Disclosure Regarding Forward-Looking Statements

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

INDUSTRY AND MARKET DATA

In this report, we rely on and refer to information and statistics regarding the metal service center industry and general manufacturing markets. We obtained this information and these statistics from sources other than us, such as the Metals Service Center Institute, which we have supplemented where necessary with information from publicly available sources and our own internal estimates. Although we have not independently verified such information, we have used these sources and estimates and believe them to be reliable.

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PART I

ITEM 1 — Business

In this Annual Report on Form 10-K, “the Company,” “we” or “our” refer to A. M. Castle & Co., a Maryland corporation, and its subsidiaries included in the consolidated financial statements, except as otherwise indicated or as the context otherwise requires.

Company Overview

A.M. Castle & Co. (the “Company”) is a global distributor of specialty metals and supply chain services, principally serving the producer durable equipment, commercial and military aircraft, heavy equipment, industrial goods, and construction equipment sectors of the global economy. Its customer base includes many Fortune 500 companies as well as thousands of medium- and smaller-sized firms spread across a variety of industries. Particular focus is placed on the aerospace and defense, power generation, mining, heavy industrial equipment, and general manufacturing industries, as well as general engineering applications.

The Company’s corporate headquarters is located in Oak Brook, Illinois. As of December 31, 2020, the Company operates out of 21 service centers located throughout North America (16), Europe (2) and Asia (3). The Company’s service centers hold inventory and process and distribute products to both local and export markets.

Industry and Markets

Service centers operate as supply chain intermediaries between primary producers, which deal in bulk quantities in order to achieve economies of scale, and end-users in a variety of industries that require specialized products in significantly smaller quantities and forms. Service centers also manage the differences in lead times that exist in the supply chain. While original equipment manufacturers (“OEM”) and other customers often demand delivery within hours, the lead time required by primary producers can range from several months to over a year for certain specialty metals. Service centers provide value to customers by aggregating purchasing, providing warehousing and distribution services to meet specific customer needs, including demanding delivery times and precise metal specifications, and by providing value-added metals processing services.

The principal markets served by the Company are highly competitive. The Company is focused on two key global end markets, aerospace and industrial. Competition within these markets is based on service, quality, processing capabilities, inventory availability, timely delivery, ability to provide supply chain solutions, and price. The Company competes in a highly fragmented industry. Competition in the various markets in which the Company participates comes from a large number of value-added metals processors and service centers on a local, regional, and global basis, some of which have greater financial resources, and some of which have more established brand names in certain local, regional, and global markets served by the Company.

The Company also competes to a lesser extent with primary metals producers who typically sell to larger customers requiring shipments of large volumes of metal with limited or no value-added processing.

In order to capture scale efficiencies and remain competitive, many primary metal producers are consolidating their operations and focusing on their core production activities. These producers have increasingly outsourced metals distribution, inventory management, and value-added metals processing services to metals service centers. This process of outsourcing allows the primary metal producers to work with a relatively small number of intermediaries rather than many end customers. As a result, metals service centers, including the Company, are now providing an expanding range of services for their customers, including metal purchasing, processing, and supply chain solutions.

The Company’s marketing strategy focuses on distributing highly-engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very precise specifications. Core products include alloy and stainless steels, nickel alloys, aluminum, titanium, and carbon. Inventories of these products may assume many forms such as plate, sheet, extrusions, round bar, hexagonal bar, square and flat bar, tubing, and coil. Depending on the size of the facility and the nature of the markets it serves, the Company’s service centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, trepanning machinery, boring machinery, honing equipment, water-jet cutting equipment, stress relieving and annealing furnaces, leveling and surface grinding equipment, CNC machinery, and sheet shearing equipment. Various specialized fabrications are also performed for customers internally or through pre-qualified subcontractors that thermally process, turn, polish, cut-to-length, and straighten alloy and carbon bar, among other things.

Procurement

The Company purchases metals from many producers. Material is purchased in large lots and stocked at its service centers until sold, usually in smaller quantities and typically with some value-added processing services performed. The Company’s ability to provide timely delivery of a wide variety of specialty metals products, along with its processing capabilities and supply chain management solutions, allows customers to lower their own inventory investment by reducing their need to order the large quantities required by producers and their need to perform additional material processing services. Some of the Company’s purchases are covered by long-term contracts and commitments, which generally have corresponding customer sales agreements.

Thousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization. Orders are primarily filled with materials shipped from Company stock. The materials required to fill the balance of sales are obtained from other sources, such as purchases from other distributors or direct mill shipments to customers. Deliveries are made principally by third party logistics providers using their fleets, some of which display Company-branding. Otherwise, common carrier delivery is used in areas not serviced directly by such third party logistics providers. The Company’s broad network of locations provides same or next-day delivery to most of their markets, and two-day delivery to substantially all of the remaining target markets.

Customers

The Company’s customer base is broadly diversified and therefore, the Company does not have dependence upon any single customer, or a few customers. The customer base includes many Fortune 500 companies as well as thousands of medium- and smaller-sized firms.

Employees

As of December 31, 2020, the Company had 681 full-time employees. Of these full-time employees, 80 were represented by the United Steelworkers of America (“USW”) under collective bargaining agreements. Effective May 15, 2018, we entered into a four-year collective bargaining agreement with the USW, which covers approximately 59 employees at our largest facility in Cleveland, Ohio. Approximately 21 employees at our Hammond, Indiana facility are covered by a separate collective bargaining agreement with the USW that was renegotiated effective September 1, 2020, and expires on March 31, 2024. The Company believes its relationships with its employees and their representative unions are good.

Access to SEC Filings

The Company makes available free of charge on or through its Web site at www.castlemetals.com the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). Information on our Web site does not constitute part of this Annual Report on Form 10-K.

Information About Our Executive Officers

The following selected information for each of our current executive officers (as defined by regulations of the SEC) was prepared as of March 4, 2021.

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ITEM 1A — Risk Factors

(Dollar amounts in millions, except per share data)

Our business, financial condition, results of operations, and cash flows are subject to various risks, many of which are not exclusively within our control, that may cause actual performance to differ materially from historical or projected future performance. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. Any of the following risks, as well as other risks and uncertainties not currently known to us or that we currently consider to be immaterial, could materially and adversely affect our business, financial condition, results of operations, or cash flows.

Capital Resources

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our debt instruments.

We have substantial debt service obligations. As of December 31, 2020, we had $238.7 million of total debt outstanding, all of which is secured. The debt outstanding, in order of priority, was comprised of $115.6 million of borrowings under our Revolving Credit and Security Agreement (as amended, the “ABL Credit Agreement”), $98.8 million aggregate principal amount of 3.00% / 5.00% Convertible Senior Secured Paid In Kind (“PIK”) Toggle Notes due 2024 (the “3.00%/5.00% Convertible Notes”), including $0.1 million of restricted 3.00%/5.00% Convertible Notes issued to certain members of management (“MIP Notes”), $4.0 million aggregate principal amount of 5.00% / 7.00% Convertible Senior Secured Paid In Kind (PIK) Toggle Notes due 2022 (the “5.00%/7.00% Convertible Notes”, and together with the 3.00%/5.00% Convertible Notes, the “Convertible Notes”), and short-term borrowings of approximately $3.0 million under a local credit facilities (see Note 2 - Debt). We also have a Paycheck Protection Program Term Note due April 28, 2022, in the amount of $10.0 million (the “PPP Loan”) and our French subsidiary’s term loan in the amount of $7.4 million (the “France Term Loan”). Our debt instruments currently limit our ability to pay in cash the interest accruing on our Convertible Notes, so the amount of Convertible Notes outstanding continues to increase quarterly as interest is paid in kind. The ABL Credit Agreement and the Convertible Notes are secured by collateral security interests in substantially all of our assets and are guaranteed by certain of our subsidiaries.

Our substantial level of indebtedness could have significant effects on our business, including the following:

The ABL Credit Agreement provides for $125.0 million senior secured, revolving credit facility (the “Revolving A Credit Facility”) as well as a subordinated $25.0 million Revolving B (Priority) senior secured, revolving credit facility (the “Revolving B (Priority) Credit Facility”), and a subordinated $21.5 million Revolving B senior secured, revolving credit facility (the “Revolving B Credit Facility” and together with the Revolving A Credit Facility and the Revolving B (Priority) Credit Facility, the “Credit Facilities”). We expect to obtain the funds to pay our expenses and to satisfy our debt obligations from our operations and available resources under the Credit Facilities. Our ability to meet our expenses and make these principal and interest payments as they come due, therefore, depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flow from operations in the future, and our anticipated revenue and cash flow may not be realized, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs. If we do not have enough funds, we may be required to refinance all or part of our then existing debt, sell assets or borrow more funds, which we may not be able to accomplish on terms acceptable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from pursuing any of these alternatives which could have an adverse effect on our financial condition or liquidity.

We may not be able to generate sufficient cash to service all of our existing debt service obligations, and may be forced to take other actions to satisfy our obligations under our debt agreements, which may not be successful.

Our total debt under our ABL Credit Agreement, the Convertible Notes, including MIP Notes, the PPP Loan, our France Term Loan and our local credit facilities have an aggregate principal amount outstanding of $238.7 million as of December 31, 2020. Our ability to make scheduled payments on or to refinance our debt obligations depends on our future financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. Therefore, we may not be able to maintain or realize a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments, capital expenditures or potentially accretive acquisitions, sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous borrowing covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations which could have an adverse effect on our financial condition or liquidity.

Our debt instruments impose significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions and our failure to comply with the covenants contained in our debt instruments could result in an event of default that could adversely affect our operating results.

Our debt agreements impose, and future debt agreements may impose, operating and financial restrictions on us. These restrictions limit or prohibit, among other things, our ability to:

These covenants could adversely affect our ability to finance our future operations or capital needs, withstand a future downturn in our business or the economy in general, engage in or expand business activities, including future opportunities that may be in our interest, and plan for or react to market conditions or otherwise execute our business strategies. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, in certain circumstances, the relevant lenders or holders of such indebtedness could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and may not be able to continue our operations as planned.

COVID-19

Our business and operations, and the operations of our suppliers and customers, have been, and for an indefinite period of time may continue to be, adversely affected by the novel coronavirus (or COVID-19) pandemic, and could be impacted in the future by other pandemics, known or unknown.

We may face risks related to the ongoing outbreak of the Novel Coronavirus Disease 2019 (COVID-19), which was declared a “pandemic” by the World Health Organization and a national public health emergency by governments throughout the world as the disease spread across the globe and continues to substantially and materially impact worldwide economic activity. The continuing impact of COVID-19 and the associated pandemic is unknown and continues to evolve. Health epidemics or outbreaks of communicable diseases such as COVID-19 could result in widespread or localized health crises that could adversely affect general commercial activity and the economies and financial markets of many countries or localities in which the Company operates, sells, or purchases good and services. A public health epidemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, customers, transportation providers, and other business partners may from time to time be prevented or impaired from conducting ordinary course business activities for indefinite periods of time, either at specific branches or on a broader scale, including due to shutdowns necessitated for the health and well-being of our employees, the employees of our business partners, or shutdowns that may be requested or mandated by governmental authorities. Directives to “de-densify” worksites, “Shelter in Place,” “Safe at Home,” quarantine, or similar orders or mandates that restrict workforce and/or require closures of “non-essential” businesses have been implemented by government authorities to one degree or another starting with China in January 2020 and quickly spreading in the following months through Europe, North America and most locations throughout the world. Such orders or mandates have been lifted in many geographies, but there is a continuing threat that such measures may again be required as the original COVID-19 virus, or variants thereof, have continued to spread in certain geographies. While vaccines are now available and being administered in certain geographies, the quantities are limited and are generally reserved at this time for healthcare workers, first responders, long-term care facility staff and residents, people 65 years or older, other individuals with significant health concerns, and essential workers.  Although the Company has already been adversely impacted by the COVID-19 pandemic, the situation is very fluid and subject to rapid change; the full extent of the impact that the COVID-19 pandemic may yet have on

the Company's business, operations and financial condition is currently unknown. Future pandemics could have similar, or more severe, impacts to our business and operations.

While our branches have as a whole generally remained operational at varying levels of volume throughout the pandemic, there can be no assurances that from time to time we will not have to close any branch or multiple branches for indefinite periods of time due to concerns over the health and well-being of our employees, due to further developments in government directives or due to continued drop in demand from our customers or disruptions from our suppliers. While we have implemented policies and practices to protect our employees at each of our locations, including sanitizing and cleaning protocols, requiring face coverings and other personal protective equipment, social distancing and other behavioral best practices, remote work arrangements, staggered and spaced work shifts, separating workspaces by distance and/or physical barriers, and suspending non-essential employee travel and visitors to our locations throughout the world, there can be no assurances that these efforts will be successful to prevent a contamination from impacting or potentially closing any of our branches or corporate offices for a time. While each of our operations has prepared and regularly updates customized business continuity and return to work plans to address COVID-19 concerns, in an effort to ensure that we are protecting our employees, continuing to operate our business and service our customers’ needs, and mitigating the potential impacts of COVID-19 or other similar epidemics, there is no guarantee that such plans will anticipate or fully mitigate the various impacts the pandemic, much of which is still entirely uncertain. While vaccines are expected to be more widely available in the coming months, there can be no assurances as to how quickly the vaccines will be made available in sufficient quantities to mitigate the continuing economic effects of the pandemic and there can be no assurances that the vaccines will eradicate COVID-19 and any variants. While it is not possible at this time to estimate the scope and severity of the impact that COVID-19 could yet have on our branches, the continued spread of COVID-19 (including any variants), the measures taken by the governments of countries affected, the availability and efficacy of the COVID-19 vaccinations, actions taken to protect employees, actions taken to continue operations, and the impact of the pandemic on various business activities in affected countries could adversely affect our financial condition, results of operations and cash flows.

In April 2020, we applied for and received a $10.0 million PPP Loan (see Item 8 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact of Coronavirus (COVID-19) Pandemic). At that time, after taking into account, among other things, the disruptions to our business activities caused by the COVID-19 pandemic, our completed exchange offer to issue our 3.00%/5.00% Convertible Notes and shares of our common stock in exchange for our 5.00%/7.00% Convertible Notes, our available, committed primary sources of liquidity, and our lack of access to alternative sources of liquidity, we believed and certified that economic conditions at that time made this loan request necessary and appropriate to support our ongoing U.S. operations and mitigate potentially significant detriment to our business. Recipients of loans in excess of $2.0 million will be audited and, despite our good-faith belief that given our circumstances we then satisfied and continue to satisfy all eligible requirements for the PPP Loan as well as all conditions for loan forgiveness. The federal government may disagree and determine that we were ineligible to have applied for and received the PPP Loan and/or ineligible for loan forgiveness either in full and/or in part. In such event, we may be required to repay the PPP Loan in its entirety and could be subject to additional penalties, which could have a material adverse effect on our liquidity and financial condition.

While we have and continue to pursue government relief programs in addition to the PPP loan and the France Term Loan (including tax deferrals, subsidies, loans, etc.) and have and continue to implement a number of temporary and long-term cost-cutting initiatives to align our operations to current customer demand as well as be prepared for any market recovery once this pandemic has passed, including staff reductions, reduction in employee hours and/or salaries, furloughs, temporary layoffs, or a combination of these actions. At each of our locations, there can be no assurances that such actions will be sufficient to stave off the economic impacts of the pandemic or that further such actions will not be warranted. Although we have seen recent improvements, we saw a significant reduction in customer forecasts and orders in 2020 as a result of the pandemic and there can be no assurances that we will not see further degradation in customer business in the short- or long-term and it is uncertain how quickly customer forecasts and business will improve following this pandemic.

Our principal sources of liquidity are cash provided by operations and proceeds from borrowings under the Credit Facilities. Starting in the second quarter of 2020, and continuing into the second half of 2020, the average receivable days outstanding increased from levels in previous quarters, which we believe reflects some slowing in payments from customers due to the financial uncertainties resulting from the COVID-19 pandemic. We also have a lower accounts receivable balance as of December 31, 2020 (as compared to previous years) as a result of the decrease in demand resulting from the COVID-19 pandemic, which has decreased our borrowing base collateral attributable to accounts receivable under our Credit Facilities and, in the near term, could result in less cash provided by operations. Further decreases in our accounts receivable could result in further reductions in our borrowing base collateral and therefore, the maximum amount we could borrow under our Credit Facilities could decrease accordingly. The decrease in demand has also resulted in an increase in inventory and average days sales in inventory in 2021 compared to previous years. We are focused on maintaining liquidity by purchasing a sufficient level of inventory to meet customer demand while not carrying excess inventory and lowering overall stock levels throughout the business. However, if we are unable to sufficiently manage our inventory levels and we begin to carry excess inventory, our liquidity could be unfavorably impacted. Conversely, a decrease in our inventory could result in a reduction in our borrowing base collateral attributable to inventory and therefore, the maximum amount we could borrow under our revolving credit facility could decrease accordingly.

The full extent to which COVID-19 impacts our business both in the short-term and long-term will depend on the continuing severity, location and duration of the spread of COVID-19 (and any variants) as well as resurgent outbreaks of COVID-19 which could result as communities reopen, the short- and long-term efficacy of the vaccines, and the speed at which vaccinations are available and administered. The extent of the impact will further depend on, among other things, the rate, pace, and effectiveness of the actions undertaken by local and world governments and health officials to contain the virus or treat its effects, the nature of government public health guidelines and the public’s adherence to those guidelines, the impact of government economic relief on the US economy, unemployment levels, the success of businesses reopening, the timing for proven treatments and vaccines for COVID-19, consumer confidence and the rate, pace and effectiveness of the actions undertaken by the leadership and employees of our Company, as well as those of our suppliers, customers and other business partners, to return businesses to pre-pandemic levels.

Capitalization

Our public reporting obligations have been suspended, which could have an adverse impact on the market price and liquidity of our common stock and we filed documents with the SEC to terminate registration of our common stock with the SEC.

Effective as of December 29, 2020, we effected a 1-for-10 reverse stock split (the “Reverse Split”), combining each 10 shares of our common stock into one whole share of common stock and paying cash in lieu of any fractional shares that otherwise would have resulted from the Reverse Split.  As the Reverse Split resulted in a reduction in the number of stockholders of record to fewer than 300, on January 6, 2021 we filed with the SEC a Certification and Notice of Termination of Registration Under Section 12(g) of the Securities Exchange Act of 1934 on Form 15, deregistering our common stock under the Securities Exchange Act of 1934. As a result of this “going private” transaction, our obligation to file periodic reports and other information with the SEC, including our quarterly and annual reports, has been suspended.

Prior to the Reverse Split and the “going private” transaction, our common stock was traded on the OTCQX® Best Market (the “OTCQX”) under the ticker “CTAM.”  It is anticipated that the trading of our common stock will shift to the OTC Pink Open Market, a centralized electronic quotation service for over-the-counter securities.  OTC Pink is the baseline tier of the OTC Markets and has no financial standards or reporting requirements, and companies in this tier choose the level of information they provide to investors and may have current, limited, or no public disclosure. However, OTC Pink is not a stock exchange, and we do not have the ability to control whether our shares are quoted on OTC Pink. Trading opportunities in OTC Pink will be dependent upon whether any broker-dealers commit to continue making a market for our common stock. Accordingly, we cannot guarantee that our common stock will continue to be quoted on OTC Pink. In addition, any prices at which our

shares are quoted on the OTC Pink, if at all, may be more or less than the price of our common stock prior to deregistration. In addition, the spread between the bid and asked prices of our common stock on the OTC Pink may be wider than before deregistration and the liquidity of our shares may be lower. There can be no assurances that there will be any OTC Pink quotations for our common stock or that, if such quotations continue, they will continue for any length of time.  There can be no assurances that any trading market for our common stock, at the OTC or otherwise, will continue.

Even if trading on the OTC Pink continues, the trading of our common stock in the OTC market rather than a national securities exchange may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders. Securities traded in the OTC market generally have less liquidity due to factors such as the reduced number of investors that will consider investing in the securities, the reduced number of market makers in the securities, and the reduced number of securities analysts that follow such securities. As a result, holders of shares of our common stock may find it difficult to resell their shares at prices quoted in the market or at all.

After the deregistration of our common stock and suspension of our duty to file periodic reports and other information with the SEC, information regarding the Company (including our financial results) that has previously been available to the general public and our stockholders will no longer be readily available (subject in all respects to a continuing stockholder’s right, if any, to certain information regarding the Company under Maryland law).  The lack of publicly available information about the Company could result in a reduction of our profile with key stakeholders such as lenders, vendors, customers, investors, and employees.  The limited or absences of any trading market, and the limited or absence of public information about our operations and results of operations, may result in a decline in the price of our common stock and may result in reduced liquidity for our common stock.

Furthermore, because of the limited market and generally low volume of trading in our common stock that could occur, the share price of our common stock could be more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the markets perception of our business, and announcements made by us, our competitors, or parties with whom we have business relationships.

The lack of liquidity in our common stock may also make it difficult for us to issue additional securities for financing or other purposes, or to otherwise arrange for any financing we may need in the future.

Ownership of our stock is concentrated, which may limit stockholders’ ability to influence corporate matters.

The Company’s ownership is concentrated among a small group of institutional investors and the Company’s management team. Certain directors, their affiliates, and/or any other concentrated ownership interests may have the voting power to substantially affect or control the outcome of matters requiring a stockholder vote, including the election of directors and the approval of significant corporate matters. Such a concentration of control could adversely affect the market price of our common stock or prevent a change in control or other business combinations that might be beneficial to us.

The lender under our Credit Facilities and/or the holders of our Convertible Notes can require us to repay our debt obligations following a change of control. We may not have sufficient funds to satisfy such cash obligations.

As of December 31, 2020, we had $115.5 million of borrowings under our Credit Facilities and $102.7 million of aggregate principal amount outstanding under the Convertible Notes, including $0.1 million of MIP Notes. Upon the occurrence of a change in control (as defined in the ABL Credit Agreement) or a fundamental change (as defined in the indenture for the Convertible Notes), which in either case includes the acquisition of more than 50% of our outstanding voting power by a person or group, we may be required to repay all borrowings under the Credit Facilities and/or repurchase some or all of the Convertible Notes for cash at a repurchase

price equal to 100% of the principal amount of the Convertible Notes being repurchased, plus any accrued and unpaid interest. We may not have sufficient funds to satisfy such cash obligations and, in such circumstances, may not be able to arrange the necessary financing on favorable terms or at all. In addition, our ability to satisfy such cash obligations will be restricted pursuant to covenants contained in the indenture for the Convertible Notes and will be permitted to be paid only in limited circumstances. We may also be limited in our ability to satisfy such cash obligations by applicable law or the terms of other instruments governing our indebtedness. Our inability to make any cash payments that may be required to satisfy the obligations described above would trigger an event of default under the Convertible, which in turn could constitute an event of default under our other outstanding indebtedness, thereby potentially resulting in the acceleration of certain of such indebtedness, the prepayment of which could further restrict our ability to satisfy such cash obligations.

Holders of our Convertible Notes may convert their Convertible Notes into common stock at any time or in connection with a fundamental change. The conversion of our Convertible Notes into common stock will dilute the ownership interest of our existing stockholders.

Pursuant to the terms of the Convertible Notes Indenture, we may elect to settle any election to convert Convertible Notes in cash, common stock or a combination of both, however, our debt instruments currently limit our ability to pay cash in respect of the Convertible Notes. Any issuance by us of our common stock upon conversion of our Convertible Notes will dilute the ownership interest of our existing stockholders. In addition, any such issuance of common stock could have a dilutive effect on our net income per share to the extent that the average stock price during the period is greater than the conversion prices and exercise prices of the Convertible Notes. Furthermore, any sales in the public market of our common stock issuable upon conversion of the Convertible Notes could adversely affect prevailing market prices of our common stock.

We have various mechanisms in place that may prevent a change in control that stockholders may otherwise consider favorable.

We are subject to the anti-takeover provisions of the Maryland General Corporation Law (the “MGCL”) that prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of five years after the date of the transaction in which the person first becomes an “interested stockholder,” unless the business combination or stockholder interest is approved in a prescribed manner. The application of these and certain other provisions of our charter or the MGCL could have the effect of delaying or preventing a change of control, which could adversely affect the market price of our common stock.

The provisions of our debt instruments also contain limitations on our ability to enter into change of control transactions. In addition, the repurchase rights in our Convertible Notes triggered by the occurrence of a fundamental change (as defined in the indenture for the Convertible Notes), and the additional shares of our common stock by which the conversion rate is increased in connection with certain fundamental change transactions, as described in the indenture for the Convertible Notes, could discourage a potential acquirer.

Our Business

Our future operating results are impacted by the volatility of the prices and supply of metals, which could cause our results to be adversely affected.

The availability and prices we pay for metal raw materials and the prices we charge for products may fluctuate depending on many factors, including general economic conditions (both domestic and international), competition, production levels, import tariffs, duties, and other trade restrictions, new or ongoing health and safety issues, and currency fluctuations. To the extent metal prices decline, we would generally expect lower sales, pricing and possibly lower operating income. Depending on the timing of the price changes and to the extent we are not able to pass on to our customers any increases in our metal raw materials prices, our operating results may be adversely affected. In addition, because we maintain substantial inventories of metals in order to meet short lead-times and the just-in-time delivery requirements of our customers, a reduction in our selling prices could result in lower profitability or, in some cases, losses, either of which could adversely impact

our ability to remain in compliance with certain provisions of our debt instruments, as well as result in us incurring impairment charges.

We service industries that are highly cyclical and impacted by international regulatory concerns, and any downturn in our customers’ industries could reduce our revenue and profitability.

Many of our products are sold to customers in industries that experience significant fluctuations in demand based on economic conditions, energy prices, consumer demand, availability of adequate credit and financing, customer inventory levels, changes in governmental policies and/or regulations and other factors beyond our control, such as acts of war or terrorism, natural disasters or public health issues or pandemics, such as that experienced with the COVID-19 pandemic. As a result of this volatility in the industries we serve, when one or more of our customers’ industries experiences a decline, we may have difficulty increasing or maintaining our level of sales or profitability if we are not able to divert sales of our products to customers in other industries. Historically, we have made a strategic decision to focus sales resources on certain industries, specifically the aerospace, heavy equipment, machine tools and general industrial equipment industries. A downturn in these industries has had, and may in the future continue to have, an adverse effect on our operating results. We are also particularly sensitive to market trends in the manufacturing sectors of the North American economy and the two primary global markets which we serve, aerospace and industrial.

For example, in October 2018 and March of 2019, two commercial aircraft accidents led to the grounding by the Federal Aviation Administration (“FAA”) and other regulatory bodies of the Boeing 737 MAX aircraft. While our overall participation on the 737 MAX program is relatively limited both through direct sales and through our customer base, certain of our aerospace customers have significant content on the aircraft. The continued grounding of the Boeing 737 MAX by the FAA and other regulators, which started in March of 2019, caused deliveries of that aircraft to be extremely limited in fiscal year 2020, and has therefore impacted our customers, in some cases significantly. On November 18, 2020, the FAA approved the Boeing 737 MAX to return to commercial service and in some cases the aircraft resumed flying before the end of 2020, although a widespread return to service is not expected until 2021. Based on information currently available, we believe the missed deliveries resulting from the prolonged grounding of the aircraft will be fulfilled in future periods, although at a slower rate than previously estimated. Because Boeing sources large quantities of metal directly from mills for certain of its programs, including the 737 MAX, there could be impacts on our suppliers and market availability of certain products as a result of excesses or shortages. As stated above, our direct exposure to the 737 MAX is relatively limited, and therefore, we do not expect it to have a significant direct impact on sales demand or pricing of our products in 2021. However, we cannot exclude the possibility that a further prolonged grounding of the Boeing 737 MAX could affect our aerospace end markets more broadly than the specific 737 MAX program, and thus could negatively impact our profitability and/or cash flow.

Our operating results are subject to the seasonal nature of our customers’ businesses.

A portion of our customers experience seasonal slowdowns. Historically, our revenues in the months of July, November, and December have been lower than in other months because of a reduced number of shipping days and holiday or vacation closures for some customers. Dependent on market and economic conditions, our sales in the first two quarters of the year, therefore, can be higher than in the third and fourth quarters due to this seasonality. As a result, analysts and investors may inaccurately estimate the effects of seasonality on our operating results in one or more future quarters and, consequently, our operating results may fall below expectations.

An impairment or additional restructuring charge could have an adverse effect on our operating results.

We continue to evaluate opportunities to reduce costs and improve operating performance. These actions could result in restructuring and related charges, including but not limited to asset impairments, employee termination costs, charges for pension benefits, and pension settlement and/or curtailments, which could be significant and could adversely affect our financial condition and results of operations.

We have a significant amount of long-lived assets. We review the recoverability of long-lived assets whenever significant events or changes occur which might impair the recovery of recorded costs, making certain assumptions regarding future operating performance. The results of these calculations may be affected by the current demand and any decline in market conditions for our products, as well as interest rates and general economic conditions. If impairment is determined to exist, we will incur impairment losses, which may have an adverse effect on our operating results.

Disruptions or shortages in the supply of raw materials could adversely affect our operating results and our ability to meet our customers’ demands.

Our business requires materials that are sourced from third party suppliers. If, for any reason, our primary suppliers of metals should curtail or discontinue their delivery of raw materials to us at competitive prices and in a timely manner, our operating results could suffer. Unforeseen disruptions in our supply bases, including those resulting from competition, political instability, acts of war or terrorism, natural disasters, and public health issues or pandemics (such as COVID-19), among other things, could materially impact our ability to deliver products to customers. The sourcing of certain metals may be highly competitive due to limited supplies and availability. The number of available suppliers could be reduced by factors such as industry consolidation and bankruptcies affecting metals producers, or suppliers may be unwilling or unable to meet our demand due to industry supply conditions. If we are unable to obtain sufficient amounts of raw materials from our traditional suppliers, we may not be able to obtain such raw materials from alternative sources at competitive prices to meet our delivery schedules, which could have an adverse impact on our operating results. To the extent we have quoted prices to customers and accepted orders for products prior to purchasing necessary raw materials, or have existing contracts, we may be unable to raise the price of products to cover all or part of the increased cost of the raw materials to our customers.

In some cases the availability of raw materials requires long lead times. As a result, we may experience delays or shortages in the supply of raw materials. If we are unable to obtain adequate and timely deliveries of required raw materials, we may be unable to timely supply customers with sufficient quantities of products. This could cause us to lose sales, incur additional costs, or suffer harm to our reputation, all of which may adversely affect our operating results.

Our ability to use our net operating loss carryforwards (“NOLs”) is limited.

We have incurred substantial losses since 2008. As of December 31, 2020, we had United States (“U.S.”) federal net operating loss carryforwards, or NOLs, of $24.3 million. The U.S. federal NOLs will expire in various years beginning with 2034. These U.S. federal NOLs reflect the attribute reduction for the cancellation of indebtedness resulting from our bankruptcy proceedings in 2017, as well as the write-off of the statutorily limited losses, which the Company will never be able to utilize due to Internal Revenue Code (“IRC”) section 382 limitations. We have determined that an ownership shift of greater than fifty percent occurred in 2015, 2016 and 2017 and as such, a significant portion of the pre-ownership shift NOLs are subject to an annual utilization limitation under IRC section 382 that will act to prevent the Company from utilizing most of its losses against future taxable income. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership that we cannot predict or control that could result in further limitations being placed on our ability to utilize our federal NOLs. In addition, we may not generate future taxable income so that we can use our available NOLs as an offset. As of December 31, 2020, we have a full valuation allowance against our federal and state NOLs that we do not expect to utilize under IRC section 382 as we have concluded, based

on all available evidence, that it is more likely than not that we will not utilize these federal and state NOLs prior to their respective expiration.

We operate in international markets, which expose us to a number of risks.

Although a majority of our business activity takes place in the United States, we serve and operate in certain international markets, which exposes us to political, economic and currency related risks, including the following:

In addition to the United States, we operate in Canada, Mexico, France, Singapore, and China. An act of war, terrorism, public health issues or a major pandemic event could disrupt international shipping schedules, cause additional delays in importing or exporting products into or out of any of these countries, including the United States, or increase the costs required to do so. In addition, acts of crime or violence in these international markets could adversely affect our operating results. Fluctuations in the value of the U.S. dollar versus foreign currencies could reduce the value of these assets as reported in our consolidated financial statements, which could reduce our stockholders’ equity. If we do not adequately anticipate and respond to these risks and the other risks inherent in international operations, it could have a material adverse impact on our operating results.

The imposition of tariffs or duties on imported metals could significantly increase the price of the metals we purchase from international suppliers and/or result in shortages in the supply of raw materials.

Though we source the majority of our products domestically in the countries in which we operate, we do source some products from international suppliers. The imposition of tariffs or duties on imported metals, other similar measures imposed by the U.S. government, and retaliatory/corresponding measure by other countries, has a pervasive impact on the metals market in which we operate. For example, we may be unable to pass through the higher costs to our customers for the metals we buy internationally, which could adversely impact our competitiveness, financial condition and operating results. Similarly, further decreases in imports could cause a disruption or shortage in the availability of the raw materials that we buy, which could limit our ability to meet customer’s demand or to purchase material at competitive prices. This could cause us to lose sales, incur additional costs, or suffer harm to our reputation, all of which may adversely affect our operating results.

A portion of our workforce is represented by collective bargaining units, which may lead to work stoppages.

As of December 31, 2020, approximately 18% of our U.S. employees were represented by the USW under collective bargaining agreements, including hourly warehouse employees at our distribution centers in Cleveland, Ohio and Hammond, Indiana. As these agreements expire, there can be no assurance that we will succeed in concluding collective bargaining agreements with the USW to replace those that expire. Although we believe that our labor relations have generally been satisfactory, we cannot predict how stable our relationships with the USW will be or whether we will be able to meet the USW requirements without impacting our operating results and financial condition. The USW may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our relationship with the USW could negatively impact the timely processing and shipment of our products, which could strain relationships with customers or suppliers and adversely affect our operating results. Effective May 15, 2018, we entered into a four-year collective bargaining agreement with the USW, which covers approximately 59 employees at our largest facility in Cleveland, Ohio. Approximately 21 employees at our Hammond, Indiana facility are covered by a separate collective bargaining agreement with the USW that was renegotiated effective September 1, 2020 and expires on March 31, 2024.

We rely upon our suppliers as to the specifications of the metals we purchase from them.

We rely on mill or supplier certifications that attest to the physical and chemical specifications of the metals received from our suppliers for resale and generally, consistent with industry practice, do not undertake independent testing of all such metals. Although our primary sources of products have been domestic suppliers, we have and will continue to purchase product from foreign suppliers when we believe it is appropriate. In the event that metal purchased from domestic suppliers is deemed to not meet quality specifications as set forth in the mill or supplier certifications or customer specifications, we generally have recourse against these suppliers for both the cost of the products purchased and possible claims from our customers. However, such recourse will not compensate us for the damage to our reputation that may arise from sub-standard products and possible losses of customers. Moreover, there is a greater level of risk that similar recourse will not be available to us in the event of claims by our customers related to products from foreign suppliers that do not meet the specifications set forth in the mill or supplier certifications. In such circumstances, we may be at greater risk of loss for claims for which we do not carry, or do not carry sufficient, insurance.

Our business could be adversely affected by a disruption to our primary distribution hubs.

Our largest facilities, in Cleveland (Ohio), Hammond (Indiana), and Janesville (Wisconsin) serve as primary distribution centers that ship product to our other facilities as well as external customers. Our business could be adversely impacted by a major disruption at any of these facilities due to unforeseen developments occurring in or around the facility, such as:

A prolonged disruption of the services and capabilities of these or other of our facilities could adversely impact our operating results.

Damage to or a disruption in our information technology systems could impact our ability to conduct business and could subject us to liability for failure to comply with privacy and information security laws.

Difficulties associated with the design and implementation of our enterprise resource planning (“ERP”) or other information technology systems could adversely affect our business, our customer service and our operating results.

We rely primarily on one information technology system to provide inventory availability to our sales and operating personnel, improve customer service through better order and product reference data and monitor operating results. Difficulties associated with upgrades or integration with new systems could lead to business interruption that could harm our reputation, increase our operating costs and decrease profitability.

General Risk Factors

We could be vulnerable to interest rate fluctuations on our indebtedness, which could hurt our operating results.

We are exposed to various interest rate risks that arise in the normal course of business. Market risk arises from changes in interest rates. We currently finance our operations with both fixed rate and variable rate borrowings, and the fair market value of our $149.9 million of fixed rate borrowings outstanding as of December 31, 2020 may be impacted by changes in interest rates. In addition, if in the future interest rates subsequently increase significantly, it could significantly increase the interest expense on our variable rate borrowings which could have an adverse effect on our operating results and liquidity.

Potential environmental legislative and regulatory actions could impose significant costs on the operations of our customers and suppliers, which could have a material adverse impact on our results of operations, financial condition and cash flows.

As a metals distributor, our operations do not emit significant amounts of greenhouse gas (“GHG”). However, the manufacturing processes of many of our suppliers and customers are energy intensive and generate carbon dioxide and other GHG emissions. Any adopted future climate change and GHG legislative or regulatory measures may impose significant costs on the operations of our customers and suppliers and indirectly impact our operations. Until the timing, scope and extent of any future legislation and regulation becomes known, we cannot predict the effect on our results of operations, financial condition and cash flows.

Our business could be negatively impacted by cyber and other security threats or disruptions.

We face various cyber and other security threats, including attempts to gain unauthorized access to our sensitive information and computer networks. Unauthorized or inappropriate access to, or use of, our computer networks or systems may be intentional, unintentional or a result of criminal activity. Such unauthorized or inappropriate access may lead to the corruption of data, which could cause interruption in our operations or damage our computer systems or those of our customers or vendors. A party that is able to circumvent our security measures could also gain unauthorized access to confidential, proprietary, personal or other sensitive information or capabilities, which may belong to third parties, our employees or us.

The occurrence of such threats, attacks or incidents exposes us to risk of loss and possible claims brought by our customers, employees or other parties with whom we have commercial relationships, as well as actions by government regulators. In addition to potential legal liability, these activities may interfere with our ability to provide our products and services. Further, a perception that our security measures are ineffective against security incidents could damage our reputation, and we could lose employees, customers or vendors. Any of these occurrences could have an adverse impact on our financial condition and results of operations.

Thus, the success of our business depends on the security of our computer networks and systems and, in part, on the security of the computer networks and systems of our third-party vendors. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, we may be unable to anticipate these techniques

or to implement adequate preventative measures. We also cannot give assurance that the security measures of our third-party vendors, including network and system providers, providers of customer and vendor support services and other vendors will be adequate. Thus, we may need to expend significant resources to protect against security breaches or to address problems caused by such breaches.

ITEM 1B — Unresolved Staff Comments

None.

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ITEM 3 — Legal Proceedings

From time to time, the Company is party to a variety of legal proceedings, claims, and inquiries, including proceedings or inquiries by governmental authorities, which arise from the operation of its business. These proceedings, claims, and inquiries are incidental to and occur in the normal course of the Company’s business affairs. The majority of these proceedings, claims, and inquiries relate to commercial disputes with customers, suppliers, and others; employment and employee benefits-related disputes; product quality disputes with vendors and/or customers; and environmental, health and safety claims. Although the outcome of these proceedings is inherently difficult to predict, management believes that the amount of any judgment, settlement or other outcome of these proceedings, claims and inquiries, after taking into account recorded accruals and the availability and limits of our insurance coverage, will not have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows.

ITEM 4 — Mine Safety Disclosures

Not applicable.

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PART II

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

On December 28, 2020, the Company filed articles of amendment to effect a reverse stock split of the Company’s outstanding shares of common stock, pursuant to Section 2-309(e) of the Maryland General Corporation Law, whereby each 10 shares of common stock issued and outstanding as of December 29, 2020 was combined into one whole share of common stock. No fractional shares of common stock were issued as a result of the Reverse Split. In lieu of issuing any fractional shares to any stockholder as a result of the Reverse Split, the Company made, to any stockholder that would otherwise hold a fractional share after giving effect to the Reverse Split, a cash payment in an amount equal to $0.70 multiplied by the number of pre-split shares held by such stockholder with respect to which a fractional share would have been issued. Stockholders of record who owned fewer than 10 shares of common stock prior to the Reverse Split were cashed out and are no longer stockholders of the Company.

Prior to the Reverse Split, the Company’s common stock was traded on the OTCQX tier of the OTC Markets Group, Inc. under the symbol “CTAM.”

As permitted by the Exchange Act, following determination by the Company that the number of stockholders of record of the Company’s common stock was fewer than 300, following the Reverse Split on January 6, 2021, the Company consummated a “going private” transaction by filing a Form 15 with the SEC. The Form 15 notified the SEC of the withdrawal of the Company’s common stock from registration under Section 12(g) of the Exchange Act in accordance with Rule 12g-4(a)(1) under the Exchange Act. As a result, the Company’s obligation to file periodic reports, including its quarterly and annual reports, has been suspended. The deregistration is expected to become effective 90 days after filing of the Form 15, which will be after the filing of this Annual Report on Form 10-K.

As of December 31, 2020, there were approximately 101 stockholders of record of our common stock, which excludes stockholders whose shares were held in nominee or street name by brokers.

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

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

Information regarding the business and markets of A.M. Castle & Co. and its subsidiaries (the “Company”) is included in Item 1 “Business” of this annual report on Form 10-K. All references to numbers of shares and per share data has been adjusted to reflect the Reverse Stock Split that occurred on December 29, 2020.

The following discussion should be read in conjunction with the Company’s consolidated financial statements and related notes thereto in Item 8 “Financial Statements and Supplementary Data”. The following discussion and analysis of our financial condition and results of operations contain forward-looking statements and includes numerous risks and uncertainties, including those described under Item 1A “Risk Factors” and “Disclosure Regarding Forward-Looking Statements” of this Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-looking statements.

EXECUTIVE OVERVIEW

Financial Results Summary

The Company’s strategy is to become a leading global provider of specialty metals products and services and supply chain solutions to targeted global industries.

During the year ended December 31, 2020:

Recent Market and Pricing Trends

As expected, demand and pricing headwinds in the industrial market from the second half of 2019 continued into 2020 and were further worsened by the macroeconomic impacts of the COVID-19 pandemic, resulting in a decrease in volumes and average selling prices for the majority of the Company's core industrial products, namely alloy bar, carbon and alloy flat products, and SBQ bar. In the Company’s other primary market, aerospace, the favorable demand and pricing momentum for aluminum and stainless products experienced in the first quarter of 2020 was rapidly and dramatically reduced by the COVID-19 pandemic, which effectively grounded global air travel.

The current metals pricing environment is challenging as a decrease in demand and availability in supply has led to increased price competition for all of the Company’s core products. In challenging market conditions such as these, the Company has strategically focused on more highly accretive sales, particularly those including higher margin, value added service offerings. Despite macro headwinds in pricing, in the year ended December 31, 2020, the Company achieved gross material margin of 26.9%, compared to a gross material margin of 25.2% (including a non-recurring non-cash inventory charge of $1.3 million) in the prior year. To the extent that the Company can pass through higher material costs to its contractual customers, we expect higher selling prices within the metals market to continue to have an overall favorable impact on the Company’s gross material margin. If higher material costs are not passed through to its contractual customers, the Company fails to avoid an overstocked position relative to the market and restock at lower replacement costs, or if prices begin to decrease within the metals market, the Company’s gross material margin may be adversely impacted.

In many cases, the pricing of its products can have a more significant impact on the Company’s operating results than demand because of the following reasons, among others:

In total, demand for the Company’s products decreased considerably in 2020, compared to the prior year, driven primarily by the macroeconomic impacts of the COVID-19 pandemic, which worsened already soft industrial end markets and substantially deteriorated global demand for aerospace products. The weakening of demand within the aerospace market is largely attributable to the impact of the COVID-19 pandemic on global air travel and the grounding of the Boeing 737 MAX, for which some of the Company's customers supply content. 

Industry data provided by the Metals Service Center Institute (“MSCI”) indicates that overall 2020 U.S. steel service center shipment volumes decreased 11% compared to 2019 levels. According to MSCI data, industry sales volumes of products consistent with the Company’s product mix decreased 12% in 2020 compared to 2019. Of the U.S. steel service center products tracked by the MSCI, shipment volumes for all of the products decreased in 2020 compared to 2019 with carbon bars, stainless steel and aluminum having the most significant decreases.

The demand for the Company’s products may change from time to time based on, among other things, general economic conditions, industry capacity, and the cyclical nature of the industries in which the Company’s customers operate. The pricing environment, leading to increased competitiveness within the market, can also have a significant impact on demand. An increase or decrease in the demand for the Company’s products has a significant impact on the Company’s operating results. When volume increases, the Company’s sales dollars generally increase, which leads to more dollars earned from normal operations. Similarly, a decrease in demand results in lower sales dollars which, once costs and expenses are factored in, leads to less dollars earned from normal operations. Although the lower demand also decreases the cost of materials and operating costs, including warehouse, delivery, selling, general and administrative expenses, the decrease in these costs and expenses is often less than the decrease in sales dollars due to fixed costs, resulting in lower operating margins. Management believes that with the Company’s new global supply organization, which is focused on reducing aged inventories, improving overall stock levels throughout the Company, and providing real-time facilitation of the Company’s branches in selling higher cost inventory, as well as its focus to excel in its highly accretive core product lines to the exclusion of low-margin, working capital intensive opportunities, it is in a better position to react quickly to variability in end-market demand and to manage the impact that demand variability might have on operating margins.

Current Business Outlook

Although there were intermittent signs of recovery in the second half of 2020, the Company experienced significantly lower demand for its products in 2020 as many of the industries the Company serves continue to be impacted economically, some significantly, by the COVID-19 pandemic. The global health crisis caused by the COVID-19 pandemic continues to result in a decline in orders from and shipments to customers compared to pre-pandemic levels, as well as slower-than-normal payments from customers and disruptions at certain of the Company's suppliers. In addition, the pricing environment for the Company's products continues to be extremely competitive with lower average price per ton sold in the year ended December 31, 2020 compared to the prior year. The Company anticipates the recovery in economic activity to pre-pandemic levels will be slower than originally expected as its customers and suppliers struggle to return their own businesses to pre-pandemic levels. The Company expects COVID-19 to continue to have an unfavorable impact on its financial results and business into 2021.

To date, the Company has taken actions to maintain operations through the pandemic and its network as a whole has remained operational, albeit at varying levels of volume aligned to customer orders and forecasts. The Company has prepared and regularly updates business continuity plans for ongoing operations and has taken steps to adjust its business to match the deteriorating economic conditions, including the implementation of enhanced measures through its global supply and branch management teams to ensure the Company is efficiently utilizing inventory on hand and inbound, as well as its internal processing capabilities.

Given the expectation that the recovery to pre-pandemic levels may be longer than originally expected, the Company has implemented a long-term, permanently sustainable cost structure that does not rely on temporary cost reduction measures as significantly as during the early stages of the pandemic. The Company believes the permanent cost-cutting measures it implemented not only align the Company with current demand, but also better prepare it for any market recovery once this pandemic has passed. Permanent cost-cutting measures, which are estimated to reduce the Company's operating expenses by approximately $15.0 to $16.0 million on an annualized basis, primarily included staff reductions through layoffs, which were implemented in conjunction with the elimination of most of the temporary cost measures taken previously, including the temporary reduction in employee hours and/or salaries, deferral of periodic salary increases and/or incentive pay, and/or a combination of these actions. In an effort to protect the health and safety of its employees, the Company has adopted face covering requirements, sanitization, social distancing and other behavioral best practices at its locations, including remote work arrangements, reducing the number of people in the Company's branch and corporate locations at any one time, and suspending non-essential employee travel. At the outset of the COVID-19 pandemic, the Company established a COVID-19 response team to closely monitor the local, regional, and national situations that impact the Company's various branches, monitor and advise on COVID-19 exposures and potential exposures within the Company's workspaces, direct and implement health and safety plans and business continuity plans, and establish pandemic-related guidelines and policies to best protect the Castle team and its business, including responsible return-to-work or restart plans. Variables that the Company is taking into consideration as some branches and the Corporate office begin to return to normal operations include local case trends, testing availability, number of employees and the workstation layout, productivity and engagement concerns, the availability and efficacy of vaccinations, and most importantly, guidance and requirements from local, state, and federal government, medical and scientific authorities.

In an effort to bolster its liquidity position and mitigate potentially significant detriment to its business, the Company has and will continue to pursue a variety of government-sponsored support programs, such as tax deferrals, employment-related subsidies, government-backed loans and other government relief available in the U.S. and in other countries in which it operates.  Actual relief under each of these measures varies in terms of timing and availability as governments continue to define, implement, extend and/or fund their relief programs.

The Company qualified under the “alternative size standard” for a forgivable loan under the Paycheck Protection Program (“PPP”) administered by the Small Business Association (SBA) pursuant to the CARES Act. On April 28, 2020, the Company entered into an unsecured PPP loan in the aggregate principal amount of $10.0 million, which is to be used only for payroll expenses, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the "PPP Loan"). After taking into account, among other things, the disruptions to the Company’s business activities caused by the COVID-19 pandemic, the completed exchange offer and consent solicitation (the “Exchange Offer”) to issue its 3.00% / 5.00% Convertible Senior Secured Paid-in-Kind ("PIK") Toggle Notes due 2024 (the “3.00%/5.00% Convertible Notes”) and shares of its common stock in exchange for its 5.00% / 7.00% Convertible Senior Secured PIK Toggle Notes due 2022 (the “5.00%/7.00% Convertible Notes”), its available, committed primary sources of liquidity, and its lack of access to alternative sources of liquidity, economic conditions at that time made this loan request necessary and appropriate to support the Company’s ongoing U.S. operations and mitigate potentially significant detriment to the Company’s business. Under the terms of the CARES Act and the Paycheck Protection Program Flexibility Act passed on June 5, 2020 (the "PPPFA"), the PPP Loan, and interest accrued thereon, is forgivable, partially or in full, subject to certain conditions, including the extent to which the PPP Loan proceeds are used for permissible purposes within the 24 week period following loan disbursement (which period was extended by the PPPFA from the 8 week period originally allowed by the CARES Act). The Company believes it has used the PPP Loan proceeds for

permissible purposes only and intends to apply for forgiveness of the full amount of the PPP Loan in accordance with the terms of the PPP, the CARES Act and the PPPFA.

On June 24, 2020, the Company's French subsidiary entered into a €6.0 million term loan (the "France Term Loan"). The France Term Loan, which is fully guaranteed by the French government, is part of a relief program related to the COVID-19 pandemic.  Similar to the PPP Loan, economic conditions resulting from the COVID-19 pandemic made this France Term Loan necessary and appropriate to support the Company’s ongoing  operations in France and mitigate potentially significant detriment to the Company’s business in France. The France Term Loan, which is evidenced by a term note with HSBC Bank, matures on June 24, 2021 and bears no interest.  However, in connection with the government guarantee of the France Term Loan, the Company must pay a commission to the French government of 0.5% per annum of the principal loan balance. Under the terms of the France Term Loan, the Company has the option to extend the maturity of the loan for a period of up to five years.  As of December 31, 2020, the Company has the intent and ability to extend the maturity of the France Term Loan beyond twelve months and has therefore included the entire outstanding principal balance of the France Term Loan in long-term debt at the Consolidated Balance Sheets.

The Company will continue to actively monitor the situation as it relates to the COVID-19 pandemic and may take further actions altering the Company's business operations that we determine are in the best interests of the Company's employees, customers, business partners, suppliers, and shareholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on the Company's business, including the effects on the Company's customers, employees, and prospects, or on the Company's financial results for fiscal 2021 or beyond.

RESULTS OF OPERATIONS

Our discussion of comparative period results is based upon the following components of the Company’s Consolidated Statements of Operations and Comprehensive Loss.

Net Sales —The Company derives its sales from the processing and delivery of metals. Pricing is established with each customer order and includes charges for the material, processing activities and delivery. The pricing varies by product line and type of processing. From time to time, the Company may enter into fixed price arrangements with customers while simultaneously obtaining similar agreements with its suppliers.

Cost of Materials — Cost of materials consists of the costs that the Company pays suppliers for metals and related inbound and transfer freight charges, excluding depreciation, which is included in operating costs and expenses discussed below.

Operating Costs and Expenses — Operating costs and expenses primarily consist of:

Year ended December 31, 2020 compared to the year ended December 31, 2019

The following table sets forth certain statement of operations data in each year indicated:

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Net Sales

Net sales of $368.3 million in the year ended December 31, 2020 were a decrease of $191.3 million, or 34.2%, compared to $559.6 million in the year ended December 31, 2019. The decrease in net sales in the year ended December 31, 2020 compared to the prior year was driven primarily by the macroeconomic impacts of the COVID-19 pandemic, which worsened already soft industrial end markets and further weakened demand for global aerospace products. The weakening of demand within the aerospace market is largely attributable to the impact of the COVID-19 pandemic on global air travel and the grounding of the Boeing 737 MAX, for which some of the Company's locations have customers that supply content. Tons sold per day for the Company's products decreased by 31.8% in the year ended December 31, 2020, compared to the prior year.  

In the year ended December 31, 2020, overall average selling prices of the Company's product mix sold decreased 3.5% compared to the year ended December 31, 2019. The macroeconomic impact of the COVID-19 pandemic has resulted in a decrease in demand and availability of supply, which has led to increased price competition for all of the Company's core products. With the exception of aluminum, nickel and titanium, which had increases in price per ton sold, the price per ton sold decreased for all of the products the Company sells in the year ended December 31, 2020, compared to the year ended December 31, 2019.

The Company expects a long and slow market recovery to pre-pandemic levels. As a result, the Company believes that the unfavorable financial and business impacts of the pandemic that were experienced in the second through fourth quarters of 2020 will continue into 2021 as the Company's customers and suppliers continue to maintain reduced purchasing forecasts and output. In turn, the Company's expects the decrease in demand and availability and increase in competition in the markets that the Company serves to continue into 2021.

Cost of Materials

Cost of materials (exclusive of depreciation) was $269.1 million in the year ended December 31, 2020 compared to $418.8 million in the year ended December 31, 2019. The $149.7 million, or 35.7%, decrease in the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to the decrease in net sales volume compared to the prior year.

Cost of materials (exclusive of depreciation) was 73.1% of net sales in the year ended December 31, 2020, compared to 74.8% of net sales in the year ended December 31, 2019. Cost of materials in the year ended December 31, 2019 included a non-recurring non-cash inventory charge of $1.3 million. The Company's focus on selectively pursuing higher margin sales that are more accretive to the business, particularly those including the Company's value added service offerings, resulted in sales of products with higher gross material margins (calculated as net sales less cost of materials divided by net sales) in the year ended December 31, 2020, compared to the year ended December 31, 2019. The Company expects its margins will remain relatively stable

in 2021 as its improved inventory management partially offsets the headwinds produced by reduced demand, a downward pricing environment and the unfavorable impacts of the COVID-19 pandemic on the overall global economy.

Operating Costs and Expenses and Operating Loss

Operating costs and expenses in the year ended December 31, 2020 and in the year ended December 31, 2019 were as follows:

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Total operating costs and expenses decreased by $28.1 million to $122.8 million in the year ended December 31, 2020 from $150.9 million in the year ended December 31, 2019:

Operating loss in the year ended December 31, 2020 was $23.7 million, compared to $10.1 million in the year ended December 31, 2019.

Other Income and Expense, Income Taxes and Net Loss

Interest expense, net was $25.5 million in the year ended December 31, 2020, compared to $39.9 million in the year ended December 31, 2019. Interest expense includes the interest cost component of the net periodic benefit cost of the Company’s pension and post-retirement benefits of $4.1 million in the year ended December 31, 2020 and $5.3 million in the year ended December 31, 2019. The decrease in interest expense in year ended December 31, 2020, compared to the prior year is primarily due to the decrease in the Company’s overall debt levels after the exchange of the majority of the outstanding 5.00%/7.00% Convertible Notes for equity and the 3.00%/5.00% Convertible Notes, which also carried a lower interest rate.

The unrealized gain on embedded conversion option of $2.0 million in the year ended December 31, 2020 is the result of the mark-to-market adjustment associated with the bifurcated embedded derivative liability of the Company's 3.00%/5.00% Convertible Notes. As of June 30, 2020, the conversion option qualified for equity classification and the bifurcated derivative liability will no longer need to be accounted for as a separate derivative on a prospective basis from the date of reassessment. Any remaining debt discount that arose at the date of debt issuance from the original bifurcation will continue to be amortized through interest expense.

Other income, net, was $3.5 million in the year ended December 31, 2020, compared to $6.6 million in the year ended December 31, 2019. Included in other income, net in the year ended December 31, 2020 and December 31, 2019 was net pension benefit of $6.3 million and $6.1 million, respectively. The remaining other income, net for the comparative periods is comprised of foreign currency transaction gains. The Company recorded a foreign currency transaction loss of $2.9 million in the year ended December 31, 2020, compared to a foreign currency transaction gain of $0.5 million in the year ended December 31, 2019.

The Company recorded an income tax benefit of $3.0 million in the year ended December 31, 2020, compared to an income tax benefit of $4.9 million in the year ended December 31, 2019. The Company’s effective tax rate is expressed as income tax expense benefit as a percentage of loss before income taxes. The effective tax rate was 6.9% in the year ended December 31, 2020 and 11.3% in the year ended December 31, 2019. The change in the effective tax rate between periods resulted from changes in the geographic mix and timing of income (losses) and the inability to benefit from current year losses due to valuation allowance positions in the U.S.

Net loss was $40.7 million in the year ended December 31, 2020, compared to $38.5 million in the year ended December 31, 2019. Net loss in the year ended December 31, 2020 includes the non-cash goodwill impairment charge of $2.7 million, partially offset by the unrealized gain on embedded conversion option of $2.0 million.

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Liquidity and Capital Resources

The Company’s principal sources of liquidity are cash provided by operations and proceeds from borrowings under its Credit Facilities. Given the economic uncertainty and disruptions resulting from the COVID-19 pandemic, the Company will continue to focus on maintaining liquidity to fund its normal operations and appropriately aligning its working capital with the changing economic conditions.

The ongoing duration and severity of the COVID-19 pandemic, as well as the speed of recovery and administration of vaccinations, could have a significant unfavorable impact on the Company's suppliers' ability to deliver products and services and its customers' ability to purchase goods and services and pay their accounts receivable timely, if at all, which could have a significant adverse effect on the Company's operations, financial condition and liquidity. With the benefit of the various government-sponsored support programs such as tax deferrals, employment-related subsidies, government-backed loans and other government relief available in the U.S. and in other countries in which it operates, including the PPP Loan received in April 2020 and the France Term Loan received in June 2020, coupled with temporary and long-term cost-cutting initiatives implemented by the Company, the Company expects it will be able to maintain adequate liquidity and working capital to continue its normal operations over the next 12 months. However, given the current uncertain economic conditions, there can be no assurance that the Company will be able to achieve its strategic initiatives or obtain additional funding on favorable terms in the future, which could have a significant adverse effect on its operations, financial condition and liquidity.

Cash and cash equivalents at December 31, 2020 were $22.4 million, with approximately $9.0 million of the Company’s consolidated cash and cash equivalents balance residing in the United States.

Cash and cash equivalents increased (decreased) as follows:

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Working capital, defined as current assets less current liabilities, and the balances of its significant components were as follows:

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Specific components of the change in working capital (defined as current assets less current liabilities) are highlighted below:

Net cash used in investing activities of $2.8 million and $3.6 million in the year ended December 31, 2020 and December 31, 2019, respectively, was almost entirely the result of cash paid for capital expenditures in each period.

Net cash used in financing activities of $2.4 million in the year ended December 31, 2020 was mainly attributable to payments of debt issuance costs of $3.1 million, payments of the Company’s ABL Credit Agreement, offset by borrowings under the PPP Loan and the France Term Loan. Net cash used in financing activities of $9.6 million in the year ended December 31, 2019 was mainly attributable to repayments of borrowings under the Company’s ABL Credit Agreement as well as repayments of short-term borrowings under the Company’s local credit facilities.

Capital Resources

The Company's various credit arrangements are with well-established, global lenders. The Company does not expect the COVID-19 pandemic will have a significant impact on the ability of these lenders to continue to lend cash to the Company pursuant to the credit arrangements that the Company has with these lenders.

On August 31, 2017, the Company entered into the Revolving Credit and Security Agreement with PNC Bank, National Association (“PNC”) as lender and as administrative and collateral agent (the “Agent”), and other lenders party thereto (the “Original ABL Credit Agreement”). The Original ABL Credit Agreement provided for a $125.0 million senior secured, revolving credit facility (the “Revolving A Credit Facility”), under which the Company and four of its subsidiaries each are borrowers (collectively, in such capacity, the “Borrowers”). The obligations of the Borrowers have been guaranteed by the subsidiaries of the Company named therein as guarantors. On December 10, 2020, the Company entered into an Amendment No. 3 to Revolving Credit and Security Agreement (the “Amendment No. 3”) by and among the Company, the other borrowers and guarantors party thereto and PNC Bank, National Association as the agent and the lenders, which amends the Original ABL Credit Agreement dated as of August 31, 2017 (as amended to date by Amendment No. 1 to Revolving Credit and Security Agreement, dated June 1, 2018, Amendment No. 2 to Revolving Credit and Security Agreement, dated March 27, 2020, and Amendment No. 3, the “ABL Credit Agreement”) to provide for additional borrowing capacity.

Amendment No. 3 provided for an additional $25.0 million Revolving B (Priority) credit facility (the “Revolving B (Priority) Credit Facility”), which is subordinated to the $125.0 million senior secured, revolving credit facility (the “Revolving A Credit Facility”) and senior to the $21.5 million senior secured, revolving credit facility (the “Revolving B Credit Facility”). As part of Amendment No. 3, the Company and PNC also agreed to extend the maturity of the ABL Credit Agreement to February 28, 2023, and to amend the ABL Credit Agreement to (i) reduce the available borrowing capacity under its Revolving B Credit Facility from $25.0 million to $21.5 million and subordinate the payment under the Revolving B Credit Facility to the Revolving B (Priority) Credit Facility, (ii) increase access to available borrowings by reducing the liquidity covenant test threshold from $12.5 million to $8.75 million, and (iii) increase the interest applicable to the Revolving Credit A Facility to LIBOR-base rate plus a margin of 4.0%.

Subject to certain exceptions and permitted encumbrances, the obligations under the ABL Credit Agreement are secured by a first priority security interest in substantially all of the assets of each of the Borrowers and certain subsidiaries of the Company that are named as guarantors. The proceeds of the advances under the ABL Credit Agreement may only be used to (i) pay certain fees and expenses to the Agent and the lenders under the ABL Credit Agreement, (ii) provide for the Borrowers’ working capital needs and reimburse drawings under letters of credit, (iii) repay the obligations under the Debtor-in-Possession Revolving Credit and Security Agreement dated as of July 10, 2017, by and among the Company, the lenders party thereto, and PNC, and certain other existing indebtedness, and (iv) provide for the Borrowers’ capital expenditure needs, in accordance with the ABL Credit Agreement.

The Company may prepay its obligations under the ABL Credit Agreement at any time without premium or penalty, and must apply the net proceeds of material sales of collateral in prepayment of such obligations. Payments made must be applied to the Company’s obligations under the Revolving A Credit Facility, if any, prior to its obligations under the Revolving B Credit Facility. In connection with an early termination or permanent reduction of the Revolving A Credit Facility prior to March 27, 2021, a 0.50% fee shall be due and, for the period from March 28, 2021 through September 27, 2021, a 0.25% fee shall be due, in each case in the amount of such commitment reduction, subject to reduction as set forth in the ABL Credit Agreement. Indebtedness for borrowings under the ABL Credit Agreement is subject to acceleration upon the occurrence of specified defaults or events of default, including (i) failure to pay principal or interest, (ii) the inaccuracy of any representation or warranty of a loan party, (iii) failure by a loan party to perform certain covenants, (iv) defaults under indebtedness owed to third parties, (v) certain liability producing events relating to ERISA, (vi) the invalidity or impairment of the Agent’s lien on its collateral or of any applicable guarantee, and certain adverse bankruptcy-related and (vii) certain adverse bankruptcy-related and other events.

Interest on indebtedness under the Revolving A Credit Facility accrues at a variable rate based on a grid with the highest interest rate being the applicable LIBOR-based rate plus a margin of 4.0%, as set forth in the ABL Credit Agreement. Interest on indebtedness under the Revolving B (Priority) Credit Facility and the Revolving B Credit Facility accrues at a rate of 15.0% and 12.0% per annum, respectively, which will be paid-in-kind unless the Company elects to pay such interest in cash and the Revolving B (Priority) payment conditions or

the Revolving B payment conditions specified in the ABL Credit Agreement are satisfied. Additionally, the Company must pay a monthly facility fee equal to the product of (i) 0.25% per annum (or, if the average daily revolving facility usage is less than 50% of the maximum revolving advance amount of the Credit Facility, 0.375% per annum) multiplied by (ii) the amount by which the maximum advance amount of the Credit Facility exceeds such average daily Credit Facility usage for such month.

Under the ABL Credit Agreement, the maximum borrowing capacity of the Revolving A Credit Facility is based on the Company’s borrowing base calculation. As of December 31, 2020, the weighted average advance rates used in the borrowing base calculation are 85.0% on eligible accounts receivable and 68.2% on eligible inventory.

The Company’s ABL Credit Agreement contains certain covenants and restrictions customary to an asset-based revolving loan. Pursuant to the terms of the ABL Credit Agreement, the PPP Loan and the France Term Loan shall be excluded for all purposes from any covenant calculations.

The Company’s ABL Credit Agreement contains a springing financial maintenance covenant requiring the Company to maintain a Fixed Charge Coverage Ratio of 1.0 to 1.0 in any Covenant Testing Period (as defined in the ABL Credit Agreement) when the Company’s cash liquidity (as defined in the ABL Credit Agreement) is less than $8.75 million for five consecutive days. The Company was not in a Covenant Testing Period as of and for the year ended December 31, 2020.

Additionally, upon the occurrence and during the continuation of an event of default or upon the failure of the Company to maintain cash liquidity (as defined in the ABL Credit Agreement, inclusive of certain cash balances and the additional unrestricted borrowing capacity shown below) in excess of $8.75 million, the lender has the right to take full dominion of the Company’s cash collections and apply these proceeds to outstanding loans under the ABL Credit Agreement (“Cash Dominion”). Based on the Company’s cash projections, it does not anticipate that Cash Dominion will occur, or that it will be in a Covenant Testing Period during the next 12 months.

On April 28, 2020, the Company entered into the PPP Loan, which provides additional cash to be used for payroll costs, interest on mortgages, rent and utilities. The Company intends to apply for forgiveness of the full amount of the PPP Loan in accordance with the terms of the PPP, the CARES Act and the PPPFA; however, the Company cannot assure at this time that the PPP Loan will be fully forgiven. On June 24, 2020, the Company's French subsidiary entered into the France Term Loan, which is fully guaranteed by the French government, and provides additional capital to support the Company’s ongoing operations in France.

Considerable uncertainty exists with regards to the ultimate duration, severity and ultimate recovery from the impacts of the COVID-19 pandemic as well as the full extent of the impact that the COVID-19 pandemic will have on the Company's business, operations and financial condition. However, with the benefit of the various government-sponsored support programs such as tax deferrals, employment-related subsidies, government-backed loans and other government relief available in the U.S. and in other countries in which it operates, including the PPP Loan received in April 2020 and the France Term Loan received in June 2020, coupled with the temporary and long-term cost-cutting initiatives implemented by the Company, the Company believes that its existing cash balances, together with cash generated from operations and proceeds from its various revolving credit facilities, will be sufficient to fund its normal business operations and service its debt over the next twelve months from the issuance of this report.

The Company’s ability to borrow funds is dependent on its ability to maintain an adequate borrowing base. Accordingly, if the Company does not generate sufficient cash flow from operations to fund its working capital needs and planned capital expenditures, and its availability is depleted, the Company may need to take further actions, such as reducing or delaying capital investments, strategic investments or other actions. The Company believes that its existing cash balances, together with its availability under the ABL Credit Agreement, will be sufficient to fund normal business operations over the next twelve months from the issuance of this report. However, there can be no assurance that the Company will be able to achieve its strategic initiatives or obtain

additional funding on favorable terms in the future which could have a significant adverse effect on its operations.

Additional unrestricted borrowing capacity under the Revolving A Credit Facility at December 31, 2020 was as follows (in millions):

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On March 27, 2020, the Company completed the Exchange Offer to issue its the 3.00%/5.00% Convertible Notes and shares of its common stock in exchange for its 5.00%/7.00% Convertible Notes, including any accrued and unpaid interest on the 5.00%/7.00% Convertible Notes as of the date in which the Exchange Offer was completed. Pursuant to the terms of the Exchange Offer, $190.2 million in aggregate principal amount of the 5.00%/7.00% Convertible Notes were tendered and accepted and in exchange, the Company issued $95.1 million in aggregate principal amount of its 3.00%/5.00% Convertible Notes and 7,026 shares of its common stock. An aggregate principal amount of 5.00%/7.00% Convertible Notes in the amount of $3.7 million were not tendered and remained outstanding at the date of Exchange Offer. As a result of the Exchange Offer, the Company reduced the aggregate principal amount of its long-term debt by $94.5 million and expects to reduce its annual interest expense by over $10.0 million.

The 3.00%/5.00% Convertible Notes were issued pursuant to an indenture (the “3.00%/5.00% Convertible Notes Indenture”), which the Company and the Guarantors (defined below) entered into with Wilmington Savings Fund Society, FSB, as trustee and collateral agent ("Indenture Agent"), on March 27, 2020. The 3.00%/5.00% Convertible Notes are, secured by a lien on all or substantially all of the assets of the Company, its domestic subsidiaries and certain of its foreign subsidiaries, which lien the Indenture Agent has agreed will be junior to the lien of the Agent under the ABL Credit Agreement.

The 3.00%/5.00% Convertible Notes have substantially the same terms that the 5.00%/7.00% Convertible Notes had prior to the completion of the Exchange Offer, except for the following primary differences: (i) the 3.00%/5.00% Convertible Notes are not exempt from the registration requirements of the Securities Act and have the benefit of registration rights to the holders of the 3.00%/5.00% Convertible Notes, (ii) the interest on the 3.00%/5.00% Convertible Notes accrues at the rate of 3.00% per annum if paid in cash and at the rate of 5.00% per annum if paid in kind, compared to interest on the 5.00%/7.00% Convertible Notes, which accrues at the rate of 5.00% per annum if paid in cash and at the rate of 7.00% per annum if paid in kind, and (iii) the 3.00%/5.00% Convertible Notes have a maturity date of August 31, 2024, compared to the 5.00%/7.00% Convertible Notes, which have a maturity date of August 31, 2022.

In conjunction with the Exchange Offer, on March 27, 2020, the Company, the guarantors of the 5.00%/7.00% Convertible Notes and the trustee for the 5.00%/7.00% Convertible Notes entered into a supplemental indenture to the indenture governing the 5.00%/7.00% Convertible Notes (the “5.00%/7.00% Convertible Notes Indenture”) to provide for, among other things, the elimination or amendment of substantially all of the restrictive covenants, the release of all collateral securing the Company’s obligations under the 5.00%/7.00% Convertible Notes Indenture, and the modification of certain of the events of default and various other provisions contained in the 5.00%/7.00% Convertible Notes Indenture.

Also on March 27, 2020, PNC (in its capacity as “First Lien Agent”), the trustee for the 5.00%/7.00% Convertible Notes and the Company and certain of its subsidiaries executed an intercreditor agreement (the “New Intercreditor Agreement”) providing for the lien priority of the first lien facility over the 3.00%/5.00% Convertible Notes. The terms and conditions of the New Intercreditor Agreement are substantially consistent with those

applicable to the intercreditor agreement between the First Lien Agent and the trustee for the 5.00%/7.00% Convertible Notes prior to the completion of the Exchange Offer (the “5.00%/7.00% Convertible Notes Intercreditor Agreement”). PNC and the trustee for the 5.00%/7.00% Convertible Notes also entered into an amendment of the 5.00%/7.00% Convertible Notes Intercreditor Agreement to, among other things, remove certain limitations and rights of the 5.00%/7.00% Convertible Notes with respect to the first lien facility.

The 3.00%/5.00% Convertible Notes are convertible into shares of the Company’s common stock at any time at the conversion price of $4.56 per share (after giving effect to an adjustment triggered by the Reverse Split), which rate is subject to further adjustment as set forth in the 3.00%/5.00% Convertible Notes Indenture. Under the 3.00%/5.00% Convertible Notes Indenture, upon the conversion of the 3.00%/5.00% Convertible Notes in connection with a Fundamental Change (as defined in the 3.00%/5.00% Convertible Notes Indenture), for each $1.00 principal amount of the 3.00%/5.00% Convertible Notes, that number of shares of the Company’s common stock issuable upon conversion shall equal the greater of (a) $1.00 divided by the then applicable conversion price or (b) $1.00 divided by the price paid per share of the Company's common stock in connection with such Fundamental Change calculated in accordance with the 3.00%/5.00% Convertible Notes Indenture, subject to other provisions of the 3.00%/5.00% Convertible Notes Indenture. Subject to certain exceptions, under the 3.00%/5.00% Convertible Notes Indenture a “Fundamental Change” includes, but is not limited to, the following: (i) the acquisition of more than 50% of the voting power of the Company’s common equity by a “person” or “group” within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended; (ii) the consummation of any recapitalization, reclassification, share exchange, consolidation or merger of the Company pursuant to which the Company’s common stock will be converted into cash, securities or other property; (iii) the “Continuing Directors” (as defined in the 3.00%/5.00% Convertible Notes Indenture) cease to constitute at least a majority of the board of directors; and (iv) the approval of any plan or proposal for the liquidation or dissolution of the Company by the Company’s stockholders.

The 5.00%/7.00% Convertible Notes are convertible into shares of the Company’s common stock at any time at the conversion price of $37.68 per share (after giving effect to an adjustment triggered by the Reverse Split), which rate is subject to further adjustment as set forth in the Supplemental Indenture. Under the Supplemental Indenture, the conversion of the 5.00%/7.00% Convertible Notes in connection with a Fundamental Change (as defined in the Supplemental Indenture) is substantially the same as under the 3.00%/5.00% Convertible Notes Indenture, other than the applicable conversion price.

Upon conversion of the 3.00%/5.00% Convertible Notes and/or the 5.00%/7.00% Convertible Notes, the Company will pay and/or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, together with cash in lieu of fractional shares. The value of shares of the Company’s common stock for purposes of the settlement of the conversion right, if the Company elects to settle in cash, will be calculated as provided in the 3.00%/5.00% Convertible Notes Indenture or Supplemental Indenture, as applicable, using a 20 trading day observation period.

As discussed previously, the 3.00%/5.00% Convertible Notes are convertible at the option of the holder, although the Company, at its own election, may pay and/or deliver, as the case may be, cash, shares of common stock, or a combination thereof. The Company determined that the conversion option is not clearly and closely related to the economic characteristics of the 3.00%/5.00% Convertible Notes, nor does the conversion option meet the own equity scope exception as the Company at that time did not have sufficient authorized and unissued common stock shares to satisfy the maximum number of common stock shares that could be required to be issued upon conversion. The initial value allocated to the derivative liability was $38,962, with a corresponding reduction in the carrying value of the 3.00%/5.00% Convertible Notes.

As a result of the Company's filing articles of amendment to increase the number of shares of common stock authorized, the number of the Company's common stock shares available for issuance upon conversion of the 3.00%/5.00% Convertible Notes is sufficient to allow the conversion option to be share-settled in full. The Company concluded that as of June 30, 2020 the conversion option qualified for equity classification and the bifurcated derivative liability no longer needed to be accounted for as a separate derivative on a prospective basis from the date of reassessment. As of June 30, 2020, the fair value of the conversion option of $36,952, was classified to equity as additional paid-in capital. There was no tax impact of the reclassification of the

conversion option to equity. Any remaining debt discount that arose at the date of debt issuance from the original bifurcation will continue to be amortized through interest expense.

The terms of the 3.00%/5.00% Convertible Notes contain numerous covenants imposing financial and operating restrictions on the Company's business. These covenants place restrictions on the Company’s ability and the ability of its subsidiaries to, among other things, pay dividends, redeem stock or make other distributions or restricted payments; incur indebtedness or issue certain stock; make certain investments; create liens; agree to certain payment restrictions affecting certain subsidiaries; sell or otherwise transfer or dispose assets; enter into transactions with affiliates; and enter into sale and leaseback transactions.

Neither the 3.00%/5.00% Convertible Notes nor the 5.00%/7.00% Convertible Notes may be redeemed by the Company in whole or in part at any time prior to maturity, except the Company may be required to make an offer to purchase the 3.00%/5.00% Convertible Notes using the proceeds of certain material asset sales involving the Company or one of its restricted subsidiaries, as described more particularly in the 3.00%/5.00% Convertible Notes Indenture. In addition, if a Fundamental Change (as defined in the 3.00%/5.00% Convertible Notes Indenture and the Supplemental Indenture, as applicable) occurs at any time, each holder of any 3.00%/5.00% Convertible Notes or 5.00%/7.00% Convertible Notes has the right to require the Company to repurchase such holder’s notes for cash at a repurchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest thereon, subject to certain exceptions.

Indebtedness for borrowings under the 3.00%/5.00% Convertible Notes Indenture and the Supplemental Indenture is subject to acceleration upon the occurrence of specified defaults or events of default as set forth under each such indenture, including failure to pay principal or interest, the inaccuracy of any representation or warranty of any obligor, failure by an obligor to perform certain covenants, the invalidity or impairment of the Agent’s lien on its collateral under the 3.00%/5.00% Convertible Notes Indenture, the invalidity or impairment of any applicable guarantee, and certain adverse bankruptcy-related and other events. Although the full extent that the COVID-19 pandemic will have on the Company's business, operations and financial condition is currently unknown, it does not anticipate that any specified defaults or events of default as set forth in the indenture will occur during the next 12 months.

Upon satisfaction of certain conditions more particularly described in the 3.00%/5.00% Convertible Notes Indenture, including the deposit in trust of cash or securities sufficient to pay the principal of and interest and any premium on the 3.00%/5.00% Convertible Notes, the Company may effect a covenant defeasance of certain of the covenants imposing financial and operating restrictions on the Company’s business. In addition, and subject to certain exceptions as more particularly described in the 3.00%/5.00% Convertible Notes Indenture, the Company may amend, supplement or waive provisions of the 3.00%/5.00% Convertible Notes Indenture with the consent of holders representing a majority in aggregate principal amount of the 3.00%/5.00% Convertible Notes, and may in effect release collateral from the liens securing the 3.00%/5.00% Convertible Notes with the consent of holders representing 66-2/3% in aggregate principal amount of the 3.00%/5.00% Convertible Notes.

Interest on the 3.00%/5.00% Convertible Notes accrues at the rate of 3.00% per annum if paid in cash and at the rate of 5.00% per annum if paid in kind, payable quarterly. Interest on the 5.00%/7.00% Convertible Notes continues to accrue at the rate of 5.00% per annum if paid in cash and at the rate of 7.00% per annum if paid in kind, payable quarterly. Pursuant to the terms of both the 3.00%/5.00% Convertible Notes Indenture and the Supplemental Indenture, the Company is currently paying interest on both the 3.00%/5.00% Convertible Notes and the 5.00%/7.00% Convertible Notes in kind.

Summarized Parent and Guarantor Financial Information

As discussed above, the 3.00%/5.00% Convertible Notes issued by A.M. Castle and Co. (the "Parent") are unconditionally guaranteed on a joint and several basis by all current and future domestic subsidiaries of the Parent (other than those designated as unrestricted subsidiaries) and the parent’s subsidiaries in Canada and Mexico (collectively, the “Guarantors”).  Each guarantor is 100% owned by the Parent.

The guarantees of the Guarantors are subject to release in limited circumstances, only upon the occurrence of certain customary conditions. There are no significant restrictions on the ability of the parent company or any guarantor to obtain funds from its subsidiaries by dividend or loan.

On March 31, 2020, the Company early adopted the guidance of the SEC Final Rule Release No. 33-10762, "Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities" (the "final rule") and has elected to present the summarized financial information of Parent and Guarantors (together, the "Obligors") as of and for the years ended December 31, 2020 and December 31, 2019 (see Note 1 – Basis of Presentation and Significant Accounting Policies, to the notes to the consolidated financial statements for further information on the final rule).

The summarized financial information of the Obligors after elimination of (i) intercompany transactions and balances among the Parent and the Guarantors and (ii) equity in earnings from and investments in any subsidiary that is a Non-Guarantor follows:

⁽¹⁾ Included in non-current assets are $11.5 million and $12.2 million of non-current intercompany receivables due to the Obligors from the Non-Guarantors as of December 31, 2020 and December 31, 2019, respectively. Included in non-current liabilities are $7.8 million and $8.6 million of non-current intercompany payables due to the Non-Guarantors from the Obligors as of December 31, 2020 and December 31, 2019, respectively.

Other Credit Facilities

In July 2017, the Company's French subsidiary entered into a local credit facility under which it may borrow against 100% of the eligible accounts receivable factored, with recourse, up to 6.5 million Euros, subject to factoring fees and floating Euribor or LIBOR interest rates, plus a 1.0% margin. The French subsidiary utilizes the local credit facility to support its operating cash needs. As of December 31, 2020, the French subsidiary had no borrowings under the local credit facility and had borrowings under the local credit facility of $2.9 million as of December 31, 2019. The Company records borrowings under the local credit facility as short-term borrowings at the Consolidated Balance Sheets.

On July 20, 2020, the Company's Chinese subsidiary entered into a 20.0 million yuan (approximately $3.0 million) local banking line of credit with the Bank of Communication Shanghai (the "China Credit Facility"). The China Credit Facility has a maturity date of March 1, 2021 and accrues interest at a rate of 3.6% per annum. As of December 31, 2020, the Chinese subsidiary had borrowings of approximately $3.0 million outstanding under the China Credit Facility.

Interest expense in the year ended December 31, 2020 and the year ended December 31, 2019 was $25.5 million and $39.9 million, respectively, of which $4.7 million and $6.8 million, respectively, was cash interest.

As of December 31, 2020, the Company had $2.2 million of irrevocable letters of credit outstanding.

Capital Expenditures

Cash paid for capital expenditures was $2.9 million in the year ended December 31, 2020 and $4.0 million in the year ended December 31, 2019. Expenditures in 2020 were the result of normal equipment purchases, building improvements, and furniture and fixture upgrades throughout the year. Management believes that capital expenditures will be approximately $3.0 million in 2021.

Pension Funding

The Company’s funding policy on its defined benefit pension plans is to satisfy the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”). Future funding requirements are dependent upon various factors outside the Company’s control including, but not limited to, fund asset performance and changes in regulatory or accounting requirements. Based upon factors known and considered as of December 31, 2020, including the funding requirements under ERISA, the Company does not anticipate making significant cash contributions to the pension plans in 2021.

The investment target portfolio allocation for the Company-sponsored pension plans and supplemental pension plan focuses primarily on corporate fixed income securities that match the overall duration and term of the Company’s pension liability structure. Refer to “Retirement Plans” within Critical Accounting Policies and Note 7 – Employee Benefit Plans to the consolidated financial statements for additional details regarding other plan assumptions.

Off-Balance Sheet Arrangements

As of December 31, 2020, the Company does not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources, that are material to investors.

Critical Accounting Policies

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include amounts that are based on management’s estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The following is a description of the Company’s accounting policies that management believes require the most significant judgments and estimates when preparing the Company’s consolidated financial statements:

Income Taxes — The Company accounts for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. The Company regularly reviews deferred tax assets to assess whether it is more-likely-than-not that the deferred tax assets will be realized and, if necessary, establish a valuation allowance for portions of such assets to reduce the carrying value.

For purposes of assessing whether it is more-likely-than-not that deferred tax assets will be realized, the Company considers the following four sources of taxable income for each tax jurisdiction: (a) future reversals of existing taxable temporary differences, (b) projected future earnings, (c) taxable income in carryback years, to the extent that carrybacks are permitted under the tax laws of the applicable jurisdiction, and (d) tax planning strategies, which represent prudent and feasible actions that a company ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused. To the extent that evidence about one or more of these sources of taxable income is sufficient to support a conclusion that a valuation allowance is not necessary, other sources need not be considered. Otherwise, evidence about each of the

sources of taxable income is considered in arriving at a conclusion about the need for and amount of a valuation allowance. See Note 8 – Income Taxes in the Notes to the Consolidated Financial Statements, for further information about the Company’s valuation allowance assessments.

The Company has incurred significant losses in recent years. The Company’s operations in the United States  and Canada have generated pre-tax losses for the three-year period ended December 31, 2020. The Company has determined that an ownership shift of greater than fifty percent occurred in 2016, 2017 and 2018 and as such, a significant portion of the pre-ownership shift net operating losses in these jurisdictions are subject to an annual utilization limitation under the Internal Revenue Code section 382 that will act to prevent the Company from utilizing most of its losses against future taxable income. As a result of the Company having recorded deferred tax assets in these jurisdictions as December 31, 2020 and December 31, 2019, coupled with the negative evidence of significant cumulative three-year pre-tax losses, the Company has provided a valuation allowance against the full net deferred tax asset balances recorded in Canada and certain of the deferred income tax assets recorded by the United States operations at December 31, 2020.

The Company is subject to taxation in the United States, various states and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. It is possible that actual results could differ from the estimates that management has used to determine its consolidated income tax expense.

The Company accounts for uncertainty in income taxes by recognizing the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not criteria, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Retirement Plans — The Company values retirement plan liabilities based on assumptions and valuations established by management. Future valuations are subject to market changes, which are not in the control of the Company and could differ materially from the amounts currently reported. The Company evaluates the discount rate and expected return on assets at least annually and evaluates other assumptions involving demographic factors, such as retirement age, mortality and turnover periodically, and updates them to reflect actual experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

Accumulated and projected benefit obligations are expressed as the present value of future cash payments which are discounted using the weighted average of market-observed yields for high quality fixed income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and subsequent-year net periodic pension cost; higher discount rates decrease present values and subsequent-year net periodic pension cost. Discount rates used for determining the Company’s projected benefit obligation for its pension plans were 2.10% - 2.30% at December 31, 2020 and 2.99% - 3.11% at December 31, 2019.

The Company’s pension plan asset portfolio as of December 31, 2020 is primarily invested in fixed income securities with a duration of approximately 12 years. The assets generally fall within Level 2 of the fair value hierarchy. In 2020, the pension plan assets realized an investment gain of approximately 12%. The target investment asset allocation for the pension plans’ funds focuses primarily on corporate fixed income securities that match the overall duration and term of the Company’s pension liability structure. There was a funding surplus of 1.0% at December 31, 2020 compared to a funding surplus of less than 0.2% at December 31, 2019.

To determine the expected long-term rate of return on the pension plans’ assets, current and expected asset allocations are considered, as well as historical and expected returns on various categories of plan assets.

The Company used the following weighted average discount rates and expected return on plan assets to determine the net periodic pension cost:

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Holding all other assumptions constant, the following table illustrates the sensitivity of changes to the discount rate and long-term rate of return assumptions on the Company’s net periodic pension cost:

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Inventories — Inventories are stated at the lower of cost or net realizable value. The net realizable value of metals is subject to volatility. During periods when open-market prices decline below net book value, we may need to record a provision to reduce the carrying value of our inventory. We analyze the carrying value of inventory for impairment if circumstances indicate impairment may have occurred. If impairment occurs, the amount of impairment loss is determined by measuring the excess of the carrying value of inventory over the net realizable value of inventory.

The Company maintains an allowance for excess and obsolete inventory. The excess and obsolete inventory allowance is determined through the specific identification of material, adjusted for expected scrap value to be received, based upon product knowledge, estimated future demand, market conditions and an aging analysis of the inventory on hand. Inventory in excess of our estimated usage requirements is written down to its estimated net realizable value. Although the Company believes its estimates of the inventory allowance are reasonable, actual financial results could differ from those estimates due to inherent uncertainty involved in making such estimates. Changes in assumptions around the estimated future demand, selling price, scrap value, a decision to reduce inventories to increase liquidity, or other underlying assumptions could have a significant impact on the carrying value of inventory, future inventory impairment charges, or both.

New Accounting Standards

See Note 1 - Basis of Presentation and Significant Accounting Policies to the Notes to the Consolidated Financial Statements for detailed information on recently issued guidance, whether adopted or to be adopted.

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ITEM 8 — Financial Statements and Supplementary Data

(Amounts in thousands, except par value and per share data)

Consolidated Statements of Operations and Comprehensive Loss

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Per share data has been adjusted to reflect the Reverse Stock Split that occurred on December 29, 2020.

The accompanying notes are an integral part of these statements.

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A.M. Castle & Co.

Consolidated Balance Sheets

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