<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 March 31, 1998
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 8,184,043 shares of common stock, $.01 par value per share,
outstanding on May 1, 1998
<PAGE>
ITEM 1. Financial Statements.
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- --------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $4,466 $19,819
Customer accounts receivable, net of allowance for 56,030 40,310
doubtful accounts of $533 and $381, respectively
Inventories 38,811 30,867
Deferred income taxes 5,663 1,501
Other current assets 3,518 2,336
--------- --------
Total current assets 108,488 94,833
PROPERTY, PLANT AND EQUIPMENT, Net 116,102 93,116
INTANGIBLE ASSETS, Net 26,485 21,866
DEFERRED CHARGES, Net 397 525
OTHER ASSETS 5,179 3,068
--------- --------
TOTAL $256,651 $213,408
--------- --------
--------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-1
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
(In Thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- --------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $16,987 $11,530
Accrued expenses 25,708 25,145
Current maturities of long-term obligations 3,842 927
--------- --------
Total current liabilities 46,537 37,602
LONG-TERM OBLIGATIONS 45,214 27,758
DEFERRED INCOME TAXES 21,932 16,349
OTHER LONG-TERM OBLIGATIONS 1,806 1,243
EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS 426 633
OVER COST, Net
POSTRETIREMENT OBLIGATION OTHER THAN PENSION 7,596 5,844
MINORITY INTEREST IN SUBSIDIARIES 2,010 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; 8,180,043 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 80,811 80,342
Retained earnings 50,568 42,440
Accumulated foreign currency translation adjustment (331) (132)
--------- --------
131,130 122,731
Less shares held in treasury:
Common stock, 36,002 shares, at cost - -
--------- --------
Total stockholders' equity 131,130 122,731
--------- --------
TOTAL $256,651 $213,408
--------- --------
--------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
-------- ------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $91,623 $66,313 $244,854 $176,933
COST OF GOODS SOLD 77,503 54,337 208,859 148,205
-------- ------- -------- --------
GROSS PROFIT 14,120 11,976 35,995 28,728
OPERATING EXPENSES:
Selling, general and administrative 6,251 6,000 18,856 15,230
Amortization of intangibles 231 182 637 503
-------- ------- -------- --------
Total operating expenses 6,482 6,182 19,493 15,733
-------- ------- -------- --------
OPERATING INCOME 7,638 5,794 16,502 12,995
INTEREST EXPENSE 841 937 2,126 2,400
MINORITY INTEREST IN NET INCOME 79 77 258 111
OF SUBSIDIARIES
-------- ------- -------- --------
INCOME BEFORE TAXES 6,718 4,780 14,118 10,484
INCOME TAXES 2,805 1,918 5,990 4,310
-------- ------- -------- --------
NET INCOME $3,913 $2,862 $8,128 $6,174
-------- ------- -------- --------
-------- ------- -------- --------
EARNINGS PER SHARE:
BASIC $0.48 $0.52 $1.00 $1.12
-------- ------- -------- --------
-------- ------- -------- --------
DILUTED $0.48 $0.51 $0.99 $1.11
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $8,128 $6,174
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 8,797 6,376
Minority interest in net income of subsidiaries 263 111
Loss (Gain) on disposal of capital assets 18 (5)
Deferred income taxes 1,415 1,020
Changes in assets and liabilities:
Receivables (5,856) (417)
Inventories (1,638) 740
Other current assets (1,147) (53)
Accounts payable (235) (44)
Accrued expenses (5,249) 148
Post retirement obligation other
than pension 467 342
Other 87 42
------- -------
Cash provided by operating activities 5,050 14,434
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,237) (9,594)
Payment for purchase of net assets of subsidiaries,
net of cash acquired (26,784) (28,498)
Proceeds from sale of capital assets 861 15
Payment for purchase of minority interests - (330)
Advances under subordinated note receivable (1,974) (400)
Assets held for resale - 1
------- -------
Cash used in investing activities (41,134) (38,806)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 470 166
(Payment) proceeds from (purchase) sale of minority
interest in subsidiary (11) 183
Payments on long-term obligations (216) (613)
Proceeds from issuance of long-term obligations - 1,293
Net borrowings under revolving loan note 20,484 18,073
------- -------
Cash provided by financing activities 20,727 19,102
EFFECT OF EXCHANGE RATE ON CASH 4 (17)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,353) (5,287)
CASH AND CASH EQUIVALENTS, Beginning of period 19,819 7,731
------- -------
CASH AND CASH EQUIVALENTS, End of period $4,466 $2,444
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
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 March 31, 1997 amounts have been reclassified to conform
with March 31, 1998 classifications.
2. Inventories
<TABLE>
<CAPTION>
As of
-----------------------
March 31, June 30,
1998 1997
---- ----
(Thousands)
<S> <C> <C>
Raw materials $ 7,154 $ 5,186
Work-in-process 23,688 17,540
Finished goods 3,266 3,967
Deferred supplies 4,703 4,174
------- -------
$38,811 $30,867
------- -------
------- -------
</TABLE>
Income Taxes
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
------ ------
(Thousands)
<S> <C> <C>
Current:
Domestic $3,977 $2,797
Foreign 598 493
------ ------
4,575 3,290
Deferred:
Domestic 1,415 1,020
Foreign --- ---
------ ------
1,415 1,020
------ ------
Total $5,990 $4,310
------ ------
------ ------
</TABLE>
<PAGE>
4. Acquisitions
On July 1, 1997, the Company purchased the Beloit Castings
Division ("BCD") from Beloit Corporation for $8.2 million in
cash. 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.
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.
5. Additional Cash Flow Information
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $2,589 $2,817
------ ------
------ ------
Income Taxes $5,421 $2,794
------ ------
------ ------
Supplemental schedule of noncash
investing and financing activities:
Unexpended bond funds $ (484) $ (473)
------ ------
------ ------
</TABLE>
6. Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, EARNINGS PER
SHARE. This Statement established new standards for computing
and presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or common stock equivalents. It
replaces the presentation of primary EPS with a presentation of
basic EPS and also requires dual presentation of basic and
diluted EPS on the face of the income statement. In addition the
statement requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
The Company was required to adopt SFAS No. 128 effective for the
quarter ended December 31, 1997. Following is a reconciliation of
basic and diluted EPS for the three month and nine month periods
ended March 31, 1998 and 1997, respectively.
<PAGE>
For the three months ended March 31, 1998
- -----------------------------------------
<TABLE>
<CAPTION>
Weighted
Net Average Earnings
Income Shares Per Share
---------- ---------- ----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $3,913,000 8,175,612 $ 0.48
Effect of Dilutive Securities
Options 31,504
---------- ---------- ----------
Diluted EPS $3,913,000 8,207,116 $ 0.48
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For the three months ended March 31, 1997
- -----------------------------------------
<TABLE>
<CAPTION>
Weighted
Net Average Earnings
Income Shares Per Share
---------- ---------- ----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $2,862,000 5,536,163 $ 0.52
Effect of Dilutive Securities
Options 44,580 (0.01)
---------- ---------- ----------
Diluted EPS $2,862,000 5,580,743 $ 0.51
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For the nine months ended March 31, 1998
- -----------------------------------------
<TABLE>
<CAPTION>
Weighted
Net Average Earnings
Income Shares Per Share
---------- ---------- ----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $8,128,000 8,161,647 $ 1.00
Effect of Dilutive Securities
Options 51,634 (0.01)
---------- ---------- ----------
Diluted EPS $8,128,000 8,213,281 $ 0.99
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For the nine months ended March 31, 1997
- -----------------------------------------
<TABLE>
<CAPTION>
Weighted
Net Average Earnings
Income Shares Per Share
---------- ---------- ----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $6,174,000 5,532,212 $ 1.12
Effect of Dilutive Securities
Options 30,610 (0.01)
---------- ---------- ----------
Diluted EPS $6,174,000 5,562,822 $ 1.11
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Options to purchase 13,844 shares of common stock at prices
ranging from $18.63 per share to $19.13 per share were
outstanding during the third quarter and first nine months of
fiscal 1998, but were not included in the computation of diluted
EPS because the
<PAGE>
option's exercise price was greater then the average market price of
the common shares. The options, which expire between January 5, 2007
and August 24, 2007, were still outstanding at March 31, 1998.
7. Amended and Restated Credit Agreement
On April 3, 1998, the Company and its bank entered into the
Amended and Restated Credit Agreement (the "Credit Agreement")
providing for an increase in unsecured loans from $60 million to
$110 million and an extension of the maturity date to April 3,
2003. This Credit Agreement consists of a $40 million term loan
and a $70 million revolving credit facility. The term loan
begins amortizing on March 31, 1999, with a final maturity of
April 3, 2003. Loans under the Credit Agreement will bear
interest at fluctuating rates of either: (i) the agent bank's
corporate base rate subject to a reduction of 0.25% (25 basis
points) if certain financial ratios are met or (ii) LIBOR plus
1.50% subject, in the case of the LIBOR rate option, to a
reduction of up to 0.50% (50 basis points) if certain financial
ratios are met. In connection with this amendment, approximately
$400,000 of financing costs were capitalized and are being
amortized over five years. Loans under this revolving credit
facility may be used for general corporate purposes, acquisitions
and approved investments. On April 6, 1998, the Company entered
into an agreement under which it agreed to convert the $40
million U.S. denominated term loan to Pounds Sterling at a 8.32%
fixed rate of interest. In addition, the Company entered into an
interest rate swap agreement under which it agreed to pay
quarterly a 7.42% fixed rate of interest in exchange for
quarterly receipt of LIBOR plus 1.50% on $15.0 million of its
revolving credit facility.
8. Third Amendment to Note Purchase Agreement
On April 3, 1998, the Company and the insurance company holding
the Company's $20 million aggregate principal amount of
unsecured, senior notes entered into the Third Amendment to the
Note Purchase Agreement providing for an increase in permitted
subsidiary indebtedness from $3.5 million to $8.0 million.
9. Sheffield Forgemasters Group Limited
On April 6, 1998, Atchison Casting UK Ltd ("ACUK"), a subsidiary
of the Company, acquired all of the outstanding capital stock,
consisting of 76,987,733 ordinary shares of capital stock, of
Sheffield Forgemasters Group Limited ("Sheffield"), incorporated
in England and Wales, from the stockholders of Sheffield for
approximately U.S. $54.9 million in cash and 1,040,000 ordinary
shares of ACUK valued at U.S. $914,817. Cash acquired, in excess
of related transaction costs and on-going working capital
requirements, was approximately U.S. $4.3 million, resulting in
an effective net purchase price of approximately U.S. $51.5
million. The 1,040,000 ordinary shares, consisting of
approximately 5.0% of the outstanding stock of ACUK were issued
to Sheffield management in exchange for 1,267,477 shares of
Sheffield instead of the cash consideration. Sheffield includes
Forgemasters Steel & Engineering Limited, River Don Castings
Limited, Forged Rolls (UK) Limited and British Rollmakers
Limited, among other operating units. The companies' products
serve a variety of markets and end users, including steel rolling
mills, paper and plastic processing, oil and gas exploration and
<PAGE>
production, fossil and nuclear electricity generation and forging
ingots. The Company financed this transaction with funds available
under its bank credit facility.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Net sales for the third quarter of fiscal 1998 were $91.6 million, representing
an increase of $25.3 million, or 38.2%, over net sales of $66.3 million in the
third quarter of fiscal 1997. The operations acquired by the Company since
January 1, 1997 generated net sales of $1.7 million and $26.6 million in the
third quarter of fiscal 1997 and fiscal 1998, respectively, as follows:
<TABLE>
<CAPTION>
FY97 3rd Qtr FY98 3rd Qtr
Operation Date Acquired Net Sales Net Sales
--------- ------------- --------- ---------
<S> <C> <C> <C>
Jahn Foundry Corp. 2 / 14 / 97 $1.7 million $3.1 million
PrimeCast, Inc. 7 / 01 / 97 -- 8.5 million
Inverness Castings Group, Inc. 10 / 06 / 97 -- 15.0 million
</TABLE>
Excluding net sales generated by the operations acquired since January 1, 1997,
net sales for the third quarter of fiscal 1998 were $65.0 million, representing
an increase of $400,000, or 0.6%, from net sales of $64.6 million in the third
quarter of fiscal 1997. This 0.6% increase in net sales was due primarily to
increases in net sales to the rail, mining and construction and utility markets,
partially offset by an decrease in net sales to the energy market.
Net sales for the first nine months of fiscal 1998 were $244.9 million,
representing an increase of $68.0 million, or 38.4%, over net sales of $176.9
million in the first nine months of fiscal 1997. The operations acquired by the
Company since the beginning of fiscal 1997 generated net sales of $19.9 million
and $89.6 million in the first nine months of fiscal 1997 and fiscal 1998,
respectively, as follows:
<TABLE>
<CAPTION>
FY97 First Nine FY98 First Nine
Months Months
Operation Date Acquired Net Sales Net Sales
--------- ------------- --------- ---------
<S> <C> <C> <C>
Los Angeles Die Casting Inc. 10 / 01 / 96 $4.5 million $ 7.9 million
Canada Alloy Castings, Ltd. 10 / 26 / 96 4.4 million 7.7 million
Pennsylvania Steel Foundry
& Machine Company 10 / 31 / 96 9.3 million 12.6 million
Jahn Foundry Corp. 2 / 14 / 97 1.7 million 8.9 million
PrimeCast, Inc. 7 / 01 / 97 -- 25.0 million
Inverness Castings Group, Inc. 10 / 06 / 97 -- 27.5 million
</TABLE>
Excluding net sales generated by the operations acquired in fiscal 1997 and
fiscal 1998, net sales for the first nine months of fiscal 1998 were $155.3
million, representing a decrease of $1.7 million, or 1.1%, over net sales of
$157.0 million in the first nine months of fiscal 1997. This
<PAGE>
1.1% 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 third quarter of fiscal 1998 increased by $2.1 million, or
17.5%, to $14.1 million, or 15.4% of net sales, compared to $12.0 million, or
18.1% of net sales, for the third quarter of fiscal 1997. Gross profit for the
first nine months of fiscal 1998 increased by $7.3 million, or 25.4%, to $36.0
million, or 14.7% of net sales, compared to $28.7 million, or 16.2% of net
sales, for the first nine months of fiscal 1997. The increase in gross profit
for both periods is primarily attributable to increased sales volume levels.
The decrease in gross profit as a percentage of net sales for both periods is
primarily attributable to (i) a decrease in the absorption of overhead resulting
from a reduction in net sales (a) to the paper-machinery market at the
Company's subsidiary, PrimeCast, Inc. ("PrimeCast"), (b) at La Grange Foundry
Inc. ("La Grange") due to the efforts of La Grange's largest customer to reduce
their inventory levels and (c) to the energy market at the Company's subsidiary,
Canadian Steel Foundries, Ltd. ("Canadian Steel") and (ii) above average
training expense associated with the start-up of new customer jobs at the
Company's Amite facility. Partially offsetting these factors, for the first
nine months of fiscal 1998, 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 third quarter of
fiscal 1998 was $6.3 million, or 6.8% of net sales, compared to $6.0 million, or
9.0% of net sales, in the third quarter of fiscal 1997. For the first nine
months of fiscal 1998, SG&A was $18.9 million, or 7.7% of net sales, compared to
$15.2 million, or 8.6% of net sales, for the first nine months of fiscal 1997.
The increase in SG&A was primarily attributable to expenses associated with the
operations acquired by the Company in fiscal 1997 and fiscal 1998. The decrease
in SG&A as a percentage of net sales in both periods was primarily due to
decreased expenses related to the company's management incentive bonus plan and
decreased expenditures for outside professional services.
Amortization of certain intangibles for the third quarter of fiscal 1998 was
$231,000 or 0.3% of net sales, as compared to $182,000 or 0.3% of net sales, in
the third quarter of fiscal 1997. Amortization of certain intangibles for the
first nine months of fiscal 1998 was $637,000 or 0.3% of net sales, as compared
to $503,000, or 0.3% of net sales, for the first nine months of fiscal 1997.
The intangible assets consist of goodwill recorded in connection with the
acquisition of Prospect Foundry, Inc. ("Prospect"), Kramer International, Inc.,
Empire, G&C, Los Angeles Die Casting Inc. and Inverness Castings Group, Inc.
("Inverness"). 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.
Interest Expense for the third quarter of fiscal 1998 decreased to $841,000 or
0.9% of net sales, from $937,000, or 1.4% of net sales, in the third quarter of
fiscal 1997. For the first nine months of fiscal 1998, interest expense
decreased to $2.1 million, or 0.9% of net sales, from $2.4 million,
<PAGE>
or 1.4% of net sales, in the first nine months of fiscal 1997. The decrease
in interest expense is primarily the result of a decrease in the average amount
of indebtedness outstanding during the fiscal 1998 periods.
Income tax expense for the third quarter and first nine months of fiscal 1998
reflected the combined federal, state and provincial statutory rate of
approximately 41.5%. Income tax expense for the third quarter and first nine
months of fiscal 1997 reflected the combined federal, state and provincial
statutory rate of approximately 40.0%. The Company's combined effective tax
rate reflects the different federal, state and provincial statutory rates of the
various jurisdictions in which the Company operates, and the proportion of
taxable income earned in each of those tax jurisdictions.
As a result of the foregoing, net income for the third quarter of fiscal 1998
was $3.9 million, compared to net income of $2.9 million for the third quarter
of fiscal 1997. Net income for the first nine months of fiscal 1998 was $8.1
million, compared to net income of $6.2 million for the first nine months of
fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operating activities for the first nine months of fiscal 1998
was $5.1 million, a decrease of $9.3 million from the first nine months of
fiscal 1997. This decrease was primarily attributable to increased working
capital requirements primarily relating to trade receivable, inventory and
accrued expenses balances.
Working capital was $62.0 million at March 31, 1998, as compared to $57.2
million at June 30, 1997. The increase primarily resulted from net additional
working capital of $14.0 million associated with the Company's acquisitions,
partially offset by the use of existing cash balances for the Company's
acquisitions and a $2.9 million increase in the current maturities of the
Company's existing outstanding indebtedness.
During the first nine months of fiscal 1998, the Company made capital
expenditures of $13.2 million, as compared to $9.6 million for the first nine
months of fiscal 1997. Included in the first nine months of fiscal 1998 were
capital expenditures of $1.6 million on a new sand reclamation system at the
Atchison/St. Joe Division and $2.7 million on a new mold line at Prospect.
Included in the first nine months of fiscal 1997 were capital expenditures of
$2.0 million at G&C, primarily relating to the conversion from cupola to
electric melting.
On July 1, 1997, the Company purchased the Beloit Castings Division ("BCD") from
Beloit Corporation for $8.2 million in cash. 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.
<PAGE>
On October 6, 1997, the Company acquired approximately 91.5% of the outstanding
capital stock of 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.
On April 3, 1998, the Company and its bank entered into the Amended and Restated
Credit Agreement (the "Credit Agreement") providing for an increase in unsecured
loans from $60 million to $110 million and an extension of the maturity date to
April 3, 2003. This Credit Agreement consists of a $40 million term loan and a
$70 million revolving credit facility. The term loan begins amortizing on March
31, 1999, with a final maturity of April 3, 2003. Loans under the Credit
Agreement will bear interest at fluctuating rates of either: (i) the agent
bank's corporate base rate subject to a reduction of 0.25% (25 basis points) if
certain financial ratios are met or (ii) LIBOR plus 1.50% subject, in the case
of the LIBOR rate option, to a reduction of up to 0.50% (50 basis points) if
certain financial ratios are met. In connection with this amendment,
approximately $400,000 of financing costs were capitalized and are being
amortized over five years. Loans under this revolving credit facility may be
used for general corporate purposes, acquisitions and approved investments. On
April 6, 1998, the Company entered into an agreement under which it agreed to
convert the $40 million U.S. denominated term loan to Pounds Sterling at a 8.32%
fixed rate of interest. In addition, the Company entered into an interest rate
swap agreement under which it agreed to pay quarterly a 7.42% fixed rate of
interest in exchange for quarterly receipt of LIBOR plus 1.50% on $15.0 million
of its revolving credit facility.
On April 3, 1998, the Company and the insurance company holding the Company's
$20 million aggregate principal amount of unsecured, senior notes entered into
the Third Amendment to the Note Purchase Agreement providing for an increase in
permitted subsidiary indebtedness from $3.5 million to $8.0 million.
On April 6, 1998, Atchison Casting UK Ltd ("ACUK"), a subsidiary of the Company,
acquired all of the outstanding capital stock, consisting of 76,987,733 ordinary
shares of capital stock, of Sheffield Forgemasters Group Limited ("Sheffield"),
incorporated in England and Wales, from the stockholders of Sheffield for
approximately U.S. $54.9 million in cash and 1,040,000 ordinary shares of ACUK
valued at U.S. $914,817. Cash acquired, in excess of related transaction costs
and on-going working capital requirements, was approximately U.S. $4.3 million,
resulting in an effective net purchase price of approximately U.S. $51.5
million. The 1,040,000 ordinary shares, consisting of approximately 5.0% of the
outstanding stock, of ACUK were issued to Sheffield management in exchange for
1,267,477 shares of Sheffield instead of the cash consideration. Sheffield
includes Forgemasters Steel & Engineering Limited, River Don Castings Limited,
Forged Rolls (UK) Limited and British Rollmakers Limited, among other operating
units. The companies' products serve a variety of markets and end users,
including
<PAGE>
steel rolling mills, paper and plastic processing, oil and gas exploration and
production, fossil and nuclear electricity generation and forging ingots. The
Company financed this transaction with funds available under its bank credit
facility.
Total indebtedness of the Company at April 6, 1998 was $102.1 million, as
compared to $28.7 million at June 30, 1997. This increase of $73.4 million
reflects indebtedness incurred of $18.9 and $54.9 million to finance the
acquisitions of Inverness and Sheffield, respectively. At April 6, 1998, $9.5
million was available for borrowing under the Company's bank credit facility.
The Company believes that its operating cash flow and amounts available for
borrowing under its bank 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.
<PAGE>
PART II
ITEM 1 - Legal Proceedings
NOT APPLICABLE
ITEM 2 - Changes in Securities and Use of Proceeds
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
2.1 The Offer Document from ACUK to the stockholders of
Sheffield dated April 6, 1998 (incorporated by reference
to Exhibit 2.1 of Form 8-K filed April 16, 1998)
2.2 Deed of Warranty and Undertaking in respect of Sheffield
and its Subsidiaries dated April 6, 1998 by and among
Phillip Montague Wright, Malcom Arthur Brand and David
Fletcher and ACUK (incorporated by reference to Exhibit
2.2 of Form 8-K filed April 16, 1998)
4.1a The Amended and Restated Credit Agreement dated as of
April 3, 1998, among the Company, the Banks party
thereto and Harris Trust and Savings Bank, as Agent
(incorporated by reference to Exhibit 4.1a of Form 8-K
filed April 16, 1998)
4.1b Pledge and Security Agreement dated as of April 3, 1998,
between the Company and Harris Trust and Savings Bank,
as Agent (incorporated by reference to Exhibit 4.1b of
Form 8-K
<PAGE>
filed April 16, 1998)
4.2 Third Amendment dated as of April 3, 1998 to the Note
Purchase Agreement dated July 29, 1994 between the
Company and Teachers Insurance and Annuity Association
of America (incorporated by reference to Exhibit 4.2 of
Form 8-K filed April 16, 1998)
10.1 The Share Exchange Agreement dated April 6, 1998 in
respect of the ordinary shares of Sheffield by and among
David Fletcher and others, ACUK and the Company
(incorporated by reference to Exhibit 10.1 of Form 8-K
filed April 16, 1998)
27 Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1998.
<PAGE>
* * * * * * * * * * * * * * * *
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: May 1, 1998 /s/ HUGH H. AIKEN
-------------------------------------
Hugh H. Aiken, Chairman of the
Board, President and Chief
Executive Officer
DATE: May 1, 1998 /s/ KEVIN T. MCDERMED
-------------------------------------
Kevin T. McDermed, Vice
President, Chief Financial
Officer, Treasurer and Secretary
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