<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
_________________________
Commission File Number 1-12541
Atchison Casting Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Kansas 48-1156578
- ------------------------------- -----------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 South Fourth Street, Atchison, Kansas 66002
- ----------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (913) 367-2121
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
____________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements from the past 90 days. Yes X . No .
There were 8,155,262 shares of common stock, $.01 par value per share,
outstanding on October 28, 1997
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PART I
ITEM 1. Financial Statements.
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, June 30,
1997 1997
------------- ----------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 7,466 $19,819
Customer accounts receivable, net of allowance for 46,410 40,310
doubtful accounts of $375 and $381, respectively
Inventories 33,627 30,867
Deferred income taxes 1,425 1,501
Other current assets 2,461 2,336
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Total current assets 91,389 94,833
PROPERTY, PLANT AND EQUIPMENT, Net 101,102 93,116
INTANGIBLE ASSETS, Net 21,621 21,866
DEFERRED CHARGES, Net 476 525
OTHER ASSETS 3,560 3,068
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TOTAL $218,148 $213,408
-------- --------
-------- --------
See Notes to Consolidated Financial Statements.
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ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
(In Thousands)
September 30, June 30,
1997 1997
------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $13,527 $11,530
Accrued expenses 25,672 25,145
Current maturities of long-term obligations 3,788 927
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Total current liabilities 42,987 37,602
LONG-TERM OBLIGATIONS 24,833 27,758
DEFERRED INCOME TAXES 16,572 16,349
OTHER LONG-TERM OBLIGATIONS 1,259 1,243
EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS 568 633
OVER COST, Net
POSTRETIREMENT OBLIGATION OTHER THAN PENSION 5,956 5,844
MINORITY INTEREST IN SUBSIDIARIES 1,315 1,248
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 - -
authorized shares; no shares issued and outstanding
Common stock, $.01 par value, 19,300,000 82 81
authorized shares; 8,152,762 and 8,146,715
shares issued and outstanding, respectively
Class A common stock (non-voting), $.01 par value - -
700,000 authorized shares; no shares issued and
outstanding
Additional paid-in capital 80,438 80,342
Retained earnings 44,265 42,440
Accumulated foreign currency translation
adjustment (127) (132)
-------- --------
124,658 122,731
Less shares held in treasury:
Common stock, 36,002 shares, at cost - -
-------- --------
Total stockholders' equity 124,658 122,731
-------- --------
TOTAL $218,148 $213,408
-------- --------
-------- --------
See Notes to Consolidated Financial Statements.
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ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
Three Months Ended
September 30,
1997 1996
--------- ---------
NET SALES $68,796 $48,998
COST OF GOODS SOLD 59,584 42,357
--------- ---------
GROSS PROFIT 9,212 6,641
OPERATING EXPENSES:
Selling, general and administrative 5,349 4,264
Amortization of intangibles 175 139
--------- ---------
Total operating expenses 5,524 4,403
--------- ---------
OPERATING INCOME 3,688 2,238
INTEREST EXPENSE 462 586
MINORITY INTEREST IN NET INCOME(LOSS) 63 (9)
OF SUBSIDIARIES
--------- ---------
INCOME BEFORE TAXES 3,163 1,661
INCOME TAXES 1,338 720
--------- ---------
NET INCOME $1,825 $941
--------- ---------
--------- ---------
NET INCOME PER COMMON AND
EQUIVALENT SHARES $0.22 $0.17
--------- ---------
--------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON AND
EQUIVALENT SHARES OUTSTANDING 8,211,076 5,540,669
--------- ---------
--------- ---------
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
Three Months Ended
September 30,
1997 1996
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,825 $941
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 2,786 1,864
Minority interest in net income(loss)
of subsidiaries 68 (8)
Loss on disposal of capital assets 56 2
Deferred income taxes 299 180
Changes in assets and liabilities:
Receivables (2,527) 2,018
Inventories (1,297) (655)
Other current assets (234) (303)
Accounts payable (1,202) 509
Accrued expenses (1,830) (2,356)
Postretirement obligation other
than pension 112 116
Other (12) (7)
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Cash provided by (used in) operating
activities (1,956) 2,301
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,229) (3,591)
Payment for purchase of net assets of subsidiaries,
net of cash acquired (6,550) -
Proceeds from sale of capital assets 754 -
Advances under subordinated note receivable (400) -
Assets held for resale - (2)
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Cash used in investing activities (10,425) (3,593)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 97 30
Payments on long-term obligations (73) (7)
Proceeds from issuance of long-term obligations - 920
Net repayments under revolving loan note - (4,176)
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Cash provided by (used in) financing
activities 24 (3,233)
EFFECT OF EXCHANGE RATE ON CASH 4 (2)
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NET DECREASE IN CASH AND CASH EQUIVALENTS ($12,353) ($4,527)
CASH AND CASH EQUIVALENTS, Beginning of period 19,819 7,731
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CASH AND CASH EQUIVALENTS, End of period $7,466 $3,204
------- ------
------- ------
See Notes to Consolidated Financial Statements.
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ATCHISON CASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies and Basis of Presentation
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company for
the year ended June 30, 1997, as included in the Company's 1997 Annual
Report to Stockholders.
The accompanying unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Results of operations for
interim periods are not necessarily indicative of results to be expected
for a full year.
Certain September 30, 1996 amounts have been reclassified to conform with
September 30, 1997 classifications.
2. Inventories
As of
----------------------------
September 30, June 30,
1997 1997
------------- --------
(Thousands)
Raw materials $ 6,321 $ 5,186
Work-in-process 15,984 17,540
Finished goods 7,276 3,967
Deferred supplies 4,046 4,174
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$33,627 $30,867
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------- -------
3. Income Taxes
The provision for income taxes consisted of:
Three Months Ended
September 30,
1997 1996
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(Thousands)
Current:
Domestic $ 841 $ 493
Foreign 198 47
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$1,039 $ 540
Deferred:
Domestic $ 299 $ 180
Foreign --- ---
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$ 299 $ 180
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Total $1,338 $ 720
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------ ------
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4. Acquisitions
On July 1, 1997, the Company purchased the Beloit Castings
Division ("BCD") from Beloit Corporation for $7.2 million in cash,
subject to adjustment. BCD now operates under the name PrimeCast,
Inc. ("PrimeCast"), as a subsidiary of the Company. PrimeCast is a
group of four foundries in Beloit, Wisconsin and South Beloit,
Illinois, including two iron foundries, a steel foundry and a non-ferrous
foundry, that produce castings for the paper-machinery, pump, valve, mining
and construction markets. This acquisition was financed with available
cash balances.
5. Additional Cash Flows Information
Three Months Ended
September 30,
1997 1996
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Cash paid during the period for:
Interest $ 966 $1,095
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Income Taxes $1,707 $1,217
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Supplemental schedule of noncash
investing and financing activities:
Unexpended bond funds $ 9 ($24)
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6. Subsequent Event
On October 6, 1997, the Company acquired approximately 91.5% of the
outstanding capital stock of Inverness Castings Group, Inc. ("Inverness"),
a Delaware corporation, for $6.7 million in cash, in addition to the
assumption of $587,000 of outstanding indebtedness. Contemporaneous with
the consummation of this acquisition, the Company retired approximately
$11.6 million of Inverness' outstanding indebtedness. The remaining 8.5%
of Inverness capital stock was retained by Inverness management.
Inverness, located in Dowagiac, Michigan, produces aluminum die castings
for the automotive, furniture and appliance markets. The Company financed
this transaction with available cash balances and funds available under its
revolving credit facility.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Net sales for the first quarter of fiscal 1998 were $68.8 million, representing
an increase of $19.8 million, or 40.4%, over net sales of $49.0 million in the
first quarter of fiscal 1997. The operations acquired by the Company since
October 1, 1996 generated net sales of $21.8 million in the first quarter of
fiscal 1998 as follows:
FY98 1st Qtr
Operation Date Acquired Net Sales
--------- ------------- ------------
Los Angeles Die Casting Inc. 10 / 01 / 96 $3.0 million
Canada Alloy Castings, Ltd. 10 / 26 / 96 2.3 million
Pennsylvania Steel Foundry
& Machine Company 10 / 31 / 96 4.7 million
Jahn Foundry Corp. 2 / 14 / 97 3.0 million
PrimeCast, Inc. 7 / 01 / 97 8.8 million
Excluding net sales generated by the operations acquired since October 1, 1996,
net sales for the first quarter of fiscal 1998 were $47.0 million, representing
a decrease of $2.0 million, or 4.1%, from net sales of $49.0 million in the
first quarter of fiscal 1997. This 4.1% decrease in net sales was due primarily
to decreases in net sales to the energy, utility and military markets, partially
offset by an increase in net sales to the rail market.
Gross profit for the first quarter of fiscal 1997 increased by $2.6 million, or
39.4%, to $9.2 million, or 13.4% of net sales, compared to $6.6 million, or
13.6% of net sales, for the first quarter of fiscal 1997. The increase in gross
profit was primarily due to increased sales volume levels. The decrease in
gross profit as a percentage of net sales is primarily attributable to a
decrease in the absorption of overhead resulting from a reduction in net sales
(i) at La Grange Foundry Inc. ("La Grange") due to the efforts of La Grange's
largest customer to reduce their inventory levels, (ii) to the energy and
military markets at the Company's Amite facility in Louisiana and (iii) to the
paper-machinery market at the Company's subsidiary, PrimeCast, Inc.
("PrimeCast"). Partially offsetting these factors was the inclusion in the
prior year period of: (i) lost production and expenses associated with the
conversion from cupola to electric melting at The G&C Foundry Company ("G&C")
and (ii) costs associated with the addition of iron casting capability at Empire
Steel Castings, Inc. ("Empire").
Selling, general and administrative expense ("SG&A") for the first quarter of
fiscal 1998 was $5.3 million, or 7.8% of net sales, as compared to $4.3 million,
or 8.7% of net sales, in the first quarter of fiscal 1997. The increase in SG&A
was primarily attributable to expenses associated with the operations acquired
by the Company since October 1, 1996. The decrease in SG&A as
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a percentage of net sales was primarily due to lower average SG&A expense as
a percentage of net sales at Pennsylvania Steel Foundry & Machine Company
("Pennsylvania Steel") and PrimeCast.
Amortization of certain intangibles for the first quarter of fiscal 1998 was
$175,000, or 0.3% of net sales, as compared to $139,000 or 0.3% of net sales, in
the first quarter of fiscal 1997. The intangible assets consist of goodwill
recorded in connection with the acquisition of Prospect Foundry, Inc., Kramer
International, Inc., Empire, G&C and Los Angeles Die Casting Inc. Partially
offsetting the expense relating to the amortization of these assets is the
amortization of the excess of acquired net assets over cost (negative goodwill)
recorded by the Company in connection with the acquisition of Canadian Steel
Foundries, Ltd.
Interest Expense for the first quarter of fiscal 1998 decreased to $462,000, or
0.7% of net sales, from $586,000, or 1.2% of net sales, in the first quarter of
fiscal 1997. The decrease in interest expense is primarily the result of a
decrease in the average amount of indebtedness outstanding.
Income tax expense for the first quarter of fiscal 1998 and fiscal 1997
reflected the combined federal and state statutory rate of approximately 42% and
43%, respectively.
As a result of the foregoing factors, net income increased by $884,000, from net
income of $941,000 in the first quarter of fiscal 1997 to net income of $1.8
million in the first quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES:
Cash used in operating activities for the first quarter of fiscal 1998 was $2.0
million, a change of $4.3 million from cash provided by operating activities in
the first quarter of fiscal 1997. This change was primarily attributable to
increased working capital requirements primarily relating to trade receivable
and accounts payable balances.
Working capital was $48.4 million at September 30, 1997, as compared to $57.2
million at June 30, 1997. The decrease primarily resulted from the use of
existing cash balances for the acquisition of PrimeCast and a $2.9 million
increase in the current maturities of the Company's existing outstanding
indebtedness.
During the first quarter of fiscal 1998, the Company made capital expenditures
of $4.2 million, as compared to $3.6 million for the first quarter of fiscal
1997. Included in the first quarter of fiscal 1998 were capital expenditures of
$1.1 million on a new sand reclamation system at the Atchison/St. Joe Division.
Included in the first quarter of fiscal 1997 were capital expenditures of $1.2
million at G&C, primarily relating to the conversion from cupola to electric
melting. The balance of capital expenditures in both periods was used for
routine projects at each of the Company's facilities.
<PAGE>
Total indebtedness of the Company at September 30, 1997 was $28.6 million, as
compared to $28.7 million at June 30, 1997. At September 30, 1997, $50.8
million was available for borrowing under the Company's revolving credit
facility.
On July 1, 1997, the Company purchased the Beloit Castings Division ("BCD") from
Beloit Corporation for $7.2 million in cash, subject to adjustment. BCD now
operates under the name PrimeCast, as a subsidiary of the Company. PrimeCast is
a group of four foundries in Beloit, Wisconsin and South Beloit, Illinois,
including two iron foundries, a steel foundry and a non-ferrous foundry, that
produce castings for the paper-machinery, pump, valve, mining and construction
markets. This acquisition was financed with available cash balances.
On October 6, 1997, the Company acquired approximately 91.5% of the outstanding
capital stock of Inverness Castings Group, Inc. ("Inverness"), a Delaware
corporation, for $6.7 million in cash, in addition to the assumption of $587,000
of outstanding indebtedness. Contemporaneous with the consummation of this
acquisition, the Company retired approximately $11.6 million of Inverness'
outstanding indebtedness. The remaining 8.5% of Inverness capital stock was
retained by Inverness management. Inverness, located in Dowagiac, Michigan,
produces aluminum die castings for the automotive, furniture and appliance
markets. The Company financed this transaction with available cash balances and
funds available under its revolving credit facility.
The Company believes that its operating cash flow and amounts available for
borrowing under its revolving credit facility will be adequate to fund its
capital expenditure and working capital requirements for the next two years.
However, the level of capital expenditure and working capital requirements may
be greater than currently anticipated as a result of the size and timing of
future acquisitions, or as a result of unforeseen expenditures relating to
compliance with environmental laws.
This section entitled "Liquidity and Capital Resources" contains
forward-looking statements that involve a number of risks and uncertainties.
Such forward-looking statements include statements pertaining to the adequacy
of funding for capital expenditure and working capital requirements for the
next two years. Factors that could cause actual results to differ materially
from such forward-looking statements include: the size and timing of future
acquisitions, business conditions and the state of the general economy,
particularly the capital goods industry, the strength of the dollar, the
fluctuation of interest rates, the competitive environment in the casting
industry and changes in laws and regulations that govern the Company's
business, particularly environmental regulations.
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PART II
ITEM 1 - Legal Proceedings
NOT APPLICABLE
ITEM 2 - Changes in Securities
NOT APPLICABLE
ITEM 3 - Defaults Upon Senior Securities
NOT APPLICABLE
ITEM 4 - Submission of Matters to a Vote of Security Holders
NOT APPLICABLE
ITEM 5 - Other Information
NOT APPLICABLE
ITEM 6 - Exhibits and Reports of Form 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports of Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1997.
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* * * * * * * * * * * * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atchison Casting Corporation
----------------------------
(Registrant)
DATE: October 28, 1997 /s/ HUGH H. AIKEN
-----------------------------------
Hugh H. Aiken, Chairman of the
Board, President and Chief
Executive Officer
DATE: October 28, 1997 /s/ KEVIN T. MCDERMED
-----------------------------------
Kevin T. McDermed, Vice President,
Chief Financial Officer, Treasurer
and Secretary
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<PAGE>
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