its main office, and largest distribution center, in Franklin Park, Illinois. This center serves metropolitan Chicago and, approximately, a nine state area. In addition, there are distribution centers in various other cities (see Item 2). The Chicago, Los Angeles and Cleveland distribution centers together account for approximately one-half of all sales. The customer base in the Eastern part of the county includes heavy and light machine tool industries, construction equipment, mining, textile manufacturing machinery and plastic extrusion machinery. The aerospace market is also served both directly and through subcontractors. The Midwest Region serves manufacturers of hydrocarbon processing equipment, farm implement and construction equipment, food processing equipment and machine tools. The automotive, marine and aerospace markets are also included in the Midwest Region customer base. PAGE 3 OF 14 In the Western area of the country, the Company serves the metal needs of a wide variety of industries as well as the subcontractors and manufacturers who serve those industries. The major markets include aircraft and aerospace, both military and commercial, oil and gas, chemical, petrochemical, farm equipment, electronics, lumber, and mining. In Canada, the Company serves a wide range of businesses including aerospace, pulp and paper, and machinery equipment manufacturing. These markets are serviced by the Company's Canadian subsidiary A. M. Castle & Co. (Canada) Inc. The Company's specialized operating unit is the Hy-Alloy Steels Co., located in Bedford Park, Illinois, a Chicago suburb. Hy-Alloy is a distributor of alloy bars stocked as rounds, squares, hexes, and flats; and of alloy tubing. It serves a nationwide market, which includes aircraft and aerospace, oil field equipment, gears and power train components, machine tools, screw machine products, bearings, construction equipment and agricultural equipment. In 1993 a value-added bar processing center, H-A Industries, was added. From this facility, the Company ships quench and tempered alloy bar products to its customers throughout the United States and Canada. In general, the Company purchases metals from many producers. In the case of nickel alloys and titanium, each is single sourced. Satisfactory alternative sources, however, are available for all metals that the Company buys and its business would not be materially adversely affected by the loss of any one supplier. Purchases are made in large lots and held in the distribution centers until sold, usually in smaller quantities. The Company's ability to provide quick delivery, frequently overnight, of a wide variety of metal products allows customers to reduce inventory investment because they do not need to order the large quantities required by producing mills. The major portion of 1994 net sales were from materials owned by the Company. The materials required to fill the balance of such sales were obtained from other sources, such as direct mill shipments to customers or purchases from other metals distributors. Sales are primarily through the Company's own sales organization and are made to many thousands of customers in a wide variety of industries. No single customer is significant to the Company's sales volume. Deliveries are made principally by leased trucks. Common carrier delivery is used in areas not serviced directly by the Company's fleet. The Company encounters strong competition both from other independent metals distributors and from large distribution organizations, some of which have substantially greater resources. The Company has approximately 1200 full-time employees in its operations throughout the United States and Canada. Approximately 300 of these are represented by collective bargaining units, principally the United Steelworkers of America. Item 2. Properties. The Company's principal executive offices are at its Franklin Park plant near Chicago, Illinois. All properties and equipment are well maintained and in good operating condition and sufficient for the current level of activities. Metals distribution centers and sales offices are maintained at each of the following locations, all of which are owned in fee, except as indicated: PAGE 4 OF 16
Approximate Floor Area in Location Square Feet ----------------- ------------- CASTLE METALS Atlanta, Georgia 35,100 (1) Charlotte, North Carolina 66,700 (1) Chicago area - Franklin Park, Illinois 533,600 Cincinnati, Ohio 9,300 (1) Cleveland area - Bedford Heights, Ohio 381,400 Dallas, Texas 78,000 Fairfield, Ohio 72,000 Houston, Texas 109,100 Kansas City, Missouri 170,000 Los Angeles area - Paramount, California 264,900 Milwaukee area - Wauwatosa, Wisconsin 98,000 (1) Philadelphia, Pennsylvania 71,600 Salt Lake City, Utah 22,500 (1) Stockton, California 60,000 (1) Wichita, Kansas 26,500 (1) Worcester, Massachusetts 60,000 --------- Total Castle Metals 2,058,700 HY-ALLOY STEELS CO. Chicago area - Bedford Park, Illinois 103,700 H-A INDUSTRIES Hammond, Indiana 123,000 (1) A. M. CASTLE & CO. (CANADA) INC. Montreal, Quebec 25,600 (1) Toronto area - Mississauga, Ontario 57,100 (1) Etobicoke, Ontario 8,000 (1) Winnipeg, Manitoba 20,700 (1) --------- 2,396,800 --------- --------- SALES OFFICES (LEASED) Buffalo, New York Detroit, Michigan Minneapolis, Minnesota Pittsburgh, Pennsylvania Phoenix, Arizona San Diego, California Tulsa, Oklahoma (1) Leased: See Note 5 in the 1994 Annual Report to Stockholders, incorporated herein by this specific reference, for information regarding lease agreements.
PAGE 5 OF 14 Item 3. Legal Proceedings. There are no material legal proceedings other than the ordinary routine litigation incidental to the business of the Company. Item 4. Submission of Matters to a Vote of Security Holders. None. PAGE 6 OF 14 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. Item 6. Selected Financial Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required to be filed in Part II (Items 5, 6, and 7) in Form 10-K has been included in the 1994 Annual Report to Stockholders, as required by the Securities and Exchange Commission, and is included elsewhere in the filing. Accordingly, the following items required under Items 5, 6, and 7 are incorporated herein by this specific reference to the 1994 Annual Report to Stockholders: "Common Stock Information", page 20, "Eleven-Year Financial and Operating Summary", pages 18 and 19, and "Financial Review", pages 7 and 8. Item 8. Financial Statements and Supplementary Data. See Part IV, Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Item 9. Disagreements on Accounting and Financial Disclosure. None. PAGE 7 OF 14 PART III Item 10. Directors and Executive Officers of the Registrant. EXECUTIVE OFFICERS OF THE REGISTRANT NAME AND TITLE AGE BUSINESS EXPERIENCE Michael Simpson 56 Mr. Simpson began his employment with the Chairman of the Board registrant in 1968. In 1974 Mr. Simpson was elected President of Hy-Alloy Steels Co. Mr.Simpson was elected Vice President - Midwest Region in 1977. In 1979 Mr. Simpson was elected Chairman of the Board. Richard G. Mork 59 Mr. Mork began his employment with the President and Chief registrant in 1957. In 1977 Mr. Mork was Executive Officer elected to the position of Vice President - Eastern Region and in 1988 to the position of Senior Vice President and Chief Operating Officer. In 1990 Mr. Mork was made President and Chief Executive Officer. Edward F. Culliton 53 Mr. Culliton began his employment with the Vice President and registrant in 1965. Mr. Culliton was Chief Financial Officer elected Corporate Secretary in 1972 and Treasurer in 1975. In 1977 he was elected Vice President of Finance. He is the Chief Financial Officer. Sven G. Ericsson 46 Mr. Ericsson began his employment with the Vice President - registrant in 1989. Mr. Ericsson was Plate and Carbon elected to the position of Vice Products Group President - Eastern Region in 1989, and Vice President - Plate and Carbon Products Group in 1992. M. Bruce Herron 49 Mr. Herron began his employment with the Vice President - registrant in 1970. Mr. Herron was elected Western Region to the position of Vice President - Western Region in 1989. Stephen V. Hooks 43 Mr. Hooks began his employment with the Vice President - registrant in 1972. Mr. Hooks was elected Midwest Region to the position of Vice President - Midwest Region in 1993. Richard G. Phifer 50 Mr. Phifer began his employment with the Vice President - registrant in 1990. Mr. Phifer was elected Eastern Region to the position of Vice President - Plate and Carbon Products Group in 1991, and Vice President - Eastern Region in 1992. Thomas D. Prendergast 61 Mr. Prendergast began his employment with Vice President - Human the registrant in 1974. Mr. Prendergast was Resources elected Vice President - Human Resources in 1991. Alan D. Raney 43 Mr. Raney began his employment with the Vice President - registrant in 1986. Mr. Raney was elected Advanced Materials Vice President - Midwest Region during 1989, Group and Vice President - Advanced Materials Group in 1990. PAGE 8 OF 14 NAME AND TITLE AGE BUSINESS EXPERIENCE Gise Van Baren 63 Mr. Van Baren began his employment with the Vice President - Alloy registrant's Hy-Alloy Steels Co. (acquired Products Group and in 1973) in 1954. He became Vice President President - Hy-Alloy Steels of Hy-Alloy in 1976 and President in Division 1979. He was elected Vice President - Alloy Products Group in 1991. James A. Podojil 52 Mr. Podojil began his employment with the Chief Accounting Officer registrant in 1968. In 1977 he was elected and Treasurer/Controller to the position of Controller and in 1985 was elected to the additional post of Treasurer. Jerry M. Aufox 52 Mr. Aufox began his employment with the Secretary and Corporate registrant in 1977. In 1985 he was elected Counsel to the position of Secretary and Corporate Counsel. He is responsible for all legal affairs of the registrant. PAGE 9 OF 14 All additional information required to be filed in Part III, Item 10, Form 10-K, has been included in the Definitive Proxy Statement dated March 10, 1995 filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled "Information Concerning Nominees for Directors" and is hereby incorporated by this specific reference. Item 11. Executive Compensation. All information required to be filed in Part III, Item 11, Form 10-K, has been included in the Definitive Proxy Statement dated March 10, 1995, filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled "Management Remuneration" and is hereby incorporated by this specific reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required to be filed in Part I, Item 4, Form 10-K, has been included in the Definitive Proxy Statement dated March 10, 1995, filed with the Securities and Exchange Commission pursuant to Regulation 14A, entitled "Information Concerning Nominees for Directors" and "Stock Ownership of Certain Beneficial Owners and Management" is hereby incorporated by this specific reference. Other than the information provided above, Part III has been omitted pursuant to General Instruction G for Form 10-K and Rule 12b-23 since the Company will file a Definitive Proxy Statement not later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A, which involves the election of Directors. Item 13. Certain Relationships and Related Transactions. None. PAGE 10 OF 14 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Financial statements (incorporated by reference to the 1994 Annual Report to Stockholders) and exhibits are set forth in the accompanying index to Financial Statements and Schedules. No reports on Form 8-K were filed in the fourth quarter of 1994. PAGE 11 OF 14 A. M. CASTLE & CO. INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Report of Independent Public Accountants on Schedules. . . . . . . . . . Page 12 Consent of Independent Public Accountants with respect to Form S-8 . . . Page 12 Consolidated Financial Statement Schedules Valuation and Qualifying Accounts - Schedule II .. . . . . . . . . Page 13 Data incorporated by reference from 1994 Annual Report to Stockholders of A. M. Castle & Co., included herein - Consolidated Statements of Income - For the years ended December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . Page 10 Consolidated Statements of Reinvested Earnings - For the years ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . . Page 10 Consolidated Balance Sheets - December 31, 1994, 1993, and 1992. . . Page 11 Consolidated Statements of Cash Flows - For the years ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . . . . . . . Page 12 Notes to Consolidated Financial Statements . . . . . . . . . . . Pages 13-17 Report of Independent Public Accountants . . . . . . . . . . . . . . Page 17 Exhibits: 20 - Report furnished to security holders. . . . . . . . . . . . . Exhibit A 3 - Articles of Incorporation and amendments. . . . . . . . . . . Exhibit B 3 - By laws of the Company. . . . . . . . . . . . . . . . . . . . Exhibit C 10 - Long term incentive compensation plan . . . . . . . . . . . . Exhibit D 10 - 1990 restricted stock and stock option plan . . . . . . . . . Exhibit E 10 - Description of management incentive plan. . . . . . . . . . . Exhibit F All schedules and exhibits, other than those listed above are omitted as the information is not required or is furnished elsewhere in the financial statements or the notes thereto. PAGE 12 OF 14 SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To A. M. Castle & Co.: We have audited in accordance with generally accepted auditing standards, the financial statements included in the A. M. Castle & Co. 1994 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 6, 1995. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Chicago, Illinois, February 6, 1995 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS WITH RESPECT TO FORM S-8 As independent public accountants, we hereby consent to the incorporation by reference of the following into the Company's previously filed S-8 Registration Statements Numbers 33-30545 and 33-37818: 1. Our supplemental report dated February 6, 1995 included in this Annual Report on Form 10-K for the year ended December 31, 1994; and 2. Our report dated February 6, 1995 incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1994. /s/ Arthur Andersen LLP Chicago, Illinois, March 3, 1995 PAGE 13 OF 14 SCHEDULE II A. M. CASTLE & CO. ACCOUNTS RECEIVABLE - ALLOWANCE FOR DOUBTFUL ACCOUNTS VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992 (Dollars in thousands) 1994 1993 1992 --------- ---------- --------- Balance, beginning of year $ 600 $ 600 $ 600 Add - Provision charged to income 345 437 776 - Recoveries 154 242 214 Less - Uncollectible accounts charged against allowance (499) (679) (990) ---------- --------- --------- Balance, end of year $ 600 $ 600 $ 600 ---------- --------- --------- ---------- --------- ---------
PAGE 14 OF 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) By: /s/ James A. Podojil ---------------------------------------------- James A. Podojil, Treasurer and Controller (Mr. Podojil is the Chief Accounting Officer and has been authorized to sign on behalf of the registrant.) Date: March 3, 1995 ---------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Michael Simpson /s/ William K. Hall - ----------------------------------- ----------------------------------- Michael Simpson, William K. Hall, Director Chairman of the Board March 3, 1995 March 3, 1995 /s/ Richard G. Mork /s/ Robert S. Hamada - ----------------------------------- ----------------------------------- Richard G. Mork, President - Robert S. Hamada, Director Chief Executive Officer, and Director Chairman, Audit Committee March 3, 1995 March 3, 1995 /s/ Edward F. Culliton /s/ John W. McCarter, Jr. - ----------------------------------- ------------------------------ Edward F. Culliton, Vice President - John W. McCarter, Jr., Director Chief Financial Officer, and Director March 3, 1995 March 3, 1995 /s/ William J. McDermott ------------------------------ William J. McDermott, Director March 3, 1995 Exhibit A A.M. CASTLE & CO A NEW ERA IN METALS DISTRIBUTION 1994 Annual Report A.M. CASTLE & CO., founded in 1890, is North America's leading industrial distributor of specialty metals including carbon, alloy and stainless steels; nickel alloys; aluminum; titanium; copper and brass. We supply metals and a full range of value-added, leading-edge services to a highly diversified customer base that includes many Fortune 500 companies as well as thousands of medium and smaller-sized ones within the $500 billion producer durable equipment sector. With 26 locations and over 2.3 million square feet of capacity, our coast-to-coast network of service centers can provide next-day delivery to over 90 percent of the markets we serve, and two-day delivery to virtually all of the rest. Our common stock trades on the American Stock Exchange under the ticker symbol CAS. CORPORATE GOALS: - Market leadership in all core products - Supplier of choice to our customers - World-class quality process - Consistently competitive returns on capital - Superior long-term returns to shareholders TABLE OF CONTENTS 1 FINANCIAL HIGHLIGHTS In 1994, our sales grew 13% to a record $537 million while our earnings more than doubled. Net profit per share increased to $1.40 from $0.63 a year ago. 2 LETTER TO SHAREHOLDERS Chairman Michael Simpson and Chief Executive Officer Richard Mork report record results for 1994 and share Castle's vision for the future. 4 A NEW ERA IN METALS DISTRIBUTION Global market forces expand our opportunities to create systems solutions to meet our customers' metal sourcing needs. 8 FINANCIAL REVIEW Strong cash flow funded capital expenditures and debt reduction - setting the stage for future growth. 10 FINANCIAL STATEMENTS AND NOTES 18 ELEVEN YEAR FINANCIAL AND OPERATING STATEMENTS 20 STOCK AND DIVIDEND INFORMATION Shareholders realized a 23.5% total return on their investment during 1994, and benefitted from three separate cash dividend increases. INSIDE BACK COVER MANAGEMENT AND SHAREHOLDER INFORMATION ABOUT THE COVER A.M. Castle & Co. was one of the pioneers in the metals distribution industry more than a century ago. Today, we are leading our industry into an exciting new era by creating systems solutions to address both the current and future needs of our customers. THE YEAR IN BRIEF [Graph] 1 TO OUR SHAREHOLDERS: [Photo] MIKE SIMPSON AND DICK MORGAN IN FRONT OF OUR NEW $2.5 MILLION COMPUTER CONTROLLED QUENCH AND TEMPER HEAT TREAT LINE AT H-A INDUSTRIES, OUR LEADING-EDGE BAR PROCESSING CENTER. THIS FULLY-AUTOMATED LINE GIVES US A SIGNIFICANT COMPETITIVE ADVANTAGE IN BEING ABLE TO OFFER IMPROVED SURFACE TO CORE UNIFORMITY AND UNIQUE HARDNESS CAPABILITIES WHICH ARE CONSISTENTLY REPEATABLE, BAR TO BAR AND LOT TO LOT. WITH THIS LINE WE HAVE REDUCED PRODUCT LEAD TIMES, INCREASED OPERATING EFFICIENCY AND IMPROVED OUR INVENTORY UTILIZATION. By every measure of performance, 1994 was an excellent year. Sales topped the half billion dollar mark at $537 million, up 13% from 1993's $474 million. Shipments rose 10% to 337,700 tons reflecting significant gains in market share, especially in our core product offering. Earnings more than doubled as much of the variable profit from incremental sales went directly to the bottom line. For the year, net profit totalled $15.4 million, or $1.40 a share, versus $6.9 million, or $.63 a share, a year ago. Cash flow from operations, a key measure of liquidity and financial strength, totalled $28 million. Borrowings were reduced by $21 million during the year bringing our debt to total capital ratio down to 34%. Most significantly, return on shareholders'equity rose to 22.2%, up from 10.5% in 1993. Not only did we achieve major gains in our financial results, we also enhanced the quality of our performance in three critical areas of operation... margin improvement, expense management and inventory control. We exceeded each of the targets which we had set for 1994, and have established even more challenging goals for 1995. These are discussed in more detail later on in this report. Our 1994 results didn't just happen overnight: they were many years in the making. We laid the foundation back in the late eighties when we correctly anticipated that our customer base - the U.S. manufacturers of producer durable equipment - would emerge from an extended period of structural, and sometimes painful, change in a very strong position to compete effectively in the global marketplace. We went through this process with them. We successfully completed several multi-year "breakthrough" projects such as our sales and marketing realignment and the redeployment of inventory and processing equipment throughout our coast-to-coast network of service centers. Behind the scenes, there were also countless individual initiatives as we took apart all the things we did and then put them back together again. Each time, our goal was to better serve our customers by using our resources more intelligently and efficiently. Today, we have a clear vision and a thorough understanding of our position in the market. It's not a vision in the usual sense of the word - a catchy phrase that captures what we aim to be. Instead, it is a framework for evaluating our progress within a constantly changing global environment. As we go forward, our success will be measured by our ability to deliver superior value and quality products and services to our customers; to provide a positive professional environment for our employees, and to achieve consistent and superior returns for our shareholders. 2 . . . Our success will be measured by our ability to deliver superior value and quality products and services to our customers . . . a positive professional environment for our employees . . . and consistent and superior returns for our shareholders. - ------------------------------------------------------------------------------- We also have a well-defined set of goals and strategies to help us realize our vision. They include such objectives as attaining market leadership positions in all of our core products, establishing Castle as the supplier of choice to all of our customers, maintaining a quality culture that is driven by management and practiced by every employee, and achieving consistently competitive rates of return on capital. Finally, our ultimate and overriding goal is to reward all shareholders with a superior total long-term return on the investment they have made in our company. In the pages that follow, you'll read more about what we're doing to reinforce our industry leadership. How we're expanding our facilities to offer new and unique value-added preprocessing capabilities that will help our customer become even more competitive and cost-efficient. And how, in turn, that strengthens our relationships with them. How we're rapidly moving to extend ISO 9002 registration, a prerequisite for serving customers who compete in the global marketplace, throughout our distribution network. How we're establishing marketing alliances with other innovative, quality-minded distributors when it makes sense to do so. How we're establishing a foothold in new geographic markets. And how we're continuing to keep a watchful eye on our costs to relentlessly root out all non-essential activities, those that contribute nothing of value to either our customers or shareholders. What we're doing, really, is building on our strengths so that we can better anticipate and serve the needs of North America's producer durable equipment industries. Our customers are leaders in adopting innovative systems to improve their competitive position. Having successfully altered the way they develop, manufacture and market their products, they are now striving to gain a further competitive advantage by adopting advanced materials management concepts. These include just-in-time delivery systems, sole-sourcing relationships, outsourcing and quality assurance . . . all designed to lower total costs and reduce cycle times. From our perspective, these trends portend an even greater role for metals distributors, especially those like Castle that offer full product lines, coast-to-coast reach, state-of-the-art technical expertise and superior processing capabilities. We look forward to 1995 as another year of growth. The consensus forecast is that the rate of output in the durable equipment sector will again significantly outpace that of the economy as a whole. Should this projection prove reasonably accurate, as we are confident that it will, we expect to continue the positive earnings trend we have established over the last three years. We are pleased with the stock market's evaluation of our recent performance and its assessment of our growth potential. Despite it being a difficult year for stocks, our shareholders realized a total return on their investment in Castle stock of 23.5%. In addition to strong gains in the market price, our investors benefitted from three separate increases in the cash dividend. In January of 1995, our Board of Directors approved a 33% increase, bringing the cash dividend to 48 cents a share on an annualized basis. This action followed a 12.5% increase back in October, and a 20% hike in January of 1994. Our Board also declared a three-for-two stock split in July, which brought our total number of common shares outstanding up to 11.0 million from 7.4 million. As we enter 1995, we have a clear vision for our company that will carry us well into the next century and a set of tough-minded, proven strategies to guide us. They are being carried out by what we believe to be the most experienced and empowered team of professionals in our business. They're committed to each other, our suppliers, our shareholders and, most of all, to our customers. They're the key to the gains we've achieved over the past three years . . . and they're the reason we're confident that we will be even more successful in the future. Michael Simpson Richard G. Mork Chairman President & CEO February 20, 1995 3 A NEW ERA IN METALS DISTRIBUTION AS WE BEGIN OUR 105TH YEAR, WE ARE AT THE FOREFRONT OF AN EXCITING NEW ERA IN METALS DISTRIBUTION. OUR INDUSTRY IS RAPIDLY EVOLVING BEYOND ITS HISTORICAL FUNCTION OF SUPPLYING METALS AND PRE-PROCESSING SERVICES. LONG REGARDED AS A SECONDARY SERVICE, WE NOW PLAY AN INTEGRAL ROLE IN OUR CUSTOMERS' CONTINUING DRIVE TO IMPROVE THEIR QUALITY AND PRODUCTIVITY. THIS MEANS THAT FOR INDUSTRIAL DISTRIBUTORS LIKE CASTLE, THERE WILL BE INCREASING OPPORTUNITIES TO CREATE TOTAL SYSTEMS SOLUTIONS DESIGNED TO MEET OUR CUSTOMERS' HIGHER EXPECTATIONS FOR VALUE, ENHANCED QUALITY AND COST-EFFICIENCY. In our Letter to Shareholders, we spoke of the importance of the vision we've established for our company and the strategies that we'll pursue to achieve it. However, on a day to day basis, it's paying attention to the details that will determine our success. We are taking apart the basic components of product, quality, customer satisfaction and cost, and raising them a notch higher, one step at a time. And we're investing in those projects which will most benefit our customers and our long-term profitability. Take products for example. Although we carry the broadest and deepest inventory of highly engineered metals in the market, that alone is no longer sufficient to earn a growing share of the business available to us. CREATING WAYS TO ENHANCE THE VALUE OF THESE PRODUCTS SO THAT THE CUSTOMER WANTS TO BUY FROM CASTLE INSTEAD OF THE COMPETITION IS AN ON-GOING CHALLENGE. IT'S ALSO ONE OF OUR BIGGEST OPPORTUNITIES. One important way to add value to metals is to preprocess them so that they can be put directly into the customer's manufacturing operation. WHETHER IT'S CUTTING, HEAT TREATING, TEMPERING OR STRAIGHTENING, WE'RE DETERMINED TO PROVIDE LEADING-EDGE SERVICES THAT WILL GIVE OUR CUSTOMERS BETTER PRODUCT QUALITY AND SHORTER LEAD TIMES. 4 With this in mind, we are aggressively expanding our processing capabilities. As of this writing, we have three major projects underway. When completed, they will not only significantly benefit our customers, they will also give us a big boost in winning a greater share of their sourcing requirements as well as helping us lower our costs and manage our inventory more efficiently. In 1993, we launched a new 124,000 square foot value-added bar processing center in Hammond, Indiana named H-A Industries to capitalize on our Hy-Alloy Steel division's worldwide reputation as the leading distributor of carbon alloy bars and tubing. Phase I, a unique CNC (computer numerical control) quench and temper heat treat line which produces alloy bars for distribution throughout North America, has been up and running for over a year and a half. During 1994, we doubled its capacity and it is now capable of treating over 15,000 tons annually. We are currently hard at work on two additional projects at H-A Industries: a bar turning and straightening operation, which should be fully operational by the end of this first quarter; and an annealing line, which has a completion date of early summer. We are very proud of what we've been able to achieve at this new facility within such a short period of time. In addition to H-A Industries, we've begun a massive, three-year expansion of our North American plate-processing capabilities which, when completed, will boost our coast-to-coast capacity by more than 40 percent. THIS PROGRAM WILL STRENGTHEN OUR MARKET LEADERSHIP . . . ESPECIALLY IN THE MORE ADVANCED APPLICATIONS SUCH AS HIGH DEFINITION PLASMA AND BEVEL CUTTING. The third major step that we've taken to expand our value-added capabilities is in bar processing. Increasingly, our customers want us to deliver their bars pre-cut to their exact specifications as they find outsourcing this activity more economical than cutting materials in-house. As manufacturers take advantage of the cost benefits of this and other forms of preprocessing, our business should grow significantly over the next several years. Another area in which we believe we are world class today is quality. This is vital to us not only from a competitive viewpoint, but as a matter of personal pride. WE WERE THE FIRST U.S. METALS DISTRIBUTOR TO OBTAIN ISO 9002 REGISTRATION, THE INTERNATIONALLY RECOGNIZED QUALITY STANDARD FOR COMPETING GLOBALLY. Currently, nearly two-thirds of our capacity and all of our sourcing are fully certified. Within the next year or so, we expect to complete this process throughout our entire distribution network. The evolution of ISO certification typifies how rapidly our operating environment is changing. As recently as a year ago, ISO was in a very early stage of development. Today, demand for this registration is rapidly accelerating as U.S. manufacturers expand their geographic reach into new international markets. Within the next few years, we anticipate that only service centers with this certification will be able to serve customers who compete on a global basis. Another major change that has taken place over the past few years, not only within Castle but within many successful companies, is the trend towards developing strategic business alliances and partnerships. TODAY, WE ENCOURAGE A CONTINUOUS EXCHANGE OF IDEAS THROUGHOUT OUR COMPANY, WITH OUR CUSTOMERS AND WITH OUR SUPPLIERS. In fact, we're even teaming up with other innovative, quality-minded distributors when it makes sense to do so. Last year, for example, we joined forces with Los Angeles-based Tubesales, the country's largest distributor of non-ferrous tubes and pipes. With our shared commitment to world class quality and service, we recognized that an alliance would enable us to offer our customers the ease of dealing with one entity while enjoying the combined strengths and complementary product lines of both companies. OUR ALLIANCE RECENTLY SCORED ANOTHER BIG SUCCESS WITH THE AWARDING OF A TOTAL REQUIREMENTS CONTRACT FROM A MAJOR AVIATION COMPANY. To service this contract, we have opened a jointly operated facility in Wichita, Kansas, devoted exclusively to serving the commercial aerospace industry. This facility reflects our commitment to forming interactive, on-line partnerships with our customers that will enable them to achieve their goals of zero defect, least-cost manufacturing. We're also continuing to set industry standards in customer satisfaction - the ultimate measure of everything we do. 5 Today's manufacturers not only want higher-quality products, they want suppliers who can help them reduce their operating expenses and improve their productivity. It's our challenge to stay ahead of that curve, to provide our customers with leading edge technology that will give them maximum flexibility. Several years ago, we made major investments in our computer hardware and software to gear up for EDI and to integrate our customers' production planning and scheduling into our inventory and materials management systems. And we continue to enhance our computer capabilities to ensure that we can meet, and exceed, our customers' needs now and on into the future. WITH THE PASSAGE OF NAFTA, WE'RE ALSO LOOKING AT OPPORTUNITIES TO FURTHER EXPAND OUR GEOGRAPHIC REACH THROUGHOUT NORTH AMERICA. Within the borders of the United States, we're already exceptionally well positioned as a result of the recent strategic redeployment of inventory and processing equipment. In Canada, we achieved an immediate and significant presence through the 1990 acquisition of one of that country's leading metals distributors. Since then, we've seen steady growth in both sales and profitability. And we are optimistic that NAFTA will fuel further opportunities for expansion there. Now, we've turned our attention toward Mexico, establishing a joint venture which became fully operational as of January 1st of this year. Located in Monterey, the country's most advanced industrialized area, our partner has the distinction of being the first Mexican company to receive ISO 9000 certification. Our new joint-venture, called Castle de Mexico, S.V. de C.V., gives us a foothold in what we believe will be an important market as our two economies become more integrated, and as their producer durable equipment sector continues to develop. Equal in importance to our progress in expanding our market reach are the sustainable improvements we've achieved in all areas of our operations. The results are evident in the three critical measures we use to track the quality of our performance. First, WE HAVE CONSISTENTLY INCREASED OUR GROSS MARGINS. In 1994, margins rose to 27.1% compared with 25.8% last year and 24.1% just three years ago. We did this primarily by expanding the level of value-added services we provide to customers. Second, we made significant strides in improving our operating efficiency. As recently as 1991, our operating expenses consumed approximately 88% of our gross profit. We recognized that, if we wanted to create a cost structure that would enable us to grow earnings at a much faster rate than sales, we would have to make major advances in this area. And we have. With steady, yearly improvement, we reduced this ratio to 77% by the end of last year. Now, we've challenged our employees to reduce it further to 75% in 1995. Another significant contributor to our success so far has been our initiative to identify and eliminate activities which do not contribute to better meeting the needs of our customers. IN THE LAST YEAR ALONE, WE REMOVED $1 MILLION OF ANNUAL OPERATING EXPENSE FROM OUR COST STRUCTURE. But, we believe there are further opportunities to improve the way we do our work. We'll continue to build aggressively on the accomplishments we've made in this area. Finally, we've worked hard to increase our inventory "turn and earn". In 1991, we made about 65 cents of gross profit for every dollar invested in inventory. BY THE END OF 1994, WE WERE GETTING NEARLY 90 CENTS AND, FOR 1995, WE'VE SET A GOAL OF INCREASING IT TO A DOLLAR OR BETTER. In closing, we're currently enjoying the rewards of the fundamental changes that have taken place within our company over the past several years. But we aren't taking anything for granted. We can do better - and we will - as we continue to move ahead with a clear vision of who we are and who we want to be, with long-term strategies to guide us, and WITH AN EMPLOYEE TEAM THAT HAS ONE EYE FOCUSED ON OUR CUSTOMERS' NEEDS AND THE OTHER FIXED FIRMLY ON THE BOTTOM LINE. 6 TOTAL RETURN ON AN INVESTMENT IN CASTLE The accompanying 15-year chart shows the total value generated by an initial investment of $100 in A.M. Castle & Co., including stock price appreciation and the reinvestment of dividend payments, compared to an equivalent investment at returns earned by the Standard and Poor's 500 common stock index and the inflation rate as measured by the Consumer Price Index. During 1994, an investment in Castle's stock produced a total return of 23.5% compared with 1.3% for the Standard and Poor's 500 and an inflation rate of 2.7%. Over the 15-year period ended December 31, 1994, Castle generated a compounded annual rate of return of 17.0% compared with 14.5% for the Standard and Poor's 500 and an annual inflation rate of 4.6%. [Graph] CASTLE'S RECORD OF DIVIDEND PAYMENTS During 1994, Castle continued its 61-year record of consecutive quarterly cash dividend payments with payouts totalling $3,641,000, or 33 cents a share. During the 15-year period ended December 31, 1994, dividend payouts, which average 56.3% of after-tax corporate income, have risen at a compound annual rate of 5.7%. [Graph]
COMMON STOCK INFORMATION Symbol CAS; traded on the American and Chicago Stock Exchanges. - ------------------------------------------------------------------------------- DIVIDENDS* STOCK PRICE RANGE* 1994 1993 1994 1993 - ------------------------------------------------------------------------------- First quarter. . . . .08 $.067 11 1/8 13 5/8 7 1/2 8 3/4 Second quarter . . . .08 .067 12 3/8 15 1/4 8 8 1/2 Third quarter. . . . .08 .067 12 16 3/8 8 1/8 9 Fourth quarter . . . .09 .067 12 1/8 14 3/4 8 3/8 11 5/8 ----- ----- $ .33 $.268 ----- ----- ----- ----- - ------------------------------------------------------------------------------- *Restated to reflect a 50% stock dividend
DIRECTORS DANIEL T. CARROLL Chairman The Carroll Group, Inc. a management consulting firm EDWARD F. CULLITON Vice President-Finance WILLIAM K. HALL President & Chief Executive Officer Eagle Industries, Inc. a diversified manufacturing company ROBERT S. HAMADA Dean Graduate School of Business University of Chicago JOHN P. KELLER President Keller Group an industrial manufacturing & coal mining company FREDERICK A. KREHBIEL Chairman and Chief Executive Officer Molex Incorporated an electronic components manufacturer JOHN W. McCARTER, JR. Senior Vice President Booz, Allen & Hamilton, Inc. a management consulting firm WILLIAM J. McDERMOTT Retired President Simpson Estates, Inc. a private management firm RICHARD G. MORK President and Chief Executive Officer MICHAEL SIMPSON Chairman of the Board RICHARD A. VIRZI Retired President and Chief Executive Officer A.M. Castle & Co. OFFICERS MICHAEL SIMPSON Chairman of the Board RICHARD G. MORK President and Chief Executive Officer EDWARD F. CULLITON Vice President- Finance SVEN G. ERICSSON Vice President- Plate & Carbon Products Group M. BRUCE HERRON Vice President- Western Region STEPHEN V. HOOKS Vice President - Midwest Region RICHARD G. PHIFER Vice President- Eastern Region THOMAS D. PRENDERGAST Vice President- Human Resources ALAN D. RANEY Vice President- Advanced Materials Group GISE VAN BAREN Vice President- Alloy Products Group JAMES A. PODOJIL Treasurer-Controller JERRY M. AUFOX Secretary- Legal Counsel HY-ALLOY STEELS CO. GISE VAN BAREN President and General Manager - ------------------------------------------------------------------------------- GENERAL OFFICES 3400 North Wolf Road Franklin Park, IL 60131 GENERAL COUNSEL Mayer, Brown & Platt INDEPENDENT AUDITORS Arthur Andersen & Co. TRANSFER AGENT & REGISTRAR American Stock Transfer and Trust Company COMMON STOCK TRADED American Stock Exchange Chicago Stock Exchange ANNUAL MEETING Thursday, April 27, 1995, 10:00 A.M. Corporate Offices 3400 North Wolf Road Franklin Park, IL 60131 (708) 455-7111 FORM10-K A.M. Castle & Co. will be pleased to make its annual report on Form 10-K, filed with the Securities and Exchange Commission, available at no cost to interested stockholders on written request to the corporate secretary. - ------------------------------------------------------------------------------- CASTLE LOCATIONS Atlanta, Buffalo, Charlotte, Chicago, Cincinnati, Cleveland, Dallas, Detroit, Houston, Kansas City, Los Angeles, Milwaukee, Minneapolis, Philadelphia, Phoenix, Pittsburgh, Salt Lake City, San Diego, Stockton, Tulsa, Wichita, Worcester Hy-Alloy Steels Co., Chicago; H-A Industries, Hammond; A.M. Castle & Co. (Canada), Inc., Montreal, Toronto, Winnipeg; Castle de Mexico, S.V. de C.V., Monterey
The Year in Brief (dollars and shares in thousands except per share amounts) - ------------------------------------------------------------------------------------------ 1994 1993 % Change - ------------------------------------------------------------------------------------------ Operating Results Net sales...................... $536,568 $474,108 13% Gross profit on sales.......... 145,182 122,285 19% Income before taxes............ 25,294 11,611 118% Net income..................... 15,410 6,899 123% Per Share of Net income..................... 1.40 .63 122% Common Stock Dividends...................... .33 .27 22% Stockholders' equity........... 7.42 6.37 16% Average shares outstanding..... 11,033 10,917 1% Balance Sheet Total assets................... 213,127 204,210 4% Total debt..................... 42,362 63,459 (33%) Total equity................... 82,161 69,543 18% Working capital................ 75,945 86,038 (12%) Cash flow*..................... 20,013 11,683 71% Selected Ratios Return on sales................ 2.9% 1.5% 93% Return on assets............... 7.2% 3.4% 112% Return on opening equity....... 22.2% 10.5% 111% Current ratio.................. 1.9 2.3 (17%) Debt to capital ratio.......... 34.0% 47.7% (29%) - ------------------------------------------------------------------------------------------ * Net income plus depreciation - ------------------------------------------------------------------------------------------
1 - -------------------------------------------------------------------------------- Financial Review This discussion should be read in connection with the information contained in the Consolidated Financial Statements and Notes. Overview 1994 was an excellent year for Castle. Both sales and net income were the highest in our Company's history. Improved business conditions along with significant market share gains, higher gross margins and continued cost controls all contributed to the record earnings level. Activity levels were strong throughout the year with the third and fourth quarters producing the largest earnings gains. This is especially noteworthy because they are, traditionally, slower quarters due to plant shutdowns during the summer vacation months and year-end holiday season. The improvement in demand reflects the strength of our targeted customer base -- the U.S. producers of durable equipment. According to Data Resources, output in our primary market (estimated at $519 billion in 1987 constant dollars) increased by 17% this past year, after growing by 18% in 1993 and 7% in 1992. By comparison, total gross domestic product rose 4% in 1994, following a 3.1% gain in 1993 and a 2.6% rise in 1992. NOTE: These figures reflect the most recent revisions made to prior years' data by the Commerce Department's Bureau of Economic Analysis. 1994 Compared with 1993 Net sales for 1994 climbed over the half billion dollar mark to $536.6 million, an increase of 13% over 1993's $474.1 million. Unit volume increased by 10% to 337,700 tons. Carbon and stainless steels generated 78% of total shipments, with the balance provided by non-ferrous metals. Sales growth in dollars outpaced increases in unit volume due to higher prices at the producer level and to improved margins. Average mill prices in 1994 were about 4.9% above 1993 levels. We continued to focus on gross margin, a vital component of profitability. In 1994, cost of sales as a percentage of total sales decreased. Gross margin percentage rose to 27.1% compared with 25.8% for 1993, due primarily to the higher level of value-added services we provided to our customers. Gross profit totalled $145.2 million, up 19% from 1993's level of $122.3 million. Strong unit volume increases, higher mill prices, and our improved gross margin percentage all contributed to the increase in gross profit. Substantially all inventories are valued using the LIFO (last-in, first-out) method. This had the effect of increasing Castle's cost of sales by $6.1 million in 1994, compared with what they would have been on a FIFO (first-in, first-out) basis. Total operating expenses for 1994 were $112.1 million, compared with $102.1 million in the preceding year. As a percentage of sales, operating expenses fell to 20.9% as compared to 21.5% in 1993. These results reflect the success of our ongoing focus on improving operating efficiencies. Depreciation decreased slightly while interest expense fell 15% due to lower average borrowings. In 1994, the Company's income tax rate, at 39.1%, declined slightly from the previous year due to tax loss carry forwards from Canadian operations. The significant increases in sales volume, and the effect of the Company's operating leverage on incremental sales, led to record earnings for Castle. Continued tight control over expenses also contributed to improved total performance. Earnings for the year reached $15.4 million, or $1.40 a share, versus $6.9 million, or $.63 per share, in 1993. All per share figures have been adjusted to reflect a three-for-two stock split declared in July 1994. 1993 Compared with 1992 In 1993, sales totalled $474.1 million, up 12% from 1992's $423.9 million. Unit volume was up 24% to 307,865 tons sold. Carbon and stainless steels generated 77% of total revenues in 1993 and 73% in 1992, with the balance provided by non-ferrous metals. On average, pricing in 1993 was about 4% below 1992 levels. Material cost, as a percentage of total sales, increased slightly. Gross margin percentage was 25.8%, compared with 1992's 26.0%. Gross profit for 1993 totalled $122.3 million, an increase of 11% from the $110.2 million reported in 1992, as strong volume increases more than offset the effects of price deflation and sales mix shifts that occurred throughout the year. LIFO had the effect of increasing Castle's cost of sales by $0.1 million in 1993, after reducing it in 1992 by $5.7 million, compared with what it would have been on a FIFO (first-in, first-out) basis. Total operating expenses were $102.1 million in 1993 compared with $94.9 million in 1992. As a percentage of sales, operating expenses declined to 21.5% in 1993 from 22.4% in 1992. Interest expense decreased by 12% due primarily to significantly lower rates. The Company's Federal income tax rate remained essentially unchanged in 1993 from the previous year. Castle's 1993 net income represented a sharp increase from the $3.6 million, or $.33 per share, recorded in 1992. The 1992 earnings figure included net income of $222,000, or $.02 per share, due to the adoption of new accounting methods for postretirement benefits and income taxes. 7 - -------------------------------------------------------------------------------- Capital Expenditures Capital expenditures during 1994 totalled $7.9 million compared with $4.6 million in 1993. In 1994 approximately $2.5 million was expended for additional production capabilities at H-A Industries, with the remaining expenditures aimed at enhancing existing facilities and maintaining property and equipment in good working order. In 1993 approximately $1.2 million was expended for the addition of a quench and temper heat treat line, with the balance spent to maintain property and equipment in good working order. During the latter half of 1994 and 1993, the Company sold and leased back approximately $2.6 million and $2.1 million of fixed assets respectively, which added to cash flow and decreased long-term borrowing. Liquidity and Capital Resources We continue to improve upon our solid financial base. Strong operating cash flows provided funds for our capital expenditures and reduced long-term borrowings. At 1994 year end, stockholders' equity had increased 18% to $82.2 million, or $7.42 per share. Total borrowings were reduced by $21 million to $42.4 million bringing our debt-to-capital ratio down to 34% as compared to 48% at the end of 1993. Accounts receivable rose in 1994 reflecting the increase in sales levels. The number of days' sales outstanding decreased from 1993. Collections remained strong, exceeding our target levels for both the fourth quarter and the full year. We believe that our net receivables at December 31, 1994 are of a very good quality. Inventory levels remained substantially unchanged. Working capital was $75.9 million at December 31, 1994, compared with $86 million at December 31, 1993. The decrease is due primarily to increased levels of trade payables. Our Company had unused committed and uncommitted lines of bank credit of $123.8 million at December 31, 1994, compared with $103.6 million at 1993 year end. Management believes that funds generated from operations, existing lines of credit and additional borrowing capacity should provide adequate funding for current and anticipated business operations. 8 - -------------------------------------------------------------------------------- Supplementary Schedules The Company's LIFO inventory system charges cost of material sold at the inventory costs of its most recent purchases. The LIFO method matches current revenues with current costs of inventory. This method more fairly presents results of operations, whether in periods of inflation or deflation. The Supplementary Statements of Consolidated Financial Position are presented for analytical and comparative purposes. They are intended to display the Company's financial position as if the Company were on a FIFO-based inventory system rather than the LIFO-based inventory system the Company actually uses. The statements reflect taxes on the unrecognized inventory gain at statutory Federal rates and the Company's historical average state tax rates and give no effect to any supplemental expenses. Supplementary Statements of Consolidated Financial Position
December 31 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Current assets Cash......................................................................................... $ 1.0 $ 1.5 $ .7 Accounts receivable, net..................................................................... 58.9 49.0 45.0 Inventories, at latest cost.................................................................. 149.9 147.2 141.9 ------- ------ ------ Total current assets....................................................................... 209.8 197.7 187.6 Less -- current liabilities.................................................................. (102.8) (84.3) (84.9) ------- ------ ------ Net current assets............................................................................. 107.0 113.4 102.7 Fixed and other assets, net.................................................................... 55.0 52.1 53.1 ------- ------ ------ Total assets, less current liabilities..................................................... 162.0 165.5 155.8 Long-term debt................................................................................. (38.5) (58.0) (53.0) Deferred income taxes.......................................................................... (7.8) (8.1) (7.8) Postretirement benefit obligations............................................................. (2.5) (2.5) (2.2) Unrecognized inventory gain, net of taxes...................................................... (31.0) (27.3) (27.3) ------- ------ ------ Stockholders' equity........................................................................... $ 82.2 $ 69.6 $ 65.5 ------- ------ ------ ------- ------ ------
9 A.M. Castle & Co. and Subsidiaries Consolidated Statements of Income
Years Ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Net sales................................................................................. $536,568 $474,108 $423,913 Cost of material sold..................................................................... 391,386 351,823 313,683 -------- -------- -------- Gross profit on sales................................................................... 145,182 122,285 110,230 -------- -------- -------- Expenses Operating expenses...................................................................... 112,070 102,089 94,944 Depreciation (Notes 1 and 5)............................................................ 4,603 4,784 4,865 Interest expense, net (Notes 2 and 4)................................................... 3,215 3,801 4,333 -------- -------- -------- 119,888 110,674 104,142 -------- -------- -------- Income before income taxes and cumulative effect of changes in accounting methods......... 25,294 11,611 6,088 -------- -------- -------- Income taxes (Notes 1 and 3) Federal -- currently payable............................................................ 6,503 3,926 2,296 -- deferred....................................................................... 1,474 (141) (133) State................................................................................... 1,907 927 533 -------- -------- -------- 9,884 4,712 2,696 -------- -------- -------- Net income before cumulative effect of changes in accounting methods...................... 15,410 6,899 3,392 -------- -------- -------- Cumulative effect of changes in accounting methods (Notes 3 and 6)........................ -- -- 222 -------- -------- -------- Net income................................................................................ 15,410 6,899 3,614 ========= ========= ========= Net income per share before cumulative effect of changes in accounting methods............ $ 1.40 $ .63 $ .31 Cumulative effect of change in accounting methods......................................... -- -- .02 -------- -------- -------- Net income per share (Notes 1 and 7)...................................................... $ 1.40 $ .63 $ .33 --------- --------- -------- --------- --------- -------- - ---------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Reinvested Earnings
Years Ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year.............................................................. $ 49,409 $ 45,421 $ 44,717 Net income................................................................................ 15,410 6,899 3,614 Cash dividends -- $.33 per share in 1994, $.27 per share in 1993 and $.27 per share in 1992 (Note 7)........................................................................... (3,641) (2,911) (2,910) -------- -------- -------- Balance at end of year.................................................................... $ 61,178 $ 49,409 $ 45,421 ========= ========= ========= - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 10 A.M. Castle & Co. and Subsidiaries Consolidated Balance Sheets
Years Ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash (Note 1)........................................................................... $ 976 $ 1,528 $ 693 Accounts receivable, less allowances of $600............................................ 58,892 49,048 44,995 Inventories -- principally on last-in, first-out basis (latest cost higher by approximately $51,700 in 1994, $45,600 in 1993 and $45,500 in 1992) (Note 1).......... 98,215 101,572 96,368 -------- -------- -------- Total current assets.............................................................. 158,083 152,148 142,056 -------- -------- -------- Prepaid expenses and other assets (Note 1)................................................ 13,854 11,088 9,947 -------- -------- -------- Property, plant and equipment, at cost (Notes 1 and 5) Land.................................................................................... 4,062 4,115 4,117 Buildings............................................................................... 34,716 34,875 34,734 Machinery and equipment................................................................. 59,497 57,028 54,833 -------- -------- -------- 98,275 96,018 93,684 Less -- accumulated depreciation...................................................... 57,085 55,044 50,482 -------- -------- -------- 41,190 40,974 43,202 -------- -------- -------- Total assets.............................................................................. $213,127 $204,210 $195,205 ========= ========= ========= Liabilities and stockholders' equity Current liabilities Accounts payable........................................................................ $ 61,282 $ 49,982 $ 51,597 Accrued payroll and employee benefits (Note 6).......................................... 9,843 5,982 4,084 Accrued liabilities..................................................................... 4,861 3,512 3,656 Current and deferred income taxes (Notes 1 and 3)....................................... 2,321 1,199 1,801 Current portion of long-term debt (Note 4).............................................. 3,831 5,435 5,593 -------- -------- -------- Total current liabilities......................................................... 82,138 66,110 66,731 -------- -------- -------- Long-term debt, less current portion (Note 4)............................................. 38,531 58,024 52,993 -------- -------- -------- Deferred income taxes (Notes 1 and 3)..................................................... 7,772 8,067 7,837 -------- -------- -------- Postretirement benefit obligation (Note 6)................................................ 2,525 2,466 2,164 -------- -------- -------- Stockholders' equity (Note 7) Common stock, without par value -- authorized 15,000,000 shares; issued and outstanding 11,079,645 in 1994, 10,917,474 in 1993, and 10,914,063 in 1992........................ 24,114 21,938 21,813 Earnings reinvested in the business..................................................... 61,178 49,409 45,421 Other................................................................................... 244 168 101 Treasury stock, at cost (596,441 shares in 1994, 494,220 shares in 1993, and 482,331 shares in 1992)....................................................................... (3,375) (1,972) (1,855) -------- -------- -------- Total stockholders' equity........................................................ 82,161 69,543 65,480 -------- -------- -------- Total liabilities and stockholders' equity................................................ $213,127 $204,210 $195,205 ========= ========= ========= - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these statements. - -------------------------------------------------------------------------------- 11 A.M. Castle & Co. and Subsidiaries Consolidated Statements of Cash Flows
Years Ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income............................................................................... $ 15,410 $ 6,899 $ 3,614 Adjustments to reconcile net income to net cash provided from operating activities Depreciation........................................................................... 4,603 4,784 4,865 Cumulative effect of accounting changes (Notes 3 and 6)................................ -- -- (222) Gain on sale of facilities/equipment................................................... (106) (18) (20) Increase (decrease) in deferred taxes.................................................. (295) 230 906 (Increase) in prepaid expenses and other assets........................................ (2,766) (1,141) (134) Vested portion of restricted stock awards.............................................. 68 -- -- Increase (decrease) in postretirement benefit obligation............................... 59 302 (27) -------- ------- -------- Cash provided from operating activities before changes in current accounts................. 16,973 11,056 8,982 -------- ------- -------- (Increase) decrease in current assets/liabilities Accounts receivable.................................................................... (9,844) (4,053) (431) Inventories............................................................................ 3,357 (5,204) (8,076) Accounts payable....................................................................... 11,300 (1,615) 14,223 Accrued payroll and employee benefits.................................................. 3,861 1,898 (58) Accrued liabilities.................................................................... 1,349 (144) (59) Current deferred income taxes.......................................................... 1,122 (602) 34 -------- ------- -------- Net (increase) decrease in current assets/liabilities...................................... 11,145 (9,720) 5,633 -------- ------- -------- Net cash provided from operating activities................................................ 28,118 1,336 14,615 -------- ------- -------- Cash flows from investing activities Proceeds from sales of facilities/equipment (Note 5)..................................... 3,213 2,083 1,162 Capital expenditures..................................................................... (7,926) (4,621) (1,794) -------- ------- -------- Net cash provided from (used by) investing activities...................................... (4,713) (2,538) (632) -------- ------- -------- Cash flows from financing activities Net borrowing under line-of-credit agreements............................................ -- -- (200) Proceeds from issuance of long-term debt................................................. 4,409 10,066 -- Repayments of long-term debt............................................................. (25,506) (5,193) (10,617) Dividends paid........................................................................... (3,641) (2,911) (2,910) Net proceeds from issuance of stock...................................................... 705 8 -- Other.................................................................................... 76 67 106 -------- ------- -------- Net cash provided from (used by) financing activities...................................... (23,957) 2,037 (13,621) -------- ------- -------- Net increase (decrease) in cash............................................................ (552) 835 362 Cash -- beginning of year.................................................................. 1,528 693 331 -------- ------- -------- Cash -- end of year........................................................................ $ 976 $ 1,528 $ 693 ========= ======== ========= Supplemental disclosures of cash flow information Cash paid during the year for -- Interest............................................................................... $ 3,435 $ 4,106 $ 4,524 -------- ------- -------- Income taxes........................................................................... $ 9,057 $ 5,084 $ 1,754 -------- ------- -------- - ---------------------------------------------------------------------------------------------------------------------------------
The accompanyi g notes to consolidated financial statements are an integral part of these statements. 12 A.M. Castle & Co. and Subsidiaries Notes To Consolidated Financial Statements (1) Principal accounting policies Basis of presentation -- The financial statements include A. M. Castle & Co. (the Company) and its subsidiaries. All intercompany accounts and transactions have been eliminated. Cash -- For the purposes of these statements, short-term investments which have a maturity of 90 days or less are considered cash equivalents. Inventories -- Substantially all inventories are stated at the lower of last-in, first-out (LIFO) cost or market. The Company values its LIFO increments using the costs of its latest purchases during the years reported. Property, plant and equipment -- Property, plant and equipment are stated at cost and include assets held under capitalized leases. Major renewals and betterments are capitalized, while maintenance and repairs which do not substantially improve or extend the useful lives of the respective assets are expensed currently. When properties are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. The Company provides for depreciation of plant and equipment by charging against income amounts sufficient to amortize the cost of properties over their estimated useful lives (buildings -- 12 to 40 years; machinery and equipment -- 5 to 20 years). Depreciation is provided using the straight-line method for financial reporting purposes and accelerated methods for tax purposes. Included in depreciation expense is the amortization of assets under capital leases. Income taxes -- Income tax provisions are based on income reported for financial statement purposes. Retirement plan costs -- The Company accrues and funds its retirement plans based on amounts, as determined by an independent actuary, necessary to maintain the plans on an actuarially sound basis. The Company also provides certain health care and life insurance benefits for retired employees. The cost of these benefits are recognized in the financial statements during the employee's active working career. Stock options -- When stock options are exercised, proceeds from the sale of common stock issued under those options are credited to common stock. No charges or credits are made to income for stock options. Restricted stock awards -- Upon issuance of restricted stock, compensation expense and the amount charged to stockholders' equity is determined by the market value at the date of the grant, which is recognized ratably over the vesting period. Net income per share -- Net income per share has been computed based on weighted average common shares outstanding during the year -- 11,033,356 in 1994, 10,915,472 in 1993 and 10,914,077 in 1992. The number of shares in 1993 and 1992 have been restated to reflect a 50% stock dividend in 1994. Goodwill -- Cost in excess of net assets of acquired companies is amortized on a straight-line basis over a 40 year period. The unamortized balance at December 31, 1994 of $691,000 is reflected on the consolidated balance sheet under prepaid expense and other assets. (2) Short-term debt Short-term borrowing activity was as follows (in thousands):
- --------------------------------------------------------------------------- 1994 1993 1992 - --------------------------------------------------------------------------- Maximum borrowed........................... $6,975 $9,475 $ 5,725 Average borrowed........................... 2,638 3,055 2,610 Average interest rate during the year...... 4.3% 3.4% 3.9% - ---------------------------------------------------------------------------
(3) Income taxes Effective January 1, 1992, the Company adopted SFAS Statement No. 109, "Accounting for Income Taxes". As permitted under the new rules, prior year's financial statements were not restated. The cumulative prior years' effect of adopting Statement 109 as of January 1, 1992, was to increase net income by $1,799,000, or $.17 per share. This change in accounting principle had no effect on the 1992 expense. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's Federal and state deferred tax liabilities and assets as of December 31, 1994, 1993 and 1992 are as follows (in thousands):
- -------------------------------------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------- Deferred tax liabilities: Depreciation............................. $ 5,119 $5,211 $ 5,213 Inventory, net........................... 3,991 1,675 2,287 Pension.................................. 2,617 2,644 2,251 Other, net............................... (101) 400 536 ------- ------ ------- Net deferred liabilities............... 11,626 9,930 10,287 Deferred tax assets: Postretirement benefits.................. 1,155 1,132 1,014 ------- ------ ------- Net deferred tax liabilities........... $10,471 $8,798 $ 9,273 ========= ======= ========= - --------------------------------------------------------------------------
The components of the provision (benefit) for deferred Federal income tax, before the cumulative effect of changes in accounting 13 A.M. Castle & Co. and Subsidiaries Notes To Consolidated Financial Statements (continued) methods for the years ended December 31, 1994, 1993 and 1992, are as follows (in thousands):
- -------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------ Depreciation................................. $ (4) $ (56) $(140) Inventory, net............................... 2,013 (516) (318) Pension...................................... 16 342 256 Other, net................................... (551) 89 69 ------ ----- ----- $1,474 $(141) $(133) ======= ======= ======= - --------------------------------------------------------------------------
A reconciliation between the statutory Federal income tax amount and the effective amounts at which taxes were actually provided before cumulative effect of changes in accounting methods is as follows (in thousands):
- -------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------- Federal income tax at statutory rates....... $8,853 $3,948 $2,069 State income taxes, net of Federal income tax benefits............................... 1,223 603 352 Net operating loss carry-forward............ (296) 98 283 Other....................................... 104 63 (8) ------ ------ ------ $9,884 $4,712 $2,696 ======= ======= ======= - --------------------------------------------------------------------------
(4) Long-term debt Long-term debt consisted of the following at December 31, 1994, 1993 and 1992 (in thousands):
- -------------------------------------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------- Revolving credit agreement (a) (c)....... $20,076 $40,678 $30,235 9.3% insurance company term loan, due in equal installments through 2000......... 9,990 11,660 13,330 Industrial development revenue bonds at variable rates, due in varying amounts through 2006 (b) (c).................... 8,800 6,342 8,122 11 1/2% insurance company term loan, due in equal installments through 1995...... 1,500 3,000 4,500 Canadian bank term loan at variable rates, due in equal installments through 1995, with a final payment in 1996...... 1,158 1,605 2,065 Other.................................... 838 174 334 ------- ------- ------- Total.................................... 42,362 63,459 58,586 Less -- current portion.................. (3,831) (5,435) (5,593) ------- ------- ------- Total long-term portion.................. $38,531 $58,024 $52,993 ========= ========= ========= - --------------------------------------------------------------------------
The carrying value of long term debt does not differ materially from their estimated fair value as of December 31, 1994. (a) The Company has revolving credit agreements of $60 million domestically and $6.1 million with a Canadian bank. The credit facilities are three-year revolvers, extended annually by mutual agreement, with a four-year equal amortization term option. Under these credit arrangements all borrowings are considered to be long-term debt for balance sheet presentation purposes. Interest rate options on the domestic facility are based on London Interbank Offered Rate (LIBOR), Reference Rates or competitive Bid Rates from four participating banks. A commitment fee of .375% of the total commitment less amounts borrowed under the Reference and LIBOR interest rate options is required on the domestic facility. The options on the Canadian facility are available at Canadian and U.S. prime rates, Bankers' Acceptance Rates, Cost of Fund Rates and LIBOR. A commitment fee of .25% is required on the unused portion of the Canadian facility. (b) The industrial revenue bonds are based on a variable rate demand bond structure and are backed by a letter of credit. Interest rates are reset monthly and, because of the letter of credit backing are based on high quality municipal notes and bonds. (c) The most restrictive provisions of the loan agreements require the Company to maintain minimum earnings to fixed charge ratios. At December 31, 1994, the Company was in compliance with all restrictive covenants. (d) Aggregate annual principal payments required on the noncurrent portion of long-term debt (including obligations under capital leases) are due as follows
(in thousands): - -------------------------------------------------------------------------- 1996 $2,725 1997 $1,936 1998 $2,050 1999 $1,996 - --------------------------------------------------------------------------
Total net book value of assets collateralized under financing arrangements approximated $2.2 million at December 31, 1994. Net interest expense reported on the accompanying Consolidated Statements of Income, which includes that associated with both short and long-term debt, was reduced by interest income of $.1 million in 1994, 1993 and 1992. (5) Lease agreements (a) Description of leasing arrangements -- The Company has capital and operating leases covering certain warehouse facilities, equipment, automobiles and trucks, with lapse of time as the basis for all rental payments plus a mileage factor included in the truck rentals. (b) Capital leases -- Obligations under capitalization of leases are not significant. (c) Operating leases -- Future minimum rental payments under operating leases that have initial or remaining noncancelable lease 14 A.M. Castle & Co. and Subsidiaries Notes To Consolidated Financial Statements (continued) terms in excess of one year as of December 31, 1994, are as follows (in thousands):
- ------------------------------------------------------------------------ Year ending December 31, - ------------------------------------------------------------------------ 1995.......................................................... $ 3,952 1996.......................................................... 3,661 1997.......................................................... 3,437 1998.......................................................... 2,258 1999.......................................................... 1,993 Later years................................................... 2,871 ------- Total minimum payments required................................ $18,172 ======= - ------------------------------------------------------------------------
(d) Rental expense -- Total rental payments charged to expense were $7.4 million in 1994, $7.0 million in 1993 and $6.8 million in 1992. (e) Sale and leaseback of assets -- During 1994, 1993 and 1992, the Company sold and leased back equipment under operating leases with terms of five, seven and eight years, respectively. The leases allow for a purchase option after five years of $1,101,000 and after six years of $662,000 and $519,000, respectively. Annual rentals are $482,000 for the 1994 lease transaction, $342,000 for the 1993 lease transaction and $173,000 for the 1992 lease transaction. The assets were sold at approximately net book value for proceeds of $2,618,000, $2,063,000 and $1,154,000, respectively. (6) Retirement, profit-sharing and incentive plans Substantially all employees who meet certain requirements of age, length of service and hours worked per year are covered by Company-sponsored retirement plans. These retirement plans are defined benefit, noncontributory plans. Benefits paid to retirees are based upon age at retirement, years of credited service and average earnings. The assets of the Company-sponsored plans are maintained in a single trust account. The majority of the trust assets are invested in common stock mutual funds, insurance contracts, real estate funds and corporate bonds. The Company's funding policy is to satisfy the minimum funding requirements of ERISA. The net pension credits in 1994, 1993 and 1992 were composed of the following (in thousands):
- ---------------------------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------------------------- Normal service cost...................... $ 1,318 $ 1,188 $ 1,115 Interest cost on projected benefit obligation.............................. 3,612 3,414 3,201 Actual return on plan assets............. (820) (4,203) (3,117) Net amortization and deferral............ (4,145) (906) (1,822) ------- ------- ------- Net pension credit....................... $ (35) $ (507) $ (623) ========= ========= ========= - ----------------------------------------------------------------------------
The status of the plans at December 31, 1994, 1993 and 1992, was as follows:
- ---------------------------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------------------------- Actuarial present value of vested benefit obligation.............................. $36,617 $38,125 $31,861 Plus -- Nonvested benefit obligation.... 2,945 3,703 2,108 ------- ------- ------- Vested and nonvested accumulated benefit obligation............................ 39,562 41,828 33,969 Plus -- Projected salary increases benefit obligation.................... 4,816 5,380 5,046 ------- ------- ------- Projected benefit obligation............ 44,378 47,208 39,015 Plan assets at fair market value......... 46,508 48,514 46,757 ------- ------- ------- Plan assets in excess of projected benefit obligation...................... 2,130 1,306 7,742 Items not yet recognized in earnings Unrecognized net transitional assets.... (1,952) (3,084) (3,921) Unrecognized net loss................... 4,791 6,336 926 Unrecognized prior-service cost......... 1,353 1,561 1,536 ------- ------- ------- Pension prepaid recognized on the consolidated balance sheets at December 31...................................... $ 6,322 $ 6,119 $ 6,283 ======= ======= ======= - ----------------------------------------------------------------------------
The assumptions used to measure the projected benefit obligations, future salary increases, and to compute the expected long-term return on assets for the Company's defined benefit pension plans are as follows:
- ------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------- Discount rate.................................... 8.75% 7.75% 9.00% Projected annual salary increases................ 4.75 4.75 6.00 Expected long-term rate of return on plan assets.......................................... 9.50 9.50 9.50 - -------------------------------------------------------------------------
The Company has profit sharing plans for the benefit of salaried and other eligible employees (including officers). The Company's profit sharing plan includes features under Section 401(k) of the Internal Revenue Code. The plan includes a provision whereby the Company partially matches employee contributions up to a maximum of 6% of the employees' salary. The plan also includes a supplemental contribution feature whereby a Company contribution would be made to all eligible employees upon achievement of specific return on investment goals as defined by the plan. The Company has a management incentive bonus plan for the benefit of its officers and key employees. Incentives are paid to line managers based on performance, against objectives, of their respective operating units. Incentives are paid to corporate officers on the basis of total Company performance against objective. 15 A.M. Castle & Co. and Subsidiaries Notes To Consolidated Financial Statements (continued) Amounts accrued and charged to income under each plan are included as part of accrued payroll and employee benefits at each respective year end. The amounts charged to income are summarized below (in thousands):
- -------------------------------------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------- Profit sharing and 401-K.......................... $2,224 $ 244 $227 ======= ======= ===== Management incentive.............................. $2,678 $1,412 $679 ======= ======= ===== - --------------------------------------------------------------------------
The Company provides declining value life insurance to its retirees and a maximum of three years of medical coverage to qualified individuals who retire between the ages of 62 and 65. The Company does not fund these plans. Effective January 1, 1992, the Company adopted the requirements of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". The Company elected to immediately recognize the accumulated liability, measured as of January 1, 1992, which totalled $2,591,000. The cumulative prior years' effect of the change in accounting method resulted in a net of income tax charge to earnings of $1,577,000, or $.15 per share. This change in accounting principle had no significant effect on the current year's expense. Net postretirement benefit cost for 1994, 1993 and 1992 includes the following components (in thousands):
- -------------------------------------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------- Service cost......................................... $128 $129 $147 Interest cost on accumulated postretirement benefit obligation.......................................... 238 233 224 Amortization of unrecognized prior service cost...... 17 (26) -- Amortization of unrecognized net (gain) or loss...... (25) 8 -- ---- ---- ---- Net periodic postretirement benefit cost............. $358 $344 $371 ===== ===== ===== - --------------------------------------------------------------------------
The following is a reconciliation between the plan's funded status and the accrued postretirement benefit obligation as reflected on the balance sheet as of December 31, 1994, 1993 and 1992 (in thousands):
- -------------------------------------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees................................... $1,354 $1,491 $ 589 Fully eligible active plan participants.... 149 214 374 Other active plan participants............. 1,524 1,560 1,792 ------ ------ ------ 3,027 3,265 2,755 Unrecognized prior service cost............ 238 264 -- Unrecognized net loss...................... (324) (647) (176) ------ ------ ------ Accrued postretirement benefit obligation............................... $2,941 $2,882 $2,579 ======= ======= ======= - ---------------------------------------------------------------------------
Future benefit costs were estimated assuming medical costs would increase at a 12 3/4% annual rate for the first year, with annual increases decreasing by 0.5% per year for five years, and 1% per year thereafter until an ultimate trend rate of 5 3/4% is reached. A 1% increase in the health care cost trend rate assumptions would have increased the accumulated postretirement benefit obligation at December 31, 1994 by $211,000 with no significant effect on the 1994 postretirement benefit expense. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.75% in 1994, 7.75% in 1993 and 9.0% in 1992. (7) Common stock On July 28, 1994, the Company declared a 50% stock dividend which was accounted for as a 3-for-2 stock split and had no effect on common stock or reinvested earnings. All per share amounts presented reflect the effect of the 50% stock dividend on a retroactive basis. Changes in the common and treasury stock accounts during 1994, 1993 and 1992 were as follows (dollars in thousands):
- --------------------------------------------------------------------------- Common Stock Treasury Stock ----------------------------------------- Shares Issued Amount Shares Amount - --------------------------------------------------------------------------- December 31, 1991........... 11,396,394 $21,813 482,332 $1,855 Other...................... -- -- (1) -- ---------- ------- ------- ------ December 31, 1992........... 11,396,394 21,813 482,331 1,855 Stock options exercised.... 15,300 125 11,709 115 Other...................... -- -- 180 2 ---------- ------- ------- ------ December 31, 1993........... 11,411,694 21,938 494,220 1,972 Stock options exercised.... 252,962 2,108 102,344 1,404 Other...................... 11,430 68 (123) (1) ---------- ------- ------- ------ December 31, 1994........... 11,676,086 $24,114 596,441 $3,375 ============ ========= ========= ======= - ---------------------------------------------------------------------------
The Company has long-term stock incentive and stock option plans for the benefit of officers and key management employees. The 1989 Long-Term Incentive Plan authorized up to 337,500 shares of common stock for use under the Plan. Compensation expense under this plan is recognized ratably over the employee's vesting period as determined by the Plan. In 1994 11,858 shares were awarded and compensation expense in the amount of $117,000 was recognized. No shares were awarded under this plan in 1993 or 1992. In January 1990 the Board of Directors authorized the issuance of restricted stock and incentive stock options. Restricted stock awards involve shares issued immediately, or at a future date, upon fulfillment of stated conditions. Incentive stock options become 16 A.M. Castle & Co. and Subsidiaries Notes To Consolidated Financial Statements (continued) exercisable beginning one year from date of grant and expire five years from date of grant if not exercised. The 1990 Restricted Stock and Stock Option Plan authorizes the issuance of up to 525,000 shares of common stock for use under the plan. A summary of plan transactions for 1994, 1993 and 1992 is as follows:
- -------------------------------------------------------------------------- Option Exercise Shares Price - -------------------------------------------------------------------------- December 31, 1992......................... 337,500 7.083 -- 8.833 Granted.................................. 12,450 8.167 -- 8.250 Forfeitures.............................. (4,200) 7.833 -- 8.833 Exercised................................ (15,300) 7.083 -- 8.833 -------- --------------- December 31, 1993......................... 330,450 7.833 -- 8.833 Granted.................................. 168,750 15.083 Forfeitures.............................. -- -- Exercised................................ (252,962) 7.833 -- 8.833 -------- --------------- December 31, 1994......................... 246,238 7.833 -- 15.083 ========== =============== - --------------------------------------------------------------------------
(8) Contingent liabilities The Company is the defendant in several lawsuits arising out of the conduct of its business. These lawsuits are incidental and occur in the normal course of the Company's business affairs. It is the opinion of counsel that no significant uninsured liability will result from the outcome of the litigation, and thus there is no material financial exposure to the Company. The Company was contingently liable as endorser on discounted trade acceptances aggregating $5.2 million at December 31, 1994. Also, the Company has $3.7 million of irrevocable letters of credit outstanding to comply with the insurance reserve requirements of its workers' compensation insurance carrier. (9) Selected quarterly data (unaudited) The unaudited quarterly results of operations for 1994 and 1993 are as follows (dollars in thousands, except per share data -- Note 7):
- -------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------- 1994 quarters Net sales..................... $133,848 $131,821 $132,187 $138,712 Gross profit.................. 36,347 34,898 35,899 38,038 Net income.................... $ 3,642 $ 3,353 $ 3,782 $ 4,633 Net income per share.......... $ .33 $ .30 $ .34 $ .42 1993 quarters Net sales..................... $119,869 $121,042 $117,118 $116,079 Gross profit.................. 30,053 30,943 30,273 31,016 Net income.................... $ 1,754 $ 1,613 $ 1,436 $ 2,096 Net income per share.......... $ .16 $ .15 $ .13 $ .19 - --------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Report of Independent Public Accountants To the Stockholders and Board of Directors of A.M. Castle & Co.: We have audited the accompanying consolidated balance sheets of A.M. Castle & Co. (a Delaware corporation) and Subsidiaries as of December 31, 1994, 1993 and 1992, and the related consolidated statements of income, reinvested earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of A.M. Castle & Co. and Subsidiaries as of December 31, 1994, 1993 and 1992, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. As discussed in Notes 3 and 6 to the consolidated financial statements, effective January 1, 1992, the Company changed its methods of accounting for postretirement benefits other than pensions and for income taxes. ARTHUR ANDERSEN LLP Chicago, Illinois, February 6, 1995. 17 A.M. Castle & Co. and Subsidiaries Consolidated Eleven-Year Financial and Operating Summary
- --------------------------------------------------------------------------------------------------------------------------------- (Dollars in millions, except employee and per share data-Note 7) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Supplemental Tons sold (in thousands)............................................ 338 308 249 Summary of Net sales........................................................... $536.6 $474.1 $423.9 Earnings Cost of sales....................................................... 391.4 351.8 313.7 ------ ------ ------ Gross profit........................................................ 145.2 122.3 110.2 Operating expenses.................................................. 112.1 102.1 94.9 Depreciation........................................................ 4.6 4.8 4.9 ------ ------ ------ Profit from operations.............................................. 28.5 15.4 10.4 Interest expense, net............................................... 3.2 3.8 4.3 ------ ------ ------ Income before income taxes.......................................... 25.3 11.6 6.1 Income taxes........................................................ 9.9 4.7 2.7 ------ ------ ------ Net income.......................................................... 15.4 6.9 3.41 Cash dividends...................................................... 3.6 2.9 2.9 ------ ------ ------ Reinvested earnings................................................. $ 11.8 $ 4.0 $ 0.5 ======= ======= ======= - --------------------------------------------------------------------------------------------------------------------------------- Share Data Number of shares outstanding at year-end (in thousands)............. 11,080 10,917 10,914 (Note 7) Net income per share................................................ $ 1.40 $ .63 $ .31 Cash dividends per share............................................ $ .33 $ .27 $ .27 Book value per share................................................ $ 7.42 $ 6.37 $ 6.00 - --------------------------------------------------------------------------------------------------------------------------------- Financial Working capital..................................................... $ 76.0 $ 86.1 $ 75.3 Position Property, plant and equipment, net.................................. $ 41.2 $ 41.0 $ 43.2 at Year-End Total assets........................................................ $213.1 $204.2 $195.2 Short-term debt..................................................... $ -- $ -- $ -- Long-term debt...................................................... $ 38.5 $ 58.0 $ 53.0 Stockholders' equity................................................ $ 82.2 $ 69.5 $ 65.5 - --------------------------------------------------------------------------------------------------------------------------------- Financial Return on sales..................................................... 2.9% 1.5% 0.8% Ratios Asset turnover...................................................... 2.5 2.3 2.2 Return on assets.................................................... 7.2% 3.4% 1.7% Leverage factor..................................................... 3.1 3.1 3.0 Return on opening stockholders' equity.............................. 22.2% 10.5% 5.2% Percent earnings reinvested......................................... 76.6% 58.0% 14.7% Percent increase (decrease) in equity............................... 18.3% 6.1% 1.2% - ---------------------------------------------------------------------------------------------------------------------------------- Other Data Additions to property, plant and equipment.......................... $ 7.9 $ 4.6 $ 1.8 Stockholders at year-end............................................ 1,639 1,625 1,670 Employees at year-end............................................... 1,185 1,204 1,196 Per employee data (in thousands) Net sales........................................................... $452.8 $393.8 $354.4 Gross profit........................................................ $122.5 $101.6 $ 92.1 Operating expenses, including depreciation.......................... $ 98.5 $ 88.8 $ 83.4 Profit from operations.............................................. $ 24.0 $ 12.8 $ 8.7 - ---------------------------------------------------------------------------------------------------------------------------------
This schedule is prepared reflecting accounting changes as required or allowed to more fairly present the results of operations over the eleven-year period. Statements for years preceding these changes have not been revised to reflect their retroactive application of these changes. Refer to prior year annual reports for specific accounting changes. - --------------- 1992 net income represents the net results from operations before the cumulative prior years' effect of adopting SFAS No. 106 and SFAS No. 109 (Notes 3 and 6). - ------------------------------------------------------------------------------ 18
- ----------------------------------------------------------------------------------- 1991 1990 1989 1988 1987 1986 1985 1984 - ----------------------------------------------------------------------------------- 234 248 255 277 258 231 211 230 $436.4 $478.9 $501.1 $499.3 $376.1 $322.9 $307.2 $328.4 331.1 363.6 380.6 375.1 282.1 240.6 224.0 237.5 - ------ ------ ------ ------ ------ ------ ------ ------ 105.3 115.3 120.5 124.2 94.0 82.3 83.2 90.9 92.8 97.5 96.7 92.6 74.9 74.6 70.1 71.0 5.3 5.2 4.4 3.9 3.7 3.6 3.3 3.2 - ------ ------ ------ ------ ------ ------ ------ ------ 7.2 12.6 19.4 27.7 15.4 4.1 9.8 16.7 6.8 6.8 5.1 5.1 3.3 4.1 3.1 2.9 - ------ ------ ------ ------ ------ ------ ------ ------ .4 5.8 14.3 22.6 12.1 0.0 6.7 13.8 .2 2.7 5.6 8.9 5.5 (0.1) 3.0 6.7 - ------ ------ ------ ------ ------ ------ ------ ------ .2 3.1 8.7 13.7 6.6 0.1 3.7 7.1 3.9 4.9 4.7 3.5 3.0 3.0 2.8 2.0 - ------ ------ ------ ------ ------ ------ ------ ------ $ (3.7) $ (1.8) $ 4.0 $ 10.2 $ 3.6 $ (2.9) $ 0.9 $ 5.1 ======= ======= ======= ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------ 10,914 10,893 10,830 10,785 10,705 10,660 10,632 10,566 $ .02 $ .29 $ .80 $ 1.27 $ .62 $ .01 $ .35 $ .67 $ .36 $ .45 $ .43 $ .32 $ .28 $ .29 $ .26 $ .19 $ 5.93 $ 6.27 $ 6.44 $ 6.07 $ 5.17 $ 4.83 $ 5.10 $ 5.02 - ------------------------------------------------------------------------------------ $ 79.7 $ 89.9 $ 75.8 $ 89.0 $ 47.9 $ 47.5 $ 50.5 $ 43.5 $ 47.4 $ 54.8 $ 45.3 $ 39.4 $ 35.7 $ 38.4 $ 35.8 $ 36.7 $190.4 $226.6 $202.3 $211.9 $158.7 $145.6 $138.3 $135.0 $ .2 $ 11.9 $ .5 $ -- $ 6.0 $ 14.0 $ 2.0 $ 3.0 $ 63.3 $ 76.7 $ 51.0 $ 61.0 $ 27.8 $ 30.8 $ 30.2 $ 24.4 $ 64.7 $ 68.3 $ 69.7 $ 65.5 $ 55.3 $ 51.5 $ 54.2 $ 53.1 - ------------------------------------------------------------------------------------ 0.1 % 0.7% 1.7% 2.7% 1.8% 0.1% 1.2% 2.2% 2.3 2.1 2.5 2.4 2.3 2.2 2.2 2.4 0.1 % 1.4% 4.3% 6.5% 4.2% 0.1% 2.7% 5.3% 2.8 3.3 3.1 3.8 3.1 2.8 2.6 2.8 0.3 % 4.5% 13.2% 24.7% 12.9% 0.2% 7.0% 14.9% -- % --% 46.3% 74.8% 54.0% --% 24.3% 71.8% (5.3)% (2.0)% 6.4% 18.5% 7.3% (5.0)% 2.1% 11.1% - ------------------------------------------------------------------------------------- $ 3.3 $ 13.4 $ 10.4 $ 7.8 $ 2.6 $ 6.2 $ 3.1 $ 4.7 1,750 1,730 1,747 1,732 1,750 1,843 1,893 1,873 1,268 1,379 1,371 1,373 1,232 1,227 1,258 1,356 $344.2 $347.3 $365.5 $363.7 $305.3 $263.2 $244.2 $242.2 $ 83.0 $ 83.6 $ 87.9 $ 90.5 $ 76.3 $ 67.0 $ 66.1 $ 67.0 $ 77.4 $ 74.5 $ 73.7 $ 70.3 $ 63.8 $ 63.7 $ 58.3 $ 54.7 $ 5.6 $ 9.1 $ 14.2 $ 20.2 $ 12.5 $ 3.3 $ 7.8 $ 12.3 - ------------------------------------------------------------------------------------
19 [Description of Graphics Omitted from EDGAR Submission] 1. On the cover of the Annual Report and on the left side of the inside cover, the left side of page 2 and center top of page 4-5 is a photograph of a laser beam ending in a starburst on the left. 2. On page 1, there are three vertical bar charts on the bottom 1/2 of the page. The first chart shows net sales of $424,000,000, $479,000,000 and $536,000,000 for the years 1992, 1993 and 1994, respectively. The second vertical bar shows net income of $3,000,000, $7,000,000 and $15,000,000 for the years 1992, 1993 and 1994, respectively. The third bar chart shows long term debt of $53,000,000, $58,000,000 and $38,000,000 for the years 1992, 1993 and 1994, respectively. The fourth bar chart shows net worth of $65,000,000, $69,000,000 and $82,000,000 for the years 1992, 1993 and 1994, respectively. 3. The photograph on the left side of page 2 depicts Michael Simpson, Chairman of the Board, left and Richard G. Mork, President and Chief Executive Officer, right, both standing and facing front. 4. On page 20, there are two charts: The first chart which is in the upper third of the page shows the compound rate of return of Castle stock versus inflation and the S&P Index. Castle's returns are shown in the form of straight line segments connected with a solid color beneath from the year 1982 through 1994. The S&P Index is shown by a dotted black line and inflation is shown by a solid black line. The chart depicts inflation over a 15 year period running from slightly under $200 to $200. The chart shows a steady upward course of the S&P Index 500 rising from approximately $200 to somewhere in the neighborhood of $750. The chart shows the solid color, A. M. Castle's compound rate of return, also rising with some dips and valleys from $200 to slightly over $1,800. The second chart which appears on the bottom half of the page shows 15 year dividend payout in thousands of dollars by year the total amount of dividend payouts for each year joined by a straight line with the area beneath the line shaded. The graph commencing at slightly below $1,000,000 shows a rise in total dividends from 1982 to 1994, with a dip from 1984 to 1985, and then a rise again steadily to 1990 with a decrease in total dividends from 1990 to 1992 and 1992 dividends remaining flat at slightly under $3,000,000 and then rising to approximately $3,750,000 in 1994. EX-3.(I) 2 EXHIBIT 3.(1) EXHIBIT "B" CERTIFICATE OF INCORPORATION OF A. M. CASTLE & CO. First. The name of the corporation is A. M. Castle & Co. Second. Its principal office in the State of Delaware is located at No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name and address of its resident agent is The Corporation Trust Company, No. 100 West Tenth Street, Wilmington, Delaware. Third. The nature of the business, or objects or purposes to be trans- acted, presented or carried on are: To manufacture, buy, sell, lease, store, distribute, import, export and deal in and deal with metals and materials of whatever kind and products and by-products thereof in all forms, and in all articles made therefrom; to manufacture, mine, produce, buy, sell, lease, store, distribute, import, export and deal in any articles or materials used in the manufacture, storage, sale or distribution of metals and materials of whatever kind and products and by-products thereof in any form, or in the manufacture, storage, sale or distribution of any article made therefrom; To manufacture, purchase or otherwise acquire, and to hold, own, store, distribute, use, sell, lease or otherwise dispose of and deal in and with, at wholesale, retail or otherwise, goods, wares and merchandise and personal property of every class and descrip- tion; To furnish and provide services of every kind and nature as princi- pal or agent (including, without limitation, the treating, coating and processing of any materials, products or other personal proper- ty) to any persons, firms, associations or corporations; To acquire and pay for in cash, stock or bonds of this corporation or otherwise, the goodwill, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities, of any person, firm, association or corporation; To acquire, hold, use, sell, assign, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privi- leges, inventions, improvements and processes, copyrights, trade- marks and trade names, relating to or useful in connection with any business of this corporation; To acquire by purchase, subscription or otherwise, and to receive, hold, own, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, deben- tures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporation, joint stock companies, syndicates, associations, firms, trusts, or persons, public or private, or by the government of the United States of America, or by any foreign government, or by any state, territory, province, municipality or other political subdivision or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof; To enter into, make and perform contracts of every kind and de- scription with any person, firm, association, corporation, munici- pality, county, territory, state, body politic or government or colony, possession or dependency thereof; To borrow or raise moneys for any of the purposes of the corpora- tion and, from time to time, without limit as to amount, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the corpo- ration for its corporate purposes; To loan to any person, firm or corporation any of its surplus funds, either with or without security, provided that no loan of money shall be made by the corporation to any officer or director of the corporation; To purchase, hold, sell and transfer the shares of its own capital stock; provided it shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital except as otherwise permitted by law, and provided further that shares of its own capital stock belonging to it shall not be voted upon directly or indirectly; To have one or more offices, to carry on all or any of its opera- tions and business and without restriction or limit as to amount to purchase or otherwise acquire, hold, own, mortgage, sell, convey, or otherwise dispose of real and personal property of every class and description in any of the states, districts, territories or possessions of the United States, and in any and all foreign countries, subject to the laws of such state, district, territory, possession or country; and In general, to carry on any other business in connection with the foregoing, and to have and exercise all the powers conferred by the laws of Delaware upon corporation formed under the General Corpora- tion Law of the State of Delaware, and to do any or all the things hereinbefore set forth to the same extent as natural persons might or could do. The objects and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in novice limited or restricted by reference to, or inference from, the terms of any other clause in this Certificate of Incorporation, but the objects and purposes specified in each of the foregoing clauses of this article shall be regarded as independent objects and purposes. Fourth. The total number of shares of stock which the corporation shall have authority to issue is Ten Million (10,000,000) shares of common stock without par value. The designations and the powers, preferences and rights, and the quali- fications, limitations or restrictions in respect of the shares of stock are: All of the authorized shares shall be designated Common Stock and each outstanding share of the corporation shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. No stockholder of this corporation shall by reason of his holding shares of any class have any preemptive or preferential right to purchase or subscribe to any shares of any class of this corporation, now or hereaf- ter authorized, or any notes, debentures, bonds, or other securities convertible into or carrying options or warrants to purchase shares of any class, now or hereafter authorized, whether or not the issuance of any such shares, or such notes, debentures, bonds or other securities, would adversely affect the dividend or voting rights of such stockhold- er, other than such rights, if any, as the Board of Directors, in its discretion from time to time may grant, and at such prices as the Board of Directors in its discretion may fix; and the Board of Directors may issue shares of any class of this corporation, or any notes, debentures, bonds, or other securities convertible into or carrying options or warrants to purchase shares of any class, without offering any such shares of any class, either in whole or in part, to the existing stock- holders of any class. Fifth. The minimum amount of capital with which the corporation will commence business is One Thousand Dollars ($1,000). Sixth. The names and places of residence of the incorporators are as follows: Name Residence S. H. Lovesay .................... Wilmington, Delaware F. J. Ohara, Jr. ................. Wilmington, Delaware A. D. Grier ...................... Wilmington, Delaware Seventh. The corporation is to have perpetual existence. Eighth. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. Ninth. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: To make, alter or repeal the by-laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By resolution passed by a majority of the whole board, to designate one or more committees, each committee to consist of two or more directors of the corporation, which, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may re- quire it. Such committee or committees shall have such name or names as may be stated in the by-laws of the corporation or as may be determined from time to time by resolution adopted by the Board of Directors. When and as authorized by the affirmative mote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting called for that purpose, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding, to sell, lease or exchange all of the property and assets of the corporation, including its goodwill and its corporate franchises, upon such terms and condi- tions and for such consideration, which may be whole or in part shares of stock in, and/or other securities of, any other corpora- tion or corporations, as its Board of Directors shall deem expedi- ent and for the best interests of the corporation. Tenth. In the absence of fraud, no contract or transaction between this corporation and any other corporation shall be affected by the fact that the directors of this corporation or any of them are interested in or are directors or officers of such other corporation, and any director individually may be a party to, or may be interested in any such con- tract or transaction of this corporation; and no such contract or transaction of this corporation with any person or persons, firm or association, shall be affected by the fact that any director of this corporation is a party to, or interested in, such contract or transac- tion, or in any way connected with such person or persons, firm or association, provided that the interest in any such contract or transac- tion of any such director shall be fully disclosed, and that such contract or other transaction shall be authorized or ratified by the vote of a sufficient number of the directors of this corporation not so interested; and each and every person who may become a director in this corporation is hereby relieved from any liability that might otherwise exist from thus contracting with this corporation for the benefit of himself of any firm, association, or corporation in which in any wise he may be interested. Eleventh. Meetings of stockholders may be held without the State of Delaware, if the by-laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may from time to time be designated by the Board of Directors or in the by-laws of the corpo- ration. Elections of directors need not be by ballot unless the by-laws of the corporation shall so provide. Twelfth. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reserva- tion. Any action required or permitted to be taken by the stockholders of the Corporation, whether voting as a class or otherwise, must be taken at a duly called annual or special meeting of the stockholders of the Corpo- ration and may not be taken by consent in writing of such stockholders. No amendment shall change, repeal or make inoperative any of the provi- sions of this Article Twelfth, unless such amendment receives the affirmative vote of the holders of 66-2/3% of all shares of voting stock of the Corporation. Thirteenth. Not used. Fourteenth. A. Required Vote. The affirmative vote of the holders of 66-2/3% of all shares of stock of the Corporation entitled to vote in an election of directors, considered for the purposes of this Article Fourteenth as one class (referred to in this Article Fourteenth as "voting stock"), shall be required for the adoption or authorization of any "extraordinary business transaction" (as hereinafter defined) with any "interested person" (as hereinafter defined) if, as of the record date for the determination of stock- holders entitled to notice thereof and to vote thereon or consent thereto, or as of the date of any such vote or consent, or imme- diately prior to the consummation of the extraordinary business transaction, such interested person is the beneficial owner, directly or indirectly, of at least 5% of the voting stock of the Corporation; provided, that such 66-2/3% voting requirement shall not be applicable if the extraordinary business transaction is approved by a resolution adopted by the Board of Directors and receives the affirmative vote of a majority of the continuing directors of the Corporation, provided that the continuing direc- tors constitute a majority of the Board of Directors. B. Price and Other Requirements. Whether or not a 66-2/3% voting requirement shall be applicable, the cash, or fair market value (as hereinafter defined) of other consideration, to be received per share by common stockholders of the Corporation in an extraordinary business transaction with an interested person involving a distribution to stockholders must not be less than the higher of either: (i) the highest per share price (including brokerage commissions and/or soliciting dealers' fees) paid by such interested person in acquiring any of its holdings of the Corporation's Common Stock during the two year period immedi- ately preceding the first public announcement of the terms of such extraordinary business transaction; or (ii) the book value per share of the Corporation's Common Stock as shown on the Corporation's then most recently published financial statements. Furthermore, when a stockholder vote is required under this Article or pursuant to Delaware law, a majority of the continuing directors shall select two independent experts, which experts shall evaluate the terms of any extraordinary business transaction and determine whether they are fair to the holders of the outstanding shares of stock of the Corporation which are not beneficially owned, directly or indirectly, by the interested person. Such experts in making this evaluation shall take into account whether such stockholders receive thereby their proportionate share of the economic benefits which reasonably can be foreseen from the extraordinary business transaction, as well as such other factors as they deem relevant. The Corporation shall pay the reasonable fees and expenses associ- ated with the retention of such experts. In addition, when a stockholder vote is required under this Article or pursuant to Delaware law a proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended, shall be mailed to the common stockholders of the Corporation and shall contain (i) any recommendations as to the advisability of the extraordinary business transaction which the continuing directors (as hereinafter defined), or any of them, may choose to state, and (ii) the opinions received by the Board of Directors from the two independent experts as to the fairness of the terms of the extraor- dinary business transaction. C. Certain Definitions. As used in this Article Fourteenth, the following terms shall have the following meanings, respective- ly. 1. The term "interested person" shall include any corporation, person or other entity and any other entity with which it or its "affiliate" or "associate" (as hereinafter defined) has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of stock of the Corporation, or which is its "affiliate" or "associate" as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on January 22, 1986, together with the successors and assigns of such persons in any transaction or series of transactions not involving a public offering of the Corporation's stock within the meaning of the Securities Act of 1933, as amended. An interested person shall be deemed to be the beneficial owner of any shares of stock of the Corporation which the interested person (as defined above) has the right to acquire pursuant to any agreement or upon the exercise of conversion rights, warrants or options, or otherwise. The outstanding shares of any class of stock of the Corpora- tion shall be deemed to include shares deemed owned through the application of the preceding paragraph but shall not include any other shares of stock which may be issuable pursu- ant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. 2. The term "extraordinary business transaction" shall include (a) any merger or consolidation of the Corporation with or into any other corporation; (b) the sale, lease, exchange or other disposition of all or any substantial part (meaning assets which represent 10% or more of the total assets of the Corporation as recorded on its books of account or 10% or more of the going concern value of the Corporation as determined by the Board of Directors) of the assets of the Corporation; and (c) the sale or lease to the Corporation or any subsidiary, in exchange for voting securities (or securi- ties convertible into or exchangeable for voting securities) of the Corporation or any subsidiary, of any assets having an aggregate fair market value of more than $5,000,000. 3. The term "continuing director" shall mean a person who is not, and has not been during the preceding 5 years, an affiliate or an associate, as defined above, of an interested person and who was a member of the Board of Directors of the Corporation prior to the time that such other entity first acquired more than 5% of the voting stock of the Corporation (this specifically excludes any entity that owned such amount of stock prior to January 22, 1986), or a person designated (whether before or after election as a director) to be a continuing director by a majority of the continuing directors. 4. The "fair market value" of other consideration referred to in Section 8 shall be as determined in good faith by the Board of Directors of the Corporation and concurred in by a majority of the continuing directors. 5. In the event of a transaction in which the Corpo- ration is the surviving corporation, the "other consideration to be received" as used in Section B shall include Common Stock of the Corporation retained by its existing stockhold- ers. D. Determination by the Board of Directors. A majority of the continuing directors shall have the power and duty to determine for the purposes of this Article Fourteenth, on the basis of information known to them, whether: 1. such interested person beneficially owns more than 5% of the outstanding shares of voting stock of the Corpora- tion; 2. another entity is an "affiliate" or "associate" of interested person; 3. another entity has an agreement, arrangement or understanding with interested person; or 4. a particular transaction is an "extraordinary busi- ness transaction" for the purpose of this Article Fourteenth. E. Other Provisions. Nothing contained in this Article Fourteenth shall be construed to relieve any interested person from any fiduciary obligation imposed by law. The voting requirements of this Article Fourteenth shall be in addition to the voting requirements imposed by law or other provisions of this Certificate of Incorporation in favor of certain classes of stock. F. Applicability. The provisions of this Article Fourteenth shall not apply to any extraordinary business transaction involving an interested person if the Board of Directors of the Corporation shall by resolution have approved a memorandum of understanding with such person of the substantive terms of such extraordinary business transaction prior to the time such person becomes the beneficial owner, directly or indirectly, of at least 5% of the voting stock of the Corporation. G. Amendments. No amendment shall change, repeal or make inoperative any of the provisions of this Article Fourteenth, unless such amendment receives the affirmative vote of the holders of 66-2/3% of all shares of voting stock of the Corporation. Fifteenth. A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach or fiduciary duty as a director except that this Article Fif- teenth shall not eliminate or limit a director's liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) for acts and omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware General Corporation law or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware Corporation Law is hereafter amended to authorize the further elimination or limitation of the personal liability of direc- tors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. Any repeal or modification of the foregoing provisions of this Article Fifteenth by the stockholders of this Corporation shall not adversely affect any right or protection of any Director of this Corporation or any act or occurrence taking place prior to such repeal or modification, or otherwise adversely affect any right or protection existing at the time of such repeal or modification. The provisions of this Article Fifteenth shall not be deemed to limit or preclude indemnification, to the extent permitted by Delaware Law, of a director by this Corporation for any liability for a director which has not been eliminated by the provisions of this Article Fifteenth. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corpo- ration Law of the State of Delaware, do make this certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set our hands and seals this 21st day of April, 1966. S. H. Lovesay(Seal) F. J. Ohara, Jr.(Seal) A. D. Grier(Seal) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EX-3.(II) 3 EXHIBIT 3.(II) EXHIBIT "C" BY-LAWS OF DELAWARE A. M. CASTLE & CO. ARTICLE I OFFICES Section 1. The principal office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held at the office of the corporation at 3400 North Wolf Road, Franklin Park, Illinois. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meeting of stockholders, commencing with the year 1988, shall be held on the fourth Thursday of April, if not a legal holiday, and if a legal holiday, then on the next succeeding business day at 10:00 a.m., at which time the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may be properly brought before the meeting. Section 3. Written notice of the annual meeting shall be given to each stockholder entitled to vote thereat at least ten days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, or cause to be made, at least ten days before every election of directors, a complete list of the stockholders entitled to vote at said election, arranged in alphabetical order, showing the address of and the number of shares registered in the name of the stockholder. Such list shall be open to the examination of any stockholder, during ordinary business hours, for a period of at least ten days prior to the election, either at a place within the city, town or village where the election is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chairman of the board, or the president and shall be called by the president or secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning not less than one-fifth an amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting of stockholders, stating the time, place and object thereof, shall be given to each stockholder entitled to vote thereat, at least ten days before the date fixed for the meeting. Section 7. Business transaction at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented by any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Each stockholder shall, at every meeting of the stockholders, be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period, and, except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for directors which has been transferred on the books of the corporation within twenty days next preceding such election of directors. Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the certificate of incorporation, the meeting and vote of stockholders may be dispensed with, if all the stockholders who would have been entitled to vote upon the action if such meeting were held, shall consent in writing to such corporate action being taken. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole Board shall be eleven (11). The directors shall be elected at the annual meeting of stockholders, except as provided in Section 2 of this Article III, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. Section 3. The business of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws expressly directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected Board of Directors shall be held immediately after the adjournment of the annual meeting of stockholders, and at the place where said annual meeting shall have been held and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event that such meeting is not held at the time and place so fixed, such meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 7. Special meetings of the Board may be called by the chairman of the board or the president on three days' notice to each director, by mail or by telegram. Special meetings shall be called by the president or secretary in like manner and on like notice on the written request of a director. Section 8. At all meetings of the Board of Directors, a majority of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such committee as the case may be, and such written consent is filled with the minutes of proceedings of the Board or committee. Section 10. At any meeting of the Board of Directors, at which all of the directors shall be present, any business may be transacted, regardless of whether such business falls within the purpose or purposes for which said meeting may have been called, and regardless of the fact that no notice whatever was given of the holding of such meeting. COMMITTEES OF DIRECTORS Section 11. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the Directors of the corporation, which, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. At any meeting of a committee, a majority of the committee members shall constitute a quorum for the transaction of business and the act of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of a committee, the committee members present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS Section 13. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 14. The Board of Directors may appoint such retired members of the Board of Directors to the nonvoting position of Director emeritus and/or honorary chairman as it shall deem necessary who shall thereafter hold their offices or agencies, as the case may be, for such term and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 15. Directors emeritus and honorary chairmen may be paid their expenses of attendance at such meetings of the Board of Directors and/or committees of the Board as they attend and such allowances or expenses as may be incurred while performing duties or responsibilities as directed by the Board of Directors. ARTICLE IV NOTICES Section 1. Notices to Directors and stockholders shall be in writing and delivered personally or mailed to the Directors or stockholders at their addressed appearing on the books of the corporation. Notice by mail shall be deemed to be given at the time when the same shall be mailed. Notice to Directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice either before or after the time stated therein, shall be deemed equivalent to such notice. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be elected by the Board of Directors and shall be a chairman of the board, a president, one or more vice presidents, a secretary, a treasurer, a controller and, if deemed advisable by the Board of Directors, an assistant secretary/law. Two or more offices may be held by the same person except that where the office of president and secretary are held by the same person, such person shall not hold any other office. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders, shall elect a chairman of the board, a president, one or more vice presidents, a secretary, a treasurer, a controller, and if it deems advisable, an assistant secretary/law. Section 3. The Board of Directors may appoint such other officers, including without limitation, one or more assistant secretaries, assistant secretary-law, assistant treasurers, assistant controllers and such agents as it shall deem necessary who shall hold their offices or agencies, as the case may be, for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors then in office. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. THE CHAIRMAN OF THE BOARD Section 6. The chairman of the board shall preside at all meetings of the Board of Directors and shall have such other duties and powers as may be assigned to him by the Board of Directors from time to time. THE PRESIDENT Section 7. The president shall be the chief executive officer of the corporation and shall exercise general supervision over the business and fiscal affairs and policy of the corporation, and shall have such other duties and powers as may be assigned to him by the Board of Directors from time to time. He shall preside at all meetings of the stockholders and, in the absence, death or other inability to act of the chairman of the board, he shall have and exercise the powers and duties of the chairman of the board. THE VICE-PRESIDENTS Section 8. The vice-president, or if there shall be more than one, the vice presidents, in the order determined by the Board of Directors, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 9. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the chairman of the board or the president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries, in the order determined by the Board of Directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 11. The assistant secretary-law shall, in addition to the duties of assistant secretary as afore-described, give legal advice and assistance as called upon to do so by any officer of the corporation and shall generally oversee and supervise the legal affairs of the corporation as the Board of Directors from time to time may prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 12. The treasurer shall have the custody of the corporate funds and securities and shall deposit all monies and other valuable effects in the name and to the credit of this corporation, in such depositories as may be designated by the Board of Directors; he shall review the disbursement of funds of this corporation in the manner specified by the Board of Directors, making certain that there are proper vouchers supporting such disbursements, and shall render to the chairman of the board, the president and the Board of Directors, whenever required, an accurate account of all his transactions as treasurer; he shall give this corporation a bond, if required by the Board of Directors, in a sum and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office and for the restoration to this corporation in case of his death, resignation, retirement or removal from office, of all papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to this corporation. Section 13. In the absence or disability of the treasurer, the duties and powers of the treasurer shall be performed and exercised by such assistant treasurer elected or appointed by the Board of Directors as shall be determined by the Board of Directors. THE CONTROLLER AND ASSISTANT CONTROLLERS Section 14. The controller shall have the custody of the books and accounting records belonging to the corporation; he shall disburse the funds of the corporation in the manner specified by the Board of Directors, preparing proper vouchers for such disbursements and shall render to the chairman of the board, the president and to the Board of Directors, whenever required, an accurate account of all his transactions as controller and a statement of the financial condition of this corporation; he shall give the corporation a bond, if required by the Board of Directors, in a sum and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office and for the restoration to this corporation, in the case of his death, resignation, retirement or removal from office, of all books, papers, vouchers and other property of whatever kind in his possession or under his control belonging to this corporation. Section 15. In the absence or disability of the controller, the duties and powers of the controller shall be performed and exercised by such assistant controller elected or appointed by the Board of Directors as shall be determined by the Board of Directors. ARTICLE VI CERTIFICATE OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation, by the chairman of the board or the president or a vice- president and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Section 2. If a certificate is countersigned (a) by a transfer agent other than the corporation or its employee or (b) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile a signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. LOST CERTIFICATES Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. TRANSFERS OF STOCK Section 4. Upon surrender to the corporation or any transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificates and record the transaction upon its books. CLOSING OF TRANSFER BOOKS Section 5. The Board of Directors may close the stock transfer books of the corporation for a period not exceeding fifty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period not exceeding fifty days, in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to such notice of, and to vote at, such meeting any adjournments thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owners of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to any provisions of the certificate of incorporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation and the laws of Delaware. CORPORATE OBLIGATIONS Section 2. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the corporation to be affixed thereto shall be signed by the chairman of the board or by the president (or, in their absence or inability to act, by such officers as may be designated by the Board of Directors) and by the secretary or an assistant secretary; provided, however, that the Board of Directors may authorize any other officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of, and on behalf of, the corporation, and such authority may be general or confined to specific instance. Section 3. All checks, drafts or other orders for the payment of money, bonds, notes or other evidence of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall from time to time, be determined by resolution of the Board of Directors. FISCAL YEAR Section 4. The fiscal year of the corporation shall begin on the first day of January in each year. SEAL Section 5. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION Section 1. Any person made a party to or involved in any litigation (which term shall include any actual or threatened civil, criminal or administrative action, claim, suit, proceeding or appeals therefrom) by reason of the fact that he at any time was or is a director, officer or employee of the corporation, or of any other corporation or organization which he served as such at the request of the corporation and in which the corporation owns shares of capital stock or of which it is a creditor, shall (to the fullest extent permitted by law) be indemnified by the corporation against all liabilities and all expenses reasonably incurred by his arising out of or in connection with such litigation, except in relation to matters as to which (a) it shall be finally adjudged in such litigation that such person breached his duty to the corporation (or to such other corporation or organization) or (b) such person failed to act in good faith for a purpose which he reasonably believed to be in the best interests of the corporation (or such other corporation or organization), or, in the case of criminal litigation, such person had reasonable cause to believe that his conduct was unlawful. Section 2. Except as provided in Section 1 above, the termination of any litigation by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that a director, officer or employee did not meet the applicable indemnification standard set forth in Section 1 above. Section 3. Except where a person has been wholly successful on the merits with respect to said litigation, any indemnification hereunder shall be made only after: (a) the Board of Directors (acting by a quorum consisting of Directors who are not involved in such litigation) determines that such person has met the applicable indemnification standard set forth in Section 1 above; or (b) the Board of Directors determines, based upon the written opinion of independent legal counsel, that such person has met said indemnification standard. Section 4. Advances may be made by the corporation against costs, expense and fees at the discretion of, and upon such terms as may be determined by, the Board of Directors. Section 5. The right of indemnification provided hereunder shall not be deemed exclusive of any other right to which any person may be entitled, or of any other indemnification which may lawfully be granted to any person in addition to the indemnification provided hereunder. Indemnification provided hereunder shall, in the case of death of a director, officer or employee, inure to the benefit of his heirs, executors or other lawful representatives. ARTICLE IX AMENDMENTS Section 1. These by-laws may be altered or repealed at any regular meeting of the Board of Directors or at any special meeting of the Board of directors if notice of such alteration or repeal be contained in the notice of such special meeting. No change of the time or place of the meeting for the election of directors shall be made within sixty days next before the day on which such meeting is to be held, and in case of any change of such time or place, notice thereof shall be given to each stock- holder in person or by letter mailed to his last known post-office address at least twenty days before the meeting is held. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------- EX-10 4 EXHIBIT 10 EXHIBIT "D" A. M. CASTLE & CO. LONG TERM INCENTIVE COMPENSATION PLAN 1. HISTORY, PURPOSE AND EFFECTIVE DATE. A. M. Castle & Co., a Delaware corporation (the "Company"), has established this Long Term Incentive Compensation Plan (the "Plan") to aid the Company in attracting and retaining senior executives and other key management employees of outstanding ability, motivating superior effort and performance levels by plan participants, providing the Company with an effective tool for directing and focusing senior executives on longer-term challenges, reinforcing a desired management culture of teamwork and cooperation, and rewarding achievement of increases in shareholder value superior to those of United States industry. The effective date of the Plan is January 1, 1989. 2. ADMINISTRATION. The Plan shall be administered and interpreted by the Human Resources Committee of the Company's Board of Directors (the "Committee"). Any interpretation of the Plan and any decision on any matter within the Committee's discretion made by it in good faith shall be binding on all persons. 3. PARTICIPATION AND MAXIMUM AWARD PERCENTAGES. For each Performance Cycle (as described in paragraph 4), the Committee shall designate the senior executives and key management employees of the Company who shall be Participants in the Plan and shall establish a Maximum Award Percentage with respect to each such Participant for such Performance Cycle. 4. PERFORMANCE CYCLES. Incentive compensation payable under the Plan shall be determined on the basis of Performance Cycle, each of which shall be a three-consecutive-calendar-year period. Performance Cycles shall commence on January 1 occurring on or after January 1, 1987. 5. PERFORMANCE AWARDS. Subject to the terms and conditions of the Plan, each Participant in the Plan for any Performance Cycle shall be entitled to a Performance Award if the annual compounded total return (based upon stock appreciation and deemed reinvestment of dividends) on the Company's common stock for that Performance Cycle equals or exceeds 1.5% plus the annual compounded total return on the common stock of the Standard & Poor's 500 Industrials for such period. Subject to the terms and conditions of the Plan, a Participant's Performance Award for a Performance Cycle shall be an amount equal to the product of (i) the Participant's Base Salary (as defined below) multiplied by (ii) his Maximum Award Percentage determined under Paragraph 3 and further multiplied by (iii) the applicable Attainment Percentage for that Performance Cycle determined under the following Schedule (using straight line interpolation for total returns between the maximum and minimum returns shown): COMPANY'S TOTAL RETURN ATTAINMENT PERCENTAGE S & P 500 + 1.500% 33% S & P 500 + 3.500% 67% S & P 500 + 5.500% 100% A Participant's "Base Salary" for the Performance Cycles beginning on January 1, 1987 and January 1, 1988 shall be equal to his base salary rate in effect on December 31, 1988. For each other Performance Cycle, a Participant's Base Salary shall be equal to his base salary rate in effect on the June 30th of the second year of the Performance Cycle or, if earlier, the June 30th immediately preceding his death or retirement. 6. LIMITATIONS ON PERFORMANCE AWARDS. Notwithstanding the provisions of paragraph 5, no Performance Award shall be made for any Performance Cycle if the Company's earnings for the last year of that Performance Cycle are less than the highest annual dividend paid by the Company in any of the three calendar years immediately preceding the last year of the Performance Cycle. 7. PAYMENT OF AWARDS. A Participant's Performance Award for any Performance Cycle shall be payable as soon as practicable after the end of that Performance Cycle in the form of shares of the Company's common stock with a fair market value equal to the amount of the Participant's Performance Award, subject to the following: (a) fractional shares shall be disregarded; (b) fifty percent of the shares awarded to a Participant for any Performance Cycle shall be restricted in accordance with subparagraph (c) below until the first anniversary of the last day of the Performance Period, and the balance shall be so restricted until the second anniversary of the last day of the Performance Cycle; (c) during the period for which it is restricted under subparagraph (b) above (the "Restricted Period"), any share of common stock awarded to a Participant under the Plan may not be sold, transferred, pledged or otherwise assigned or encumbered and shall be subject to forfeiture in accordance with paragraph 8; (d) each certificate issued with respect to such shares shall be registered in the name of the Participant and deposited with the Company until the end of the applicable Restricted Period; and (e) subject to the provisions of paragraph 8, each share of common stock awarded to a Participant under the Plan shall be distributed to him, free of all restrictions, promptly after the termination of the applicable Restricted Period. For purposes of the Plan, the fair market value of a share of the Company's common stock shall be determined on the basis of the closing price of a share of the Company's common stock on the last day of the Performance Cycle as quoted on the American Stock exchange Composite Transactions or other principal market quotation selected by the Committee. 8. TERMINATION OF EMPLOYMENT. (a) GENERALLY. If a Participant's employment with the Company terminates for any reason other than Death or Retirement (as defined below), the Participant shall not be entitled to a Performance Award for any Performance Cycle during which such termination occurs, and he shall forfeit all shares of common stock previously awarded to him under the Plan with respect to which the Restricted Period has not terminated. (b) RETIREMENT. If a Participant's employment with the Company terminates by reason of his Retirement, the Participant shall be entitled to a Performance Award for each Performance Cycle during which his Retirement occurs as if he continued in the employ of the Company through the last day of the Performance Cycle; provided, however, that the Committee may reduce any such award to the extent it deems such reduction appropriate to reflect the portion of the Performance Cycle elapsed prior to his Retirement; and provided, further, that if the retired Participant at any time performs any services as a consultant or employee or otherwise for a competitor of the Company, he shall forfeit any Performance Award not yet paid to him and any common stock previously awarded under the Plan for which the applicable Restricted Period has not terminated. For purposes of the Plan, the term "Retirement" means retirement on or after attainment of early retirement age under any applicable retirement plan of the Company. (c) DEATH. If a Participant's employment with the Company terminates by reason of his Death, the Participant's estate shall be entitled to a Performance Award for each Performance Cycle during which such Death occurs as if the Participant continued in the employ of the Company through the last day of the Performance Cycle; provided, however, that the Committee may reduce any such award to the extent it deems such reduction appropriate to reflect the portion of the Performance Cycle elapsed prior to the Participant's Death; and provided, further, that any shares so awarded shall be free of any restrictions under paragraph 7. The remaining Restricted Period of any shares of common stock awarded to a Participant prior to his Death shall terminate as of the date of his Death and such shares shall be distributed to the Participant's estate free of all restrictions. 9. ADJUSTMENTS. Notwithstanding the foregoing provisions of the Plan, in the event of any corporate change which would materially and unjustly affect the Attainment Percentage for any Performance Cycle, the Committee shall make such equitable adjustments under the Plan as it determines are consistent with the purpose of the Plan, and will fairly preserve the benefits of the Plan to the Participant and the Company. Corporate changes for purposes of the preceding sentence shall include, but are not limited to, changes in the Company's accounting policies, acquisitions and divestitures. 10. WITHHOLDING. Any payment under the Plan is subject to withholding for payment of all applicable taxes. In the discretion of the Committee, the Company shall retain that portion of any Performance Award which is equal to the amount required for withholding of income taxes. 11. NONTRANSFERABILITY. The interests of Participants under the Plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated or encumbered. 12. APPLICABLE LAW. The Plan shall be construed and administered in accordance with the internal laws of the State of Illinois. 13. SUCCESSORS. The Plan shall be binding upon any assignee or successor in interest to the Company whether by merger, consolidation or the sale of all or substantially all of the Company's assets. 14. AMENDMENT AND TERMINATION. The Plan may be amended or terminated at any time by resolution of the Company's Board of Directors or its Human Resources Committee. EXHIBIT "E" A. M. CASTLE & CO. 1990 RESTRICTED STOCK AND STOCK OPTION PLAN I. GENERAL 1. PURPOSE. The A. M. Castle & Co. 1990 Restricted Stock and Stock Option Plan (the "1990 Plan") has been established by A. M. Castle & Co. (the "Company") to: (a) attract and retain key executive, managerial, supervisory and professional employees; (b) motivate participating employees to put forth their maximum effort for the continued growth of the Company and its Subsidiaries; (c) further identify Participants' interests with those of the Company's shareholders; and (d) provide incentive compensation opportunities which are competitive with those of other corporations; and thereby promote the long-term financial interest of the Company and its Subsidiaries, including the growth in value of the Company's equity and enhancement of long-term shareholder return. 2. EFFECTIVE DATE. The 1990 Plan shall become effective upon the ratification by the holders of the majority of those shares present in person or by proxy at the Company's 1990 annual meeting of its shareholders; provided, however, that any awards that may be made under the Plan after adoption of the 1990 Plan by the Board but within the 12 month period preceding the Effective Date shall be contingent on approval of the Plan by the shareholders of the Company. The 1990 Plan shall be unlimited in duration and, in the event of plan termination, shall remain in effect as long as any awards under it are outstanding. 3. DEFINITIONS. The following definitions are applicable to the 1990 Plan. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Human Resources Committee, or such other committee as may be designated from time to time by the Board comprising of at least three or more members of the Board who would be classified as "disinterested persons" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended. "Fair Market Value" of any Stock means, as of any date, the closing market composite price for such Stock as reported for the American Stock Exchange- Composite Transactions on that date or, if Stock is not traded on that date, on the next preceding date on which Stock was traded. "Participant" means any employee of the Company or any Subsidiary who is selected by the Committee to participate in the 1990 Plan. "Related Company" means any corporation during any period in which it is a Subsidiary, or during any period in which it directly or indirectly owns 50% or more of the total combined voting power of all classes of stock of the Company that are entitled to vote. "Restricted Period" has the meaning ascribed to it in part IV. "Restricted Stock" has the meaning ascribed to it in Part IV. "Stock" means A. M. Castle & Co. common stock. "Stock Option" means the right of a Participant to purchase Stock pursuant to an Incentive Stock Option or Non-Qualified Option awarded pursuant to the provisions of Part II or Part III. "Subsidiary" means any corporation during any period in which 50% or more of the total combined voting power of all classes of stock entitled to vote is owned, directly or indirectly, by the Company. 4. ADMINISTRATION. The authority to manage and control the operation and administration of the 1990 Plan shall be vested in the Committee. Subject to the provisions of the 1990 Plan, the Committee will have authority to select employees to receive awards of Stock Options and Restricted Stock, to determine the time or times of receipt, to determine the types of awards and the number of shares covered by the awards, to establish the terms, conditions, performance criteria, restrictions and other provisions of such awards (including but not limited to the authority to provide that in the event of certain changes in the beneficial ownership of the Company's Stock or certain changes in the composition of the Board, Options and Restricted Stock shall automatically become fully exercisable and/or vested), and to cancel or suspend awards. In making such award determinations, the Committee may take into account the nature of services rendered by the respective employee, his or her present and potential contribution to the Company's success, and such other factors as the Committee deems relevant. Notwithstanding the foregoing, with respect to awards proposed to be made to officers of the Company, all such awards must be approved and ratified by the Board. The Committee is authorized to interpret the 1990 Plan, to establish, amend, and rescind any rules and regulations relating to the 1990 Plan, to determine the terms and provisions of any agreements made pursuant to the 1990 Plan, and to make all other determinations that may be necessary or advisable for the administration of the 1990 Plan. Any interpretation of the 1990 Plan by the Committee and any decision made by it under the 1990 Plan is final and binding on all persons. 5. PARTICIPATION. Subject to the terms and conditions of the 1990 Plan, the Committee shall determine and designate, from time to time, the key executive, managerial, supervisory, and professional employees of the Company and its Subsidiaries who will participate in the 1990 Plan. In the discretion of the Committee, an eligible employee may be awarded Stock Options or Restricted Stock, or both, and more than one award may be granted to a Partic- ipant. Except as otherwise agreed to by the Company and the Participant, any award under the 1990 Plan shall not affect any previous award to the Participant under the 1990 Plan or any other plan maintained by the Company or its Subsidiaries. 6. SHARES SUBJECT TO THE 1990 PLAN. The shares of Stock with respect to which awards may be made under the 1990 Plan shall be either authorized and unissued shares or issued and outstanding shares (including, in the discretion of the Board, shares purchased in the market). Subject to the provisions of paragraph I.10, the number of shares of Stock which may be issued with respect to awards under the 1990 Plan shall not exceed 350,000 shares in the aggregate. If, for any reason, any award under the 1990 Plan otherwise distributable in shares of Stock, or any portion of the award, shall expire, terminate or be forfeited or cancelled, or be settled in cash pursuant to the terms of the 1990 Plan and, therefore, any such shares are no longer distributable under the award, such shares of Stock shall again be available for award to an eligible employee (including the holder of such former award) under the 1990 Plan. 7. COMPLIANCE WITH APPLICABLE LAWS AND WITHHOLDING OF TAXES. Notwithstanding any other provision of the 1990 Plan, the Company shall have no liability to issue any shares of Stock under the 1990 Plan unless such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the issuance of any shares of Stock under the 1990 Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares. In the case of a Participant who is subject to Section 16(a) and 16(b) of the Securities Exchange Act of 1934, the Committee may, at any time, add such conditions and limitations to any election to satisfy tax withholding obligations through the withholding or surrender of shares of Stock as the Committee, in its sole discretion, deems necessary or desirable to comply with Section 16(a) or 16(b) and the rules and regulations thereunder or to obtain any exemption therefrom. All awards and payments under the 1990 Plan are subject to withholding of all applicable taxes, which withholding obligations may be satisfied, with the consent of the Committee, through the surrender of shares of Stock which the Participant already owns, or to which a Participant is otherwise entitled under the 1990 Plan. 8. TRANSFERABILITY. Stock Options and, during the period of restriction, Restricted Stock awarded under the 1990 Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution. Stock Options may be exercised during the lifetime of the Participant only by the Participant. 9. EMPLOYMENT AND SHAREHOLDER STATUS. The 1990 Plan does not constitute a contract of employment, and selection as a Participant will not give any employee the right to be retained in the employ of the Company or any Subsidiary. No award under the 1990 Plan shall confer upon the holder thereof any right as a shareholder of the Company prior to the date on which he fulfills all service requirements and other conditions for receipt of shares of stock. If the redistribution of shares is restricted pursuant to paragraph 17, certificates representing such shares may bear a legend referring to such restrictions. 10. ADJUSTMENTS TO NUMBER OF SHARES SUBJECT TO THE 1990 PLAN. In the event of any change in the outstanding shares of Stock of the Company by reason of any stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, exchange or shares or other similar change, the aggregate number of shares of Stock with respect to which awards may be made under the 1990 Plan, and the terms and the number of shares of any outstanding Stock Options or Restricted Stock shall be equitably adjusted by the Committee and all such adjustments shall be conclusive upon all persons. 11. AGREEMENT WITH COMPANY. At the time of any awards under the 1990 Plan, the Committee will require a Participant to enter into an agreement with the Company in a form specified by the Committee, agreeing to the terms and conditions of the 1990 Plan and to such additional terms and conditions, not inconsistent with the 1990 Plan, as the Committee may, in its sole discretion, prescribe. 12. AMENDMENT AND TERMINATION OF 1990 PLAN. Subject to the following provisions of this paragraph 12, the Board may at any time and in any way amend, suspend, or terminate the 1990 Plan. No amendment of the 1990 Plan and, except as provided in paragraph I.10, no action by the Committee shall, without further approval of the shareholders of the Company, increase the total number of shares of Stock with respect to which awards may be made under the 1990 Plan. No amendment, suspension or termination of the 1990 Plan shall alter or impair any Stock Option or Restricted Stock previously awarded under the 1990 Plan without the consent of the holder thereof. II. INCENTIVE STOCK OPTIONS 1. DEFINITION. The award of an Incentive Stock Option under the 1990 Plan entitles the Participant to purchase shares of Stock at a price fixed at the time the option is awarded, subject to the following terms of this Part II. 2. ELIGIBILITY. The Committee shall designate the Participants to whom Incentive Stock Options, as described in section 422a(b) of the Code or any successor section therein, are to be awarded under the 1990 Plan and shall determine the number of option shares to be offered to each of them. In no event shall the aggregate Fair Market Value (determined at the time the option is awarded and taking options into account in the order granted) of Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year (under all plans of the Company and all Related Companies) exceed $100,000. 3. PRICE. The purchase price of a share of Stock under each Incentive Stock Option shall be determined by the Committee; PROVIDED, HOWEVER, that in no event shall such price be less than the greater of (a) 100% of the Fair Market Value of a share of Stock as of the date the option is granted (110% of Fair Market Value with respect to Participants who at the time of the award are deemed to own at least 10% of the voting power of the Company), or (b) the par value of a share of Stock on such date. To the extent provided by the Committee, the full purchase price of each share of Stock purchased upon the exercise of any Incentive Stock Option shall be paid in cash or in shares of stock (valued at Fair Market Value as of the day of exercise), or in any combination thereof, at the time of such exercise and, as soon as practicable thereafter, a certificate representing the shares so purchased shall be delivered to the person entitled thereto. Notwithstanding the foregoing provisions of this paragraph 3, the Committee may, in its sole discretion, by the terms of the Agreement granting Incentive Stock Options to a Participant, or thereafter, determine that the Company (or a Subsidiary) shall offer a Participant a loan for all or a portion of the option price. The terms of such loan, including the interest rate, security to be provided to the lender, and the terms of repayment, shall be established by the Committee. The Committee may also permit Incentive Stock Options to be exercised by a Participant through one or more loans from a stock brokerage firm upon assurance from the brokerage firm that any such loans shall be made in accordance with applicable margin requirements. 4. EXERCISE. The Committee may impose such rules relating to the time and manner in which Incentive Stock Options may be exercised as the Committee deems appropriate; PROVIDED, HOWEVER, that no Incentive Stock Option may be exercised by a Participant (a) prior to the date on which he completes one continuous year of employment with the Company or any Related Company after the date of the award thereof, or (b) after the Expiration Date applicable to that option. 5. OPTION EXPIRATION DATE. The "Expiration Date" with respect to an Incentive Stock Option or any portion thereof awarded to a Participant under the 1990 Plan means the earliest of: (a) the date that is 10 years after the date on which the Incentive Stock Option is awarded (5 years with respect to Participants who at the time of the award are deemed to own at least 10% of the voting power of the Company); (b) the date, if any, on which the Participant's continuous employment with the Company and all Related Companies terminates, if such continuous employment terminates prior to the first anniversary of the date of the award of the option; or (c) the date established by the Committee, or the date determined under a method established by the Committee, at the time of the award. All rights to purchase shares of Stock pursuant to an Incentive Stock Option shall cease as of such option's Expiration Date. III. NON-QUALIFIED STOCK OPTIONS 1. DEFINITION. The award of a Non-Qualified Stock Option under the 1990 Plan entitles the Participant to purchase shares of Stock at a price fixed at the time the option is awarded, subject to the following terms of this Part III. 2. ELIGIBILITY. The Committee shall designate the Participants to whom Non-Qualified Stock Options are to be awarded under the 1990 Plan and shall determine the number of option shares to be offered to each of them. 3. PRICE. The purchase price of a share of Stock under each Non- Qualified Stock Option shall be determined by the Committee; PROVIDED, HOWEVER, that in no event shall such price be less than the greater of (a) 100% of the Fair Market Value of a share of Stock as of the date the option is granted, or (b) the par value of a share of such Stock on such date. To the extent provided by the Committee, the full purchase price of each share of Stock purchased upon the exercise of any Non-Qualified Stock Option shall be paid in cash or in shares of Stock (valued at Fair Market Value as of the day of exercise), or in any combination thereof, at the time of such exercise and, as soon as practicable thereafter, a certificate representing the shares so purchased shall be delivered to the person entitled thereto. Notwithstanding the foregoing provisions of this paragraph 3, the Committee may, in its sole discretion, by the terms of the Agreement granting Non-Qualified Stock Options to a Partic- ipant, or thereafter, determine that the Company (or a Subsidiary) shall offer a Participant a loan for all or a portion of the option price. The terms of such loan, including the interest rate, security to be provided to the lender, and the terms of repayment, shall be established by the Committee. The Committee may also permit Non-Qualified Stock Options to be exercised by a Participant through one or more loans from a stock brokerage firm upon assurance from the brokerage firm that any such loans shall be made in accordance with applicable margin requirements. 4. EXERCISE. The Committee may impose such rules relating to the time and manner in which Non-Qualified Stock Options may be exercised as the Committee deems appropriate; PROVIDED, HOWEVER, that no Non-Qualified Stock Option may be exercised by a Participant (a) prior to the date on which the Participant completes one continuous year of employment with the Company or any Related Company after the date of the award thereof, or (b) after the Expiration Date applicable to that option. 5. OPTION EXPIRATION DATE. The "Expiration Date" with respect to a Non- Qualified Stock Option or any portion thereof awarded to a Participant under the 1990 Plan means the earliest of: (a) the date that is 10 years after the date on which the Non-Qualified Stock Option is awarded; (b) the date, if any, on which the Participant's continuous employment with the Company and all Related Companies terminates, if such continuous employment terminates prior to the first anniversary of the date of the award of the option; or (c) the date established by the Committee, or the date determined under a method established by the Committee, at the time of the award. All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option shall cease as of such option's Expiration Date. IV. RESTRICTED STOCK 1. DEFINITION. Restricted Stock awards are grants of Stock to Participants, the vesting of which is subject to a required period of employment and any other conditions established by the Committee. 2. ELIGIBILITY. The Committee shall designate the Participants to whom restricted Stock is to be awarded, and the number of shares of Stock that are subject to the award. 3. TERMS AND CONDITIONS OF AWARDS. All shares of Restricted Stock awarded to Participants under the 1990 Plan shall be subject to the following terms and conditions and to such other terms and conditions, not inconsistent with the 1990 Plan, as shall be prescribed by the Committee in its sole discretion and as shall be contained in the Agreement referred to in paragraph I.11. (a) Restricted Stock awarded to Participants may not be sold, assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided, for a period determined by the Committee after the time of the award of such stock (the "Restricted Stock"). Except for such restrictions, the Participant as owned of such shares shall have all the rights of a shareholder, including but not limited to the right to vote such shares and, except as otherwise provided by the Committee, the right to receive all dividends paid on such shares. (b) The Committee may, in its discretion, at any time after the date of the award of Restricted Stock, adjust the length of the Restricted Period to account for individual circumstances of a Participant or group of Participants, but in no case shall the length of the Restricted Period be less than one year. (c) Except as otherwise determined by the Committee in its sole discretion, a Participant whose employment with the Company and all Related Companies terminates prior to the end of the Restricted Period for any reason shall forfeit all shares of Restricted Stock remaining subject to any outstanding Restricted Stock Award. (d) Each certificate issued in respect of shares of Restricted Stock awarded under the 1990 Plan shall be registered in the name of the Participant and, at the discretion of the Committee, each such certificate may be deposited in a bank designated by the Committee. Each such certificate shall bear the following (or a similar) legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in the A. M. Castle & Co. 1990 Restricted Stock and Stock Option Plan and an agreement entered into between the registered owner and A. M. Castle & CO. A copy of such plan and agreement is on file in the office of the Secretary of A. M. Castle & Co., 3400 North Wolf Road, Franklin Park, Illinois 60131." (e) At the end of the Restricted Period for Restricted Stock, such Restricted Stock will be transferred free of all restrictions to a Participant (or his or her legal representative, beneficiary or heir). 4. SUBSTITUTION OF CASH. The Committee may, in its discretion, substitute cash equal to the Fair Market Value (determined as of the date of distribution) of Stock otherwise required to be distributed to a Participant in accordance with paragraph IV.3. EXHIBIT "F" DESCRIPTION OF MANAGEMENT INCENTIVE PLAN Under the Management Incentive Plan, an incentive is earned after the Company exceeds an established rate of return on net worth after taxes. The objectives are established each year for districts, regions, specialty product groups and the Company as a whole. Historically the goal has been set based upon the median and upper quartile industry performance as measured by pre-tax return on assets. These measurements are then converted to an after tax return on investment standards using the corporate policy leverage target of 2.5. The return on investment goals are then in turn applied to estimated year-end net worth to establish the Company's profit goals. For 1994, the Board and manage- ment established the cut-in point for payment of management incentive at a rate of return equivalent to eighty cents ($.80) per share. The maximum incentive level would be reached at a rate of return after the equivalent to One Dollar Sixty two Cents ($1.62) per share. For districts, regional and special product group plan participants, cut-in goals and maximum incentives are proportionate. The plan is structured such that an earning corridor is established and all plan participants will receive a proportionate share of their incentive payout as the Company progresses along the profit corridor. This would result in all plan participants reaching fifty percent (50%) of their possible incentive payout when the Company has reached fifty percent (50%) toward its maximum profit objective, and all plan partici- pants will reach one hundred percent (100%) of incentive payout when the maximum incentive level/rate of return is realized. EX-27 5 EXHIBIT 27
5 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 976 0 59,492 (600) 98,215 159,093 99,275 (57,085) 213,127 82,138 38,531 24,114 0 0 59,047 213,127 536,568 536,568 (391,386) (116,328) 0 (345) (3,215) 25,294 (9,884) 15,410 0 0 0 15,410 1.40 1.40
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